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How 13 Year-Olds Beat University Students at the Investing Game

The online news outfit Associated Press recently ran a story on Yahoo! News with a headline that read: “Fargo 6th-graders mop up against college investors.” It was a fascinating story for me and it showcased how young students in the U.S. were able to accomplish better investing results as compared to more-educated university graduates from renowned American colleges like Berkeley, Cornell, Columbia, and USC among others.

The article recounted how math teacher Dave Carlson was running investing classes using apps created by online investment companies for his 13-year old students in Fargo’s Oak Grove Lutheran School. And while Carlson was teaching the classes, one of the online investment companies was actually running a competition for universities’ investment clubs, offering a US$5,000 prize for the club with the highest profits. Carlson and his students weren’t aware of the competition till it was over.

Eventually, McIntire Investment Institute won with an 18.5% return. But had the Oak Grove kids sent in their entries, they would have walked away with the top-prize with their 22% gains. How did a bunch of 13 year-olds outsmart investment-club-worthy undergraduates?

The following excerpts from the Associated Press’s article, in my opinion, would sum up how the young students achieved their results (emphasis mine):

“…Carlson’s Math Minions centre on companies the students knew about with good track records. They did research and in most cases made solid investment decisions…

…While each student was allowed to make one stock switch, Carlson encouraged them to be patient with their selections. He believed the class came out ahead of the university challenge in part because the college students were looking for a quick buck.”

Point No.1: Achieving great investment results by investing with companies you understand

The stocks that the Oak Grove kids picked were in companies like Netflix, Starbucks, Under Armour, Facebook, Amazon, Google, and Priceline.com. While Starbucks, Facebook, Amazon, and Google would likely need no introduction for local readers in Singapore, the other three companies – Netflix, Under Armour, and Priceline.com – are some of the fastest growing companies in the United States with strong brand names specialising in online television delivery, athletic performance wear, and online travel, respectively.

The trend here is obvious: The aforementioned U.S. stocks were all companies that young, tech-savvy, and fashion-conscious students would be familiar with. There’s one of the most famous global coffee chains in Starbucks; an online retail giant in Amazon; the number one internet-search company in the world in Google; and a social media titan with more than 1 billion monthly users in Facebook. And more importantly, these are all companies with great business-momentum going for them with growing sales, profits, and cash flows.

So, what the kids have shown is that keeping one’s eyes open to the products and services you use daily can lead to potentially great investing opportunities. And, that’s not just an American phenomenon.

Shares like Breadtalk (SGX: 5DA), Raffles Medical Group (SGX: R01) and Starhub (SGX: CC3) are likely to be companies that many of us come across on a daily or frequent basis.

For instance, Breadtalk runs the famous Breadtalk bakeries and Din Tai Fun Chinese-cuisine restaurants – these are likely to be places frequented by Singaporeans. With Raffles Medical Group’s Raffles Hospital and 78 other multi-disciplinary medical centres and clinics around the island, it’s also likely that many Singaporeans would have come across the company and its healthcare services. Lastly, there’s Starhub, which would really need no introduction given its status as a mobile, internet, and cable television service provider here.

Over the past seven years since 9 Apr 2007, Breadtalk, Raffles Medical Group, and Starhub have delivered some nice gains of 264%, 168%, and 46% respectively. Meanwhile, the broader market, as represented by the Straits Times Index (SGX: ^STI), is still down by 6% at its current level of 3,208 points.

The aforementioned local and US shares are just  some examples of how great investment opportunities can often lie in plain sight. It’s something we should bear in mind.

Point No.2: Achieving great investment results by being patient

Carlson attributed part of his students’ winning performance to their patience. Thing is, it’s really no secret that having a long-term mind-set can do wonders for investors. There’s plenty of research and anecdotes showing how individual investors who trade the most end up performing the worst.

Over the short-run, the market can and often does move illogically and many attempts by market participants to pick up the tops and bottoms of short-term movements often fall flat.

Over the long-run however, the market tends to reflect the intrinsic business values of a share, and that is where long-term investors can prevail if they keep their eye on what’s truly important – the long-term corporate health of a share. In addition, history has also shown how the odds of success get stacked in an investor’s favour the longer he or she stays invested in the market. Carlson likely knew that, hence the urge for his students to be patient when investing.

Foolish Bottom-Line

The students from Fargo’s Oak Grove Lutheran School have shown that attaining investing success need not be a complicated affair. Ultimately, it can be as simple as investing in growing businesses that you are familiar with and understand, and then having the patience to hold on to their shares.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing owns shares of Netflix, Starbucks, Under Armour, Priceline, and Raffles Medical Group.