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Daniel Coleman
Contrarian and creative investor, inventor, and career coach

Trade secrets

How 1 contestant made $3.6m in 60 days, I barely turned a profit, and 100 students lost money. 

Im ein kemach, ein Torah – without flour (i.e sustenance), there is no Torah.  (Pirkei Avot). This phrase from Pirkei Avot, suggests that our wealth and gifts are foundational to success in multiple areas of life and foundational to being able to learn and observe the Torah.

Last semester, student leaders at YU’s Sy Syms School of Business once again ran a 60-day challenge (using a platform called MarketWatch) with the goal of motivating their peers to learn new skills and apply them in the financial arena. 148 students from across YU’s colleges and majors participated – and me! (Thank you to the organizers!) I jumped 21 positions on the final day of the competition (having not traded a single stock in the final weeks) to finish with a very modest 2% increase in my $100,000 starting portfolio and achieve 49th place (out of 149). For those keeping score, this means that:

  1. Had the competition ended one day earlier, I would have ended up with a loss of roughly 6% (or $6000) and it was only because of a large fall in the market on the final day that I was able to eke out a profit due to my heavy short position (a strategy that takes advantages of a market drop).  If only the $2,000 gain would have been real, then I could have purchased enough mezuzahs and medications to fill up my suitcase for my upcoming trip to El Salvador!
  2. Two-thirds of participants made less than a 2% return, and the majority of participants actually had a negative return i.e. they ended up with less than they started with and would likely benefit from a lot more training in how to beat the market (particularly as some are forecasting inflation rates in excess of 6% this year).
  3. The top 5 students combined, made over 6 million dollars, approximately equivalent to 1% of the University’s endowment and amounting to an average of 100,000 per day over the life of the competition. 

Curious how they did it? I know I was. I reached out to several students for their tips and trading philosophy so that I could retire early and share with my readers. I also believe that the value of a competition like this is severely diminished if there’s no opportunity to learn from or about the competitors’ strategies.

Within minutes of emailing I got a response from the winning student, Henry (his real name) offering to meet. That in itself was impressive, and I deeply appreciated his candor and his charismatic presence as we sat in my office a few hours later. He described how his grandparents were in the steel industry in Ohio and that his family is blessed not to have to worry about finances. He has been learning much about the real estate industry and entrepreneurship through working with his mother in recent years, but it is his great-aunt who serves as his mentor for the stock market. With close to 7 decades of investing experience behind her, he credits her with his investing knowledge. 

When I pressed him for more details of his competition strategy, he shared that given the short time frame of the competition he realized that he needed to be bold and creative. He avoided trading any of the Fortune 500 companies and constantly looked at stocks that he’d never heard of that were on a meteoric rise for no apparent reason. These, he sold short and quickly started reaping the profits. Over 900 trades later, he led the 2nd place student, Isaac, by $1.5m.

Isaac was the only other student to profit in the millions ($1.93m to be precise.) In a phone call with Isaac, he credited a friend for helping him navigate the stock market and had also understood from the get-go that a big win would only be possible by taking on large risk and being on the short side. He placed a total of 448 trades over the course of the competition.

Had there been a prize for gains per trade, Jacob would have been the runaway winner of the competition. (Not that he can’t be proud of being #3.)  Finishing with a return approaching $220,000 after just 13 trades, puts his average profit per trade at close to $17,000. In an email to me he said that  “I knew that for the game the best strategy was to go big or go home, so I literally googled “best penny stocks” and went all in on the first one.”

Beating out 140 other students to land in the top 10, Hersel made 35 trades. In his words:  Since the competition was over a short period of time I had to rely mostly on short term trading techniques. The first thing I did was invest all my money into the S&P 500, which is typically a long term investment…before I knew what I wanted to trade, I wanted my money to make some kind of gradual gains. Then I started to follow the media, and identified a stock getting a lot of headwind as it shot up from around $15 per share to $100. I determined that it was mostly speculation so I ended up shorting the stock, which paid off massively.  His advice for others?  Just following the different internet trends and sticking to a backup plan of gradual growth, helped me slowly build up my portfolio.

The highest ranked female player, Rachel, differed from most of the participants in that she isn’t a business major, nor is she considering a career path in business or finance. She is a rising senior majoring (and aspiring to a career) in Computer Science, and minoring in Biology.  She attended Epstein Hebrew Academy in St Louis where they ran a Junior Achievement (juniorachivement.org) class and used investopedia for their stock market game. The class not only incorporated (simulated) investing that proved a good foundation for the Syms challenge and real life, but it also involved opening up a business and creating a budget. “I opened up a canteen and sold snacks and drinks.”  Most surprising to me was that she did not short any stocks and that “the stocks that did the best in my portfolio were Tesla and Microsoft.”  

With tech stocks being wildly overvalued, I’d personally consider this a very risky proposition i.e. a “buy high – sell even higher” strategy means your potential percentage gains are likely to pale against stocks/companies that are trading at or below fair value, and the downside risk looms large (i.e. if the bubble bursts, you stand to lose significantly, as anyone like me that started investing during the dotcom era knows only too well).  My own portfolio was heavily invested in Tesla and Apple – but on the short side, i.e. “sell high – buy low” which ultimately turned out to be a poor short term strategy. Rachel’s strategy had succeeded over the life of the competition, whereas mine had failed. (Hooray! Now I have something else to add to my list if I’m ever asked at an interview: Tell me about a time you failed.)

Whether or not you understood much of the espoused wisdom above from our students, here are 2 takeaways: 

1) As in life, there can often be different paths up the mountain – and different strategies to scale it. If your current strategy is not working for you, look for a new one.

2) A good guide can help you, whether it’s finding a mentor, paying an adviser, or simply signing up for Investopedia’s daily or weekly emails that help you build your knowledge of financial terminology. But as the old cliche goes, you have to be in it, to win it.

About the Author
A contrarian investor, career coach, and sought after speaker, Daniel Coleman has an MBA, several patents, and a unicycle. He is passionate about guiding students and (aspiring) professionals at each stage in their career, from discerning their career of choice to learning how to pivot and to negotiate their worth.  You can reach him at coleman 4 coaching @ gmail.com
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