The Share Challenge: Students still in lead as they quiz boss of winning share

It was the potential culture clash that turned into a mutual admiration society.

It was the potential culture clash that turned into a mutual admiration society.

The boys from Moat Community College, Leicester, leading contenders in our three- horse share race, went to the City of London to quiz Brit Insurance, the Lloyd's of London insurer that is one of the team's top-performing shares.

Neil Eckert, Brit's chief executive, won them over with a slide-show presentation to make the case that there is good long-term value in the business.

Brit has so far defied the gloom that has settled over most of the insurance sector lately, due in large part to a recent decision to start paying dividends. At the current price of 79p and an estimated 2004 dividend of 7p, Brit shares are trading at a prospective yield of nearly nine per cent.

Claire Jackson, the students' business studies teacher, said it was an awe-inspiring visit for the 15-year-old inner-city schoolboys, who had had little prior experience of the City environment. "The trip gave them an insight into a world which they would not normally meet," she says. "They were amazed that the chief executive gave up time to talk to them." After touring the Lloyd's building, the boys, all Muslims, made history by holding their midday prayers there.

The three competitors in our Share Challenge competition are leaving no stock-picking strategy unturned in their relentless pursuit of profitable portfolios. The school team are all about short-term buying and selling, while the Lexar investment club turns to analysis and our fund manager, Sean O'Flanagan, sticks by his long-term growth plan. The trouble is that none of them has yet reversed losses or even matched the market.

The boys continue to command a dominant lead over the other competitors, down just four per cent, versus the fund manager's humbling 18 per cent loss and the investment club's troubling 23 per cent drop.

Most of the teenagers' outperformance is attributed to a steady diet of momentum-based trading: the team has little loyalty for most of their shares, often selling out at the first sign of weakness and using the proceeds to hop into other hot-ticket stocks. The method worked earlier in the competition, when the boys caught the tail end of rallies in shares like Safeway and HMV Media.

Unfortunately, though, the system has backfired lately. Investors, spooked by rate hikes and oil price shocks, are taking profits and pulling out of the expensive and hyped-up shares that the boys like to chase. Their losses in companies such as Avis Europe and Yell Group are testament to the risk of relying on past performance as a predicter of short-term growth, particularly in shares that were already looking overvalued to begin with.

The last-placed Lexar club trails the other teams with a loss of 23 per cent. Despite a massive spring-clean of their portfolio, where they ditched a bunch of perennial losers in place of a new crop of cheap and cheerful names, the team still has a lot of ground to make up for, especially after taking a 54 per cent loss in Bookham Technologies last month, when they sold at 76p. So it was a surprise to see the club buying back in at 60p last week. They think Bookham can't possibly drop any lower - but that's also what they said at 140p, 120p, 90p and the rest of the way down.

Lexar are committed followers of the Elliot Wave Theory, a technical system of analysis based on historic stock price movements, or "waves". There is money to be made if Bookham has in fact reached its low point. But the share is currently trading at a loss-making 57.5p.

After briefly falling into last place last month when his portfolio had sunk 25 per cent, Mr O'Flanagan has made a recovery. His current loss of only 18 per cent is still a far cry from the first-placed students. But he has remained unruffled during the market's recent mayhem, continually defending loss-making shares such as Acal, Harvey Nash and Morse Holdings as solid investments in the long term. His portfolio has shown the most improvement since our May review - up seven per cent. Not bad for a month's investing, but it is still too early to tell if Mr O'Flanagan's good news will continue.

* For up-to-the-minute details on the Share Challenge, or to find out more about starting your own virtual portfolio competition, log on to www.bullbearings.co.uk. The Share Challenge is being sponsored by Abbey Stockbrokers, who are launching a new discount sharedealing service on 28 June. Call 0845 600 1623 for details.