FT stock picking game results: the unexpected triumph of fundamentals

The stock market is a cruel, capricious animal. Consider the example of Woody 5.0, a player in the FT’s new stock picking game.

In week three of the nine-week competition, they had the best-performing portfolio in the game. A week later they topped the leaderboard. And that’s pretty much where they stayed. They traded regularly but kept ahead of the pack, seemingly uncatchable.

Until about ten days before the end of the contest.

A couple of trades didn’t pay off and they slipped to fifth, then seventh. They made more changes. They rose a few spots. They brought in some investment trusts, then took them out again. They brought in airlines Wizz Air and British Airways owner IAG, and took them out too. They started to slide again.

They went back into microchips, buying shares in SanDisk, Advanced Micro, Intel and the SK Hynix ADRs (American depositary receipts) that they had sold off the week before.

Then they took their final roll of the dice: they kept SanDisk, sold the other three and bought Western Digital, Novo Nordisk, Mercado Libre and eBay. And they sank to 16th.

In the final 72 hours of the competition they lost 15,135 virtual pounds and, when the game ended at midnight on August 7, they finished in 387th place.

In his 40-year career in investing, fund manager Simon Edelsten has seen this kind of thing many times.

“It’s the sort of behaviour that bankrupted Barings,” he jokes, referring to the City of London’s oldest merchant bank, which collapsed in 1995 after rogue trader Nick Leeson chased mounting losses that ultimately hit £827mn.

“It’s the gambler’s illusion,” he says. “It’s that if you stay for one more spin at the roulette wheel, you’ve had so much bad luck it must be your turn now. Unfortunately, the gods of probability are not there listening.”

Thankfully, in our game, no one lost a penny. It was just a bit of fun — and heroic, reckless speculation was enthusiastically encouraged.

After all, no one ever won a stock picking game by buying good companies at good prices. Or did they?

Nearly 13,000 readers signed up to play the new game, which, unlike previous versions, allowed participants to trade stocks as often as they liked during the competition’s run.

And what a run it was.

“This nine weeks happened to encapsulate quite a significant turning point in the market,” says Edelsten. “I wouldn’t say the market’s quite gone from greed to fear — I think actually the equity market’s still quite greedy . . . but there was a beginning, middle and end.”

In the beginning was the SpaceX IPO, with its mind-bogglingly optimistic valuation. By the end, we were dealing with significant wobbles about the financing of AI linked to concerns about the bond market and inflation.

In the opening weeks of the competition, players ploughed their virtual money into Nvidia, Micron and Advanced Micro Devices, as the semiconductor boom reached its peak.

Then, at the end of June, Micron posted third-quarter earnings that some investors could scarcely believe: a 15-fold increase in profits and an adjusted gross margin that hit 84.9 per cent.

In the hours after the report dropped, Micron shares were trading at over $1,200 and chief executive Sanjay Mehrotra told investors that AI spelt the end of the boom-and-bust cycle that the memory chip sector is famed for.

The market was not convinced.

From that point, shares in leading memory-chip makers tumbled like a ball bouncing down a flight of stairs. By the time the competition ended, Micron’s share price was 28 per cent off its June peak, Samsung was down 32 per cent, and SanDisk was down 48 per cent.

And in the closing weeks of the game, with fears growing over the amount of money tech giants were spending on AI infrastructure, the market started the process of what Edelsten calls “separating the sheep from the goats”.

At no time was this more apparent than on July 29, when both Meta and Microsoft posted earnings reports.

With investors concerned over the Facebook owner’s high capital spending, its share price dropped 8 per cent the next day to its lowest point in four months. Not so with Microsoft. Owing to strong cloud and Copilot metrics, its shares surged by more than 15 per cent, increasing the company’s market cap by nearly half a trillion dollars in a single trading session — the largest one-day gain in US history.

And all the while, quietly at first, software-as-a-service stocks such as Adobe and Salesforce that the market had seemingly written off in the so-called SaaS-pocalypse slowly started to climb in value.

Some players embraced the ability to trade to great effect. A player called DeviT nearly won the grand prize when, in the last week of the competition, they bought Palantir the morning before its share price shot up 30 per cent. They were catapulted into the top slot — but faded in the last 48 hours to finish fourth.

When Mikey K, a retired civil engineer in his mid-sixties, noticed he was approaching the final week of the game in the top 20, he went hell-for-leather to finish as high as he could.

Until this point, his portfolio mostly consisted of insurance and construction firms. In came AstraZeneca, BP and McDonald’s.

“Then I had a wild punt in the last two days,” he says.

After releasing earnings on August 4, SpaceX shares dropped to $108 — 20 per cent lower than the company’s IPO price — and this was just a few days before its first major lock-up period expired and more than 900mn shares were free to flood the market.

“I think at the time you said in your newsletter that no self-respecting player still owned SpaceX,” says Mikey K, helpfully reminding me. “But over the years I’ve picked up that the market overreacts all the time. So I thought: there’s a chance this could come back.”

And he was right. In the last 48 hours of the competition, SpaceX shares rose more than 23 per cent, giving Mikey K a late surge and allowing him to finish inside the top 10 at number nine.

Some players — and I suspect more than would freely admit to it — used AI to help construct their portfolios. Among them was Nadine Graville. The 56-year-old from north London had never invested before but, inspired by her son, a university student interested in AI and planning to go into finance, she thought: why not?

She used the Perplexity chatbot to help pick her stocks, which included Rolls-Royce, Bunzl and Robinhood. And, frankly, she couldn’t believe what happened next.

Her portfolio shot out of the traps, gaining 18 per cent in the first week. For most of the first month she was in the top 30, and once even got inside the top 10. “When I showed my partner, who works in [finance], we thought it was hysterical,” she says, laughing.

Unfortunately, after a few weeks, the wheels came off. “Obviously,” she says, “my failure was SanDisk.”

Because she had asked the chatbot to select stocks that it thought would perform well over the game’s nine weeks, she chose not to make any changes — something she says she’ll do differently next time. In the last few weeks of the competition, she plummeted, finishing in 2,276th place.

Still, Graville says she can’t wait for the new game to start in October. “I am 100 per cent going to do it again. I’m going to do some different tactics and see if my AI skills will get me a better result next time — and maybe even a prize.”

So who did win? Step forward Swapnil Ingole. The 40-year-old Co-op store manager from Surrey beat 13,000 players to win the game, with a portfolio that grew by more than 36 per cent.

In the article that launched the competition, FT writer — and stock picking game enthusiast — Bryce Elder encouraged players to “gamble like a degenerate” and focus on high-beta (volatile, higher-risk) stocks. He wrote: “Fundamental analysis can’t reliably deliver returns big enough in the window available.”

Ingole chuckles. “I skipped that advice,” he says. “I went into the fundamentals.” His stocks were all low-beta — some with scores less than one, meaning they have lower volatility than the wider market. He bought five stocks (the minimum number under the rules), gave them an equal weighting and made zero changes.

“Jumping in and out [of stocks] is one way to kill your portfolio,” he says. “The other is to overdiversify.”

Originally from India, Ingole moved to the UK in 2008. In 2016, he started day trading after following several “gurus” on YouTube. It did not go well.

“I lost quite a lot of money during those three years,” he says. “And then I realised — I wasn’t investing, I was just gambling.”

So he stopped and read up on what the best investors in the world did. That’s where he came across Warren Buffett. “I wasn’t much of a reader before, but after that I started reading quite a lot. I spend almost four or five hours a day reading now.” He started following Buffett’s principles, he says, investing in proper stocks, in companies whose business he could understand, building a portfolio mostly of small- and microcap UK stocks.

After making some money during the pandemic, he sold some shares and put the deposit down on a house.

For the game, though he was limited to larger-cap stocks, he retained his approach by assessing the fundamentals.

He picked software stocks Adobe and Salesforce. “With everyone moving to AI, they were really good valuations,” he says. Adobe — which he has in his real portfolio — has an 89 per cent gross margin, high free cash flow and strong return on invested capital. When he bought it, it had a trailing price-to-earnings ratio of about 11, roughly 70 per cent lower than its five-year average. The share price was $197. By the end of the game, it had grown to $265.

The other three stocks were Accenture (another he owns in real life), up 38 per cent before the end of the game, Cognizant, up 42 per cent, and Microsoft, up 34 per cent.

Ingole started later than some of the other players and began slowly. But as the rotation out of AI gathered pace, stocks like Adobe, Salesforce and Accenture started recording strong gains; then came the bump from Microsoft.

“Once a stock goes up like that, you are tempted to sell,” he says, but he tried to forget about it. “As with my own portfolio, I try not to log in very often, otherwise you’re tempted to do something silly . . . I learnt that the hard way between 2016 and 2019.”

“Now I just buy it and leave it as it is . . . ” he says, before channelling legendary US investor Peter Lynch, “or until the story changes.”

Registrations for the next season of the game open on September 21.