This year's Share Challenge competition is off to an explosive start, with the amateurs again proving they can beat the City professionals. After four weeks of trading, the Fairer Shares Investment Club, our novice stock-pickers from London, lead with profits of 4.4 percent. James Bevan, chief investment officer of Abbey, trails in a distant second with a loss of 0.1 per cent, followed by the pupil team from Leicester, with a loss of 1.1 per cent.
Now in its third season, the contest pits a group of students and an amateur investment club against one of the City's top stock- market experts in a virtual share race to see who can rack up the most profits over 12 months. The winner will take home a cash prize of pounds 2,000, sponsored by Abbey Sharedealers, the low-cost trading website.
In addition, this year we have expanded the contest so that readers can compete against the teams online for a chance to win monthly cash prizes (see below).
With sophisticated resources and decades of experience, the fund manager should breeze through the contest. But history has proved otherwise' two years ago, the student team won. Then there was a stunning victory last year from the Bucket & Spade Investment Club, which finished with profits of over 30 per cent.
This year, the Fairer Shares team is determined to continue the investment club winning streak. The members, who met in the IT department at the John Lewis department store in London's West End, formed the club three years ago to help them learn more about stocks and shares.
The club owes its success to a unique stock-screening system that helps scrounge out winning shares. Paul Dolman-Darrall, the club's chairman, says the system is based on "Garp", or growth at a reasonable price, the investment theory popularized by celebrated fund manager and stock picking whiz Peter Lynch.
"It sounds complicated but it's actually quite simple," says Dolman-Darrall. "We look for companies that have sustainable earnings growth over recent history, meaning they have sold more this year than last year and the year before that," he says. "At the same time the share has to be at the right price, meaning it can not be more expensive than the general market and must have a P/E [price- to-earnings] ratio that is less than the growth rate."
Carphone Warehouse is a good example of the Garp technique. The share, which has surgedmorethan13per cent since the team bought it last month, fits all the screening criteria, including double-digit growth over the past two years (25 per cent a year) and a P/E-to growth rate ratio of less than one (0. …