Banking & Finance

Pretend investing for fun

CFA Society’s annual competition is growing in popularity.

August 14, 2015
| By Pete Daly |
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Jason Balgavy would like all of his clients to know he will not invest their money in a risky biotech stock like Puma Biotechnology.

But Puma rose almost 213 percent in value over the past year, earning Balgavy the title of best picker of a hot stock in the annual investing competition held by the CFA Society West Michigan.

None of the contestants are actually buying the stocks they think are going to do well, and the contest is just for fun and laughs. So Balgavy, a senior investment advisor at PNC Bank in Grand Rapids, figured a risky long shot such as a small biotech company like Puma might defy the odds and shoot up in a year’s time. And so it did.

“It could just as easily have gone in the other direction,” he said. He said he picked Puma solely on the basis of it being in a high-risk business sector. In fact, at the time, he knew nothing about the company — not even where it was based.

CFA Society West Michigan’s umbrella organization, CFA Institute, is a global, nonprofit member organization of financial analysts, portfolio managers and other investment professionals, and the year-long forecast contest that wrapped up at the West Michigan society’s annual meeting in June was the 11th.

The contest challenges participants in three categories: a forecast on where the interest rate of 10-year U.S. treasuries will be a year later; a forecast on where the S&P 500 will be after one year; and stock selection.

Puma is a biopharmaceutical company based in Los Angeles, dedicated to acquiring and developing drugs for the treatment of cancer.

Another contestant picked OPKO Health and it came in second, growing by almost 95 percent in value over the year. OPKO, which has U.S. headquarters in Miami, is a multi-national pharmaceutical and diagnostics company targeting rapidly growing medical markets in pharmaceuticals, compounds and technologies. Acquisitions are a major focus.

Winner of the 10 Year Treasury Yield Forecast was Paul Nicholson of Macatawa Bank Wealth Management. Daniel Lupo of Norris, Perne & French in Grand Rapids made the best guess on where the S&P 500 would be in June 2015.

The winning predictors receive a plaque.

The stock picks are for the fun of it and not actual performance predictions the group’s members would find useful, according to Hunter Lewis of Legacy Trust, who oversees the contest. For the first 10 years, the contest was managed by Andrew Mason.

“The predictions are somewhat shortsighted,” said Lewis, noting professionals in the real world typically make investments over a much longer timeframe.

The 2015 contest started in late June 2014 and wrapped up at the end of May this year.

Lewis said the contest has snowballed, with more entries every year since it began. The first year only nine people entered; last year there were 47.

The CFA Society West Michigan has about 95 members, but Lewis said the contest has been opened up to non-members who attend the group’s meetings. Two of the three 2015 winners are members and hold the CFA — chartered financial analyst — designation.

In the stock prediction contest, one familiar brand name finished near the top: Avon, which grew in value by almost 54 percent. Rite Aid was another contestant’s guess; it grew in value by almost 22 percent. Further down the list was Ford, at 12.21 percent.

Balgavy, who is a CFA, noted if an investor had bought Puma stock much more recently — at the end of May — it would have subsequently declined in value by about 56 percent as of Aug. 7. He said some recent drug-trial results for Puma’s experimental treatment for breast-cancer have been somewhat disappointing, and the company has had to delay filing with the FDA for approval.

“The success or failure of this stock investment — as with many small bio-technology company stocks — hinges on the success or failure of the company to create and obtain FDA approval for some unique medical treatment. That really speaks to the ‘risk,’” said Balgavy.

Being a hot stock picker in the contest, the Business Journal asked if Balgavy could offer an off-the-cuff, informal view of the stock market at this time.

He said over the last nine or 10 months, the market has been in a “trading range,” reflecting the widespread uncertainty about when the Fed will start raising the interest rate. To do so now would be unique, he noted, because the Fed usually only raises the interest rate to slow down accelerating inflation.

“I think there is genuine concern the Fed is going to do something to derail the weak recovery we’ve experienced,” he said.

Right now, stock prices are “a little on the high side relative to earnings,” he added.

As the economy does appear to be accelerating somewhat, most of the economic data has been “pretty good,” said Balgavy.

“We are a little bit beyond historical averages for a correction,” he said, with a correction being typical every two years or so, and it being about four years since the last one.

“We’re six years into this bull market,” he added.

The 12th annual Investment Forecasting Contest is already underway as of the end of July, with the results to be tabulated after July 31, 2016.

Stocks entered in the stock prediction contest must be publicly traded with a minimum market cap of $250 million and a minimum price of $5 a share on July 31, 2015.

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