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All-America Student Analyst Competition

Investing is an art as well as an imperfect science. The intricate juxtaposition of research, timing, incomplete information and John ­Maynard Keynes's "animal spirits" makes it difficult for even the most notable investors to return a profit, especially given the diffuse peaks and troughs of the economy over the past decade.

Surely then college, even graduate, students don't stand a chance. Don't tell that to Daniel McAllister, a 28-year-old MBA candidate at the University of San Diego School of Business ­Administration.

McAllister finishes first overall in the inaugural ­Institutional Investor All-­America Student Analyst Competition. A former intern and financial analyst at Jack in the Box corporate headquarters, McAllister is no burger-flipper. He admits to changing his notions about investing to better suit the competition, which ran from September 10 through January. Though a believer in value investing over technical analysis in the long run, McAllister addressed the short-term nature of the contest by adopting a strategy much more prevalent in investing today — he went algorithmic.

Participating Schools

State School
NY Baruch College/CUNY
NY Canisius College
PA Carnegie Mellon University
NY Cornell University
NY Dowling College
PA Drexel University
PA Duquesne University
CT Fairfield University
FL Florida Atlantic University
FL Florida International University
NY Fordham University
DC George Mason University
PA Lehigh University
CA Loyola Marymount University
NY Mercy College
NY Molloy College
MA Northeastern University
NY New York Institute of Technology
OH Ohio University
PA Pennsylvanie State University, Erie
TX Rice University
CA San Francisco State University
NY St. John's University
FL Stetson University
TX Texas A&M University
OH University of Akron
CA University of California, Berkeley
FL University of Florida
CA University of San Diego
TX University of Texas at Austin
TX University of Texas at Dallas
VA University of Virginia
KS Washburn University
OH Xavier University

Utilizing a very different strategy, University of ­ Virginia undergraduate Matthew Olfat constructed a portfolio that would make famed hedge fund manager and UVA alum Paul Tudor Jones II proud. Olfat, a 19-year-old systems engineering and financial math double major, took a macro approach, using exchange-­traded funds to play the broad market and go in and out of sectors.

The stark differences in background, strategy and execution of these top competitors stand to highlight the ongoing question of just what is the right approach for young people coming out of school into the world of finance and investing. As rapid-fire trading, as opposed to buying and holding, has taken over the professional world, finance students are forced to consider or reconsider what makes them valuable assets as they look to join the workforce.

The II All-­America Student Analyst Competition has provided an opportunity for students with a nose for investing to test their mettle against like-­minded participants from around the U.S. The investing platform, AlphaSeal, was created by Stamford, Connecticut–based Mark My Media and seeks to represent a professional trading environment. The cloud-based system creates a personal portfolio for each competitor, tracking the equity value, net asset value, and profits and losses on a daily basis, and marking to market all positions, as a prime broker would. To determine the overall ranking, II and Mark My Media compiled analytical data on six investment factors: net benchmark outperformance, volatility, balance sheet impact, net exposure impact, long alpha and short alpha.

Students started their portfolios with $100,000 each and had to follow Regulation T, the Federal Reserve Board rule designating a 50 percent margin requirement on initial stock purchases. They were then free to trade in any of the seven industry sectors — Basic Materials, Capital Goods/Industrials, Consumer, Energy, Financial Institutions, Health Care and Technology, Media & Telecommunications. The trading books were maintained in a dedicated server that sits in an SAS-70 security-­rated co-location facility similar to those financial institutions use.

Overall, 34 colleges and universities participated in this contest, totaling just under 700 students and covering the U.S. from the University of California, Berkeley, to Florida International University. The competition was open to both undergraduate and MBA students, offering a limited but notable view into the value of an advanced degree in finance.

Thirteen of the top 100 students overall come from the Zicklin School of Business at Baruch College/City University of New York, home of the state-of-the-art ­Wasserman Trading Floor. Drexel University in Philadelphia is second, with 11 competitors in the top 100, followed by the McCombs School of Business at the University of Texas at Austin, which has nine students who make the cut. Winners from all three are in undergraduate programs. Two MBA programs slot seven and six students, respectively: New York City's Fordham Graduate School of Business Administration and Cornell University's Johnson Graduate School of Management in Ithaca, New York. Seven of the top ten students overall are currently working toward their undergraduate degrees, as are 60 of the top 100, though, to be sure, a little over 70 percent of competitors are undergraduate students. A Bayesian inference analysis, a statistical method in which evidence is used to derive probability, shows that graduate student competitors were 9 percent more likely than undergraduates to rank in the top 50 overall or top five in any of the sector or factor rankings.

USD's McAllister made his first investment in the seventh grade. On the recommendation of his older brother, he bought a few shares of Sun ­Microsystems, and with the influx of web start-up business boosting technology share prices, found himself with several thousand dollars. An inexperienced investor, as most 13-year-olds tend to be, ­McAllister then watched it all disappear when the bubble burst. He was drawn to learn more about the markets. ­McAllister would go on to hone his understanding at the ­University of ­Minnesota, earning a bachelor's degree in finance and international business.

For the competition he settled on the health care and financial institutions sectors, assuming in part that these would be more volatile in the short term than the other sectors. These sectors, he figured, also provided decent exposure to companies of all sizes and trading volumes. McAllister handled the technical analysis, choosing the companies and managing the portfolio, while a former colleague at Jack in the Box, Adam Husein, built an algorithm to rank companies to consider.

The algorithm pointed to undue optimism in Celsion Corp., a ­Lawrenceville, New ­Jersey–based oncology drug development company. In mid-December, McAllister took action and shorted the stock, and on the final day of the competition, one of the company's drugs, ThermoDox, an experimental liver cancer treatment, failed a late-stage trial. The stock price plummeted over 80 percent on the day, and McAllister's bet paid off, securing him the top spot in the competition.

Rather than sifting through financial statements and price-­earnings ratios, UVA School of Engineering & Applied Science's Olfat, a Tehran, Iran, native who is on track to graduate a year early in the spring of 2014, took a more generalized approach, searching for a single sector of the market where he thought there would be a lot of movement. He settled on the financial services sector, which had taken a public beating after the 2008 crisis. He initially moved into the triple-bear finance ETF, Direxion Daily Financial Bear 3x Shares, to ride the wave of negativity. In the middle of the fall semester, Olfat reversed gears, trading the triple bear for Direxion Daily Financial Bull 3x Shares, reasoning that given the bad press the only course available to the sector was to advance.

"Especially after the crisis, the public tends to magnify any bad news about Wall Street," he says. Financial firms like ­JPMorgan Chase & Co., for all the negative press, are still relatively well run and continue to churn out profits, he notes. His deft moves help Olfat place seventh overall in net benchmark outperformance as well as second in balance sheet impact.

Investing is all about alpha, or market outperformance. Just generating market returns is akin to treading water; alpha separates the great investors from the good. To determine which students were best able to deliver it, we calculated their net benchmark outperformance by comparing their portfolio returns against that of the Russell 3000 Index.

By that metric, Chen Li of Fordham University's GBA outdistances the field. Li, 23, beat the benchmark by 1.29 percent a day, on average, with an incredible net portfolio return of 112 percent. The Beijing-born Li, who studies quantitative finance and technical analysis at the Bronx-based school, looked to take advantage of a very volatile market. He spends several hours a day following the news and markets, and used his insight to home in on Acadia Pharmaceuticals as a long position. Li scored big with a bet on the San Diego–based biopharmaceuticals company when one of its products passed through an important phase of testing in late November. This trade helps Li, who finishes 12th overall, earn the second spot in long alpha.

Manuel Cifuentes, 28, of Baruch's Zicklin School comes out on top in this category, riding penny stock EP Global Communications, an Irvine, ­California–based medical device manufacturer and marketing company. The stock was trading under 1 cent per share when Cifuentes, a finance major, picked it up and had risen to 4 cents by the end of January. The returns, though not large, were consistent for the Brooklyn-born student.

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