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Penny Grade

Are You Smarter Than A Fifth Grade Investor?

While I think I could ace a fifth grade English, grammar, history and geography test, I’m not so sure my math skills would set the bell curve on fire. And while we didn’t have an investing class in the fifth grade – I think I can safely say I wouldn’t have faired all that well.

It’s not that the world of investing wasn’t fascinating to me; there was after all an episode of The Love Boat that dealt squarely with that issue. And it’s not as if I didn’t read the financial section of the newspaper to impress my younger sister. It’s just that, in the fifth grade, I was either figuring out how to get my desk next to Kelly’s or I was excited about recess.

Fortunately not all fifth graders take after me; especially when it comes to investing. And even now, I am loathe to admit, there are savvy fifth graders that could invest me under the lunch room table.

Maybe that’s because fifth graders haven’t learned the art of making things complicated?

I was reading recently about a team of fifth graders at the Tullar Elementary School in Neenah, Wisconsin, who won a state-wide Wisconsin Stock Market Game; beating out all other students – even those walking the hallowed halls of high school.

The winning team took $100,000 of hypothetical money and doubled it, ending the 10-week contest with $203,000 in their portfolio. “It felt like a sugar rush,” said one wise student enthusiastically.

That’s as good a description as any. Though frankly, I’m not sure how it would feel to best the suits on Wall Street during one of the worst recessions in history.

What’s their trade secret? They’re not saying, but it’s interesting to note that their entire portfolio was financials. Of the 15 they invested in, 13 were profitable trades. Some of their winning picks included Deutch Bank, JP Morgan, Royal Bank of Scotland, and Barclays.

“What we did was just take a risk with the financials – it was beat up at the time,” said one 11 year old trader. “And we decided to take a risk and see if it would make money – which it did.”

Granted, the students didn’t just pick up their investing acumen by osmosis. The state trains teachers about the stock market using a guide called, “Learning, Earning, and Investing” from the National Council on Economic Education. From there, the teachers pass on what they know.

“The game introduces kids to the stock market and takes the fear out of it,” said Melissa Guzman, the program coordinator at Economics Wisconsin. “A lot of adults are afraid of the stock market too,” she added.

At a different school, Wisconsin’s Wall Street Wizards forsook financials and invested in the buy-what-you-use strategy. Their top-three picks were Texas Industries, Humana, and 99 Cents Only Stores.

Data mining, genetic algorithms, and correlation coefficients aside, when it comes to investing in large cap stocks or penny stocks, it’s paramount that you understand the kind of company you’re buying.

Having a good understanding of a penny stock company makes it easier to determine whether it poses a good investment opportunity. If you are familiar with their products and services, you know how they’re valued by their customers and how they make their revenue.

While none of the investments the Wisconsin whiz kids found were penny stocks, there are certainly a number of excellent penny stocks they could have used to buffer their portfolio. And or could still use – if they had enough hypothetical money kicking around.

Accelrys, Inc. (ACCL – Nasdaq) has been on a tear since the beginning of March, climbing 64%. The company has over $61 million in cash, no long-term debt, and it announced an upbeat outlook going forward.

Zarlink Semiconductor (ZARLF – OTCBB) share price has also been trending upward. In mid-April the company was trading for as low as $0.19, and on June 15 it hit an intra-day high of $0.66; for a two month gain of 247%. In late May the company announced that full-year revenue climbed 24% year-over-year and, according to the company’s CEO, in fiscal 2009, ZARLF “generated significant growth across all key product areas and strengthened its financial position, despite global economic challenges.”

At the other end of the spectrum is a penny stock whose share price has been trading unnecessarily flat over the last couple months. Norsat International Inc. (NSATF - OTCBB) is a profitable company with growing revenues, a solid cash position, no long-term debt and excellent long-term growth potential.

Even though the first quarter is usually the company’s softest, it still managed to report solid double digit revenue growth and its tenth consecutive quarter of profitability. In May the company said first quarter revenue increased 72% year-over-year; earnings were up significantly from $10,000 in 2008 to $800,000 this year.

While I may not be able to beat a fifth grader picking Blue Chip stocks, I’d be willing to give it a whirl with penny stocks. But then again, I think their teacher would be afraid to let them lose with penny stocks.

About the Author

John Whitefoot is a seasoned penny stock investor with a keen interest in international business and current affairs. John Whitefoot is Sr. Editor at http://www.pennystocks.com and is devoted to uncovering the news, trends, and ideas that affect penny stocks on a daily basis.

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