MIT students recently proved that they can not only play the stock market, but they can beat other university investment teams. The MIT Sloan Investment Management Club, led by second-year MBA students Hunter Dray and Tarit Rao-Chakravorti, participated in a friendly investment competition last semester and came out on top. The Peeptrade University Challenge ran from October 3–December 2 and included other top university business schools like Tuck Dartmouth, Princeton University, and London Business School.
The competition involved each team managing a $10,000 portfolio—funded by Peeptrade—and trying to beat the S&P 500 over a two-month window while maintaining low tracking error. In the end, the Sloan group ended up with a 2.53 percent return vs. SPY with the second-place team ending at 1.91 percent. The competition also included a culminating event in Chicago in which each team presented to a panel of judges to explain and defend their investment strategies.
How did they do it? They can’t reveal all their secrets but they have five key tips that will boost success when investing in the stock market.
1. Invest in what you know. In uncertain times, pick companies or countries where you understand the business models and broader environment—economically and politically.
2. Be risk-aware. Don’t be seduced by skyrocketing markets, make sure to keep a portion of your portfolio in “safer” assets.
3. Diversify. It’s a big world out there—exchange-traded funds (ETF) and lower trading costs have made a broader set of assets available to the average investor; take full advantage and ensure your portfolio is well-diversified.
4. Get what you pay for. Fees, whether for mutual funds or ETFs, can eat into your returns. Be sure you understand the fees you are paying and ensure you are getting your money’s worth.
5. Be skeptical. At a time when many things are uncertain in global markets, be skeptical of any company or anyone claiming to have it figured out (even if they are from MIT!)
“We were excited to be part of the competition and thrilled to win against very strong competition from many great programs,” says Rao-Chakravorti. “Our strategy relied on what’s known as a ‘core-satellite’ approach, where we had a low-risk ‘core’ to the portfolio, while taking on more risk in individual stocks on which our portfolio team had done deep research. These stocks ranged across a number of industries, from daycare centers to RV producers to pharmaceutical giants. This unique combined structure, along with our rigorous risk monitoring and stress testing, helped to differentiate our approach from more traditional stock pickers or exclusively low-risk quantitative approaches.”
The MIT Sloan Investment Management Club is comprised of nearly 200 Sloan students and alumni and is supported by investment club alumni mentor, Telis Bertsekas ’91, MBA ’97.