Young investing pro touts the importance of research to generate long-term returns
Benjamin Franklin once said, “An investment in knowledge pays the best interest.” Luca Fasciano is getting a head start in investing. Now in eleventh grade at Paul D. Schreiber Senior High School in Port Washington, Fasciano pored over his research into the financial markets to build an investment portfolio geared for long-term financial success. Fasciano’s approach led to a thrilling achievement in the SIFMA Foundation’s Fall 2022 InvestWrite competition.
Fasciano competed among thousands of other students around the country to write the best essay about long-term investing and the capital markets in the high school division. Fasciano and his teacher, Jennifer Herber, were honored by the SIFMA Foundation during a virtual presentation on March 31.
SIFMA Foundation’s InvestWrite national essay competition bridges classroom learning in math, social studies, and language arts with the practical research and knowledge required for saving, investing and long-term planning. It also serves as a culminating activity for The Stock Market Game™, a curriculum-based financial education program that challenges students to manage a hypothetical $100,000 online portfolio of stocks, bonds, mutual funds and cash over a semester or school year.
SIFMA Foundation’s programs are proven to increase participants’ test scores in math and economics, encourage students to think more about budgeting and financial planning, enable them to work in teams to build their interpersonal social-emotional learning and better prepare them for college and careers. The SIFMA Foundation is committed to closing the opportunity gap by fostering greater knowledge of the financial markets for young people of all backgrounds, with a focus on underserved youth.
“I am thrilled to congratulate Luca, his teacher and their school,” said Melanie Mortimer, President of the SIFMA Foundation. “Through participation in the Stock Market Game and InvestWrite, Luca has acquired insights and gained confidence to embrace financial opportunities, research and make informed financial life decisions, and achieve better financial life outcomes.”
Fasciano is adamant about the need for research: “When selecting different stocks, bonds, and funds to invest in, it is important to first evaluate your goals and limitations. Whether it be long-term growth or high-risk high-return investments, it is necessary to make choices that will be conducive to your lifestyle and any obstacles you may encounter. Regardless of your objective, conducting proper research with trusted sources is a step that nobody can skip.”
The Fall 2022 InvestWrite competition presented the following challenge to fourth to twelfth-graders:
There are valuable research sources to help you make informed choices when developing your Stock Market Game investment portfolio. Discuss what you think are the most important things to research and use those to select a portfolio of stocks/bonds/mutual funds you think will be successful in the long-term. Explain why your selections will make good long-term investments.
Fasciano captivated the panel of thousands of expert judges from across the financial services industry with a thoughtful and insightful essay.
—Submitted by SIFMA Foundation
Winning Essay by Luca Fasciano
When selecting different stocks, bonds, and funds to invest in, it is important to first evaluate your goals and limitations. Whether it be long-term growth or high-risk high-return investments, it is necessary to make choices that will be conducive to your lifestyle and any obstacles you may encounter. Regardless of your objective, conducting proper research with trusted sources is a step that nobody can skip. Unexpected hardships in our lives are inevitable, and for those who don’t have the assets to employ a full-time fund manager or advisor, the blow of these events can be lessened via an abundance of websites, newspapers, blogs, and online market reports. Conducting ample research promotes calculated decision making and a solid understanding of the market as whole, catalyzing the growth potential your portfolio holds.
Proper market research means comprehending information presented from various sources. The typical stock quote contains an array of different ratios, predictions, and values. However a select portion of these hold higher significance to the evaluator. Some of the most important values include but are not limited to Market cap, Beta, PE ratio, Dividend yield, and the 52-week range. Market cap is the company’s valuation in terms of the sum of all shareholder stakes, and this determines the company’s classification as a large-cap or small-cap corporation. It is generally agreed upon that the larger companies tend to yield less return on investment than smaller. However they are often more reliable and offer lower risk since they are typically more established companies that can better manage economic volatility.
Beta typically consists of a number greater than zero and less than two. This number reflects the volatility of the stock relative to the general market (beta of 1). This is vital in determining the risk level of an investment. The P/E ratio, or price to earnings ratio, is used to determine if the stock you chose is a growth or value investment. Those with a PE ratio below 20 are usually regarded by investors as a value stock, meaning it is being traded at a price that is lower than industry competitors. The stocks categorized as “value” typically have a low valuation in relation to other data points like high dividend yields (routine guaranteed payments issued by a corporation to its shareholders), strong earnings, or increased sales. Stocks that have PE above 25-30 can often be labeled as growth investments, meaning that they can be predicted to provide returns higher than industry competitors despite their higher share price. In addition, researchers will find the 52-week range useful when evaluating whether or not it is a good time to invest or sell. When observing the range of a stock or mutual fund (a pre-selected group of stocks pertaining to a specific sector/industry), you can see if it is at its highest point and is a smart shorting option or sell, or a low point with potential growth based on earnings estimates or industry success. This is especially useful when an earnings announcement is upcoming, and resources such as Zacks and Investors.com can provide an educated prediction.
I am currently a high-school student with limited financial responsibilities, so I can take some risk. I have formed a hedge-fund type portfolio using these tools, which combines the benefits of long-term growth and stability with the potential of extremely high yields due to the extreme volatility of the current market. I’ve always stressed diversification, so my investment choices have varying market caps, volatility levels, and industries. I would first allocate 10% of my portfolio into VFIAX, an index fund that follows the S&P 500, a broad measure of the top 500 largest companies available for trade within the U.S. Funds that follow the S&P 500 have yielded an average return of around 14.5% per year. It holds a beta of one, as it is a reflection of the whole market, and has considerable risk involved in times of crisis like the early 2000s, 2008, and 2022 recessions. It has proven to recover from these circumstances with time. Indexes like Vanguard’s S&P add instant diversification to a portfolio as it consists of the majority of major U.S industries. I would allocate 20% of my portfolio to companies such as MFA Financials and Himax Technology, two small cap companies with little growth or decline but extremely high dividend yield rates of around 16%. In the bear market that is predicted to continue, dividends are a strong bet that you will receive a return. It is just a matter of balancing the payment to the overall decrease in value. Since the market is down this year it is important to be prepared for loss, so I would put 30% of my total portfolio into shorting stocks. For example, companies like Five Below that historically underperform on earnings dates would be a smart short option close to its release or oil companies such as Exxon or Chevron since gas prices continuously head downwards. With the remaining 40% I will go long, companies like Apple, Johnson and Johnson, and Visa, to divide into different sectors and attach onto companies that have devised several plans to avoid failure and will make a guaranteed comeback after the market as a whole heads back from failure. Large corporations like these often provide stability that can provide substantial returns if the investor can afford to keep their money in for long term periods (minimum of a couple years).
Modern technology and algorithms have provided the average person with an excess of resources, allowing them to grow their accounts and obtain more knowledge about what exactly it is that they are doing. My portfolio was catered to my lifestyle using the several different data points provided to me by the trusted sources, however this information can be interpreted and tweaked to fit any needs or limits. In an era where this information is at our fingertips, it is important we correctly value the information on the especially volatile market.