High-Stakes Education

High-Stakes Education

high stakes educationIt’s a warmer-than-usual November day, two weeks from the end of the fall semester, and a group of undergrads is seated around a conference table in a second-floor Business Building classroom. The students, all finance majors save for one economics major, are engaged in an intensive discussion about portfolio diversification—specifically, what to do about a stock they own that has been losing money recently. As participants in the Student Investment Fund (SIF) class, these undergraduates are learning how to construct and manage a well-diversified financial portfolio. But unlike the stock market games many of us played as grade-school children, the money these students are working with is real, and today’s decision could mean the difference between making, or losing, thousands of dollars.

Leading today’s discussion is finance major Tom Conroy ’11, who is seated behind a Bloomberg terminal at one end of the table. Over the course of the semester, Conroy explained later, the group had set specific goals for itself in terms of portfolio diversification and the way money is allocated in the fund. It was clear that to meet those goals some of the fund’s stocks were going to have to be sold off. Conroy thought he had found the perfect candidate—Alcoa, an aluminum production company—and today was presenting his findings to classmates.

“Alcoa has been crushed recently,” Conroy announces to the group. He presents an overview of the company’s financials, and explains how the recession coupled with a recent decision by the European Union has had a negative impact on Alcoa’s business outlook. He then arrives at a key point: the group owns 400 shares of Alcoa, he says, which as of that day are trading at $10.91 per share less than what they had been purchased at. “The price won’t rebound to what we bought it at and we’re getting virtually no dividend here,” Conroy says. “We can hold the stock and hope, or we can find better uses for the money we have tied up here.”

When he opens the floor to discussion, his classmates pepper him with questions. How has the price of aluminum fared overall? What do Alcoa’s quarterlies look like over the last few years? Who is buying Alcoa’s products, and what’s the outlook like for those industries? Using the Bloomberg terminal, Conroy pulls up real-time financial data, which is projected on the room’s overhead screen, and answers these and other queries the group puts forth. The students examine, digest, and discuss the figures they see—then fire more questions at Conroy. The conversation is fast-paced, free flowing, and anything but linear. Yet if passersby were to stop and listen in in with no idea as to who was talking, they would be hard pressed to tell it was a group of undergraduate business students they were hearing and not professional fund managers in the boardroom of some financial services company.

That is exactly the experience the SIF class is intended to provide. The course gives students the chance to make actual investment decisions involving real money—in this case, as managers of an investment fund that was worth more than $170,000 at press time. The students make all of the buy and sell, asset-allocation, and risk-management decisions in an effort to maximize the fund’s returns.

Each semester, a new group of students takes control of the fund. Working with the securities and assets left behind by the previous group, the students propose new investments or suggest current holdings they feel the group should divest itself of. For any action to be taken though, a two-thirds majority vote is needed. So students must “sell” their classmates on the premise that their proposed course of action is in the fund’s best interest.

“This class is a great opportunity to learn the practical side of investing,” explains finance major Drew Hamilton ’09. “Most of my learning in other classes at TCNJ has been theoretical…. Here, I learn how to practically analyze a stock, present to the group why I think we should buy or sell, and persuade them to take action based on my research.”

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Once the SIF reaches $200,000, it will generate scholarships for finance majors.

“The students learn by doing,” explains Professor Herbert Mayo, who along with Assistant Professor Andrew Carver supervises the fund and co-teaches the course. “Memorizing concepts from a book can be a lot easier, but it’s not as much fun,” Mayo says. He and Carver attend each class meeting, offering advice and guidance as needed. They also serve as the go-between with Leo J. Kelly III ’97, wealth management adviser and first vice president of investments at Merrill Lynch, who executes all of the SIF group’s trades. But the students themselves call the shots pertaining to what happens with the fund. “We set the agenda, we do the research, make the presentations, and ultimately we decide what stays in the portfolio and what goes,” explains finance major Elizabeth Mazer ’10.

The class is the brainchild of Mayo, who raised the capital to start the fund. “I went out and pestered alumni and faculty to give,” he says, modestly neglecting to mention that, early on, he matched every donation dollar for dollar. (He continues to donate to the fund each year.) Since the SIF class was first offered in 2000, the fund’s value has grown through the investment decisions made by each group as well as continuing donations (see below). Given what has happened to the stock market over the last decade, it has been an up and down ride  for the student investors. “The fund’s returns have mirrored the market returns both on an annual basis and over the entire time period, [which] is essentially what you would expect,” Mayo says. Once the fund reaches $200,000, it will start to generate scholarships for finance majors.

That last point gives the SIF participants added incentive. “It’s a big responsibility,” says Kevin Sporer ’06, who took the SIF class during his senior year and now donates to the fund as an alumnus. “You leave a legacy of sorts through the investment decisions you make.”

Sporer is now an associate financial adviser for Ameriprise Financial Services, Inc., and says that his experiences in the SIF class have been a big help in his professional career. For starters, he says, “The class opened doors that weren’t otherwise available, such as getting interviews for trading jobs in New York City.” (Traditionally, only graduates of the top business schools get those interviews.) “The class was the main focus of every interview I went on after graduation,” Sporer says. “Interviewers saw that I had managed this fund and asked about my experiences.” Although he opted not to pursue a trading job after graduation, “The class gave me a strong base in finance in general that I now use on the analytical side,” he says. His day-to-day activities of conducting research, then consulting other advisers with that information, is precisely what the SIF class taught him to do.

Sporer remembered that during his days in the SIF class, removing a stock from the fund was always the hardest course of action to convince the group to take. “Figuring out when to pull the trigger—that’s a tough thing to determine, and I think a lot of students are hesitant to do it,” he says. Back in that second-floor Business Building classroom, Conroy is finding this out firsthand. Despite his persuasive argument, the group tables discussion of his proposed sale of Alcoa. Several members of the group say they need more detailed information on the industries that Alcoa is selling its products to, and what the outlook is like for companies in those sectors.

“I’m not surprised we didn’t take a vote today. I figured I’d need to come back with more information first,” Conroy says afterwards. Disappointed but not dissuaded, he says he still believes that selling Alcoa is in the group’s best interest. But working as part of a 15-person investment committee can present a challenge in and of itself, since you need to convince at least nine others to vote with you before any action can be taken.

“There are many different personalities at work, and sometimes it can be difficult to get things done,” Conroy continues. “If nothing else, this class is a valuable experience in terms of learning how to work with others.”

Invest in a finance major’s future by donating to the Student Investment Fund

The Student Investment Fund gives participants the opportunity to make actual investment decisions involving real money. Students in the class make buy and sell decisions designed to increase returns and improve the fund’s asset allocation and risk management. The fund was initially created by a gift from a faculty member and contributions from alumni, and when it reaches $200,000 it will start to generate scholarships for finance majors.

Tax-deductible contributions to the fund can be made through the College’s Office of Development and Alumni Affairs. Please indicate that your contribution is to be directed to the School of Business Student Investment Fund. For more information, contact Donna Green ’05, director of annual giving, at 609.771.3104 or green9@tcnj.edu.

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