Students’ portfolios fare better than markets
Despite today’s volatile markets, USC student investors are faring better than most. Students in portfolio management seminars say the economic crisis has not stopped them from putting money into a wide range of securities.
In the last school year, one fund in the graduate-managed Student Investment Fund saw a return of 34 percent, while the Undergraduate Student Investment Fund had a return of 12.99 percent, according to a Marshall press release. Both performed better than the Standard and Poor 500 Index benchmark standards.
Mick Swartz, an associate professor of clinical finance and business economics, said market turmoil should not deter investment.
“People tend to be motivated by shorter-term time horizons,” said Swartz, who has taught FBE 453 and 553: Applied Portfolio Management. “They look over the next year and it doesn’t seem like a good outlook, so they tend not to invest.”
This is a mistake, according to Swartz. Through hands-on experience in SIF and USIF at the Marshall School of Business, students have learned a central tenet of investment: Timing is not everything.
Part of the philosophy behind Marshall’s investment practicum is a simple one: Invest real money. Lose real money, or get real returns.
Though investment classes abound at business schools, not all allow undergraduates to manage $600,000 and graduates to manage $4.5 million of the university’s endowment money. SIF co-manager Teige Sullivan, a graduate student studying business administration, said the real stakes heighten his care.
“We have a fiduciary responsibility to the endowment dollars,” Sullivan said. “[Strategy] depends on the individual’s investment thesis, but since it’s real dollars, we take the utmost care in investing it.”
Sullivan advocates choosing high-dividend, non-cyclical stocks during economic downswings to maximize cash in hand. Another safety measure suggested by Bill Nugent, a workplace planning and guidance consultant at Fidelity Investments, is portfolio diversification. Nugent thinks young people need to not be so risk-averse, however.
Meixi Chen, a senior majoring in business administration and international relations who is one of 12 USIF managers, said the experience is instructive because it relates to theory learned in the classroom.
“What I learned most is definitely how to correlate investment to the macro economy,” Chen said. “Knowing the correlation opens my eyes and makes me want to take more economics classes to focus on the broader picture.”
Chen also said co-managing USIF has taught her which stocks to favor during recessions. Though technology and industrial companies might fluctuate in hard times, Chen said, defensive sectors such as consumer staples and health care prove resistant to the market’s fluctuations.
Kevin Finn, a graduate student studying business administration, co-manages the California Small Cap Fund, one of the five SIF funds. He said the main hurdle to investing is not the current market situation, but the restrictions that come along with the portfolio. His particular fund cannot invest in a company with a total stock market value more than $5 billion.
“I think it’s a challenge a lot of portfolio managers deal with,” Finn said. “You have investment mandates — you have to find stock that fits those mandates.”
Aside from USIF and SIF, the Value Investing Group at USC also seeks to educate students about value investing using personal funds. VIG co-president Kevin Swick, a sophomore majoring in business administration, said members follow Benjamin Graham, a prominent 20th-century economist, and Warren Buffet’s chairman and CEO of Berkshire Hathaway, Inc., value investing principles to take charge of their own investments. Since Swick used his own high school graduation money, he has learned to manage his investments judiciously.
“I research the stocks that I’m going to buy more thoroughly when it’s real money,” Swick said. “I make sure that everything in my checklist is met rather than making speculations.”
Students involved in the stock market generally agreed that company quality comes first when investing real money. As Swartz pointed out, people often place too much importance on a company’s growth and not enough on the actual value of a stock.
According to Nugent, there is no reason college students should hold off learning to invest.
“The most powerful tool young investors have on their side is time,” Nugent said in an email. “Starting young means having more time for your investments to be in the market and potentially grow — and you have the benefit of compounding on your side, which can be powerful. And starting young means you should be able to recover from a market downturn.”
Correction: An earlier version of this headline misused the word “fair.”