COLLEGE PARK -- The University of Maryland at College Park has given new meaning to the idea of hands-on experience: Graduate students were handed $250,000 of the business school's money to invest in the stock market.
And they've made money -- $15,332.85 as of yesterday -- a return of 6.1 percent since last May, according to results to be released today. Excluding brokerage fees, the portfolio gained 7.8 percent.
This isn't funny money; in fact, it represents a quarter of the cash in the business school's foundation, a million-dollar pool of private gifts from alumni, corporations and others.
"The foundation, of course, wanted to know what kind of structure we'd have . . . so we didn't have a bunch of kids going to Las Vegas gambling," said William E. Mayer, dean of the College of Business and Management. "They wanted my assurance that I'd keep my left eye open."
Whether the portfolio, called the MBA Terrapin Fund, made money or not, the six students involved in the project this year were assured of at least a commission: credit for one graduate-level business course.
"We're not getting graded on any kind of performance" of the investment fund, said Scott B. Schluederberg, glancing at his professor for reassurance. "At least I don't think so."
Maryland's business school is not the only one to use Wall Street as a lab for its students. Over the past decade, more than a dozen other schools across the country have opened their checkbooks for graduate students to play the market.
But at the Maryland business school, as elsewhere, school administrators have seen fit to build in some no-nos: No short-selling. No derivatives. No futures trading. The students can invest up to 30 percent in foreign stocks, not more than 10 percent in any one stock, and not more than 20 percent in any one industry.
To date, the student portfolio trails the Standard & Poor's 500 stock index, a common gauge of the overall stock market's performance, by more than 6 percentage points, excluding brokerage fees.
But the young Turks have an excuse: They needed time to figure out what they were doing. "One thing you have to remember is, this is a learning experience," said 28-year-old Wendy K. Moomaw, who acted as a securities analyst.
From early December to late February, half of the fund was in cash as the students decided what stocks to pick. Had all the money been invested, they insist they would have reaped a return almost equal to the S&P; index.
"We made a conscious decision to take our time and do it correctly," said 26-year-old Jeff L. Caples, who played the part of portfolio manager.
What came out of it is a balanced, diversified and conservative portfolio of 29 stocks and seven mutual funds, including a core of blue-chip stocks, foreign holdings and technology stocks, among others.
The fund, now worth about $265,332, is being held in three accounts: about $200,000 at Alex. Brown & Sons Inc. in Annapolis, $45,000 at Merrill Lynch in Washington and $20,000 at T. Rowe Price in Baltimore.
The students, now financial news junkies who tap into the Internet for the latest stock quotes, have made a killing in Fannie Mae stock, with a 29.04 percent return since December. But they took a big hit on U.S. Healthcare, a managed care company whose stock dropped 27.43 percent after the fund acquired 100 shares in March.
They took some moderate risks, such as investing in emerging international markets with Latin American interests -- but only after the Mexican peso plummeted and many such markets fell with it. And their March investments in two international mutual funds are turning a pretty penny.
HOT AND COLD
The MBA Terrapin Fund's best and worst performers among its current holdings:
DSC Communications +76.4%
ADC Telecom +56.4%
Fannie Mae +29.0%
Du Pont +27.5%
Idex Corp +22.9%
U.S. Healthcare -27.4%
Brinker International -19.1%
Barrick Gold -5.6%
Home Depot -3.6%
SmithKline Beecham -1.7%