STUDENTS TRADE BOOKS FOR STOCKS

THE BALTIMORE SUN

LOS ANGELES -- For one semester, 12 San Fernando Valley students were told to act, think and invest like savvy Wall Street fund managers.

The stakes were high. These college seniors would be investing with $521,000 of real money as part of an exclusive investment class. Their client: California State University at Northridge.

With jeans and backpacks instead of pinstriped suits and briefcases, the 12 tapped the Internet and college library, read annual reports, analysts' write-ups and financial articles for research.

They met once a week and debated stock strategy, dissected company profiles and voted on a course of action.

The result from February to the middle of May? The value of their portfolio rose by more than 7 percent to almost $560,000. Not bad, even if it lagged the Standard & Poor's 500 Index by 4.8 percentage points.

"It's a very respectable return in such a short period of time," said Robert Blunt, manager of Fidelity Brokerage Services Inc. in the Los Angeles area of Woodland Hills. "Many funds don't track the S&P.;"

For Mitchell Dang, 23, the class was one of the most practical and useful he has ever had. It made him realize that it is foolhardy to bet on market fluctuations and taught him the value of long-term investing.

"My personal investment strategy changed a lot since I took the class," Mr. Dang said. "I was aggressive, bordering on speculation. It was in and out and make a quick buck."

The program began in the spring semester of 1993.

With $500,000 from the college -- previously invested in such low-risk vehicles as certificates of deposit and money market accounts -- the first 12 students in the program mapped a more aggressive stock strategy.

About 90 percent of the money went into individual stocks rather than mutual funds or other investments because they promised higher returns as well as a better educational experience for students.

The class was told to invest conservatively, so almost all of the companies in the portfolio were blue-chip firms such as Coca-Cola, Whirlpool and Campbell Soup. The fund included no technology issues, which have a potential of higher returns but also carry higher risk.

The students have done about as well as the university's other fund managers, said William Jennings, chairman of Cal State Northridge's finance, real estate and insurance department who started the investment class.

"I think they're doing very nicely," he said. "Many of them have not invested before. They have technical information but not practical experience."

In two years, less than half of the investments were changed, Mr. Jennings said.

The only action students took last semester was to dump the portfolio's only mutual fund, the Growth Fund of Spain, for underperformance.

After some debate, they kept the rest of the stocks.

"The market had gone up a lot. It was very hard to find good companies at good prices -- bottom line," Mr. Dang said.

Before joining the class, the students already knew a little about investing. All were required to have taken at least one investment course plus have knowledge in both macro- and microeconomics. They also had to have a grade point average higher than 3.0. The class's average was 3.4.

The program's two professors basically did not interfere with the decisions, but they had the power to override choices if these were not deemed sound. Financial advisers were invited to speak before the class, but were not consultants to the fund.

Students were left on their own to form investment choices. But they needed a two-thirds majority to act.

"It puts a constraint on erratic behavior, for right or wrong," said Joseph Buchwald, one of the finance professors in the class.

The students' grades were not based on whether they generated gains or losses. Rather, they were graded on their intellectual discussion of the stocks and their involvement in the decision-making process.

Mr. Dang said he brushed up on his technical skills only to find that instinct also counts in making investment decisions.

"Stock investing is not an exact science," Mr. Dang said. "There's a lot of intuition."

But he said he made a bad call in recommending that Cincinnati Milacron's stock be sold. He believed that the company wouldn't be able to compete well against its Japanese rivals. Most of the class didn't agree, and outvoted him.

During the semester, the company's stock went up 18 percent to 26 7/8 . The weak dollar helped Cincinnati Milacron's sales and hurt its Japanese competitors.

But the class blew it when it delayed buying Applied Materials, Mr. Dang said.

Chris Tucker, 33, recommended it to the class after reading an article about the company in Barron's.

He said the company, which is one of the biggest manufacturers of machines that makes computer chips, had grown quickly in the past two years after about 10 years of slow growth. Demand was up.

While Applied Materials had a relatively high price-to-earnings ratio at the time, more than 20, Mr. Tucker was convinced it was a good buy because of the growing computer chip industry.

The class sat on the stock for about a week. In the meantime, the stock price jumped from $55 a share to $72. The students then felt it was too high to buy.

"We missed the boat. We did not act quickly enough," Mr. Dang said. [But] "we were really skeptical. Here was a company with nothing really wrong with it. It reminded me of the Trojan horse thing."

Another company stock that came up was Microsoft.

While many agreed that it was a good company, the class voted it down.

"I voted against it because I thought there was too much hype for it," said Michael Rabe, 26. "I think Windows '95 might be

disappointing. It's good but might not be as good as people expect."

Some of Mr. Rabe's friends had obtained test copies of Windows '95, due for an August release. He said they liked it, but they weren't exuberant about it.

But he believes in technology stocks in general and would invest more aggressively if he were managing his own fund.

"I'm young," he said. "I can afford to lose it."

Copyright © 2019, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad
19°