They don’t have a Quotron machine to keep track of current stock prices. They don’t get insider tips. They don’t even have MBA degrees-not yet, anyway. But when the students in Finance 7193 at TCU’s M.J. Neely School of Business speak, E.F. Hutton ought to be listening.
“We may be amateurs,” says MBA student Mike Wysong, “but our intuition is pretty good.”
Each year since 1973, senior undergraduate business majors and second-year MBA students taking the class have been running the William C. Conner Foundation Educational Investment Fund. Although they earn course credit for this work, their interest in the subject is more than merely academic. At year’s end, total assets of the fund exceeded $1.1 million.
With a minimal amount of faculty interference, the students invest the money as they see fit. “Overall, they do quite well-I would not say spectacular but always competitive with the professional money managers.” says finance professor Stanley Block, who helped create the program. “I’d say more often than not, they outperform professional money managers.”
Then the market crashed in October, and the Educational Investment Fund was thrust into the limelight. In the course of the disastrous week following Black Monday, the fund lost about $163,000. The students were ecstatic. While the rest of the market was plummeting 23 percent, the value of the fund fell 11 percent. Only a handful of funds performed better. The students looked like wizards. Even The Wail Street Journal came calling.
The key to the fund’s relative success was the students’ decision in the fall to take a sizable chunk of their money out of the stock market and bank it as a hedge against a bear market. “Even though the bull was going at that time, we thought something was happening,” says current fund administrator Angela Rice. “We didn’t think the market was going to crash, but we were afraid of it.”
The Conner fund, the first of its kind at a major university and still among the largest in the country, is often a primary reason that business students choose to attend TCU. The competition to get into the class charged with running it is intense: only top students dare to apply, and fewer than half of them are accepted. Once they get into the class, the workload is immense. Each student is required to produce in-depth analyses of two securities and then recommend a course of action. Grades are based primarily on the merit of these papers, not on the subsequent performance of the stocks themselves. Buy and sell decisions are made by majority vote of the students.
During the spring semester, Rice says the fund will avoid highflying growth stocks in favor of intellectually duller, but safer, investments. “We all seem to be slightly bearish for the next year or so,” she explains. “We’re probably going to be increasing our income stock position and getting into defensive-type stocks that will be the best investment in a bear market.”