Students beat the bear market
At PSU, a portfolio rises above professional investors' expectations
An investment class that manages a real-money portfolio of $113,000 at Portland State University's School of Business Administration is quietly beating the pros at their own game.
'The joke among our members is that the students are outperforming most of us,' said Doug Johanson, president of the Portland Society of Financial Analysts and a principal with Vista Capital Partners, a Portland investment firm.
The financial analysts society provided the seed money for the student portfolio.
The reason for the students' investment success may have something to do with the unconventional backgrounds that most bring to the class.
They are typically in their 30s and returning to school after working for a decade or more. Few majored in business or finance in their undergraduate days or worked in the financial services industry.
'Our students come from lots of different backgrounds Ñ we have international exchange students and people who have worked in engineering, technology, health care and the public sectors,' said Rick Watson, a graduate of the program himself who now co-teaches the course with John Settle, professor of finance at PSU.
'They bring a lot of enthusiasm and a fresh perspective to choosing stocks,' he added. 'They have a willingness to look at new things and hold onto stocks even if they don't immediately take off. The finance industry often has a cookie-cutter approach, and most of the people who take the class come in without that baggage.'
'Most of us are green enough to be interested in everything,' said Karen Pruett, one of the students. 'We're not jaded and are perhaps a little more observant,' she added, referring to the difference between the students and professional money managers.
The student-run portfolio was launched 5 1/2 years ago with a $50,000 gift from the financial analysts' society, which has made several subsequent gifts. Despite the long bear market, the portfolio grew to almost $113,000 in value (including cash) as of the end of 2002.
The performance put the class in the top 1 percent of large-cap money managers and in the top 7 percent of all those in the universe of money managers tracked over the same time period, according to data compiled by R.V. Kuhns and Associates, a local investment consulting firm.
The goal of the society's gift to PSU was to 'give students a real-life opportunity to manage money and make buy-and-sell decisions,' Johanson said.
New careers launched
Watson, 38, now a vice president with the private bank division of Bank of America, is representative of those who have taken the class. Although he majored in economics as an undergrad, Watson then traveled the globe, working in the publishing industry in Japan and at a ski shop in Colorado before returning to the Northwest to study at PSU.
Pruett, 44, who in her earlier life was a building inspector in the San Francisco Bay Area, is pursuing a second career and hopes to graduate with a B.A. in finance next spring. She's now an administrator with Jefferson Investments Management, a local firm.
Peter Shumway, another student, is a product marketing manager for Tektronix Inc. Raised in Georgia, he graduated from the U.S. Naval Academy and was a helicopter pilot in Somalia before settling in the Pacific Northwest nine years ago.
He thinks one reason the students in the class have done so well with their investments is their inexperience in portfolio management, noting that his background is in the business side of engineering.
'If you're ignorant, you just don't know how it's done in the real world,' said Shumway, 38, who credits 'the excellent oversight of the professors' for helping the students arrive at sound investment decisions. 'They always chip away at the holes (in my arguments) and are never afraid to ask those second and third questions that expose what I haven't thought about,' he said.
Managers take turns
Shumway cites another reason for the portfolio's success: A new crop of student-managers takes charge of the portfolio every six months.
'They are completely unbiased and don't have any emotional attachments' to stocks that might have subpar performance, he said. Professional money managers, by contrast, often have a tougher time selling their losers.
'For them to pull the trigger on a stock means they have to admit they've made a wrong decision in the first place,' he said.
The class also offers a textbook lesson in the value of community give-and-take. A dozen or so professionals from Portland's investment community serve as guest speakers and regularly stop in to talk shop and discuss work opportunities in Portland's finance industry.
The talks evidently have had a positive impact. For one thing, the student-run portfolio has outperformed Standard & Poor's 500 Stock Index ÑÊits benchmark Ñ in the latest one-, three- and five-year periods, garnering it several awards in business school competitions.
And of the 85 students who have had a hand in managing the portfolio, at least a dozen have taken jobs in Portland's financial sector with such organizations as U.S. Bancorp Piper Jaffray, Columbia Management Co., R.V. Kuhns, Allen Trust Co. and Ferguson Wellman Capital Management Inc.