Taking stock in the real world

8/17/2009 - Steve Griffiths ’09 thought he was making a safe investment decision during the fall quarter of the Asset Management Practicum.

The student portfolio manager was so excited and optimistic about a utilities stock that he pitched it to his team. So the team decided to invest, only to see the stock plummet quickly soon afterward.

It was a disappointing loss. But Griffiths and his team gained something important: hard-won wisdom and a new perspective on investing.

The practicum’s advisory board members “are not only philanthropically engaged. They want to be more deeply involved, giving their time and intellectual capital,” says Robert Korajczyk, the Harry G. Guthmann Professor of Finance, who co-teaches the practicum.

Photo © Nathan Mandell

“To hone my investment intuition, the practicum has been very valuable,” Griffiths said. “One of the lessons learned was to focus on the really important four or five things that make it a good or bad stock.”

The Asset Management Practicum is one of the Kellogg School’s many experiential learning courses. Over a four-quarter sequence of classes, students manage about $2 million of the school’s endowment.

Students are divided into several fund teams, with two to four student portfolio managers per fund. Other students serve in the roles of traders, industry analysts and quantitative analysts.

Each fund has four to five “shadows” — first-year practicum students, each of whom work with the portfolio managers to research stocks and make decisions on the portfolio’s investments.

Each team determines its own management style. For example, one team this year implemented a point system. Each member rated a stock, and only those with the highest ratings were considered for investment. Another team ruled that both portfolio managers must agree on every transaction decision.

“One of the great things about the practicum is that everyone has a unique view on investing,” said Michael Tyree ’09. “It’s a great learning process.”

Students also hear from guest lecturers from the investment field. This year, business leaders Louis A. Simpson, president and CEO of Capital Operations of GEICO Corp., and Sam Zell, chairman of Equity Group Investments LLC, were among the guests who shared insights with the students.

In April, the student portfolio managers met with the practicum’s advisory board to discuss their funds’ performance over the year. The advisory board is made up of investment professionals, most of them Kellogg alumni, who have donated to the practicum’s fund. The bi-annual meeting gives the board a chance to hear students’ thoughts about the course and allows them to share their real-world knowledge.

This year, Michael Mauboussin, chief investment strategist at Legg Mason Capital Management and author of More Than You Know: Finding Financial Wisdom in Unconventional Places, shared his insights with students during the meeting’s annual dinner.

“With the Asset Management Practicum, they can connect all the things being taught with their previous experiences and get a start at taking a look at the investment management business,” said Stuart Goode ’66, an advisory board member. “It’s obvious that the students worked hard and are learning a lot.”

Goode is among eight board members regularly sharing insights with the class. “The board members are not only philanthropically engaged. They want to be more deeply involved, giving their time and intellectual capital,” said Robert Korajczyk, the Harry G. Guthmann Professor of Finance, who co-teaches the practicum.

The returns on the practicum’s four portfolios all exceeded their benchmark portfolio this year; still, each of the funds suffered losses. That brought the real- world recession that much closer to the classroom, students acknowledged.

“It’s been a great learning experience, and especially in this market, it’s been kind of humbling,” said Perry Vickery ’09. “I’ve learned that just because it’s a good business, it doesn’t mean it’s a great investment.”