Colleges Putting Stock Picks in Students' Hands

Of course, some funds creep along, and there have been train wrecks.

At the University of Arkansas business school, one of the first to have students invest, the initial $100,000 donation dropped to $40,000 in 1973 with losses because of the Arab oil embargo. "The fund also got chewed up with the last recession, [after] the dot-com boom," professor Craig Rennie said. But he said these funds are a strong argument for long-term strategies. "We have obviously more than recovered any losses," with three portfolios now totaling nearly $7 million.

"In some ways it's a really good exercise for the class to see a pick that tanks," said Donald Lindsey, GWU's chief investment officer. "When managing real money, a lot of it is going on in the face of adversity. We had students pick Cisco in spring '05. It did absolutely nothing," he said. One student wanted to sell it, but others persuaded the class to hang on, believing it was still a good stock. It climbed 25 percent in the first quarter, Lindsey said. "You realize you have to focus on the long term."

Spassova learned theory the previous semester in a class with a simulated portfolio and students competing for the biggest returns. It was completely different, she said, with fake money and people grabbing for skyrocketing stocks instead of looking ahead.

"We try to make this as real-world as possible," unlike theory-driven business school courses, said Ethan McAfee, who teaches the class with Lindsey. "These are the skills that help you get a job in the industry." McAfee is director of research at Ramsey Asset Management; both professors volunteer their time.

They teach the students to invest in companies, not speculate in stocks.

They divided the fund into sectors for students to specialize in; Spassova drilled into technology. "It's a class with no exams, but you do double, triple the amount of work," she said.

In a recent class, Spassova, 26, from Bulgaria, giggled a little over a drop in Motorola following an earnings report, then snapped into business mode. "That was expected. And Nokia just increased their prices. That may bring more volume to Motorola, and they may win in this market."

Students grilled one another, led by the professors, demanding price-to-earnings ratios, questioning cyclicality, asking for another look at those spreadsheets, details on volatility, lawsuits and a coming change in federal tax law. Then they voted on their classmates' picks, handing folded scraps of paper to McAfee to tally.

There's no shortage of theories about the funds that do well.

Some think turnover is good -- new students bring new ideas and keep things rolling along. Some say the format allows them to follow a few companies very closely.

Scott Hoover, who advises the student investment club at Washington and Lee University, said there's a saying that you'll never lose your job investing your clients' money in IBM. "Mutual fund managers tend toward picks that, even if they go south, people say, 'No one could see that coming.' " But students can't get fired. It's not that they make a lot of risky choices -- just that they're open to anything. "Somehow it works. I can't put my finger on it. If [Washington and Lee students] were just barely beating the S&P, I'd say this is random. But they're beating it by a wide margin every year."

Ramsey said Lindsey and McAfee have given good guidance.

It shows that hard work can pay off, Lindsey said, and that it doesn't have to be so complicated.

Just look at billionaire investor Warren Buffett, he said. "You don't have to have an exotic strategy to have a lot of success."

And it's easier to beat the index now, he said. "This is the type of market where if you focus on fundamentals and valuation, you can beat the market. It's a stock picker's market."

Last month Spassova watched as the fund dipped along with the market. But she's looking ahead, not worried, excited to start her own portfolio.

When the class ended this year, she said, the professors told the students that if they thought it was time to sell a stock they'd chosen -- or if they'd found a great company to invest in -- to please call.