Market Master's

Many colleges have been pleasantly surprised, Belcher said. While most investors have been distressed this year, some student-run funds have beat their benchmarks. For instance, the University of Virginia's $6 million Darden Capital Management fund returned -0.39 percent during the fiscal year ended March 31, said Patrick J. Connell, a first-year MBA student and chief investment officer of the fund. Yes, it was negative, but over the same time period, the S&P 500 was further in the red, returning -5.08 percent, Connell pointed out.

The $500,000 Frank Batten Investment Fund at the College of William and Mary's Mason School of Business beat its benchmark, the Russell 2500 index, by almost five percentage points, said Jim Haltiner, a professor of finance and the fund's faculty adviser. "Over this particular time period, the market went down a little bit," he said. "We went down less."

Why have they been able to outdo the professionals? The students and their advisers acknowledge that luck has a little to do with it. It also helps that they have more time to devote to their portfolios. And their decisions don't affect the market. If a big fund such as Vanguard buys shares of a company, it can actually drive up the price, whereas the students' decisions are "frictionless," said Eric Olesh, 28, the other portfolio manager at the Mayer Fund.

Frictionless, but not insignificant. The pressure to succeed is great, the students said, partly because they don't want to lose the university's money and partly because they know their performance is being judged by their professors and prospective employers. "They take it very seriously," said Haltiner.

So seriously that often their discussions get heated. Sometimes they last weeks. "If you lose one position in a portfolio, that's tuition for one year," Olesh said.

Sometimes the fact that they're young and relatively inexperienced has helped these students. Sometimes it has hurt.

The students running the Darden fund wisely invested in the fast-food chain Chipotle, which has performed well. "You see students lining up at the door. You know the stocks are going to do well," Connell said.

But popularity, said Belcher, is not always a good gauge for how well a stock will do. "There's a lot of things that are what I might call culturally relevant to them," he said. "They might say, 'We like American Eagle Outfitters or Abercrombie & Fitch because we like their clothes,' and that doesn't always make for a good investment strategy. You force them to go beyond the superficial and really look at the financials and the management of the company and say, 'Does this fit with our strategy?' "

What, then, makes for a good strategy? Here's what the students have to say: Diversify your portfolio. Take a top-down approach, analyzing the whole economy, then studying the sector. Once again, do your research. And in this age of domestic turmoil, consider some international stocks, or even diversify beyond stocks into exchange-traded funds or mutual funds. "It allowed me to sleep well at night even though the markets were getting killed," Song said.

That's not to say these funds didn't get nearly killed at times.

Ask anyone at the Mayer Fund what the biggest mistake was, and there is no hesitation: sinking 2.5 percent of the portfolio into Fannie Mae, which is chartered by the federal government to keep mortgage money flowing. Of all the firms that could survive the mortgage meltdown, Fannie Mae would have to be at the top of the list, they figured. But even Fannie has not gone unscathed. Since buying shares of the company, the Mayer Fund has lost about half the amount it put in.

Thinking it had too little money in financial stocks, the students also decided to invest more in companies such as Wachovia and Citigroup. They figured that the Federal Reserve would have to cut the overnight lending rate, helping the banks make more of a profit. But the credit problems have just been too devastating for financial stocks.

"We learned that we shouldn't trade around what the Fed is going to do with rates or any other particular event or what the 'smart money' is buying," Song said. "We should stick to fundamental analysis and make our investment decisions based on how well companies are able to execute their strategies and increase their intrinsic value over time."

Their best pick was Starwood Hotels and Resorts Worldwide, which returned 7.86 percent during the fiscal year.

They also made some good sell decisions. They got rid of Countrywide Financial before the lender imploded under the weight of defaults. They sold off Black & Decker when the company started showing the strains of the housing downturn. And they unloaded shares of Sallie Mae before the J.C. Flowers investment group rescinded its offer to buy the ailing student loan giant.

Some of those were lucky moves, the students acknowledged. Some were well-informed decisions. Either way, they're chalking up the year as a success. They made thousands of dollars for the school -- and they beat the pros.