It’s Thursday night and 15 Chapman business administration students sit at computers, some wearing sweatshirts and sweatpants, one sporting tropical parrot-printed shorts and a baseball cap. While it may look like any other night class, it’s anything but ordinary. These 15 students manage part of Chapman’s $322 million endowment.
The portfolio management and analysis class (FIN 431) makes investment decisions regarding the Student-Managed Investment Fund, which was established in November 2009 with $1 million of the university’s endowment. Eight years later, the sum has doubled and in spring 2017, was valued at $2.3 million.
The portfolio class is an upper division elective for business administration majors who earn a grade of a B or higher in the investments class (FIN 421). Professor Fadel Lawandy, a Chapman ‘99 alumnus, has a background in finance and real estate and teaches the course every semester. While the investment class is mostly theoretical, the portfolio class gives students real-life experience.
“It was real money that you were dealing with and managing, so it added more pressure,” said senior business and computer science major Antoine Canaan, who took the course last spring. “You don’t want to be the class that lost money to the endowment, you want to be the one that makes the most.” Lawandy completes the weekly transactions, but the students make recommendations and vote on changes to the portfolio mostly autonomously.
“He doesn’t make decisions for us, he doesn’t really give his own take on something but he kind of leads us to talk about what needs to be talked about,” said Jake Davidson, a senior business administration major, who is in the class.
Every year, the students go into a meeting with the Board of Trustees to report on the results of the fund. From February 2016 to February 2017, the Student-Managed Investment Fund made 2.05 percent more than the market, measured against a blended benchmark, which is a weighted average of multiple benchmarks that represent the different asset classes the portfolio is in, Lawandy said.
The class uses certain valuation techniques to make decisions about stocks, Davidson said.
“We look at a (discounted cash flow) model which is a way of getting a ballpark number on what a company’s stock will do in its price. A lot of it is going into a company’s balance sheet and seeing what they’ve been doing and seeing what we think is going to happen,” Davidson said.
Senior business administration and economics major Alan Peterson took the class last semester and said that investing is fast-paced and the research requires looking at other factors besides financials.
“There are a lot of changes that can occur within the day that could be really exciting. There are a lot of different economics and politics that are involved in investing that affect financial markets so being up to date on the news, up to date with what’s happening, not only in certain countries and their economies but also within their political spectrum, is really exciting,” Peterson said.
Lawandy attributes the students’ success to their in-depth analyses and the diversity of backgrounds, which motivate them to research before making an investment recommendation. Students research and present companies that they want to invest in, or companies in the portfolio that aren’t doing well that should be sold. They quickly learn how to defend their reasoning, as classmates may disagree with the recommendation. The class then votes to either invest or not and decides how many shares they want to purchase.
For the final project, the class is separated into several groups, which must research a particular economic factor, asset class and sector. Groups then present findings to the whole class and pitch companies.
“In the real world, you could have the most brilliant investment idea, but if you can’t convince a room of that brilliant investment idea, it’s not going to be applied,” Lawandy said. “You have to be a storyteller if you’re going to be in this business.”
This structure helps students teach each other and gain a wider knowledge of the asset classes and sectors.
“You get exposure to everything… Then you use that information to make a decision about where a company’s stock will go. It’s almost like a game,” Davidson said.
Hearing other students’ research helped Canaan gain knowledge about new industries, he said.
“I wouldn’t think about investing in certain stocks if I hadn’t heard those pitches from other people,” Canaan says.
Many assets are represented in the portfolio, from stocks to exchange-traded funds, in industries from technology to healthcare. The class invests in different businesses from The Walt Disney Company and The Cheesecake Factory to the pharmaceutical company Allergan PLC. In the past, classes have chosen to invest in controversial industries such as guns, private jails, and tobacco, but Lawandy said a certain amount of “prudence” is exercised.
For example, he would not let students invest in Fannie Mae, the Federal National Mortgage Association because it is a penny stock and under the conservatorship of the U.S. government. This means there would not be a higher return on investment unless Congress passed a housing bill.
The students don’t keep the money they make, but in 2012, they used more than $100,000 to help finance the Janes Financial Center in Beckman Hall. The center consists of a conference room and a lab with 12 Bloomberg terminals.
Bloomberg is an independent financial research company that provides real-time market information. Its terminals produce in-depth insights about the stock market and other financial information. The portfolio class meets in the classroom for lectures, and do their research in the center, which is open to all majors.
Canaan is confident he can invest his own money in the future because of this class.
“We got to learn how to use Bloomberg and do some excel models, so that helps. I can just plug other numbers, other companies in and use those for my own investments,” said Canaan.