By LINDA K. DELANEY
University of Pittsburgh at Bradford
Investors in today’s financial markets need nerves of steel to ride the ups and downs of a market more elastic than a new set of suspenders. Financial services managers, those working with client portfolios, strive to increase a portfolio over a specified period of time, typically a minimum of five years.
Students in Professor Richard Nelson’s Investments class at the University of Pittsburgh at Bradford got to experience a small part of that role this term, thanks to an anonymous donor.
How did they do? They increased the initial $20,000 investment by more than 18 percent since mid-February, while the overall stock market was slightly down during the same time period. Nelson, associate professor of business management, was contacted by the donor suggesting the project would add excitement to the class and might also bring added gain from student investment savvy.
“I was grateful but apprehensive,” Nelson chuckled about his reaction to the donor’s request, “Mainly, because of my concern that, in the short run, anything can happen. It’s a somewhat artificial timeframe. I would hate to give students the idea that if they make a profit over two to three months they are anything other than lucky. The donor’s only specification was an aggressive approach with a three to five year horizon.”
The “Donor Investment Challenge” began in late February. The project required the class to work as a team, deciding where and how much to invest. Students assumed complete management responsibility for the portfolio, using UVest, an online brokerage firm affiliated with Northwest Savings Bank, to execute the investment transactions.
Joseph Strotman, business management and economics major from Bradford, led the class in the stock selection by providing detailed analytical justification for their investment choices.
“I started by running some investment analyses and narrowed it to two sectors, natural gas drilling and environmental air filtration,” Strotman said. “We discussed the choices and then voted to invest $16,000 between these sectors and keep the remainder in cash, possibly for other investments.”
“The project remains in place for subsequent classes,” Nelson said. “The donor’s investment management fees are structured like a hedge fund, i.e., 2% of assets under management and 20% of the gains. Fee proceeds will benefit the business management program.”
“I enjoyed getting experience with real money,” Strotman said. “We definitely played it safer with the real portfolio than the game.”
The “game” is a virtual stock exchange which was an additional assignment for class members. Each student received $100,000 in virtual money to manage over the four month term. The student with the best return at the end of the term won 20 points added to their final exam score. Sherri Rogan, an accounting and business management major from Pittsburgh, was declared the winner of the virtual competition with a gain of more than 8%.
“Her choices gained over 8% during a period when the stock market was essentially flat,” Nelson remarked. “That’s especially impressive.”
“I really didn’t have experience in the market before this class,” Rogan said. “I chose a local stock, including Alcoa, which is near my hometown. This project gave me an understanding of the market that I can use in the future.”
“I was definitely freer with my analysis and choices in the simulation,” she laughed. “We all held back with the real portfolio and analyzed our choices in more detail. We realized that the donor money could be gone at any point.”
“There was a fear of failure managing the real portfolio,” Strotman added. “There was a difference in our approach. We thought long-term growth with the donor portfolio but short term speculation to see who could produce the best return with the simulation.”
Investments classes this week also featured a discussion with Joseph Colosimo, vice-president and business development manager, and Donald Nicholson, CFA, divisional vice-president and chief investment officer for Northwest Savings Bank Investment Management & Trust Services. The pair shared real-world expertise and fielded questions.
“We try to educate clients for long term expectations,” Nicholson said. If expectations are set right to start with, clients can shrug off short term volatility.”
“Picking stocks is hard work,” Colosimo, Pitt-Bradford alumnus, told students. “You hit some home runs and you get some strikeouts. The last six months is just part of the game in the long term.”
“Do you have a couple hundred thousand I could play with over the summer?” Rogan asked.
“Your class had a wonderful experience, using real money,” Nicholson responded. “You’ve found that is a very different process, you certainly manage it differently.”