Finance classes cover the theory of investing, running
scenarios with Monopoly money for practice. But some Smith
MBA and undergraduate students have the chance to work with
real money, in real time, experiencing all the pressures,
stress, anxiety and triumph of working in the fast-paced
world of financial trading.
Two student-run investment clubs—the Mayer Fund and the
Senbet Fund—provide MBA and undergraduate students with
real-world experience in stock selection, equity analysis
and portfolio management.
Fund's last fiscal year, from April 2007 to March 2008 proved to be even more stressful than most for
the Mayer Fund, run by an MBA student team comprised of two
portfolio managers and eight equity analysts. It was a tough
economic climate in which to make decisions. Battered by the
sub-prime mortgage crisis and rocked by poor performances in
the financial sector, the Fund’s student managers watched
with gloom as the financials and materials sectors faltered.
But their highly-diversified portfolio saw remarkably good
returns in the energy sector.
The Fund's long-term performance goal is to outpace the
appreciation of the S&P 500 on a risk-adjusted basis, a feat
its student managers and analysts have achieved every year.
Despite a market downturn that left professional
investment gurus at a loss, the Fund had a total return of
0.57 percent, and beat the S&P 500 once again.
But the important thing about the program is not the
money—it’s the experience. The Smith School’s $1.2 million
Mayer Fund, named to honor former dean William Mayer ’66,
MBA ’68, now the chair of the
Maryland College Park Foundation Board of Directors,
allows MBA students the opportunity to learn first-hand the
skills that will help them become good investors. The fund
was started in 1993 with a donation from the College of
Business and Management Foundation, was later expanded with
an additional $250,000 contribution from Mayer, and has
since grown as a result of canny investing by successive
teams of MBA students.
Most of the students in the Mayer Fund have come from
careers other than finance, and are pursuing an MBA in order
to make a career switch. The technical skills they learn in
the Mayer Fund become extremely important, says Bill Song, a
Mayer Fund portfolio manager in 2007-2008. Song, who
graduated from West Point and spent 6 years as a military
intelligence officer, including a tour in Iraq, feels deeply
the responsibility with which the group has been entrusted.
“This isn’t play money,” says Song. “It is real money,
and so every decision we have to make is very personal for
us and is scrutinized very carefully.”
Companies they added:
|Starwood Hotels and Resorts Worldwide, Inc.
|Franklin Templeton Investments
|Charles River Laboratories
Companies they sold:
|Black and Decker
Each analyst spends many hours researching the stocks
they pitch, studying Securities and Exchange Commission
filings, trading data, and acquisitions in the context of
their industry. The process of pitching a stock is
meticulous and technical. But excellent people skills are
also key. Stocks are only purchased if the entire group can
come to a consensus. Each analyst has to make a case that
everyone can agree upon. In a group of smart, passionately
dedicated people, that is often easier said than done. So
the group hones their teamwork skills as well.
“Sometimes it will take us a few weeks to come to a
consensus on whether to buy or sell,” says Song. “We fought
and fought and fought over Apple last year. It’s a great
company, but it went from $7 a share to several hundred
dollars a share. It is our role as portfolio managers to
manage that process—to make sure everyone is heard, that
everyone’s arguments are considered.”
And unlike a finance class, where performance is measured
with tests, papers or projects, the Mayer Fund provides a
measure of performance that is visible every day in the
Finance Lab stock ticker.
The 2007-2008 Mayer Fund team saw the slowdown in the
economy coming, including the problems with housing, but
they hadn’t counted on the problems in the finance industry.
The performance of those holdings were disappointing, but
over the course of the year the students diversified the
Fund’s holdings in the finance sector. Some of their energy
holdings did surprisingly well. The team otherwise went
neutral in every sector but healthcare, which they overweighted. It was a winning strategy overall: the Mayer
Fund returned $64,000 to the dean’s operating fund this
year, the second-highest return ever for the fund.
Mayer Fund alumnus Sarah Kroncke, MBA’00, a lecturer in
the finance department, serves as the Mayer Fund faculty
advisor. Prior to joining Smith, she worked for Wachovia
Securities as a vice president in their technology
investment banking practice, focusing on public equity,
convertible securities, M&A, and private equity
transactions. Kroncke oversees the Mayer Fund and advises
the students on both their investments and their careers.
The core of what they learn is financial skills, but
Kroncke believes there is more as well. “Once you get past
the financials, there’s the ability to convince the team and
package your idea in a way that is compelling enough that
everyone will agree. And then there is the selling aspect
and the teamwork aspect and pride of ownership that goes
with doing the work.”
The friendships developed in the fund are also important.
Mayer Fund alumni stay in touch with the Smith School and
each other, a strong network that helps current students in
their future careers.
“The friendships we’ve developed are so strong,” Song
says. “You meet a lot of people in the MBA program, but the
friendships I’ve made through the Mayer Fund will last
throughout my life and business career, I think.”