ACU Home
Group coming out on top with winning stock picks

April 24, 2005

By Melissa Borden / Abilene Reporter-News Staff Writer

While many students invest in pizza and parties, some are paying closer attention to stocks and bonds.

Lower transaction costs, more information and online trading have popularized stocks and bonds for a younger generation, said Dr. Jonathan Stewart an Abilene Christian University professor of finance.

Stewart, along with two other professors, advises a group of roughly 15 students who manage a $250,000 portfolio for ACU. The group has been managing the money for nearly five years. A percentage of profits go toward a scholarship program for the College of Business. The remainder is reinvested into the fund. Each week, the Student Trading and Research group meets to discuss their stock and bond options.

ACU graduate student Sarah Meeks, vice president of STAR, said she wanted a practical place to help her make good stock picks. Before investing comes lots of research, Meeks said. The group deciphers financial reports, public data that companies must publish, management changes and historical stock prices.

"We don't always pick winners. We have some that are great and some that are not great," Meeks said. "But it's a great way to learn about the market. I don't have money of my own to invest. I don't know many college students that have extra money to invest. If I had money, I'd be at the mall."

The students' strategy is to buy and hold, what most financial consultants suggest, STAR president Mark Rich said, because day trading is riskier. The group turns over roughly five stocks a year, Rich said. All of its investments are in stocks.

"Most people are going to be in the market for a long haul and over the long haul, historical returns have been positive," Rich said.

The group doesn't go for a particular company but looks for undervalued ones, Rich said.

"The idea of purchasing a stock is saying, 'I don't feel the stock market is pricing this company, and the value should be higher.'"

Rich said investing takes more time than he thought it would.

"Sometimes that can be a hindrance. But that's why people have jobs in this field," he said. "Sometimes that's worth the trade-off of not having to spend your own time. It's not like I'm managing all 25 of these stocks. ... If I was doing this portfolio, it would be too large for one person to manage on an individual basis."

But as students become older, Meeks said, more of them are looking at the market for practical applications.

"It's getting to be more realistic for people our age," she said. "I feel like I want to know how to plan for my future because I want something to be solid. I wouldn't say the average student is mindful of the market, but I think the closer we get to being out, the more conscious we are about our financial situation and the market and things like that."

Tim Davidson is a past president of the STAR group. He now works in New York as a private client associate with Bernstein Investment Research and Management. It takes more than $400,000 to invest with the firm.

Davidson said stocks and bonds and investing are attracting a lot of attention.

"People think about it a lot, but not in the right way," he said. "Most people think about it as getting rich quick. Even those that think they're the most savvy are still driven by fear and greed. Everyone wants to make money now."

At ACU, the students are making money. They started in June 2000 with just more than $100,000. Now, they manage $250,000.

"We've had higher returns than the Standard & Poor's 500," said ACU finance professor Dr. Terry Pope, referring to an index of 500 large companies used as a benchmark. The group's rate of return for 2004 was 10.34 percent, compared to the S&P's 8.99 percent. In 2003, STAR's rate of return was 38.3 percent compared to the S&P's 26.4 percent.

Sid Grant, vice president of investments for AG Edwards & Sons in Abilene, agreed young people are becoming savvier about the stock market.

"There are people that are in their mid-teens that are very consistent about saving money they make from a lawn business or a job after school and there are people in their 90s that have been saving and investing all their lives. They're all over the board," Grant said.

Market growth in the 1990s and the subsequent downturn at the turn of the century sparked interest in the market, Grant said.

"The mid to late '90s, the market ran up in general. If you were in the market there was a good chance you made money in those years, so you didn't have to be specific," Grant said. "Then, that steep downturn caught everyone's attention. Now, they pay closer attention to what they buy."

Grant said his firm advises investors on how to manage their money.

"Our focus is to be long-range financial planners: 'This is where I am today, this is where I want to be when I'm 60 or 70,' or whatever their time horizon is. Our job is to get them there ... to accomplish their goal. The type of risks people are willing to take determines their return."

It's a lesson Rich said he's still learning. In addition to being president for the Student Trading and Research group, he is graduating with his master's degree in May.

"There's some level of it that gets really complex. You can spend a whole lot of time getting to figure out the stock market," Rich said. "It's not for everyone. Investing in the stock market's not for everyone. It's risky. But of course, with more risk comes the possibility of more rewards. It's just a balance of the risk someone wants to take and what they want to receive from that."

Davidson said working the fund at ACU gave him the best hands-on experience he could get. However, there are other ways to become market savvy. The Internet is a great tool for people wanting to become more knowledgeable about the market. Before investing money, Davidson said, play around online.

"There are many sites out there you can have a fake portfolio and just practice. Invest and see how you do," Davidson said.

For those with some savings, starting in safer markets is best, Davidson said.

"Don't worry about starting small. Take, say $1,000, and try to find some mutual funds," Davidson said. "It's a great learning experience. You don't have to have all the information in the world in order to be a good investor. It's just not rocket science."

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