Money makes their world go round

By: Allie Conn

Posted: 4/17/09

As dawn approaches, the darkness disperses and the sun illuminates the sky, reflecting off the gentle lapping water of Narragansett Bay. The majority of the RWU student population sleeps soundly in twin XXL beds. Andrew Haycock and Ryan McGinn don't. Instead, they greet the arrival of a new day in the Center for Advanced Financial Education, donning suits and ties wrinkled from a sleepless night of research and analysis.

"We watched the sun come up," says Haycock. He jokes, "We hugged. We were so tired."

Ten other seniors at RWU often spend their nights in similar manners in the Gabelli School of Business' CAFE, a small room with walls lined with more than 16 computers and a flat-screen Sony TV. That's because they're all enrolled in the Finance capstone course, FNCE 450, Portfolio Analysis.

Created in 2004 under the direction of Michael Melton, Ph.D., an Associate Professor of Finance and the Director of the CAFE, this class provides an environment where students are afforded the opportunity to partake in every aspect of fund management. With the use of the latest security analysis technology, Student Investment Management Fund managers are allotted $100,000 in real money to invest in companies they deem the most promising.

"We simulate a real world environment," explains Melton. "It's a real time trading platform."

Not just anyone can be a member of this class; interested students must submit applications in order to be considered. In the Fall 2008 semester approximately 60 students underwent what Melton refers to as an "intense" application process. He only accepted 12, and they've since been trusted to invest the University's money in the stock market. They take this responsibility seriously, acting as if they're employees of a legitimate investment company.

"You lose your own money, that sucks. But if you lose someone else's…It's incredibly stressful," comments Finance major Erin McCarthy.

Haycock, another Finance major, mentions how "We have Jim Noonan, the Vice President for Finance, breathing down our necks to make sure we don't lose $100,000 from the endowment fund."

"The pressure's continuous," says McGinn, Finance major and Associate Director of the CAFE.

In order to meet the pressure and expectations set forth by the University and Melton, the S.I.M.F. managers truly do regard this course as their employer. Even though the class technically only meets on Tuesdays from 2 to 5 p.m., most students clock into the CAFE at 8 in the morning and don't leave until 5 at night nearly every day. Even on days when Melton himself can't attend class, all 12 students arrive on time, or earlier, dressed impeccably in business suits and shined shoes.

When asked how much time they spend each week doing CAFE related work, McCarthy proclaims that 40-60 hours is an "understatement." They spend that much time in the CAFE itself, and they're constantly doing independent research outside of the CAFE on the latest market conditions.

"I haven't changed the channel from CNBC since September," says McCarthy. She also hasn't "slept since September," notes Melton.

That might be, in part, because of the nightly updates. These reports summarize the latest news in the national and international markets and include 3-D market maps and interpretations. Fund managers, chosen on a rotational basis to do the updates, must submit them Sunday through Thursday at 11 p.m. And 2 a.m. And 4 a.m.

Sarcastically referred to as "fun" by some students, the updates help to get them running on industry time. Another aspect of running on industry time: devoting the majority of your day to investments. For the FNCE 450 students, this means giving precedence to the CAFE over just about everything else.

"We have to skip class all the time. I skipped my 8 a.m. this morning," admits McCarthy.

"It's our life," says fifth year Finance major, Michelle Miklus.

"We beat [Dean of School of Business Jerry Dauterive] here on Saturday mornings," says Haycock.

"The best is when you get here before him, and then leave after him," adds McCarthy.

And the current economy has only increased their workload. With a recession that's comparable to the Great Depression and the stock market crash of 1987, Melton says that CAFE students have "never seen anything like this before. It's actually great for the kids."

RWU S.I.M.F. managers have spent the last year learning how to respond to market volatility. Some of them even went abroad, to London, Hong Kong, and Beijing, to learn the techniques investors overseas are using to handle the economy. They spent their days speaking to industry professionals and visiting, amongst others, international stock exchanges and investment banks. So what'd they learn?

No matter where someone's working in right now, "everyone wants to kill themselves," says McCarthy.

Melton adds that, as a result of the terrible global economy, "every one over there's drinking themselves to death."

In fact, the economy is so depressing that "the people in London go out to pubs everyday after work."

CAFE students are feeling similar stress; the fall semester saw two of the top 10 most volatile days in the Dow Jones since 1928. According to Haycock, these days had the fund managers "pulling [their] hair out."

Regardless, Melton says that CAFE students are responding extremely well to the market. They've re-evaluated their strategies and essentially restructured their investment approach. They detailed the changes they've made in their 2008 performance report, which Haycock and McGinn presented at the Redefining Investment Strategy Education (R.I.S.E.) Symposium in Ohio at the end of last month, where they placed third of out 257 schools. Some of the main changes include investing domestically rather than internationally, incorporating a bottom-up analysis approach, and holding their markets primarily in cash.

And even though the market can change at "the flip of a coin on any given day," says Haycock, the fund managers have learned how to use it to their advantage.

"If we can anticipate the market going down, we can make money off it," says Miklus.

Their ability to foresee good investment decisions is apparent by their 2008 performance: a negative 13.85% return, holding approximately $96,000 from their original $107,000 (passed down from the previous year). Though it's the only time the class has lost money since its creation, it still exceeded the Dow Jones Industrial Average, S&P 500, and other comparative benchmarks for 2008. In fact, the S.I.M.F. managers beat the market by approximately 20%.

"We're still destroying the market," says Melton.

"The students have responded to the pressure quite well, and I am sure that they are having an incredible learning experience this year," says Dauterive. "While I know they would much rather have an opportunity to manage the fund during a period of growth, I believe that they have done a wonderful job - as evidenced by the performance of our portfolio relative to the overall performance of the stock market during the past six months."

Their success in this economy should translate well into their future careers in the business world. As International Business major Peter Campbell put it, "learning in such a volatile time will prepare us for when the markets improve."

But they'll keep dedicating themselves to FNCE 450 until that time comes. They'll spend late nights and early mornings in the CAFE, researching ways to play the economy to their advantage.

"We don't get senioritis," says Miklus.

"We're just the dorks in the closet," adds McGinn.