Wall Street futures | Students in a UMaine investing club learn the world of high finance by directing a $1 million stock portfolio

During March on any college campus across America, students are engaged in the traditional rites of spring. Midterm exams give way to spring break, and the student body's collective tension releases like an overfilled tire pricked with a pocketknife. That's true for the bulk of the 9,000 students at the University of Maine in Orono. But for a sliver of that student population, March means more than all-night cram sessions and beer-soaked spring flings.

For many of the two dozen or so undergraduates in UMaine's Student Portfolio Investment Fund ˆ— a student-run organization in charge of investing more than $1 million of the University of Maine's $113 million endowment ˆ— March means more time spent evaluating Anheuser-Busch's price-to-earnings ratio than sampling its barley-and-hops products, and booking flights to Dayton, Ohio instead of Daytona Beach.

At the end of the March, SPIFFY, as the student group is known, expected to send eight of its members to the University of Dayton for the annual Global Student Investment Strategy and Portfolio symposium. They'll mingle with roughly 1,000 other undergraduate and graduate students for a three-day forum packed with presentations from Wall Street luminaries like "adventure capitalist" Jim Rogers and economic forecaster Ed Yardeni. During the visit, SPIFFY will compete with roughly 120 other student investment groups from schools around the country to see which teams' funds posted the best 12-month risk-adjusted returns.

And this year, according to Bob Strong, a UMaine professor of finance and SPIFFY's faculty advisor, the group was one of 12 teams selected to give a closed-door presentation to a group of investment professionals. The session will give SPIFFY members a chance to present their portfolio to the pros ˆ— a precursor, perhaps, to the kind of pitching many senior SPIFFY members will do when they enter the job market in a few months. In return, the group will receive a detailed critique of their investment work. "The questions the [investment professionals] ask aren't softball questions," says Strong. "They're pretty serious. It's a really good lesson."

Those pros may find a few things to quibble about. They might ask why the fund doesn't have more exposure to the technology sector, for example, or why the students haven't trimmed back a position in a strong performer to take profits. That said, it's hard to argue that the SPIFFY program isn't doing something right. The portfolio has posted an annualized average return of 10.5% during the 12 years through 2005. That compares to an 8.5% return for the S&P 500. "How can you beat success? I daresay there are very few managers out there that can boast that kind of a return," says Amos Orcutt, president of the UMaine Foundation, which manages the university's endowment.

Meanwhile, the 25 or so regular SPIFFY members are all undergraduate students, and the hours they spend every week vetting stock picks and discussing the portfolio's investment strategy aren't attached to a grade on their college transcripts. The group's weekly meetings aren't part of an organized course, and there are no mid-term papers on modern portfolio theory or exams on fundamental analysis. Instead, SPIFFY is an extracurricular group, a college-sponsored club just like the university's Woodsmen Team or scuba-diving club ˆ— except that the university's axe men or flipper-and-mask set don't have access to a bank account with a seven-digit balance. As of late March, the SPIFFY fund held more than $1.1 million.

The group's members know full well what that money is for (hint: it's not for matching Armani jackets with "SPIFFY" stitched on the back). The students are charged with preserving and, ideally, growing the capital in the SPIFFY account from year to year, and there's no safety net if they fail. No one who will replace the tens of thousands of dollars if one of the group's stock picks tank (it's happened).

But investing real money is a big draw to the club, according to past and present members. Amy Hall, a 1999 UMaine graduate and former president of SPIFFY, now works as an investment analyst at Vigilant Capital Management, a money management firm in Portland. Hall remembers students responding well to the fact that the club's investments weren't just theoretical wagers. "I think the students take it a little more seriously," she says. "This is real money from the foundation that we're using, and you want to be careful how you invest it."

For people like Scott Reynolds and William Sulinski, the UMaine seniors serving as SPIFFY co-presidents this academic year, the opportunity to invest real funds also is a chance to gather real-life investment experience. "It's put me in a place to learn a lot about a profession that there's not a lot of at UMaine," says Reynolds, a financial economics and international affairs major from Sanford. "People don't sit around and talk about stocks in daily conversation here, so SPIFFY has forced me to look around, research stocks and be exposed to [investing]. I've learned a heck of a lot from being in the club."

Black Bears turn bulls
UMaine launched SPIFFY in the fall of 1993 after Strong, who started teaching at the university a decade before, petitioned the University of Maine Foundation for seed money to start a student investment fund. His reasoning: Such clubs would give students practical experience to bolster their investment lessons in the classroom.

Along with an initial request for $100,000 to fund the program, Strong and a group of students presented the foundation's trustees with academic studies and data suggesting that funding such a program wouldn't amount to throwing hard-raised foundation money down a hole. "Everyone was intrigued, but because of the fact that it was real money and students aren't real money managers, people wondered if this was a smart thing to do," he says.

But after reviewing Strong's background material ˆ— including reports that outlined the relative success of other student investment funds ˆ— the foundation's trustees agreed to fund the group. Apparently swayed by Strong's presentation, the trustees also opted to double that initial request and launch the fund with a $200,000 nest egg. "Our board was somewhat shocked, but the more they heard, the more they became impressed," says Orcutt. (The foundation added $150,000 to the fund in 1996 and another $100,000 in 2002.)

Apart from lobbying the UMaine Foundation for funding and getting SPIFFY off the ground, Strong has largely stayed out of the picture. As the group's faculty advisor, Strong attends most of SPIFFY's regular Monday night meetings, where members present investment proposals and vote on portfolio moves, and makes himself available to answer students' SPIFFY-related questions. But instead of driving the group's investment decisions, Strong says he prefers the students make their own stock picks. "We guide the fund how we want to guide it," says Sulinski, an economics major from Green Lake. "There's no outside advice, and Professor Strong won't give us any input unless we go against the charter."

(Unlike many investment funds with strict investment objectives as part of their charter ˆ— only mid-cap growth stocks, for example ˆ— SPIFFY members are relatively free to invest their money where they see fit. That said, two firm rules are that the fund can't at any time have more than 10% of its assets invested in one individual stock or 20% of its assets concentrated in any one sector.)

Though he opts not to get involved in investment decisions, Strong says he is kept up to date with the fund's performance. And in that advisory role, Strong says he's happy to help students with the murky intangibles that an investing textbook can't teach. For example, Strong leads a handful of SPIFFY members on an annual three-day trip to New York City. The schedule includes meetings at investment banks like Citigroup and Lazard Frères, where students can pepper fund managers or other investment professionals with questions about their trade.

Strong's background role also means students are left to their own devices when calling in trade orders to Michael Boyson, a senior investment management consultant with SmithBarney in Portland who handles brokerage duties for SPIFFY and the UMaine Foundation. "We really treat them like the other [fund] managers," says Boyson. "There are sometimes questions that they ask that other investment professionals don't ask us, but I'm terribly impressed with their effort."

Those questions, says Boyson, aren't the types of questions one would expect to hear from relative stock market neophytes. Instead, Boyson and his colleagues have fielded calls from SPIFFY members about complex investment instruments like junk bonds, collateralized mortgage obligations and hedge fund strategies. "These kids are definitely learning," he says.

Investing in what you know
When he joined SPIFFY midway through his sophomore year at UMaine, Sulinski says the lure of the program was that he'd have a hand in managing a fund worth more than a million bucks. But he was far from a money management pro, so Sulinski was pleased that older and more experienced students would do the bulk of the critical decision making. "I figured that if I came in just as a regular analyst, then the executives of the fund would know what they were doing," he says.

He was partly right. But instead of all decisions being made at the top, the structure of the SPIFFY program is such that democracy rules and division of labor is the norm. Though the group will always have one or two presidents that act as portfolio managers, an intricate system splits the broad investment market into smaller chunks to be researched by teams of SPIFFY members. Vice presidents monitor the equity and fixed income sides of the portfolio, while eight sector heads track what's happening in, say, the health care sector, keeping tabs on big-picture trends that might affect the portfolio's holdings and staying alert for particularly intriguing individual stocks. That means research, and lots of it: daily doses of the Wall Street Journal or tuning into CNBC between classes to hear the latest stock picks from talking heads like Jim Cramer.

There's plenty of top-down stock picking, where a certain part of the economy is deemed hot or due for a rebound. At the same time, Reynolds and Sulinski say many of the fund's 25 or so holdings are picked from the bottom up, where a particular stock might catch their eye as a great deal based on a tiny price-to-earnings ratio or other fundamental factor. (As of late March, roughly 73% of the fund's assets are spread among stocks and stock funds, with the rest in bonds and money-market accounts.)

Whether using the top-down or bottom-up methodologies, there are a number of metrics SPIFFY's student stockpickers use to gauge whether a stock fits the group's portfolio. First, there's plenty of fundamental analysis, where numbers are crunched and stocks are matched with similar equities in their sectors or investment category.

But there's also the kind of experiential stock picking that would warm the hearts of Wall Street guys like Jim Rogers, who spent two years riding a motorcycle around far-flung locales trying to figure what made certain emerging economies tick. While SPIFFY members can't jump on a bike and trawl the streets of Beijing or Sao Paolo, they make a point to take their heads out of the Wall Street Journal and look for investment ideas in everyday places. For example, the group in late March bought 900 shares ˆ— a layout of nearly $20,000 ˆ— of Schaumburg, Ill.-based cell phone maker Motorola. The stock's price and solid growth prospects made it attractive, says Sulinksi, but there was more. "We asked 20 of our friends that have the RAZR phones, 'Have you had many problems? Do you like it?' That kind of information is utterly important." (For more on the secrets behind SPIFFY's stock picks, see "Swinging for singles," page 25.)

It's that kind of practical experience that Sulinski and Reynolds hope will give them a leg up when they start looking for jobs after graduating in May. Both plan to take the first level of the chartered financial analyst exam that month, and each hopes to land a job with an investment bank this summer. (Reynolds says his ideal job would be working in the finance department of a firm in New York, Boston or Portland, doing "something with foreign exchange." Sulinski is shooting for a Wall Street position as a research analyst or investment banker.)

If they're like Amy Hall, the former SPIFFY president working for a money management firm in Portland, their SPIFFY experience is likely to come in handy during the job hunt. "I highlighted it on every interview after college," she says. "Everyone thought it was wonderful that the school offered something that was so hands on. And, it got me two job offers in New York."