FALL 2008 VOL. 9 NO. 2

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Feature Story

More Than
Monopoly
Money

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.

The Mayer Fund attracts some of the Smith School’s true academic standouts. Competition to be chosen for the program is fierce. Applicants must prepare a stock report and pass three interviews covering aspects of behavioral, technical and microeconomic expertise. They current Mayer Fund team, with the approval of the faculty advisor, chooses its successors in February, and they officially take over their positions at the end of the fund’s fiscal year in March.The 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 University of 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:
Boeing
Apple
HP
Accenture
Starwood Hotels and Resorts Worldwide, Inc.
LabCorp
Costco
Noble
Sempra Energy
Travelers
Fannie Mae
Franklin Templeton Investments
Diageo
Genzyme
Peabody
Lazard
Charles River Laboratories
Companies they sold:
Sallie Mae
Cheseapeake Energy
Intuit
Telenor
Countrywide Financial
Western Union
Citibank
Target
Black and Decker
Amgen
Anixter
E-trade Financial
FedEx
Pfizer
Wellpoint

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.”

  SMITH BUSINESS Magazine

Copyright 2008 Robert H. Smith School of Business