Washington State University is lending a group of students $1,000,000 to make money for the school, and with Richard Sias’s expertise, they just might beat the S&P 500 in the process.
Sias, professor of finance and the Gary P. Brinson Chair of Investment Management, teaches his students how to understand stocks, portfolios and the market in general in his Finance 427/428 classes.
The design and setup of the class steers students into real-world experience with the markets. According to Sias, two students are given the job of portfolio managers. The rest are analysts for one of 10 sectors in the market, focusing on stocks in the assigned sector. Then, the portfolio managers meet with the sector analysts and determine the stocks in which to invest.
“We make our recommendations, then vote on suggested stocks with a simple majority decision,” Sias said. “We fill out some forms which the portfolio manager, myself and the analyst sign, and we give those forms to the assistant controller who executes the trades.”
The process comes with guidelines and procedures that are mandated by the university. Risk is only one hurdle the class must jump in trying to find stock worthy of investing. They are limited to stocks on the NASDAQ, New York Stock Exchange and AMEX. And once they have met those standards, and a few others, the university’s senior investment manager still may veto investment recommendations.
“It is hard to get recommendations passed. About 65 percent of our recommendations were rejected,” Sias commented. “You just don’t present and do an okay job and get your stock accepted. People will want to debate your choices, and that is good experience.”
The class is set up with two objectives in mind — get an education in finance and learn practical investing. Sias said the class does a good job of tying theory with practice.
“They learn a lot of finance and markets, but also they learn oral presentation skills,” Sias said. “Rarely in class are you forced to defend your decisions, but in the real world you are, and I think that is a good skill to have.”
Those skills are assets for the students, asserts Sias. The knowledge they gain here gives them an edge finding an internship or job, with experience as a portfolio manager or sector analyst on their resume, especially when they can show the investing they have done for WSU.
The university likes to see students do well, but when it hands a class a million dollars it wants to see them do extremely well. And so they have, according to Sias.
“We have done a good job,” he said of his class. “Our goal is to beat the S&P 500 and right now we are beating it by four percent, which is better than probably 80 percent of all money managers.”