With homework that leads to transactions that could result in thousands of dollars made or lost in the stock market, the University of Alaska Fairbanks's Student Investment Fund course is unlike any other its students have taken.
With real money at stake, students are motivated to get their homework done, rather than blow it off for the Wednesday night party scene.
"It is so much easier to learn this way," former student LeToya Ward said. "The fact that you are investing with real money, you take it a little more seriously."
It's not pocket change, either. The Student Investment Fund is worth nearly $400,000.
In 1991, the chancellor of the UAF used $100,000 of the University of Alaska Foundation's funds allocated for the UAF campus to establish the University of Alaska's only student-run investment fund.
Since the fund's inception, it has been managed by students in UAF's School of Management. Twice a week, the class - made up of about a dozen undergraduate students and a few graduate students - meets to evaluate the fund's performance as well as to buy and sell its stocks.
Managing the fund's stocks as a team enables students to experience what it would be like to work as a financial analyst before they are personally responsible for a $1 million portfolio, Ward said.
There is so much to learn that Ward still attends the class even though she graduated last May, she said. "I am not enrolled and I am not getting graded for it, but I still go for the knowledge."
Students learn the skills and processes involved in managing a portfolio by participating in a class modeled after the workplace, said Craig Wisen, assistant professor of business administration and the class's advisor since fall 2002.
Almost all institutional funds are run by a team of financial analysts, with each person specializing in a different sector. Just like their professional counterparts, Wisen's students each select a different sector to follow over the course of the semester, he said.
By examining the companies within their sectors, the students become knowledgeable about which companies are performing well and how each company's performance could affect the value of its stock. The students teach each other what they learn through a series of about five in-class presentations.
"I find that the best way to get students to learn is to learn from one another and in an applied fashion," Wisen said.
Based on a student's presentation, the class votes whether to buy or sell stock held by the student fund. When the decision to trade has been made, the other students in the class watch as the presenter completes the transaction using an online brokerage firm.
Despite the students' inexperience, they have made good decisions over the years.
The student fund's average annual rate of return was 12.5 percent over the last 10 years, ending Sept. 30, 2004. Comparatively, the annual return of the Standard & Poor's 500-stock index - a widely followed benchmark of stock market performance - was 11.1 percent over the same period.
"Our performance is good but we don't let it get to our heads," Wisen said. He added that it would take 40 or 50 years of performance to prove the students are better-than-average stock pickers.
While the student fund is currently about four times what it was in its first year, some years have been better than others, he noted. "We have had our ups and downs with the equity market."
Between 1998 and 2000, the student fund had a high concentration of technology stocks and it was growing at an average annual rate of more than 25 percent. When the dot-com bubble collapsed, the fund lost at least $200,000 by the end of 2001, from a high of more than $600,000 in the previous year.
"2001 was hard," Wisen said. "We had a humbling experience."
The fund's rapid decline brought home the importance of maintaining a diverse portfolio, he said. "Now we will never be in a position that we are holding too much technology stock."
Wisen said that his students have learned from their predecessors' experience. Now the student fund is made up of 38 stocks representing a wide range of sectors and types of companies. In the first nine months of 2004, the fund's return was 10 percent, while the return of the Standard & Poor's 500-stock index was 2 percent.
Along with learning from other students' experiences, students encounter phenomena they would only read about in the textbooks of other finance courses.
In the case of the recent corporate scandals, students watched the fund's Tyco stock fall as three former high-level executives were investigated and later indicted for fraud and theft, Wisen said. The drop underscored Wisen's teachings that proper analysis of a company extends beyond the financial numbers it reports.
Watching the class's decisions play out as real gains or losses in the fund's value made former student Brian Tillotson quickly understand why picking stocks well requires complete evaluation of all the factors that contribute to a company's performance, he said. "The learning curve in that class is pretty steep."
