Students Deal with Turbulent Market
November 3, 2008 • By Katie Thisdell, The Breeze
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With the recovery effort of the market crisis in full swing, those invested in the stock market at JMU have felt the effect. But despite the slumping economy and falling stocks, members of the student-run Madison Investment Fund aren’t too worried.
Though the fund’s portfolios have decreased in value, all investments are long term so there is hope of recovery.
But Eric Lane, president and finance sector manager of the MIF, declined to say how much the student-led value investment fund has lost, but said, “It’s been a large amount when the market’s been down 36 percent on the year.”
According to adviser Elias Semaan, the MIF has lost approximately 28 percent of its value in the current crisis.
“If we got caught up in the daily volatility, it’d drive us nuts,” said Lane, the senior finance and economics major. “Every pick that we make is meant to be long-term. In that regard we very much stand by our decisions and remain confident in our ability.”
Along with the long-term planning, the MIF is also planning to invest cash holdings since there are low prices on other stocks.
The student organization, which accepts applicants of all majors each semester, began after receiving $100,000 of the University Foundation’s endowment in 1999. Members apply financial theory to real investment situations.
“The question was always, when our economy goes to hell in a hand basket, how is this stock going to respond to that economic environment?” Lane said.
Buying, selling and trading halted in July after members realized there would be an economic downturn.
“When a lot of smart kids get together, we can figure these things out,” Lane said.
Though the group has always focused on long-term investments, Lane said that has become more of a concern in the past year.
But the MIF has numerous positions to help ease those concerns.
It is divided into six sectors: technology, energy, finance, consumer discretionary, consumer staples and industrials. These guarantee that the MIF’s holdings will be diverse and include everything from Coach, Inc. to Verizon Communications Inc. to Canadian National Railway Co. Each sector meets weekly with its five to seven analysts and a sector manager. The entire MIF also has a weekly general meeting.
Choosing holdings is an extensive procedure. Analysts present potential investments at their meetings and then members and managers vote. They consider risk factors with each stock and company, as well as the size of the holding and the general market risk factors.
“Each sector knows the ins and outs of their holdings,” said sophomore Jessica Soodak, an analyst in the financial sector. “Instead of looking for what’s hip now, we look for investments that are steady and stable over a long period.”
Currently, the MIF is looking for companies that will perform in a possible recession, especially consumer staples like Coca-Cola, Proctor & Gamble and various cigarette companies.
Meetings have been tense recently as members watch the daily ups and downs on Wall Street. Each analyst has different opinions on what the MIF should do, so Soodak said meetings get heated.
“No one knows what’s going on and what’s going to happen,” she said.
The MIF reached an all-time high of $151,000 last November. In January, it outperformed the S&P 500, an index of 500 of the largest companies that is often used as a baseline for comparison.
This is not its first time losing money though. Between 2002 and 2003, the fund significantly decreased in value. The next year, it recovered and performed well, according to Lane.
With its largest holding in cash, Lane said they are now ready to invest for the future. The way to make money is buying shares when the market is low and selling when it’s high.
“I’m a big fan of the idea of buying right now,” he said. “The market’s been beaten down significantly. We’d be crazy not to be considering putting more money into the market.”
No one can predict what will happen to the market. It could go up or down any minute. Holdings are constantly re-evaluated, keeping analysts and managers vigilant and busy.
“You may lose money for the first couple months,” Lane said. “But now it’s game time.”
Contact Katie Thisdell at thisdeke@jmu.edu
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