Business students outperform market by 50% in TVA Investment Challenge
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Business students at Lipscomb University have proven themselves once again capable of achieving competitive market returns in the Tennessee Valley Authority’s TVA Investment Challenge, outperforming the market by 50% over a three year period.
Through the Challenge, Lipscomb students have gained hands-on experience managing a common stock portfolio for TVA. The students actively manage those funds by designing long-term investment strategies, placing trades and monitoring the performance of the portfolio. Students learn how to manage real money and realize all of the requirements that come along with the task. They are held to similar guidelines as TVA’s professional money managers, according to the TVA website.
“In essence, TVA ‘hires’ each team to manage part of its investment portfolio,” said Jeff Jewell, associate professor of finance at Lipscomb. “Our team usually consists of six to ten students who manage the portfolio. TVA sets guidelines about issues such as which types of stocks students can buy/sell. Our students become part of the Lipscomb team by enrolling in an investment fund management course.”
The Lipscomb team began in January 2003 with approximately $400,000 to invest, the same amount given to each school entering the competition. They ended December 2005 with $743,000.
“The students have done an excellent job identifying undervalued stocks and were patient enough to wait for the right time to invest in them. Their hard work and preparation has paid off,” Jewell said.
TVA evaluates teams based on their performance relative to a benchmark portfolio. Lipscomb has outperformed its benchmark, the S&P 500, in each of the three years the school has participated in the competition. Over the three year period, the Lipscomb portfolio has an average annual return of 22.41% compared to the S&P 500’s 14.39% average annual return.
Sponsored by the Tennessee Valley Authority (TVA), the Investment Challenge is offered to schools within the TVA service area. More than twenty schools have teams represented in the Challenge.
Throughout the year, faculty advisors are not involved in the actual decision making process for the TVA teams, leaving the students to make those difficult decisions.
“Faculty advisors help keep students organized and on track without making any of the actual investment decisions,” said Jewell. “At any point in time our portfolio has about 40 different stocks, representing companies from a wide variety of industries. The students carefully monitor the stocks and determine when they need to sell. They are solely responsible for that decision. Once a stock has been sold, they must figure out which stock to buy with that money. No money is ever allowed to be idle.”
TVA awards cash prizes to the schools with the top three returns in the one-year and in the rolling three-year period. This year, Lipscomb came in second place with an average annual return of 22.41% for the rolling three-year period performance award category and was awarded $15,000. In the three-year performance category, only Murray State University gained higher returns. Lipscomb plans to use the $15,000 award to assist students participating in the TVA Investment Challenge in years to come.
“We plan to reinvest the money in resources we can use to manage the portfolio even better in the future,” said Jewell.
Private schools were not eligible to participate in the TVA Investment Challenge until January 2003. Lipscomb has participated every year since being eligible and placed third last year and fourth the year before, both in the one-year award category. Lipscomb’s team has also beaten the benchmark each of the three years.
For more information about the Finance/Economics department at Lipscomb University or about the Lipscomb TVA Investment Challenge, contact Dr. Jewell at 615.279.5769 or at jeff.jewell [at] lipscomb.edu.