Finance students beat the S&P for 2007 in annual TVA Investment Challenge
Janel Shoun |
“I am extremely proud of the hard work of our student portfolio managers in 2007. They recognized early in the year that oil, natural resource, and commodity-related companies would be good investments given the global economic environment, and that decision certainly paid off in excellent returns,” said Jeff Jewell, an associate professor of business administration who has supervised groups of student stock managers for the past five years.
And these aren’t just virtual stocks we’re talking about here. Each year Lipscomb students participate in the TVA Investment Challenge, a program that doles out investment funds to 25 universities in the Tennessee Valley Authority’s region – including Mississippi, Alabama and Georgia and Kentucky -- and allows students to act as portfolio managers for those funds.
In Lipscomb’s case, the university received $400,000 to manage when it joined the program in 2002. TVA puts certain restrictions on the composition of the portfolios and monitors the performance, but other than that the students make all of the decisions about what and when to buy and sell, said Jewell.
Each year the universities with the best financial returns win cash prizes. In 2007, Lipscomb students’ performance placed the university in the top third of the competitors, good enough for a prize of $8,000 from the TVA. The average return of the TVA Investment Challenge schools was 9.79 percent. Lipscomb’s rolling three-year return ended up at 9.74 percent, compared to the S&P 3-year return of 8.62 percent.
The future profits will head back into the TVA’s Nuclear Decommissioning Trust Fund. In 1996 the TVA Board established this fund to pay for the potential decommissioning of TVA’s nuclear units. Two years later, to diversify the financial management of the trust fund, TVA allocated $1.9 million to create the TVA Investment Challenge Program.
Justin Higginbotham of Nashville
Paul Stevens of Hilliard, Ohio
Thomas Medlin of Hendersonville
Daniel Byrdsong of Spring Hill
James Picardo of Nashville
John Griffith of Pleasant View
Laura Norwood of Nashville
Christopher Cohen of Huntsville, Ala.
William Gentry of Nashville
David Carden of Nashville
Andrew Farmer of Marietta, Ga.
These students meet every week with Jewell to discuss the state of the portfolio and the market. Each student monitors a group of five to eight stocks, and they all make recommendations for buying new stocks or selling the stocks under their responsibility.
“Students experience the pressure of making ‘real money’ decisions. They learn to use the same analytical and decision-making techniques that professional money managers use,” Jewell said of the TVA Challenge program. “This project is as close as we can get in an educational environment to giving our students real world experience. It is extremely valuable in giving them insight into the world of professional investing.”
So far they seem to be learning well. The students have outperformed the S&P 500 in four of the five years they have been in the competition, with a compound annual rate of return of 17.95 percent over five years compared to the S&P’s 12.82 percent.
“This is an impressive five-year performance record for ANY money manager -- much less student managers. Professional money managers are usually considered to be a great success if they can outperform the S&P 500 by 2 percent a year over long periods. Our students are doing about 5 percent better on average,” Jewell said.