Real-World Experience for Future Investment Analysts

Students in the Rawls College of Business manage a near-$3 million portfolio each semester.

Stock Ticker

Students use real-world technology to prepare for their career after graduation.

A stock ticker constantly scrolls above the door of a room on the first floor of the Rawls College of Business, giving just a hint of what lies beyond the art glass walls designed to conceal what's inside.

Inside, undergraduate and graduate finance students have noses buried in computer terminals, one screen showing various numbers correlating with certain codes that represent businesses around the world. Another screen displays lines that look like a multi-colored, erratic electrocardiogram or possibly the latest detection in seismic activity.

What is displayed on these screens is as vital to the Rawls College of Business as any other function in the building. It is giving future finance majors valuable, real-world experience that will allow them a head start upon graduation.

This is the SMIF room – the Student Managed Investment Fund. Inside, 20 act as stock analysts and investment managers by keeping watch over a near-$3 million portfolio that supports professorships and scholarships within the Rawls College of Business.

“(Students) will take a lot of other finance and accounting hours, and other hours within the college of business and elsewhere that matter to them to become very employable and attractive candidates,” said Jeff Mercer, the Wylie and Elizabeth Briscoe Chair of Finance, who oversees the SMIF. “This course gives them a little bit more of that ability to talk the talk and walk the walk. What they do in the SMIF class is exactly what they will be doing six months after graduation for an investment management firm.”

Jeff Mercer

Jeff Mercer

The SMIF was established in 1997 thanks to the efforts of former Texas Tech University Board of Regents chairman James E. Sowell with an endowment of $500,000 given to the Texas Tech Foundation. Col. Guy Cloud later contributed a gift of $250,000 to the fund. Rawls alumnus and former trustee of the Valley Foundation, Robert E. Brown, helped fund the purchase of the technology and equipment used in the class.

The SMIF class, a finance course known as FIN 4326 for undergraduate seniors and FIN 5327 for graduate students, is offered each fall and spring semester but is limited to 20 students, typically 10 undergraduate and 10 graduate students.

In the class, students learn how to use real-world technologies and research to manage the SMIF fund. By the time the semester is over, students will have learned valuable knowledge that makes them extremely attractive to potential employers.

“It is an amazing program that allows students to obtain the experience of working as a first-level analyst, but also pushes you to ask the questions and find the answers, something that cannot be found in many other classes at the Rawls,” said Logan Johnson, a senior financial investments major from San Antonio. “This is why I wanted to be in the SMIF, to challenge myself and see if I possibly had a small part of what it would take to work in the real world.”

Extremely Competitive

Because actual dollars are involved and the class deals with real-world situations, the competition to get into the class – and stay in it – is high.

The number of students in the class is capped at 20 for a reason, Mercer said. It makes it more manageable for him to supervise students and also because the demands and responsibilities placed on students are high. Mercer said there has been consideration in the past of increasing the class size, but the faculty feels 20 works best.

The process to get into the class involves more than just signing up and being chosen.

Stock Ticker

The class is highly competitive.

“Students know they have to be on top of their game to get in here in the first place,” Mercer said. “We interview them, run them through and look at their resume, their grades, other courses they have selected and the rigors of those courses. The students who are really interested in the investment management career track, they keep their eye on the ball and they know what they need to be doing to have a good shot at getting into the class.”

The competition, so to speak, doesn't end just by being selected into the class. Students are required to earn certification in the use of the Bloomberg Terminal. This is the industry-standard software used by most investment managers that allows them to monitor and analyze real-time financial market data and place trade orders on the electronic trading platform. Bloomberg allows students to make sense of the mounds of analytical research data that is gathered in the class.

“My career goal is to become a portfolio manager and possibly be in charge of a hedge fund,” said Michael Ijeh, a senior finance major from Houston. “The SMIF program is the best way for me to gain exposure to the different styles of investments and use the same Bloomberg Terminals analysts on Wall Street use.”

Using Bloomberg, students manage a part of the $3 million portfolio each semester. Mercer said the portfolio is broken up to reduce volatility that could happen from spring semester students undoing in a short period of time the actions taken by fall semester students, and vice versa.

For example, the 2015 spring semester students will analyze and manage the portfolio managed by the 2014 spring semester class, and likewise for the fall. This ensures stocks purchased by students in one semester will stay in the portfolio for at least a year, if not longer. Mercer said having 40 different stock holdings allows students to make some decisions and do some trading.

Stock ticker

A stock ticker scrolls above the door of a room on the first floor of the Rawls College of Business.

“One thought every investor has to remember is that investing styles can be cyclical at times and that you can't always switch to the strategy that's the 'flavor of the month,'” Ijeh said.

Measuring Success

By most standards, it would seem easy to measure student success in this class – how much did the portfolio grow or shrink?

Mercer said, however, using that standard is unrealistic even if it sounds simple because all the demands from other classes and work outside of school prevent students from dedicating the amount of time that is equal to professional investment managers.

“It absolutely is not, and in our view cannot, be based on a student's investment performance,” Mercer said. “We don't want to put that kind of expectation on a 20-year-old … that they are in trouble if they do some damage to $50,000 worth of principle in the SMIF. It's not fair and it's not reasonable because these students take 12, 15, 18 hours, they work their tail off and many of them work jobs or internships outside of this building.

“Now, we do want them to feel the pressure of making investment decisions, because making investment decisions, both buying and selling, is very difficult, and you can't let doubt get into your head.”

With this experience, not only do students who participate in the SMIF go on to become security analysts and investment managers, but many also attempt to become Chartered Financial Analysts, a prestigious designation that can take several years to achieve and that requires passing three separate day-long exams. Mercer said the exams are so tough the pass rate hovers at about 50 percent.

Mercer lauds the number of students who have gone through the SMIF and become successful money managers, and that's a track record that continues to grow as the number of students who complete the SMIF course increases.

“Success in SMIF can be broken down into two questions,” Johnson said. “Did you learn, and were you able to apply that knowledge to your stock pick? If you accomplished both of these then professor Mercer graded you on this basis. Also, hard work can go a long way.”