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Hands-on Learning with Smith’s New Investment Club

By Trinity Peacock-Broyles ’03

Inside the Green Street headquarters of Women and Financial Independence -- the one-year-old Smith College program in financial education -- potted plants, contemporary chrome furniture and plenty of computers give the office a sleek, fresh feel. A banner that declares "Life is Long -- Start Planning Your Future Now!" and a green plastic piggy bank that sits on a top shelf suggest the landscape of finance, as do scattered copies of familiar magazines -- BusinessWeek, Smart Money and Fortune -- and bookshelves packed with financial publications.

Students linger after a lecture by Jim Miller, assistant professor of economics, to ask more questions about the stock market. Every Wednesday at lunchtime throughout the fall semester, Miller discussed the latest financial news. The lectures, which were free and open to all students, were always well attended. Photo by Jim Gipe.

Likewise, one look into the office’s front window announces to passersby that the stock market is closely watched here. A closed-captioned television monitor, usually tuned to CNBC, faces the sidewalk, broadcasting the latest financial market news. Although some days the financial reports are not for the fainthearted, 40 Smith women are now studying the roller-coaster performances of such indicators as the Dow Jones and Standard & Poor’s 500 Index.

These students are members of a new club -- unique to Smith -- that gives students $100,000 to invest. The Smith College Investment Club (SCIC) was launched this fall and is supported by the WFI program, which is designed to teach women the principles of money management.

"We wanted to start an investment club so students could have a hands-on experience," says WFI director and Smith economics professor Mahnaz Mahdavi. "We believe it is important for women to know how to invest -- to go for it. The students are learning aboutteamwork as well because they are a diverse group in many ways, especially in terms of their interests and backgrounds. The SCIC provides members with a great experience and will enable them to put into practice what they have learned."

The official invitation to join SCIC traveled in early September throughout the Smith community, emphasizing, "No prior experience required…Fully student-run…with real money ($100,000 to start)!!!" The club roster now includes French majors as well as economics majors, financial neophytes and veterans of other investment clubs.

The 40 members, who have autonomy in managing the $100,000 endowment, meet on a regular basis to discuss asset allocation, analyze fund performance and decide how to successfully manage a well-diversified portfolio.

After spending the fall in the research and planning phase, the club is now ready to begin investing. Soninder Dhesi ’03, SCIC president and an economics major, says, "I think the six weeks we had off for winter break gave us a great opportunity to continue to follow the market and to begin to get more comfortable with what’s going on."

The SCIC members say they are up to the challenge of managing a $100,000 portfolio. Every asset, stock or bond that the students purchase to add to the club portfolio is decided by majority vote. Important investment decisions are more easily made because of the division of club members into industry groups to study specific sectors: consumer discretionary, consumer staples, energy, financials, health care, industrials, information technology, materials, telecommunication, services and utilities. Each group researches its assigned sector and then makes a presentation to the entire club, which then deliberates and votes. As a part of the educational portion of the club, members will visit Wall Street and the Federal Reserve and invite experts to contribute their views.

For its first year, the SCIC has a realistic investment strategy: "low risk and moderate returns" Dhesi says. Amanda Schneier ’05, club secretary and government/French major, points out, "If we can make it work in the current economic situation [bear market] we’ll be able to do better later."

Schneier appreciates the club because "it’s something new and unconventional for a school our size. It’s exciting to be part of the beginning."

Investment club members meet on a regular basis at the WFI headquarters on Green Street and are learning teamwork and investment principles, says Mahnaz Mahdavi (center), WFI director and Smith associate professor of economics. Photo by Jim Gipe.

Dhesi emphasizes "the fact that this is a women’s environment [leads us to] approach the investment club in a different way.

"It’s about time we have this sort of thing at Smith," she adds, "because we have the tools and the resources to make it a successful club. I think our approach is very different from other colleges because we don’t focus just on economics; here, we really want to set up our own standards."

A recent University of California at Davis study found that "women’s portfolios gained 1.4 percent more than men’s portfolios in a study that spanned from 1991 to 1997. In fact, single women did even better than single men, gaining 2.3 percent greater returns on their portfolios." A 10-year study by the National Association of Investors Corporation found that women’s investment clubs were more successful than their male counterparts, "racking up 23.8 percent average compounded lifetime annual returns compared to 19.2 percent for male clubs."  Executive Female’s May-June 2002 issue mentions that "the statistics indicate that all-women clubs outperform their male counterparts as well as the overall market." Club vice-president Banu Demirkiran ’03, a physics and economics major, points out that while the majority of traders are men, "what we’re doing isn’t trading, it’s long term. We really focus on the group and teamwork."

Approximately $40,000 of the seed-funding for the club initiative came from an alumna donation. The remainder of the money was raised through donations, including funding from Goldman Sachs. The investment club officers will work with Jay Yoder, director of investments at Smith College, who oversees the college’s $775 million endowment and was the recipient in 2002 of the Foundation and Endowment Money Management’s Nonprofit Investment Officer of the Year award.

A portion of the club’s earnings will be reinvested, while the remainder is divided equally between the financial aid budget and the Student Government Association, says Mahdavi.

Club members are encouraged to attend WFI’s free noncredit courses, lectures and workshops offered throughout the year on a range of financial topics. A class this spring will cover entrepreneurship. Another in the principles of investing will show students how to analyze financial data and how to understand asset allocation. Smith professors teach the classes, and financial leaders will deliver guest lectures.
Mahdavi expects that SCIC members will earn high returns that will benefit many students and organizations on campus that rely on support from SGA and financial aid. She told the gathering at the club’s first meeting, "I hope that when you come back in 10 years and the club has [a fund of] $1 million, you can say you played a part in its beginnings.

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