Research Progress

Progress thus far in the research has had its moments of trial and error. We’ve been able to weed out somethings that we have come across as fruitless or lacking statistical significance. On the other hand it has also opened doors to new and better opportunities.

For example Instead of our original idea of only testing and comparing our own fund here at Pace, we have taken it a step further to try and include a section on Student Managed Investment Portfolios (SMIP’S) from a large selection of schools to compare not only us, but student portfolios against the industry and against each other. However this does not come with out a price, it is going to be extremely time consuming reaching out to the individual schools and also face a bias problem. Generally a bias is formed during this process as Funds that have done well will report back to us, as funds who have performed poorly may refrain from participating. This leaves us with the difficulty of interpreting the information we have received to analyze the true meaning behind it with emphasis that there may be a heavy bias present. After careful analysis we will be able to determine the true meaning of the data. This is one of the major reason that there isn’t really any literature on the performance of SMIPS as a whole.

On a brighter note, I have been able to determine the allocation and selection of our fund compared to the S&P500. I have been able to analyze over ten years of trades and compare the holdings of our portfolio for each individual semester dating back to the creation of when the fund was first started and compare it the the S&P500. This included breaking down ten years of financial statements, converting them to an excel document where I was able to manipulate the data as needed to determine the size, value, of each trade and create a weighting system similar to the S&P500 for comparison. From there I was able to see our allocation of where and what industries and sectors our portfolio was more invested in than the S&P index. To dig even further I then compared the our sections of company we held compared to the index and see which ones we differed in. This is a huge help to help identify what and how specifics we were able to out perform the market and professional fund managers. This difference and difference in industry weight in comparison of our fund to the S&P500 plays a large role as to what specific factors help contribute to our out performance. As diversification is the preservation of wealth, but the concentration is what creates wealth. Being more heavily invested in specific sectors at certain times that out performed the rest, or the selection of our holdings in the sector that differed from the index that out performed is how we can more closely narrow down the reasons of our success.

How Student Managed Investment Portfolios Outperform Profesionals

A Student Managed Investment Portfolio class allows students to gain hands on experience and apply academic knowledge to real world equity research and fund management in the setting of a University with real money. Pace’s Student Managed Investment Portfolio originally began with $200,000. Since then students have been able to outperform the market on a consistent basis beating the returns on indexes such as the Dow Jones Industrial average, the S&P 500 and even many professionally managed funds. Today the fund boasts over $240,000. Despite huge market setbacks, such as: the financial crisis in 2007-2008, the Flash Crash, Eurozone crisis, one of the worst recessions since the great depression, a weakening and fragile current economy that has been beaten and battered by horrible economic numbers in unemployment, GDP, housing and national debt.
Our goal is to discover the driving force of how classes of undergraduate students have been able to manage a portfolio of nearly a quarter of a million dollars and beat professionally managed funds with staff holding advanced degrees in the field and more experience. How they choose what they purchase and sell, when they do it and why? Also what variables are key contributors that the students utilize to help make there decisions. In addition to researching the fundamental and technical analysis we would also be taking behavioral finance into consideration, which is a relatively new phenomenon in the financial industry which is still being researched and has little documentation.

From this Project I expect to receive a much greater understanding and value of Financial Markets and distinct Wall St. firms. Also to discover new observations on behavioral finance and what motives drive students and professionals alike to make the decisions they do outside of the general technical and fundamental indicators of the market and equities.

Methods that will be used to help bring my research to a conclusion will vary from simple Microsoft Excel functions to help filter and sort raw data, to complex financial and economic formulas and models to help achieve a better understanding and predictions of what the information means. There will also be interviews with other Finance professionals to get a better understanding of their work and individual ideals. Also interview and survey the students in the SMIP class to help get a better understanding of their thought process and actions.