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Students Recommend Stocks to Increase Their Managed Investment Fund

By Keith Morelli

TAMPA (Nov. 17, 2016) -- The well-prepared pitches of stocks delivered by students in the Applied Security Analysis class to a roomful of real-life financial advisors and brokers did not go easily. It was a difficult room, as the professionals picked apart the proposals in language that only those in the world of finance can understand.

Hanging in the balance was whether the Student Managed Investment Fund, a fund with real money and overseen by the board of advisors sitting in judgment of the presentations, would invest in the stocks pitched by the students.

The fund, an educational "business" set up in the Muma College of Business at the University of South Florida, offers a chance for motivated students to pitch investment proposals to financial advisors and investment analysts from across the region and get valuable feedback.

The proposals each included exhaustive information about stock trends, risks and expectations. There were graphs charting growth, tables flush with numbers and maps of locations accompanied by deep-in–the-weeds discussions about business models and growth opportunities.

A dozen students spent countless hours preparing their presentations, delivered to the panel, which pulled no punches in questioning the advice of the students making the pitches.

One stock was Dollar General, presented by a buttoned-down group of four, looking very professional standing in the center of the room surrounded by serious financial professionals.

"Go back to when you were a child and a $10 bill felt like a $100 bill," said Laura Del Castillo, who opened her team's presentation. "Now a $100 bill feels like a $20 bill."

She said that feeling goes away when you go into a Dollar General, where necessities are cheap and business is brisk.  The team pushed, saying the franchise is opening 1,000 new stores next year and the future looks bright. They recommended the investment fund buy into Dollar General.

Not so fast, the panel said.

"How does it stack up against the competition?" asked Alex Steger, equity analyst for National Investment Services. "How can Dollar General grow in that competitive environment?

"Now, you say the stock is 40 percent undervalued," he said. "You predict a 1 percent gain per year? There's something wrong with your business model. I just don't see any growth here."

Most of the questions were about the numbers presented, but not all. One panel member asked whether anyone on the team had ever gone into a Dollar General. Del Castillo raised her hand. The others kind of shrugged.

Gilead Sciences, a pharmaceutical company that focuses on HIV and Hepatitis C medicines, and IBM, the IT consulting and software giant, were the other two stocks pitched by the undergrads.

The same students pitched stocks earlier this fall and will make similar proposals to the same panel four times in the spring, said Ian Cherry, director of the program, who encourages attending business professionals not to go easy on the students.

"One of our goals is to put the students in a real-world environment where they will be immediately accountable for the results of their analysis and have to justify their recommendations to people who are experts in the field of investments," Cherry said in the invitation sent out to the professionals.

"The students must be held to high standards of performance to motivate and catalyze their improvement," Cherry said. "I expect them to face difficult questions, simulating the environment they would encounter were they presenting their analysis to portfolio managers/clients.

"I have told the students to be prepared for tough questions," he said, "and to expect that you will not let them slide if their analysis is incomplete or their logic is fuzzy."

The panel did not let the students slide, asking some questions that went unanswered, leaving students standing in the middle of the room, mired in awkward silence.

Abby Suval, a financial advisor and associate vice president with Morgan Stanley, was hard on the team pitching Gilead. She said she is familiar with the company and has bought and sold it for 20 years.

"I would buy that all day," she said. "I love this company and you did not do it justice."

Though her comments were tough, she said later that the students understood that this is as close to real life they can get and still be in college.

"I think what they do is incredible," she said. When she prepares pitches for clients, she's only talking to one or two people, who don't have much knowledge of all the numbers that go into her recommendation.

"Here," she said, "they are making pitches to a room full of professionals."

In the end, the students and the business community benefit.

The business professionals may extend internship opportunities to students enrolled in the fund and have a pipeline to future employees. The student-managed fund benefits the business community by providing access to outstanding students as well as access to research reports and other investment-fund materials.

And the students get real-time feedback from those in the know.

Cherry said the fund currently has just over $425,000 in total assets and the fund's investments are expected to cover a significant portion of its continuing expenses.

"The program is focused on developing students into asset managers and equity analysts," Cherry said. "It allows students to gain real world experience with asset selection using real money, as well as connects students to an incredible network of investment professionals from the Tampa Bay area and throughout the United States."

Among the students breathing a sigh of relief when the two-hour grilling ended was Quan Nguyen, who helped pitch Gilead.

"We spent as many hours as we could over this past weekend," he said. "We met at 9 a.m. Saturday and worked until midnight."

His team thought they had covered every bit of information an investor would look for, but that didn't happen, he said.

"There is so much you have to learn about a company," he said.

Steger, the analyst with National Investment Services, said: "You can't treat this class like it's a class. It's a job."