I wrote the following article for the Fort Worth Business Press in the summer of 2002.
The Educational Investment Fund at Texas Christian University is a university fund with operations controlled entirely by student managers.The EIF is in its 30th year and is still overseen by its founding professor Dr. Stanley Block.Dr. Block is the author of several publications including two widely used instructional textbooks, Foundations of Financial Management and Fundamentals of Investment Management. Established in 1973, with a $600,000 stock donation from William C. Conner, the EIF has paid out over $1.8 million dollars in earnings to Texas Christian University and the Department of Ophthalmology and has a current portfolio value of over $1.2 million dollars.Since its inception over 750 TCU students have had a part in decisions affecting the portfolio. The recent bear market has been a life changing event for both investors and students of finance.Many people have delayed plans to retire as they watch their portfolio values fall from the highs of the 90s.Students of finance are learning lessons that will affect their investment attitudes and strategies far into the future. This is not the first time the Fund has weathered an economic downturn.Within two months of the Fund’s founding the stock market experienced its biggest decline since the end of World War II.The recent market decline has exceeded that downfall.Again, students of the EIF are learning valuable lessons regarding the risks associated with investing. Follow a disciplined strategy. The best way to overcome the lure of emotional investing is to set a few rules.At the beginning of each semester we first decide what our asset mix will be, the current targets are 72.5% equity, 22.5% bonds and 5% cash.We then decide on an appropriate sector allocation and income/capital appreciation mix.Each time we review a stock we stress its position within the portfolio. Look at a company’s fundamentals.A big lesson many investors have learned has been the importance of sustainable growth, earnings, and competent management.In the EIF we analyze a company’s fair value by combining research and analytical skills.We have access to several investment data bases over the Internet and subscribe to many business publications; we also call companies and analysts to get the details of a company’s operations.After through research we create in-depth pro forma statements and use the Capital Asset Pricing Model to assess whether a company is fairly valued in the market. Invest only what you can afford to lose.What is of concern to many investors is that the market may still be “overvalued” P/E ratios are still at all time highs and some people feel that they could still contract to historical levels.While several opportunities may exist in the market the risks of investing will always be inherent.If you have a short term need for your money, it is not appropriate to put the money into a “risky” asset, one without a guaranteed return.Invest money in the stock market that you will not need for the next few years and you will be better able to ride through economic downturns. It is easier to get in than to get out.Sometimes investors find it easier to buy a stock, but have a hard time knowing when to realize gains or losses on their purchase. This advice comes from a former member of the EIF and a recent graduate of TCU’s MBA program.“Set your target high and low before you buy a stock or set a specific time horizon for your investment and have the discipline to stick to it.”In the EIF we look for companies that will provide a reasonable return over a three to five year time horizon. Opportunity will always exist.Students of the Educational Investment Fund believe that many new technologies have yet to be implemented that will make us a more productive society.Drugs are being made that will make life longer and more enjoyable and products are being created to make our lives easier.The world is ever changing investments in these companies can enable growth in both our economy and our pocket books.We just have to be careful not to price in these great changes too early and too excessively.