January 20, 2009

Contact:   John Syme

When global markets tumbled last September, the stock portfolio of the student-run Davidson Investment Financial Association (DIFA) took a big hit—but not as big as some.

“At first, we were just confused like the rest of the world,” said Tom Divinnie ’10 from Brentwood, Tenn. Then he smiles. “But we did better than the Dow.”

Davidson Investment Financial Association members read a variety of media to stay abreast of fast-breaking news in today's economy. (l-r) David Luscombe '11, Paul Sorokin '09, Andrew Fruth '11, Nicolas Cisneros '09, Christoph Pross '10, Evan Mintz '11, and Stephen Kalin '09.

The association was chartered in 1999, entrusted with sole responsibility for managing $200,000 of the college’s endowment. Being responsible for real money in real time heightens the investing experience, members say, especially when market conditions are as dramatic as they have been since September.

“Our goal was to go down less than the S&P 500, which we accomplished by about 5 percent, because of some very good long-term decisions in the spring of 2008,” said Christoph Pross ’10, an international student from Germany who is the group’s CFO.

Co-President Nick Cisneros ’09, from Quito, Ecuador, said that a renewed focus on the group’s educational mission, as well as a spike in interest relating to current events by students in all major disciplines, has nearly doubled DIFA’s membership within the last year.

“It’s such interesting times that everyone wants to be a part of it, to understand what it’s all about,” Cisneros said. The 35 students currently in DIFA represent a broader cross-section of academic disciplines today than at any time in its 10-year history.

“What I like about DIFA most is the whole philosophy of students teaching students,” Pross said.

A Rich Network of Resources

In addition to learning from each other, DIFA also draws freely on the rich intellectual resources of Davidson’s faculty, staff, and alumni. The college’s investment analyst, Nate Mease, offers administrative support. Professors of Economics Ben Baker and Dave Martin spoke last semester on financial accounting and valuation, respectively. Ray Jacobson, Davidson’s chief investment officer, presented a talk about the endowment and the longer-term horizons of the institutional investor. John Teed ’87, managing partner of Gaskin Teed Capital in Charlotte, spoke at another meeting on a wide range of hands-on topics from his daily work.

Though DIFA benefits from the collective wisdom of the broader college community, it is notable among peer groups at other schools because the students execute their market activity autonomously, as an independent piece of the endowment. DIFA membership is divided into six sectors (financial, energy, retail, industrials, healthcare, technology), each of which takes responsibility for doing market research and stock analysis. In turn at different Tuesday night meetings, they make buy/sell/hold pitches to the larger group. DIFA executes trades directly through an online account.

First-year student Andrew Ma ’12 from Seoul, South Korea, says DIFA is a big step toward the real world from a similar high school club, which operated in a hypothetical universe without real money. “This is more of a way to reach out into the real world,” he said.

The night that investment manager Teed spoke, he characterized much of his own daily work as exercises in problem-solving. He championed a broad liberal arts background as a perfect preparation for finding clear solutions. (Technology sector head Evan Mintz ’11 had perhaps unwittingly demonstrated Teed’s point in passing earlier in the meeting. He “solved” the “problem” of updating information for a presentation point by simply Googling the ticker symbol “GOOG” on the large screen, during the presentation itself.)

“There’s a clear connection in finance to the economics major, but I think that’s overrated,” Teed continued, noting that he gets some of his own most compelling insights from analyzing the aggregate of what’s on popular magazine covers at newsstands. “So many things affect the market outside of just pure economics, the political and economic winds, sentiment in marketplace… You need a healthy dollop of history and psychology.”

Paying It Forward

Other nuggets of wisdom Teed imparted that resonated with DIFA members the night he visited: “You can beat the returns of any professor in this building. The market doesn’t care about your intellect or where you went to school or where you worship or what kind of car you drive.” “It’s okay to be wrong. It’s not okay to stay that way.” “The stock price contains everything that is known, hoped, and projected about a stock. The stock price is the truth.”

So, what is the truth about the future? What’s the gut feeling on a current stock price that says, “Buy me!”?

 “My gut tells me that’s not a question I should be trying to answer. Patience, patience,” said Paul Sorokin ’09, from South Salem, N.Y., co-president and an active investor since high school. Sorokin advocates a “laundry list” approach to stock-buying: “You have things you like, but you only buy them when they’re on sale. I have very little faith in macro-economic forecasting. There are a lot of perverse incentives throughout the financial industry, and I don’t want to participate. Markets are not nearly as rational as you might believe coming out of an M.B.A. program…. Business fundamentals change much more slowly than Wall Street’s opinion of a stock does.”

Whatever a stock does, however fundamentals may change, and whatever Wall street opinions come out of it all, DIFA students will be watching, and learning, and passing it on.

“I want to see people in here who have no idea of what Wall Street or the stock market means,” DIFA President Cisneros said, “because that was me four years ago.”

Posted By: Bill Giduz