It's a Friday night at New York University; classes are over and the weekend has begun. Time for some stock analysis, right? Well, it is if you're a member of the Investment Analysis Group (IAG), a club for undergraduates with a penchant for investing. Here is a look at how their investment ideas have done so far and a few of the lessons learned along the way.
About the IAG
So, what exactly is the Investment Analysis Group? The IAG has been in existence, at least in some incarnation, at the NYU Stern School of Business since 1995. While it would be correct to describe the IAG as an
investment club of sorts, this isn't your mom and dad's investment club. According to its Web site, the group attempts to "mimic, as closely as possible, a complete
equities research organization."
And they mean it. The school's aspiring Wall Street gurus show up in droves to the group's weekly meetings -- some in professional attire -- ready to make money, both real and make-believe. The group maintains two
portfolios whose performance is tied to real money from the school's administration (but I'll get to that in a bit).
An IAG meeting generally consists of a team of student-
analysts pitching a new stock for one of the group's portfolios, followed by an often action-packed question-and-answer session.
New members can expect to learn a lot about the investing world by joining the Investment Analysis Group. Mattan Griffel, an IAG board member, says, "I have to give credit to IAG for almost everything I know about finance. While I'm currently a sophomore taking my first finance class,
thanks to the club, I already know enough to run my own personal
portfolio." Griffel has also learned how to "understand some of the very complicated areas of investing like building DCFs (discounted
cash flows) and
analyzing financial statements."
The group has quite a bit to offer knowledge-hungry beginning investors, including a strong track record of beating the
"How a Group of College Kids Outtraded the Pros").
The IAG Portfolios
There are two portfolios run by the IAG: the All-Star Portfolio, which maintains a
strategy and the Initiative Portfolio, which goes for a
So what are the IAG's rules for investing? Each portfolio starts off with $100,000 in pretend
cash, and can only invest in stocks that trade on U.S.
exchanges. Each portfolio must also maintain a certain amount of
diversification (no more than 15% invested in any one holding), and only All-Star can
short-sell stocks. The
S&P 500 Index
benchmark that is used to gauge the performance of each portfolio.
For every 1% that the IAG's two portfolios beat the S&P 500, the Stern School gives the group a
$500 (up to a maximum of 10% for each portfolio), that is used for things like movie nights and dinners for the group.
The IAG's Fall '07 Stock Picks & Passes (So Far)
. Leave it to college students to suggest one of the world's leading alcohol brands as a first pick for the 2007-08 academic year.
The first official presentation for the school year was for
, the company behind Smirnoff and Tanqueray. But the choice to present Diageo wasn't as simple as a quick vote at happy hour, according to Feliks Zarotsky, Dina Model, and Meghana Reddy, the team behind the Diageo analysis:
"We chose the wines and spirits industry due to the volatility of the markets and the overall economy at that point. Bernanke (the Federal Reserve Chairman) was on the verge of making interest rate announcements and we felt that the investing environment was very volatile at that point. Therefore, we looked at the spirits and wines industry, as it is known to perform during times of both economic prosperity and duress."
The team felt Diageo was an outstanding stock in its field because of strong
financials and vision in the executive suite:
"Diageo's CEO, Paul Walsh, has focused on efficiency and product performance. During his tenure, the company has reported lower COGS ( cost of goods sold) year over year and allows for a higher bottom line. As for international growth, we see endless opportunities."
Ultimately, though, the Diageo analysis team's thirst for profits didn't translate to the other members of the IAG; the stock was voted out on Friday, Sept. 21.
was the next company to face the gauntlet of an IAG meeting. Where the Diageo team first looked for an industry that was so-called
recession-proof, the Intel analysis team -- Mike DiMeglio, Rachel Nabatian and Arvindh Rao -- decided to parlay their
technology know-how into a stock pick. Regarding the team's approach to stock-picking, DiMeglio says, "As
Peter Lynch said, 'Invest in what you know.' It's always a lot harder to start from scratch with a company you've never heard of in an industry you know nothing about." DiMeglio says that the approach is "similar to how many analysts at
investment banks are segmented into industry groups."
Regarding Intel, specifically, DiMeglio says, "It became clear just how much of an advantage Intel had. Their pipeline is years beyond others, and even their current lineup is much more advanced than what
, their closest competitor, has to offer. Financially, we saw a stock which seemingly was trading well below its
estimated target price of around $33 (a possible 30%
return for the group's portfolios), the team was able to convince the other IAG memebers, and the stock was voted a "go" on Friday, Sept. 28. The impending shake-up in Intel's lineup should make the coming weeks a good test of their pick.
The Weeks Ahead
Regardless of the club's final decisions, each team still stands behind its stock picks. Since Diageo was voted off the investment island its
shares have jumped 4.5% in value, a fact that no doubt leaves some group members sorry that they couldn't take part in that action.
The Diageo analysis team says, "We feel that the company's shares will continue to rise in price and should be invested in
the IAG's portfolios. Given a second chance, we would have tweaked the DCF (discounted cash flow)
valuation to reflect individual business segment growth."
Excitement lies ahead for NYU Stern's Investment Analysis Group.
( CSAR) investment fate and a showdown over shoe-maker
should make for the continuation of an educational and potentially investable school year.
Jonas Elmerraji is the founder and publisher of Growfolio.com, an online business magazine for young investors.