How the Schools Fared in November

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Editor's Note: More than 30 college business schools have some kind of student-managed investment portfolio. Last month we launched the

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-Purdue MBA Investment League to highlight the picks of some of the best and brightest collegiate investors. For more background and a look at the competition's first monthly results, read last month's introduction to the series.

Thanks to a prescient call on Internet-auction company

Onsale

(ONSL)

,

Vanderbilt

topped the

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-Purdue MBA Investment League for November with a 22.6% gain.

The Vanderbilt team added Onsale to its portfolio eight weeks before a massive buying surge pushed the stock's price from the midteens to the upper 90s. Vanderbilt's gain easily outpaced those of its League competitors,

Notre Dame

and

Texas Christian

, which posted gains of 6.8% and 5.1%, respectively. Their results essentially mirrored the market. The

S&P 500

gained 6.1% for the period. A fourth competitor,

Wharton

, failed to report its results.

If last month's

poll is a guide, Vanderbilt's stunning performance caught the majority of

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readers by surprise. As of Dec. 10, just 28% predicted the school to be the November champion, compared with a 46% vote for our October frontrunner, Notre Dame.

The results illustrate the hazards of basing future predictions on past performance and of crowd mentality. Beating the market is still all about breaking away from the herd. Vanderbilt's team took the risk and reaped the rewards -- at least this time around.

"We added Onsale to our portfolio because we felt that it had several things in common with other highflying Internet stocks but had not yet participated in the dramatic upside movement," says Jason Beaird, chairman of Vanderbilt's

Max Adler Student Investment Fund

. Vanderbilt's eye-popping 288% return on the stock, coupled with an 81% haul on longtime holding

Spyglass

(SPYG) - Get Report

, more than made up for the school's 25% hit on recent addition

Friede Goldman

(FGI)

, an oil services firm, and put the $129,000 fund well ahead of its peers by November's close.

The technology-laden portfolios of Texas Christian and Notre Dame benefited from November buying within the sector. Common holdings

Cisco

(CSCO) - Get Report

and

Intel

(INTC) - Get Report

both posted returns around 20% for the period, which overcame lackluster performances in other market flat-liners, like Texas Christian's 3.6% stake in

Texaco

(TX) - Get Report

.

Interestingly, we also saw a direct conflict over

Disney

(DIS) - Get Report

. Texas Christian bailed out of the stock Nov. 12 only to see shares eagerly gobbled up by Notre Dame the following week.

All the funds remain cautiously positive about the long-term market outlook and feel that the

Federal Reserve

is through cutting rates for the time being. The student managers still view the threat of continuing turmoil in the international markets, and a resulting slowdown in exports, as a potential threat to a booming economy. "We still see the market moving sideways in the current trading range at least until the next round of earnings reports," says Texas Christian's Stephen Smith. "If the fourth-quarter 1998 and first-quarter 1999 reports are flat to down, look out for intense downward pressure in the market."

Vanderbilt

After locking in a windfall gain from Onsale, Vanderbilt swapped the proceeds into Washington State-based

Interwest Bancorp

(IWBK)

and financial services holding company

Telebank

(TBFC)

, ratcheting up the portfolio's finance-sector weighting from 10% to 18%.

"We feel strongly about Internet banking because of their lower-cost structures resulting in higher savings-account rates that pass through to customers," says Beaird, who bought 150 shares of Telebank despite its price-to-earnings ratio of 800. "Telebank appears well positioned to capture future growth in this area spurred by heavy customer demand."

So far, the school's heavy emphasis on technology stocks has placed the fund comfortably ahead of its small-cap benchmark by more than 20 percentage points year to date. Buoyed by the belief that small-caps still have some catching up to do relative to blue-chips, the team seems cautiously enthusiastic. As Beaird puts it, "The rapid increase in the market has made us a little nervous, but we still feel that small-caps are a great place to be."

Notre Dame

Members of Notre Dame's team of undergraduate managers made some aggressive moves during November before handing the portfolio to their MBA student colleagues for the spring semester. To make room for bigger catches, the club cut loose holdings in lackluster performers like

Caterpillar

(CAT) - Get Report

, which has suffered from flat earnings and high international exposure. Among other sales, the team jettisoned temporary-services provider

Norrell

(NRL)

, citing the impact of huge restructuring charges on net income.

Flush with a $50,000 cash injection from the university and the proceeds from recent sales, the school went on a buying spree, fattening its portfolio weightings in consumer cyclicals, energy and utilities. "We added a position in

Transocean Offshore Drilling

(RIG) - Get Report

, as we felt that oil stocks were trading at a very low price in light of our prediction for an eventual rebound in oil prices," says student manager Erik Endler.

"We also added 400 shares of furniture-maker

Ethan Allen

(ETH) - Get Report

, a company we believe is making great strides in reorganizing its stores," he says.

"Finally, the new Mach3 razor and a recent price dip induced us to buy 500 shares of

Gillette

(G) - Get Report

." Other additions, like

Enron

(ENE)

and

Tyco

(TYC)

, made near-year highs. Were these desperate last moves made by the team to jack performance on a momentum play, or were they solid long-term picks? You be the judge.

Texas Christian

With 20% of its $1.6 million portfolio in fixed-income investments and a charter mandating a total return objective, Texas Christian is emerging as the league's steady plodder. The team's heavy weighting in consumer staples like

Colgate

(CL) - Get Report

might suggest it's battening down the hatches. So is its dramatic move toward technology contradictory or out of character?

Portfolio manager Al Prentice says the weightings are consistent with the team's economic forecasts. "We think that companies such as Intel and Cisco have tremendous franchises, dominate their competition and can thrive even in down economic cycles," he claims.

In November, the club also took stakes in consumer-finance firm

Associates First Capital

(AFS)

, medical-products company

Johnson & Johnson

(JNJ) - Get Report

and retailer

Williams Sonoma

(WSM) - Get Report

.

What's your opinion on the difference in strategy that arose last month between the portfolio managers at Notre Dame and those at Texas Christian? Vote in our poll.

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