Pioneering Spirit. Real Results. PORTFOLIO PRACTICUM REPORT 2008-2009
THE 2008-2009 PORTFOLIO PRACTICUM TEAM
From the Dean
Dr. John’s Corner
By Anthony Hendrickson, Ph.D.
By John Wingender, Ph.D.
Once again, I had the pleasure of leading the Portfolio Practicum while Professor John Wingender was teaching in our Jesuit Consortium MBA program in Beijing, China. This year marked historic challenges in the marketplace, and I’m proud of how our students handled the debate and decision-making process in uncertain times. They consistently upheld the principle of value-investing, a technique perfected by Warren Buffett. They also won a national investing competition, celebrated the 30th anniversary of the New York Trip and planned a value-investing panel discussion on our campus for students from across the nation who attended the Berkshire Hathaway Annual Meeting held in Omaha. This class is a wonderful part of our Portfolio Practicum tradition at Creighton University College of Business, and I was honored to be part of their contribution as responsible, innovative investment managers.
This year’s Portfolio Practicum class is another group of outstanding students. Each year, I am impressed by the quality of the students and the diligent effort they put into their coursework, social events and service activities. We continued to have outstanding local investment professionals as speakers who shared their experiences with the class. I get to interact with the students in the Financial Management Association, as I am the faculty advisor, and the whole class is in that organization. Many of this year’s class went on the New York trip. This year I was the finance professor on the trip and got to spend time with them doing pre-trip seminars on Saturday mornings, visiting New York City companies, seeing its tourist spots, and enjoying its cultural events. New this year, in addition to the many activities in their student groups, several members in the class participated in the Youth Leadership Omaha events. One of the more remarkable adaptations in the freefall bear market was going to China to teach for Creighton University at our Jesuit Consortium MBA program in Beijing at Peking University. The Portfolio students had the great fortune to have Dean Hendrickson teach the class during my trip. I have tried to bring my international experience into the classroom, but so far we have not found a Chinese company in which to invest. My teaching and my life have been enriched by my involvement with the Portfolio Practicum members.
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CREIGHTON UNIVERSITY | COLLEGE OF BUSINESS
Abhi Lakshman HOMETOWN: Bangalore, India MAJOR: Master of Security Analysis and Portfolio Management (MSAPM) PLANS: CFA Level 2 Candidate Alex Boyd HOMETOWN: Bellevue, Neb. MAJOR: Finance PLANS: Creighton University School of Law
Kara Eichman HOMETOWN: Manhattan, Kans. MAJOR: Finance & International Business PLANS: Investment Banking Analyst at Bank of America Merrill Lynch Katie Siedhoff HOMETOWN: Wichita, Kans. MAJOR: Accounting & Finance PLANS: Koch Minerals Services
Christopher DiLorenzo HOMETOWN: Rinteln, Germany MAJOR: Finance PLANS: Law School in Lincoln
Korey Christensen HOMETOWN: Holstein, Iowa MAJOR: Finance & Marketing PLANS: Duke Law School
Ellie Flood HOMETOWN: Mendota Heights, Minn. MAJOR: Finance PLANS: Financial Analyst at Ecolab
Meagan Uffelman HOMETOWN: Ankeny, Iowa MAJOR: Finance PLANS: Market Risk Analyst for Tenaska Marketing Ventures
Emily Bartlett HOMETOWN: Omaha, Neb. MAJOR: Finance PLANS: Sales Representative at ConAgra Foods, Inc. Eric Jamison HOMETOWN: St. Charles, Ill. MAJOR: Finance PLANS: Assistant Business Manager at Kiewit Jennifer Low HOMETOWN: Littleton, Colo. MAJOR: Finance & Spanish PLANS: Master of Science of Accountancy at University of Virginia / Ernst & Young Justin Hochstein HOMETOWN: Norfolk, Neb. MAJOR: Finance & Management PLANS: U.S. Army Justin Kissel HOMETOWN: Sioux City, Iowa MAJOR: Finance PLANS: Undecided
Michael Zoellner HOMETOWN: Denver, Colo. MAJOR: Finance PLANS: Commercial Real Estate Nicholas Romanelli HOMETOWN: Cold Spring Harbor, N.Y. MAJOR: Finance & Accounting PLANS: Treasury Analyst with Kiewit Ricky Anderson HOMETOWN: Omaha, Neb. MAJOR: Finance & Entrepreneurial Management PLANS: Financial Analyst at ConAgra Foods, Inc. Tony Brill HOMETOWN: Houston, Texas MAJOR: Finance PLANS: Real-Time Trader in Dallas
New York Trip:
30-Year Anniversary
Looking Forward
By Michael Zoellner
By Nicholas Romanelli
The Creighton University College of Business offers an annual class over Christmas break to New York City. The class is a great opportunity for the business students at Creighton to get a taste of life and business in the financial capital of the world. It has been offered to Creighton students for 30 years, and has continued to be a huge success. My father, Mike, was a student on the very first trip to New York, and now 30 years later, I had the opportunity to experience the city firsthand.
Although many people will view the year 2008 as one of the worst financial crises in history, the Portfolio Practicum class has worked to take a more positive and optimistic outlook. As investment managers for Creighton University, we were given the opportunity to witness, experience and live through history as the credit bubble collapsed, along with the major investment banks. In an economic environment that challenged and broke many of the fundamental principles of finance taught in our text books, we were forced to think outside the box, along with the rest of the investment world. The real world experience we received, and the lessons we have learned, will undoubtedly prove to be invaluable assets to each and every one of us. To assess the financial health of the economy, we are striving to attain an objective macroeconomic view of the world and global investment community. Looking forward, a narrowing of the spread between T-bill rates and the London Interbank Offered Rate (LIBOR) will signal that the banking system is strengthening. These indicators tell us that investors are reallocating funds from Treasuries to the broader market, and that banks are lending to one another again. As investor confidence strengthens, we hope to see consumer spending resume and first-time home sales increase. With the recovery of the capital markets and the global economy, the financial services industry will surely see a bombardment of rules and regulations. These changes will be designed to increase the transparency of investments and the disclosure of financial activities. The costs associated with
new compliance requirements will increase substantially as a result. Chances are that regulation will be overdone, and that in the future there will be a subsequent movement toward deregulation in support of free market ideals. The true impact of our government’s aggressive actions to stabilize the economy will be seen in the years to come. Following our experiences at Creighton University, each of us will take away valuable lessons learned as members of the Portfolio Practicum class and the larger Creighton community. The Jesuit values instilled within each of us will be reflected by the way we do business as professionals and carry ourselves as individuals through life.
In an economic environment that challenged and broke many of the fundamental principles of finance taught in our text books, we were forced to think outside the box.
Due to the difficult economic times we are presently experiencing, it was especially interesting to hear the perspective of the people in the middle of all the turmoil. Some of the companies that we visited this year included Knight Securities, Moody’s, BlackRock, TIAACREF, Bank of America, the New York Stock Exchange, and many more. I learned so much on the trip and gained great memories. I think that I speak for the rest of the class by saying that the trip was an absolute success, and it is safe to say that the New York trip is as strong as it has ever been in its 30-year history.
PORTFOLIO PRACTICUM REPORT 2008-2009
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FMA Update
Portfolio Spotlight
By Ricky Anderson
By Ahbi Laksham
Creighton University’s chapter of the Financial Management Association (FMA), in conjunction with the Portfolio Practicum class, took first place in the National Collegiate Investment Competition.
Being a part of the Portfolio Practicum class has been a great experience for me. We are in the middle of an interesting phase in world history. Though some people foresaw the housing bubble, no one predicted the magnitude of the impact it would have on the global economy. I feel very fortunate to be learning during these times.
This semester-long, online portfolio simulation was hosted by Texas Christian University’s FMA chapter. The team received the first place plaque and a $750 check. Other clubs participating were from schools such as: Arizona State University, Southern Methodist University, William and Mary, George Mason University, University of Indiana, University of Missouri, University of San Diego and more. The competition took place August through December of 2008, during a historic market downturn. Creighton finished with a positive 30% return. Second place SMU finished with a 12% return. The Dow Jones Industrial average was down nearly 30% over the same period. Former president of Creighton’s FMA Ricky Anderson led the management of the portfolio. The Portfolio Practicum doesn’t focus on short investment horizons, but for the sake of this competition, a risky day-trading technique was used.
The Master of Security Analysis and Portfolio Management (MSAPM) program and the accompanying CFA curriculum have allowed me to understand the theoretical aspects of managing money. The Portfolio Practicum class and an internship at Mutual of Omaha provided me the opportunity to apply this knowledge – allowing me (and the rest of the class) to view the practical side of asset management. The challenges of 2008 have given me a
unique perspective on risk, the reality of negative returns and “Black Swans!” I take away several things from the Portfolio Practicum class: Not only did I learn the challenges of managing money, but also the importance of effective communication and thorough preparation and the experience of working as part of a team to better serve the needs of our client. I sincerely thank all of my professors, my classmates, the business school and the Creighton endowment fund for allowing me to be part of this class.
LEFT: Chandrasekhar Bhaskar Bhave, chairman of the Securities
and Exchange Board of India (SEBI), and Ahbi Laksham ABOVE: Rick Witt of Mutual of Omaha and Ahbi Lakham
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CREIGHTON UNIVERSITY | COLLEGE OF BUSINESS
Portfolio Investing Strategy By Christopher DiLorenzo In the Portfolio Practicum, we employ the value strategy developed by Benjamin Graham and refined by Warren Buffett. The principle behind this is to find a stock that has an intrinsic value that we calculate below what the market perceives it to be worth. A lot goes into this, but some characteristics that are important to all value stocks include: a low price to earnings ratio relative to its industry, a high and consistent dividend yield, a price to book ratio close to one, and stable earnings. Timing is important when purchasing a perceived “value” stock. In an ideal situation, we would buy the stock at what we believe is the lowest it will go, the bottom of the trough. Finding inefficiencies in the market, such as when it drops several hundred points based on perceptions or emotions, is a perfect time to purchase value stocks. The stocks could have no fundamental problems, but were affected by the systematic risk of the market. We experienced many days like this throughout most of the year and were able to utilize what we learned about value investing to capitalize on these opportunities.
Finding Opportunity By Tony Brill The last 12 months has been a “learning experience” for our class and every other investor participating in the market. Our current economy is suffering from fear of the markets, as evident in the gradual decline of consumer confidence. Investors fear that which they do not know, especially when these “unknowns” can drastically affect life savings. These investors have fled the market, running into the safety of money markets and CDs where there is a guaranteed return. In the midst of the current credit crunch resulting from the initial subprime housing debacle, investors are worried about stability. Our government’s focus has been on creating stability to prove that the economy is capable of surviving the current recession. Our class understands that the market needs to take its course and that “survival of the fittest” will still hold true. In this market that everyone fears, we find opportunity. We collect as
much information as possible about the credit crunch and the current economy and we use this knowledge in class when discussing companies that are intrinsically undervalued. When everyone else is running out of the market, we are strategically making moves to diversify our portfolio and push weight toward industries and companies we believe are sound. We have endured losses in the past 12 months but our long-term outlook is positive and we are confident that we will regain our losses in the future. We like to think of ourselves as the “fittest” of investors and we will survive this economy by capitalizing on the opportunities it presents.
In this market that everyone fears, we find opportunity.
PORTFOLIO PRACTICUM REPORT 2008-2009
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Current Holdings NAME
TICKER
SHARES HELD
3M Company
MMM
600
Abbott Laboratories
ABT
500
Altria Group, Inc.
MO
1500
Apache Corporation
APA
Apple, Inc. Autoliv, Inc.
TICKER
SHARES HELD
NAME
TICKER
SHARES HELD
Fiserv, Inc.
FISV
900
Patterson Companies, Inc.
PDCO
500
General Electric Company
GE
1300
PepsiCo, Inc.
PEP
600
Industrial Select Sector SPDR
XLI
1600
Potash Corporation of Saskatchewan, Inc.
POT
1000
600
Iron Mountain, Inc.
IRM
1800
PowerShares Water Resources
PHO
4750
AAPL
200
iShares S&P Global Consumer Staples
KXI
800
Rockwell Collins, Inc.
COL
630
ALV
925
J.P. Morgan Chase & Co.
JPM
1375
St. Jude Medical, Inc.
STJ
1000
Berkshire Hathaway Inc.
BRK.B
22
Johnson & Johnson
JNJ
900
Stryker Corporation
SYK
800
Brightpoint, Inc.
CELL
1500
Kellogg Company
KXI
500
The Western Union Company
WU
2000
Church & Dwight Company, Inc.
CHD
1000
Linear Technology
LLTC
700
United Parcel Service, Inc.
UPS
900
C
600
Lowe’s Companies, Inc.
LOW
1000
UnitedHealth Group, Inc.
UNH
1100
Clorox Company
CLX
750
Matthews International Corporation
MATW
1300
Vanguard Consumer Staples ETF
VDC
700
ConocoPhillips
COP
1000
McDonald’s Corporation
MCD
400
Vanguard Energy ETF
VDE
200
Dell, Inc.
DELL
560
McGraw-Hill Companies, Inc.
MHP
1000
Vanguard Large Cap ETF
VV
1400
Devon Energy Corporation
DVN
800
MSC Industrial Direct Co., Inc.
MSM
500
Vodafone Group PLC
VOD
1312
Diageo PLC
DEO
1000
Norfolk Southern Corporation
NSC
1000
Wal-Mart Stores, Inc.
WMT
500
Ecolab, Inc.
ECL
1000
Oneok, Inc.
OKE
1000
Washington Post Company
WPO
50
Emerson Electric Co.
EMR
1700
Oracle Corporation
ORCL
2500
Wells Fargo Company
WFC
1700
Citigroup, Inc.
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CREIGHTON UNIVERSITY | COLLEGE OF BUSINESS
NAME
Portfolio Asset Allocation
S E C T O R B R E A K D OW N SECTOR
As of December 31, 2008
Information
Other
.02%
Cash
.05%
Foreign Stocks U.S. Stocks
11.26
19.42
Software
3.24
3.91
Hardwear
3.05
9.02
Media
3.04
2.66
Telecommunication
10.33% 89.6%
S TO C K S T Y L E
PORTFOLIO WEIGHT (%) S&P 500 WEIGHT (%)
1.94
3.83
Service
39.89
40.98
Healthcare
10.52
14.78
Consumer Services
5.29
8.01
Business Services
12.84
4.96
Financial Services
11.23
13.23
Manufacturing
48.85
39.58
Consumer Goods
15.89
10.51
Industrial Materials
22.59
11.53
Energy
8.52
13.44
Utilities
1.85
4.1
STOCK TYPE STOCK TYPE
PORTFOLIO WEIGHT (%) S&P 500 WEIGHT (%)
VALUE
CORE
GROWTH
28
21
23
Large
High Yield
5
8
9
Medium
Distressed
0.04
Small
Hard Asset
9.54
14.4
Cyclical
13.06
14.39
Slow Growth
18.41
5.42
Classic Growth
25.46
28.43
Aggressive Growth
16.89
24.14
Speculative Growth
6.28
3.34
2
1
3
10.3
PORTFOLIO PRACTICUM REPORT 2008-2009
8.33 1.05
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Business Symposium
State of Economy
By Kara Eichman
By Ahbi Laksham
Each year the College of Business hosts the Creighton Business Symposium. Organized by students for students, the Symposium brings together successful business professionals and Creighton students to discuss current economic and business issues. Through a series of panel discussions, presentations and individual dialogues, Creighton students have the opportunity to ask questions, think critically and apply their classroom knowledge to real world situations in a professional environment.
year the Symposium featured Mary Pat McCarthy, vice chair at KPMG, as the morning keynote speaker and Jayme Martin, vice president and general manager at Nike Inc., as the afternoon keynote speaker. Overall, Anderson and Eichman judged the event to be quite an accomplishment. “Between the record attendance and thought-provoking panel discussions, it is impossible not to believe it was a success,� said Anderson.
This year, the Creighton Business Symposium was held on Nov. 7, 2008. The symposium was wellattended by Practicum class members. Two members in particular, Ricky Anderson and Kara Eichman, participated as members of the planning team. This
The United States is currently at a critical junction in its financial history. The full effects of the credit crisis are being felt at a global macroeconomic scale. While the housing market continues to contract and credit becomes even more difficult to obtain, unemployment continues to rise and investors around the world are seeking safety in defensive positions as they wait for the market to bottom out. It is in this context of uncertainty and near-term pessimism that the 2008-2009 Portfolio Practicum class has put forth its predictions for the performance of key economic fundamentals in 2009. It is our belief that GDP growth will continue its decline, contracting about 3% for 2009. We predict unemployment to rise to 9% in the near term. The housing market has slid over 26% from its highs in 2006. It is our opinion that prices will decline another 10% due to excess supply, increasingly stringent lending standards and rising foreclosures. There have been 32 recessionary cycles seen since 1854 according to the National Bureau of Economic Research and not one of those cycles is exactly like the other. The average recessionary cycle has lasted about 17 months. The current period seems to have persisted longer than the average and is definitely the worst contractionary business cycle since the Great Depression. We are also concerned about inflationary pressures coming out of this recession and feel that there will be a downward pressure on the value of the dollar in the midto long-term. Overall, we feel that it will be some time before we see the highs we saw in 2006-07, but we are cautiously confident that the markets will start recovering between late 2009 and early 2010.
PORTFOLIO PRACTICUM REPORT 2008-2009