With the ongoing financial crisis, even the most experienced investors are uncertain about the economy’s future. For several students, however, a little bit of research and time goes a long way—in the month of October, the student-run Wesleyan Investment Group (WIG) made returns of nearly 50 percent on its stocks and options, drastically outpacing the national market.
The WIG, comprised of nearly 25 students, meets biweekly to discuss the market and generate investment ideas for the nearly $40,000 it now holds. This group is not unique to Wesleyan, as Harvard and Yale, among other universities, have similar clubs on their campuses.
The WIG got its start several years ago during a national investment competition. In 2002, 20 universities throughout the East coast, including Wesleyan, became involved in a yearly competition to see which of the universities’ student-run investment groups could make the biggest return on their investments.
According to Ramanan Sivalmgam ’10, co-chair of the WIG, an alumnus donated $50,000 so that Wesleyan could participate in the competition. During the 2006-2007 school year, the University took second place, with a return of 25 percent on its investment. The WIG formed from this competition so that it could maintain the role of investing the initial funds.
In the spring of 2007, however, students received an e-mail notifying them that the competition was off.
“However, we still had several thousand dollars sitting in the fund,” said Mike Levin ’09, WIG co-chair. “So we decided to continue investing it.”
In the latter half of 2007, the group ran into trouble when it discovered that the WIG’s founders had failed to file proper tax return documents, which meant that the group had not been filing taxes since its inception. To the dismay of the WIG’s members, this lapse resulted in a $15,000 loss.
However, the group’s failure to file taxes affected it in more ways than one—the WIG’s account was frozen for the first half of 2008, and only recently was it unfrozen and granted full trading privileges.
While the market has been extremely volatile over the past few months, the WIG has managed to invest its money wisely and with care.
By May 2008, the group’s account reached approximately $36,000 in stocks and cash; today, it boasts over $40,000. According to Levin, the WIG’s best returns occurred during the week ending on Friday, Oct. 10—its account grew from $27,500 to $43,000 during that week alone.
“We were able to pick the market bottom on October 10,” Levin said. “We sold puts, bought calls on it going up, and the following Monday we were up by 11 percent.”
The WIG has modified its investment strategies slightly since then, but nevertheless, its investments remain extremely volatile.
“Generally, we only buy stocks that we’re willing to keep for one to 1.5 years,” Levin said.
As a general strategy, the WIG retains over 20 percent of its capital in cash. In light of the fluctuating markets, however, the WIG has retained an even greater percentage in cash.
“A result of our recent investment strategies is that we have 40 percent of our cash sitting there,” Levin said. “It’s important to always have capital on the side, just in case.”
While the WIG’s fund is not attached to the University’s endowment, it would be funneled into the endowment if the group were to dissolve. Universities across the board are reeling from the effects of the financial crisis—Trinity College announced that it lost 14.9 percent of its endowment as of Sept. 30, 2008. While Wesleyan’s Quarter 1 results have yet to be released, it is unlikely that its endowment fared any better.
“Yet, the University would have to be pretty desperate to make that move,” Levin said.
Unlike other student groups on campus, the WIG allows students the unique experience of investing a sum of money that, while not large from an investor’s perspective, is certainly significant enough to see the pages of economics textbooks brought to life.
“The Investment Group gives students a hands-on approach to dealing with money,” Sivalmgam said. “We have direct control over these investments and are trading daily, which has given us such valuable investment experience as undergrads.”
While it could be said that this sum of money would elicit unwise or overtly risky moves on the part of those running it, the fund appears to be in good hands.
“This is what we like doing,” Sivalmgam said. “We put a considerable amount of work into these investments.”
Daniel O’Brien ’10, WIG co-chair, agreed.
“We’re pretty confident with what we do,” he said.