COLUMBIA — Lance Schafer, in a green pullover with the collar up, a black pen in the back pocket of his blue jeans, directed the laser pointer to a slide of Darth Vader with his mask off.
Every so often, he'd press his hands together in front of his chest, as if in prayer. It was Monday, Nov. 18. As he spoke, 10 young men and two young women gazed intently at a set of two computer screens in a room on the ground floor of Cornell Hall, a building that is part of the Trulaske College of Business.
At first glance, it looked like the students weren't paying attention to Schafer, who's getting a master's degree in business administration. In fact, they were using Bloomberg terminals to look up analyst reports and stock projections for ResMed, the company Schafer was presenting.
ResMed specializes in breathing apparatuses to treat people with sleep apnea, a disorder in which people stop breathing while asleep.
The former CEO of ResMed likened the 1980s apparatuses to the machine Vader needed to breath, Schafer told the group. These days, they are much smaller.
Schafer's presentation was an assignment for the Investment Fund Management Program, a course for undergraduates and MBA students. They get real-world experience managing a portfolio of stocks using real money that has been donated to the school. At the end of the fall semester, the portfolio was worth about $1.5 million.
In 1967, the university set up the fund in honor of a late faculty member. The program started as a club but developed into a course.
Students spend tens of hours creating presentations, complete with 10- to 20-page analysis reports and a slideshow, on companies' stocks and growth potential. They make recommendations to buy a stock not in the fund or to sell or hold a stock in it.
Students said they use the Bloomberg terminals to help them perform the analysis at a high level. The business school pays $144,000 a year to use the 36 terminals, said Dan French, the chair of the finance department.
The portfolio includes some big names, such as Amazon.com Inc. and Microsoft Corp., and some lesser-known ones, such as United Natural Foods Inc. and Schlumberger Ltd., which provides services to oil companies.
"What you'd think is, here's a bunch of 21-year-olds, plus or minus, you'd think that they would be really, really aggressive," said Adam Bixler, a first-year MBA student and the program's CEO who remembers coming home after elementary, middle and high school and watching CNBC, a business news TV station.
"We're actually very conservative as a class," he said. "I think the fact that we're dealing with real money, I wouldn’t say it's necessarily intimidating, but it makes people have a real vested interest in the performance. Nobody wants to go up there and recommend something that they don’t actually believe in."
Half of those who apply for the course are accepted, said Michael O'Doherty. He's the course’s instructor, but it's really student-led, he said. He facilitates conversation and has no say in which stocks students buy or sell.
"If an instructor led the class, everybody's going to look up to the instructor and have a tendency to follow what his investment thesis is," said Geoffrie Greene, a second-year MBA student who has been managing his own portfolio since he was a college freshman. "There's a kind of pressure to do your work well and present it in a nice fashion so we can make accurate, good decisions from it."
A stock revisited
At the end of Schafer's presentation on ResMed, he recommended that the group not buy in at this time. He thought it was a good company, but the uncertainty of how the new federal health care law would affect it scared him a bit, he said.
The group asked him questions before he returned to his seat in the second row of Bloomberg terminals.
Schafer was the oldest person in the class. His first degree is in French literature, and he taught English in France before moving back to the United States. Regular brunches with the president of a French bank's northern branch sparked his interest in finance.
Schafer sat behind Nathan McCormick, an MBA student who was an All-American wrestler for Missouri his senior season. As this semester's external relations chair, McCormick was responsible for creating the program's semester-end report, which included a summary of the fund’s performance, a list of investments and student bios.
As Schafer chewed on a mint, McCormick turned around from his seat in the front row and handed Schafer his bio.
"Check if everything's right," McCormick told him softly.
Schafer looked it over and handed it back to McCormick. He gave the square-jawed ex-wrestler a thumbs-up and nodded his head.
When class ended, O'Doherty told the group that all portfolio decisions needed to be finalized by the next class, two days later.
"Any stocks we want to revisit?" He asked the class. "BP?"
Much discussion during the semester had focused on BP, the oil company facing large fines for a 2010 spill in the Gulf of Mexico. Because of uncertainty over how big the fines would be, the company wasn’t exactly an attractive prospect.
However, Adam Swantner, a red-bearded MBA student who presented BP and recommended buying it, believed the stock was undervalued. He wanted to get in while the stock was still inexpensive.
To BP or not to BP?
At the next class, Greene made his way to the front of the room. As the program's portfolio manager, he determined the overall direction of the fund, and he would lead that day's discussion to finalize the portfolio.
The group needed to vote on seven companies. A recommendation was made to buy BP and sell Schlumberger (pronounced shlum-bear-zhay), the oil services company.
From his seat in the third row, Swantner told the group that people on Wall Street believed — and he agreed — that BP's stock price would increase despite there being no word yet on fines.
"I don't know why we'd sell Schlumberger to buy BP," Schafer said from the second row.
He knew many financial analysts believed Schlumberger's stock had the potential to grow, and not one he could find recommended selling it.
"Is there any sentiment for both these companies?" O'Doherty asked.
Schafer was the only one to respond.
"I'm down on BP and up for Schlumberger," he said.
Greene, speaking in a low monotone, took it to a vote.
Those for selling Schlumberger and buying BP?
Four people raised their hands.
Those for keeping Schlumberger and not buying BP?
After the group voted on the remaining companies, O'Doherty announced that because of their decisions, the portfolio would have around $87,000 in cash.
What to do with that extra money? Invest it? Keep it in cash? The amount wouldn't grow if it were kept in cash, and next semester's group wouldn’t touch the fund for the next three months.
Someone made a joke about going to Las Vegas with it. The group laughed.
From his position at the front of the room, Greene suggested increasing the amount the group owned in an exchange-traded fund, which is a group of stocks in one industry — in their case, health care. Nine hands went up.
That leaves us with $42,000, O'Doherty said.
Swantner said three months wasn't that long to hold that amount. The others agreed, and O'Doherty said the trades would be made before the last bell the next day.
Breakfast at Reynolds
On the Thursday after Thanksgiving break, the group gathered in a second-floor room in MU's Reynolds Alumni Center to present their portfolio to finance professionals. No blue jeans and T-shirts were to be found.
Despite three floor-to-ceiling windows with a view of Tiger Plaza, the room felt cramped with four round tables and a crescent table with a Dell laptop and a projector. Copies of McCormick's end-of-semester report lay next to gold napkins.
A line for the breakfast buffet formed out in the hallway around 8 a.m. There were croissants and cinnamon rolls; bacon and sausage; cantaloupe and honeydew; triangles of French toast with raspberries; and crepes stuffed with egg, cheese and mushrooms.
Back in the room, most of the 40 chairs were occupied. O'Doherty stood up and gave a quick introduction before handing it over to Bixler, the CEO. Bixler wore a gray suit with a green tie, and rings adorned his right ring finger and his left index finger.
Speaking with his hands, Bixler explained that their portfolio had outperformed the Standard & Poor's 500 index, a benchmark for the market's success. He also told the attendees what the program had meant to him personally.
"The program has been directly responsible for my internships at Edward Jones," he said in his deep voice, mentioning the financial advising company based out of St. Louis.
His red beard trimmed down to a neat mustache, Swantner said they remained cautious with the fund.
Greene, dressed in all gray except for brown shoes, mentioned some of the high-performing and low-performing stocks.
"A little Cisco debacle hampered us near the end," he said.
A slide showed that the networking company had fallen 16.5 percent this semester. The slide also showed four stocks that had increased by more than 20 percent.
"Thanks for coming," said Greene, wrapping it up, "and a special thanks to Professor O'Doherty. He makes it all possible."
French, the finance department chair, got up from his seat at a back table and came to the front of the room.
"Thank you for your service to the university," he told the students.
French said the university usually pays for the type of analysis the class performed.
Schafer watched him from across the room. He said he plans to take the course again in the spring.
Graphic by Graciela Aguilarleon