Chasing the Bull Market

While scores of their colleagues go on to accept jobs on Wall Street after graduation, a small group of Harvard undergrads decide to jumpstart their portfolio-building skills while still at the College.

Once a week, members of Harvard's two largest investment clubs--the Cambridge World Fund (CWF) and the Charles River Growth Fund (CRGF)--come together to pool their money and their expertise in picking the best stock portfolio.

Call them the Beardstown Ladies with a Harvard flair.

Members of the two groups, which together have about 105 members, agree that earning money is a driving force of their work, but say participating in the clubs is an invaluable chance to experience the nitty-gritty of the business world.

Bouncing on the Bubble

The recent downturn in the NASDAQ index caused sent more than a few shock waves through the respective memberships of the two clubs--both of which require students to invest a minimum amount of their own money in the funds.

CRGF invests mainly in technology stocks, while CWF invests exclusively in technology stocks--the majority of which trade on the NASDAQ.

So, when the market takes a downturn as it has in the past few weeks, falling more than 25 percent from a recent high, members of the CWF and CRGF have more than just an academic interest.

"[Tech stocks] are more volatile, so they're more exciting to watch," says Fan Wu '01, co-chair of the CWF. "We aren't so much into traditional, safe, stable companies. We're riskier than most clubs."

When members meet each week, they introduce stocks they think have potential to become part of each group's portfolio.

Justin G. Muzinich '00, managing director of the CRGF, says his group's focus on tech stocks takes advantage of members' technology savvy.

"Being college students, we can detect trends in and understand the tech stocks better," Muzinich says. "We don't, for instance, get involved with semiconductors. We try not to get in over our heads."

But despite recent market fluctuations, the funds have surprisingly successful track records. Cambridge World Fund

The CWF got its name in 1996 from the melange of international stocks its original members purchased for the fund.

According to Wu, who joined the club last year, the original group consisted of eight members who would meet "to discuss the market."

It has since expanded to a membership of 80.

Wu says the group meets every week to discuss stocks that members would like to buy or sell.

"The treasurer or secretary sends out an e-mail to ask what stocks people want to talk about," he says. "Then they print up material on the stocks and discuss investing."

CWF uses the minimum $90 contribution from each member to invest. Some members opt to invest significantly more.

The larger the contribution to the group's financial pool, the more of a stake each member has in the club--and the more money he or she can make when the club makes smart stock picks.

Wu says the student with the biggest stake in the fund has about $2,000 invested--a nice chunk of money for when he decides to leave the club.

"We allow people to cash out," Wu says. "Seniors usually do this, and some enjoy a 50 percent gain."

They've ensured that type of gain with lots of smart picks.

In four years, club Co-Chair Parag Y. Shah '01 says an initial investment of $3,000 has ballooned to $20,000.

Indeed, for the last few years, the CWF has outperformed the stock market as a whole by a wide margin.

In 1997, according to Shah, the group's return on its investments was 59 percent. In 1998, that number grew to an astronomical 94 percent, and fell back to 68 percent in 1999.

But Wu stresses that the CWF's primary objective is not profit.

"The main point of the club is to learn about the market, not to make money," Wu says. "If it were, we would have meetings every day and not once a week."

Charles River Growth Fund

Members of the CRGF--which was founded in 1994 by 15 Eliot House residents--have a similar philosophy to those of the CWF.

"Everyone can speak and present ideas," Muzinich says of the club's weekly meetings. "We try to make at least one transaction at every meeting. It makes things more exciting."

But unlike CWF with its open enrollment, CRGF tries keep its membership constant at about 25. New members are selected through an application process--though no investing experience is required.

Limited membership is one of the few areas in which the CRGF and CWF differ.

"The small group lets everyone get to know each other and helps the learning process," Muzinich says. "It's like taking a section versus a lecture."

Muzinich will not reveal how much money the CRGF portfolio holds in its 12 stocks, but he indicated that however much it is, it's growing.

"We've seen a 69 percent return throughout the year," he says, noting that, like the stock market as a whole, his group's stocks have recently taken hits and subsequently recovered somewhat.

Muzinich says the CRGF has outperformed the market "every year but one" since its formation.

Inside Information

How is it that both CWF and CRGF seem to be doing what most professional investors struggle to accomplish?

"Mostly luck, partially strategy," Muzinich says.

He says that he and his fellow investors try to look for stocks where they, as college students, have a "comparative advantage" in their ability to predict a rise or fall in demand for the company's service.

Shah and Wu say CWF members have specific points in mind when evaluating potential additions to their portfolio.

"Some of us are committed to finding companies with superior technology," Shah writes in an e-mail message. "Others look to earnings and value, while still others turn to future growth prospects. The end result is that we find and invest in a diverse slate of companies that outperform the general market as a whole."

Wu says he especially likes the club's willingness to move quickly.

"We make on average one trade per week [and] we're not afraid to jump in and out of a stock in a short amount time," he says. "During last summer, we made over 100 percent on a stock that we held for less than three days. It turned out to be one of our biggest winners of the year."

To maintain their momentum, CWF and CRGF organizers stress the importance of recruiting insightful and dedicated new investors.

Wu says CWF recruits members by postering at the beginning of each semester and by relying on word-of-mouth to attract students. He says that although his group targets first-years in Social Analysis 10: "Principles of Economics," students concentrating in any field are welcome to join.

"Our past president was a philosophy major," Wu says.

Although the CRGF has limited membership, Muzinich says an interest in the market is the only prerequisite for joining the CRGF, and everyone--regardless of concentration--is welcome to apply.

"Both of the managing partners this year were social studies majors," he says.