You got your degree, sweated through job interviews, and landed your first real job - the kind with benefits. Congratulations. Now you're presented with a 401(k) that has countless stocks from which to choose, and suddenly you're back to square one.
Some new grads must ask, "What's a stock portfolio and how do you get one?"
That won't be a problem for Scott Setlock and Kristopher "Boomer" Hoppough. The two finance majors spent the last couple of years grooming the Seidman School of Business' student investment club's holdings into a market savvy portfolio that would even get Alan Greenspan's approval. Now known as Seidman IPO - for Investment Portfolio Organization - the student-run collection of stocks rose 39.01 percent from March 2003 to March 2004, outdistancing the S&P 500 gain of 23.88 percent for the same period. As of April, the club's stocks were valued at $30,000.
"It's real money, and we get to actively decide what happens with this money - where to put it, what stocks to buy, what companies to invest in. People see that as a hands-on opportunity, and it truly is," said Setlock, the club's outgoing president.
Seidman IPO, formerly known as the Finance and then the Investment Club, began in 1976 with $9,000 from benefactors. Students choose how to invest and hopefully grow the money, but over the decades the fund often languished as student interest waned. The current resurgence in interest began in the late '90s, as the stock market soared.
Setlock, 22, was a finance and economics sophomore when he was elected president of the club in winter 2002. Then it had about 20 members, most were seniors who would soon be leaving. The club's portfolio had reached an all-time high of $90,000 - 10 times the original investment 25 years earlier - in the unbelievable bull market of the late '90s. Then it plummeted to $16,000 after the crash of 2000.
"We were in the same boat as everyone else, but being an organization that focuses on management of a portfolio, we should have been better focused on reducing risk," Setlock said. "We've lately focused on getting rid of that risk and trying to look more long-term."
"My parents drove home the idea that I needed to save my money and I could either do it in a bank account and get a minimal return but safety, or I could take a little more risk and get a bigger return," he said. "It's become infectious to me."
Hoppough's investment advice to his Grand Valley peers? Start today - or better yet, yesterday. And join Seidman IPO. (See box on page 29 for more advice.)
Last summer, as Setlock and other members were reshaping Seidman IPO's image, Hoppough, 23, was diving nose first into stocks and bonds, trying to put into action new research practices he learned at the RISE Symposium.
"I poured my heart and soul into this thing trying to recreate it, put my own paint job on it," he said. "I probably put 150 hours into it."
The result is that the club now has 16 criteria that members use to analyze and rank stocks. Those in the portfolio that don't pass muster are weeded out. Students interested in adding a stock are required to research it thoroughly and submit a report.
"Our members have turned in over 2,200 stock reports since September, which is pretty staggering," Hoppough said. "We didn't think it would be such a big hit. We're getting great research done."
If people are investing for the long term, don't think you can ever go wrong because you're pretty much betting on American economy, and what other economy in the global environment is better than the American economy?"
- Boomer Hoppough, outgoing vice president of Seidman IPO
Senior members of the club analyze the reports and rank the stocks with the standards they're set up. The two top criteria: shares must be selling at above $3, and should be trading at more than 100,000 shares on an average daily basis to provide liquidity if the club wants to sell.
"Once a stock passes those first two tests, you're free to go on to the next 14," said Hoppough, referring to such f i n a n c e - speak as estimated earnings growth rates, return on equity and profitability ratios. Seidman IPO currently owns shares in Ford Motor Company, Home Depot, Microsoft, Pfizer Inc. and 14 other companies.
During their trip to the New York Stock Exchange in March, members of Seidman IPO made sure to rub the "Charging Bull" for good financial luck. Standing are, left to right, Boomer Hoppough, Paul Klopfenstein, Ryan Craves, Scott Setlock, Patrick O'Rourke and Jamie Hicks. In the front row are Jenny Ondersma, Erin Sedlacek, Brenna Cusack, Lindsay Janka and Katie McEachren.
"We're only looking at the cream of the crop stocks. We're taking a fundamental approach and looking at solid growth companies that have good balance sheets and good management," Hoppough said. "If a company doesn't have growth and a future, then why should we buy it?"
Hoppough surmised that had the ratio analysis been in place in the dotcom heyday that preceded the stock market crash, Seidman IPO wouldn't have taken such a big hit. Most of the dotcoms would have been too young to make it into the portfolio.
On the other hand, the market will always carry risk, no matter how diligent stockholders are. That' part of the danger -and allure -of investing.
"I don' think anybody can ever master it because times are always changing. You never know when two planes are going to crash through a building and send the market into a downward spiral," Hoppough said.
"But," he continued, "if people are investing for the long term, I don't think you can ever go wrong because you're pretty much betting on the American economy, and what other economy in the global environment is better than the American economy?"
Learning to take educated risks is an integral part of the investment club, said Mick Swartz, associate professor of finance in the Seidman School of Business and an adviser to the club.
"We take the bull by the horns when we talk about portfolio."
- Scott Setlock, outgoing president of Seidman IPO
"The club's regulated enough that we're not worried about fraud or anything like that, but students make the choices, and now they have a much better perspective in terms of overall portfolio management," he said. "Scott and Boomer have done a fantastic job and the reorganization has really helped determine the club's mission."
Besides learning the ins and outs of finance for themselves, "They're getting experience in how to give advice to others interested in investing their money," said Brian Van Doeselaar, assistant controller at Grand Valley, who oversees the club's financial activities.
That's a good thing. Following graduation in April, Hoppough was prepared to begin his new job as a stockbroker with Edward Jones Investments.
Setlock, who was honored with the Seidman School of Business Service Award and was voted by faculty as Outstanding Senior in Finance, also has a grand future in the world of finance. He's now a credit analyst with the Mercantile Bank of West Michigan. His future plans include graduate school.
Seidman IPO - awarded by Grand Valley as Most Improved Organization and Best Educational Program last semester - will continue to go strong with its new president, Tommy Hakim, 21, a finance major from Clinton Township, at the helm. Setlock and Hoppough "won't desert the club," said Setlock, but plan to be around to help guide it into the future. And then some.
"We're talking about how one day - when we hopefully make some money in our careers - we want to actually give back to the club," he said. "We've given a lot to, and taken so much from the club, but we're going to give a lot more in the future."
Sounds like a good investment.
Last chance for free financial advice from Scott and Boomer
Scott Setlock and Boomer Hoppough are the outgoing officers of Grand Valley's student investment club, Seidman IPO. Both graduated in April and are going on to careers in banking and finance. Here are some words of wisdom from the two recent alums:
Q: When is the best time to start investing?
A: Yesterday, or if that's not feasible, today.
Q: What about my student loans and credit card balances? Shouldn't I pay them off first?
A: It's a good idea to pay off major credit cards before putting your money into investments, but don't wait too long. With interest rates on student loans so low, you can probably pay them off while also beginning to invest.
Q: I don't have much money but want to get on the stock market train. How can I get started?
A: Brokerages have programs that will automatically transfer as little as $25 each month from your bank account to a stock or fund. It's called "systematic withdrawal" and it's an excellent way to dollar-cost-average into any investment. It's hassle-free and virtually painless. As for coming up with the money, small lifestyle changes can have big returns. Pack your lunch instead of getting fast food, rent a movie instead of going out, take the bus instead of driving. The money saved can be put into the market where it can begin to work for you.
Q: How do I choose which stocks to invest in?
A: Mutual funds are a great way to get your feet wet with investing. Individual stocks can be risky, but if you must invest in them, stick with blue chip companies (those with an established record of making money). Talk to an investment adviser if you have no experience or time. Otherwise, screen stocks using an Internet search site such as finance.yahoo.com.
Q: What numbers should I look at to see how my stocks are performing?
A: Look at overall return as a percentage, not in dollar values. Percentages are the real measure of performance.
Q: Stocks or bonds? What's the difference?
A: Bonds are associated with less risk and less return. Stocks are associated with higher risk but a higher return. The bond is a loan to the company whereas stock is essentially buying the company. Simply put, stocks create wealth, bonds preserve wealth. They should be used in that order.
Q: If my shares decrease in value, should I sell?
A: No, you'll lose money. Patience is key. Sell only if a stock's fundamentals change for the worse. ["Fundamentals" refers to a stock's overall strengths such as earnings growth rates, profit margins, etc. If you have no earthly idea what these terms mean, see the last question.]
Q: What's the payoff in investing in the stock market in my 20s, when I could use the money now?
A: Quite possibly a life of Ferraris and mansions. Seriously, the earlier you start, the more you let the power of compounding work to your advantage. Yes, it may be difficult to invest at an early age, but if it were easy, everyone would do it, right?
Q: How can I learn more?
A: Whether you are a student, alumni, or parent of a student, check out Seidman IPO and/or attend its weekly meetings (see www.gvsu.edu/invest). If you'd like to talk with an officer, just e-mail email@example.com, and a member will be happy to talk with you!
Page last modified March 17, 2014