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P O R T F O L I O P R A C T I C U M R E P O R T 2 0 0 8 - 2 0 0 9
Pioneering Spirit. Real Results.
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.
From the Dean By Anthony Hendrickson, Ph.D.
Dr. John’s Corner By John Wingender, Ph.D.
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.
Abhi LakshmanHOMETOWN: Bangalore, IndiaMAJOR: Master of Security Analysis and Portfolio Management (MSAPM)PLANS: CFA Level 2 Candidate
Alex BoydHOMETOWN: Bellevue, Neb.MAJOR: FinancePLANS: Creighton University School of Law
Christopher DiLorenzoHOMETOWN: Rinteln, GermanyMAJOR: FinancePLANS: Law School in Lincoln
Ellie FloodHOMETOWN: Mendota Heights, Minn.MAJOR: FinancePLANS: Financial Analyst at Ecolab
Emily BartlettHOMETOWN: Omaha, Neb.MAJOR: FinancePLANS: Sales Representative at ConAgra Foods, Inc.
Eric JamisonHOMETOWN: St. Charles, Ill.MAJOR: FinancePLANS: Assistant Business Manager at Kiewit
Jennifer LowHOMETOWN: Littleton, Colo.MAJOR: Finance & SpanishPLANS: Master of Science of Accountancy at University of Virginia / Ernst & Young
Justin HochsteinHOMETOWN: Norfolk, Neb.MAJOR: Finance & ManagementPLANS: U.S. Army
Justin KisselHOMETOWN: Sioux City, IowaMAJOR: FinancePLANS: Undecided
Kara EichmanHOMETOWN: Manhattan, Kans.MAJOR: Finance & International BusinessPLANS: Investment Banking Analyst at Bank of America Merrill Lynch
Katie SiedhoffHOMETOWN: Wichita, Kans.MAJOR: Accounting & FinancePLANS: Koch Minerals Services
Korey ChristensenHOMETOWN: Holstein, IowaMAJOR: Finance & MarketingPLANS: Duke Law School
Meagan UffelmanHOMETOWN: Ankeny, IowaMAJOR: FinancePLANS: Market Risk Analyst for Tenaska Marketing Ventures
Michael ZoellnerHOMETOWN: Denver, Colo.MAJOR: FinancePLANS: Commercial Real Estate
Nicholas RomanelliHOMETOWN: Cold Spring Harbor, N.Y.MAJOR: Finance & AccountingPLANS: Treasury Analyst with Kiewit
Ricky AndersonHOMETOWN: Omaha, Neb.MAJOR: Finance & Entrepreneurial ManagementPLANS: Financial Analyst at ConAgra Foods, Inc.
Tony BrillHOMETOWN: Houston, TexasMAJOR: FinancePLANS: Real-Time Trader in Dallas
T H E 2 0 0 8 - 2 0 0 9 P O R T F O L I O P R A C T I C U M T E A M
C R E I G H T O N U N I V E R S I T Y | C O L L E G E O F B U S I N E S S2
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.
Looking Forward By Nicholas Romanelli
New York Trip: 30-Year AnniversaryBy Michael Zoellner
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.
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.
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, TIAA-CREF, 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.
P O R T F O L I O P R A C T I C U M R E P O R T 2 0 0 8 - 2 0 0 9 3
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.
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.
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.
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.
FMA Update By Ricky Anderson
Portfolio Spotlight By Ahbi Laksham
LEFT: Chandrasekhar Bhaskar Bhave, chairman of the Securities and Exchange Board of India (SEBI), and Ahbi LakshamABOVE: Rick Witt of Mutual of Omaha and Ahbi Lakham
C R E I G H T O N U N I V E R S I T Y | C O L L E G E O F B U S I N E S S4
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.
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.
Portfolio Investing Strategy By Christopher DiLorenzo
Finding Opportunity By Tony Brill
In this market that everyone fears, we find opportunity.
P O R T F O L I O P R A C T I C U M R E P O R T 2 0 0 8 - 2 0 0 9 5
Current Holdings
3M Company MMM 600
Abbott Laboratories ABT 500
Altria Group, Inc. MO 1500
Apache Corporation APA 600
Apple, Inc. AAPL 200
Autoliv, Inc. ALV 925
Berkshire Hathaway Inc. BRK.B 22
Brightpoint, Inc. CELL 1500
Church & Dwight Company, Inc. CHD 1000
Citigroup, Inc. C 600
Clorox Company CLX 750
ConocoPhillips COP 1000
Dell, Inc. DELL 560
Devon Energy Corporation DVN 800
Diageo PLC DEO 1000
Ecolab, Inc. ECL 1000
Emerson Electric Co. EMR 1700
Fiserv, Inc. FISV 900
General Electric Company GE 1300
Industrial Select Sector SPDR XLI 1600
Iron Mountain, Inc. IRM 1800
iShares S&P Global Consumer Staples KXI 800
J.P. Morgan Chase & Co. JPM 1375
Johnson & Johnson JNJ 900
Kellogg Company KXI 500
Linear Technology LLTC 700
Lowe’s Companies, Inc. LOW 1000
Matthews International Corporation MATW 1300
McDonald’s Corporation MCD 400
McGraw-Hill Companies, Inc. MHP 1000
MSC Industrial Direct Co., Inc. MSM 500
Norfolk Southern Corporation NSC 1000
Oneok, Inc. OKE 1000
Oracle Corporation ORCL 2500
Patterson Companies, Inc. PDCO 500
PepsiCo, Inc. PEP 600
Potash Corporation of Saskatchewan, Inc. POT 1000
PowerShares Water Resources PHO 4750
Rockwell Collins, Inc. COL 630
St. Jude Medical, Inc. STJ 1000
Stryker Corporation SYK 800
The Western Union Company WU 2000
United Parcel Service, Inc. UPS 900
UnitedHealth Group, Inc. UNH 1100
Vanguard Consumer Staples ETF VDC 700
Vanguard Energy ETF VDE 200
Vanguard Large Cap ETF VV 1400
Vodafone Group PLC VOD 1312
Wal-Mart Stores, Inc. WMT 500
Washington Post Company WPO 50
Wells Fargo Company WFC 1700
NAME TICKER SHARES HELD NAME TICKER SHARES HELD NAME TICKER SHARES HELD
C R E I G H T O N U N I V E R S I T Y | C O L L E G E O F B U S I N E S S6
Portfolio Asset AllocationAs of December 31, 2008
SECTOR BREAKDOWNSECTOR PORTFOLIO WEIGHT (%) S&P 500 WEIGHT (%)
Information 11.26 19.42
Software 3.24 3.91
Hardwear 3.05 9.02
Media 3.04 2.66
Telecommunication 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
S TOCK T YPESTOCK TYPE PORTFOLIO WEIGHT (%) S&P 500 WEIGHT (%)
High Yield 10.3 8.33
Distressed 0.04 1.05
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
S TOCK S T Y LE VALUE CORE GROWTH
28 21 23 Large
5 8 9 Medium
2 1 3 Small
Other .02%
Cash .05%
Foreign Stocks 10.33%
U.S. Stocks 89.6%
P O R T F O L I O P R A C T I C U M R E P O R T 2 0 0 8 - 2 0 0 9 7
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.
This year, the Creighton Business Symposium was held on Nov. 7, 2008. The symposium was well-attended by Practicum class members. Two members in particular, Ricky Anderson and Kara Eichman, participated as members of the planning team. This
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.
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 mid- to 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.
Business SymposiumBy Kara Eichman
State of Economy By Ahbi Laksham
P O R T F O L I O P R A C T I C U M R E P O R T 2 0 0 8 - 2 0 0 9