When Orkun Sahmali ’06 invested in a small biotechnology company a few years ago, it initially did not do as well as predicted. But Sahmali had to deal not only with his own losses but also the complaints of his friends, many of whom had entrusted him with their funds.
“Overnight the stock went from three bucks to one buck,” Sahmali said. “It’s very stressful. I had to turn back and explain what’s going on.”
Those who stuck with Sahmali, however, ultimately chose the right path. The stock is now valued at over six dollars.
Sahmali, the president of the Yale College Student Investment Group, is just one of many Yalies who has felt the impulse to invest. While some students experiment with the stock market through YCSIG and others still rely on the help of their parents, several have begun to play the market themselves, encouraged by numerous books published in recent years encouraging young people to invest.
For inexperienced investors, joining YCSIG often seems like the best idea. The group raised $100,000 in donations from Yale alumni and, through careful deliberations at its weekly meetings over what investments to make next, has increased that figure by 150 percent, says Sahmali. The number sounds high, but Sahmali said many of the chosen stocks under-performed, especially compared to the other stocks in the 1990s bubble.
With about 15 to 20 regular members, the group uses both top-down and bottom-up investing strategies to procure the strongest returns possible.
“It’s a flexible group,” Sahmali, who began investing in equities and bonds in his native Turkey about six years ago, said. “We have weekly updates on the macro economy and on the markets, and regular pitching of stock ideas.”
Yale is far from the only college campus where students can join investment clubs to brave the booms and busts. Professor Don Chambers at Lafayette College in Pennsylvania advises the student investment group there.
Chambers, who has also published extensively on investing matters, has strong feelings regarding the benefits of investing at a young age.
“Largely speaking, you cannot trust the finance industry to put your best interests first,” Chambers said. “For example, I feel rather confident that when I go to see a cardiologist that the cardiologist really wants me to get healthy and will do what is in my best interest. But with financial professionals, there’s a conflict of interest. The mutual fund scandal teaches us that what’s done on Wall Street is done to make Wall Street richer, rather than just to serve clients. It isn’t wise to turn money over to a professional and trust that they’re going to manage it correctly. College is a great place to start learning.”
Chambers said his group of investors has done “about average.” While 1990s investments in the technology industry produced mass returns at first, the group started losing when tech companies began their downward spiral in 2000.
Janet Bamford, a financial writer and author of “Street Wise: A Guide for Teen Investors,” said the returns Chambers’ group saw sound pretty standard for college investors.
“There is not research on that, as far as average returns, but my gut feeling is that some [college students] do well and some don’t do well,” Bamford said.
She agreed with Chambers’ idea that investors, especially young ones, should be wary of brokers and other financial advisors.
Still, many college investors say they have never felt as though brokers tried to cheat them or did not take them seriously because of their age. Bert Ferrara ’07, a member of the Yale football team who has been investing his own money since he was 12, said he has found older people to be supportive. Younger people, however, are a different story, he said.
“I think older people are impressed, and it’s kids your own age who aren’t at that level,” he said. “I read The Wall Street Journal every day, and the football guys tease me, but it’s very good-natured, while older people always respect that. They like to hear your opinions since a lot of investing is picking up on trends … If you’re knowledgeable about the market, you have your pulse on things.”
Michael Stahl, who graduated from the University of Pennsylvania’s Wharton School of Business in 2004, could not agree more. His first investment, when he was 10, was in Atari.
“What nine- or 10-year-old male doesn’t know video games?” he asked.
After a return close to 500 percent, he was hooked. Stahl published “Early To Rise,” a guide for young investors, when he was 18, although he began writing it when he was only 14. Now, in addition to working in the financial industry, Stahl works with his younger brother Daniel, a senior in high school, to run a stock-market simulation game, StreetSage. To Stahl, starting early is essential.
“Having the ability and sophistication to get started is half the battle — just getting into the game,” he said. “You can make up for a lot of minor areas just by the fact that you’re young.”
Experience has certainly helped Ferrara, who had very brief success with his first investment.
“The first company I ever invested in was Jeffries, a mid-sized investment bank,” he said. “I bought it at $27 … and sold it at $35. It proceeded to go over $50. I kicked myself for that one.”
Stahl said investing in what you know is “a good philosophy to have, no matter what age you are.” He named Peter Winston and Warren Buffett as two men who have been successful in the stock market who have employed the technique.
Patrick Draeger ’06, a member of YCSIG who has been investing since he was in sixth or seventh grade, said he chooses only stocks he thoroughly understands. Although he cannot find much time anymore to manage a large portfolio of his own, he has been active in YCSIG and the Pantheon Group, a small group of Yale investors who work with their own money, for much of his time at Yale.
“You can start [investing] earlier or later [than college], but what’s really important about the Investment Group is you learn to ask questions about investments,” Draeger said. “Yale students usually become pretty wealthy, and at some point in their lives people are going to come out of the woodwork trying to sell you things that may or may not make money.”
Draeger said participation in groups like YCSIG can pick up where classroom education ends.
“When you’re at Yale you learn a lot of stuff, but one thing you don’t learn is how to manage money, which is a pretty important life skill,” he said. “I think a lot of people leave and have no idea how to do that.”
Like Ferrara, Draeger has received only encouragement from financial industry professionals.
“I think, if anything, people respect that you’re trying to learn at such a young age,” he said. “Especially in high school, if I asked a question to a broker, they were generally impressed. I wouldn’t say there’s disrespect at all. It’s more like they’re impressed and amazed that you have that kind of interest.”