While the Chinese stock market was plummeting Monday night, one group of Yale students who hadn’t yet heard the news was busy rejecting an investment there.
You only need to know English to buy and sell stocks in the United States, but don’t tell Globalfund, a student investing group founded in October. Its 12 partners boast a dozen languages among them, ranging from Serbian to Cantonese.
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The group emphasizes a depth of research that members said is rarely found among non-professional investors. Fueled mostly by its partners’ summer income, Globalfund has earned a 10.5 percent return in less than five months, partners said — crushing the S&P 500 index, which returned less than 3 percent over the same period. But how much of their short-term gains is simply luck and fortuitous timing is impossible to determine, and with most of the group’s membership graduating this spring, the fund’s future is still murky.
Globalfund’s members meet in Branford’s Mendell Room each Monday to discuss potential investments. At the most recent meeting, they considered an investment in Yanzhou Coal Mining Co., based in Zoucheng, China. But while the students were deciding against the investment — citing a lack of information about the company as well as broader concerns about the health of the overall Chinese market — the stock market there plummeted almost 9 percent in one day, sending shockwaves across the globe over the last week.
It seems appropriate that the group’s most recent decision centered on China. Its collective languages include Mandarin, Cantonese and a Shanghai dialect, and it owes its very existence to the country. Phil Uhde ’08, Globalfund’s founder, said he first came up with the idea after spending almost a year in China on a Light Fellowship. Following 10 months of the “tedium” of language study, he finally turned to reading his roommate’s finance textbook. Hooked, Uhde worked in private equity in Europe last summer and this fall he sent out an open letter to 15 fellow students inviting them to pool their savings and start their own investment group.
Twelve partners ultimately joined, along with a handful of other Yale students who contribute money to the fund but are not involved in its day-to-day operations. Members’ initial investments ranged from $1,000 to $3,000, mostly gathered from summer earnings, partner Javier Puig ’07 said.
Several of the other partners spent time in China as well, but the group’s investments are not focused on any one region. Globalfund’s name aside, Uhde said the organization is completely agnostic as to which region to invest in. The members could theoretically invest solely in the United States if the principles of value investing — an investment philosophy focused on seeking out companies currently under-valued by the market — led them there. But when choosing between two equally attractive companies, the group generally picks the one that would expand its geographical reach.
“We do lend an eye towards diversity in the portfolio,” Harry Greene ’08 said.
Globalfund’s first investment was less than a day’s drive from campus, but it seems to have been a wise one. The group selected Four Seasons, a luxury hotel operator based in Toronto. Four Seasons previously owned the hotels that carry its brand name, but has recently sold the properties off to focus on operating them — a business Uhde said is more lucrative. Within a month, the company agreed to be bought out by a group of private investors, including a Saudi prince, which sent the stock price soaring 33 percent.
“We’ve been very lucky in timing,” Uhde said.
But, he hastened to add, that has not always been the case. The group recently considered an investment in Whole Foods, the upscale grocery store company. But when the partners approved the investment — all decisions must be made by a majority of the partners, each of whom has an equal vote, as the group has no officers — they put off the actual purchase for a short time. A buyout bid for Whole Foods was announced the next day, Uhde said, launching its stock price up 23 percent within several hours and making the investment no longer attractive.
Intensive research helps make up for sometimes fickle luck. Each potential investment is scrutinized with a report led by one group member. Preparing one of Globalfund’s presentations takes 40 to 50 hours, Uhde said, and each member of the group spends another four to five hours examining the report and doing his own research before it is presented at the weekly meeting. Language skills come into play here, as the group targets information found in a country’s native language that may not be available in English. Puig said most members speak more than two languages, though he only speaks English and Spanish.
“I was probably the least literate,” he joked.
More than simply earning money, Uhde said, the group’s in-depth, multilingual approach emphasizes learning about a country as a whole, not just an economy.
Still, luck could be responsible for most of the group’s success thus far.
“Five or six months is a very short time frame,” partner Jan Rettel ’08 said.
The short time frame is becoming more relevant as many of the partners near graduation. They all started in the class of 2007, but some took time off and will still be here in the fall. The fund will be liquidated this May, though Rettel said the partners hope to recruit new juniors for the following year. One junior joined the group this week, and a sophomore and junior will likely join later this year.