Author: Chris Suzdak
As the current credit crisis and housing slump threaten to collapse the entire world economy, Oxy students read pessimistic headlines every morning and call their parents to make sure their jobs and investments are still in line. Even the Occidental administration felt the need to send out an e-mail warning of “belt tightening and conservatism” as a result of recent market turmoil. The general loss of faith in the stock market and a plague of speculation even seem to have led the world to the brink of chaos.
The Blyth Fund has other ideas. This 14-member student organization, which manages over $100,000 of the school’s endowment by investing most of it in various stock markets, remains optimistic, even excited, about the crash. They see many opportunities in what is most definitely an under-valued stock market. They like to refer to a quote by Warren Buffet, one of the most successful investors ever and current richest man in the world, about this issue: “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
The students, who call themselves Director of the Blyth Fund, were eager to monitor their holdings and salvage their investments during what proved to be the worst week for Wall Street ever. They met everyday from Oct. 6-10 in their usual meeting spot in the library. Even during Fall Break, the Directors kept in constant communication with each other through online forums.
Their vigilance paid off the following Monday, when the market experienced a huge rebound, resulting in the largest one-day gain ever. In that day alone, the Directors chose to sell about half of their portfolio in an exit strategy to not just cut losses, but to free up cash that would allow them to pursue more appealing opportunities.
“We’re not cutting our losses per se, we just feel like there are better opportunities,” Jason Kwok (senior), President of the Blyth Fund and Director since his first year, said. For instance, the Fund decided to sell its remaining shares of Starbucks, a company that the Directors felt had good prospects in the long run, but wasn’t a great investment at the time being. Another well-known stock the Directors dropped was Citigroup, a company that they believed might be unreliable as a member in the currently shaky financial sector.
“We found a great opportunity to get out, and we acted on it,” Kwok said.
Since the Directors are students before investors, they can only meet a limited number of times per week. On a regular basis, the group meets on Mondays and Thursdays to discuss current market conditions and possible investment opportunities. When an actual financial decision is to be made, the 12 voting members must first agree. Because of this limited activity, the Fund has historically been forced to have a long-term investment outlook rather than a more day-to-day trading strategy. But things may change, given the situation of such a volatile market, which often encourages frequent trades.
This market disturbance comes at a time when the Fund is already in a transition period. “We’re in a little bit of a unique situation currently not only because of the unique market dynamics, but also because we’re going through some structural changes within the Blyth Fund,” Kwok said. Leaders of the Blyth Fund met with an asset management firm in Los Angeles called Payden & Rygel this semester, which they discovered through Scott Weiner ’77. Weiner gave the students advice on how the Blyth Fund could become more of a professional-looking asset management entity.
In addition, the Directors are looking to change some of their investment approaches. Changes could include expanding the number of sectors being considered for investment to 10, which hedges risk and helps diversify the portfolio. Having sold a significant portion of their investments for now, they have plenty of cash available, which they keep invested in money markets through Smith Barney. Their goal, however, is to move from their current four holdings of Energy Select Sector SPDR (XLE), Sigma Designs (SIGM), Sigma-Aldrich Corporation (SIAL), and General Electric (GE) to a broader portfolio of 20 to 30 companies. They aim to have 85% equity and 15% cash as their portfolio split, which is as invested as one will ever see the Blyth Fund, according to its leaders.
“These past several weeks, we’ve been working on creating a more structured investment discipline and strategy going about looking at companies and bench-marking our portfolio. . .The current market conditions have really prompted us to take a hard look at the way we do things and then try to improve upon them,” Josh Lu (senior), a Director since his sophomore year and current Admissions Chair of the Blyth Fund, said.
Professor Woody Studenmund, who has been the faculty advisor for the Blyth Fund since its inception in 1977, believes there’s something good to take from all of this. “The students on the Fund tend to learn more in a down market than they do in a calm, flat market,” Studenmund said.
He is also confident that the current Directors are up for the challenge. “When stock prices decline sharply, its very difficult for any portfolio manager to avoid loses, and the Blyth Fund is no exception. However, the Blyth Fund is doing a good job of considering its options, keeping diversified and preparing for an upturn in the future,” he said.
The Directors estimate that since April 1, 2007, their portfolio has lost approximately 30% of its value, which is on par with most of the major indexes including the S&P 500, for the same time frame. In its 31 year history, the Blyth Fund account has ranged from its original $70,000 gift to upwards of $300,000 before the technology bubble burst in 2000. It is currently valued just over $100,000.
The entire economic crisis has been a tough learning experience for people all around the world, with many losing not only their jobs, but even their homes. The crisis has resulted in banks not wanting to lend money to each other, creating far-reaching problems and causing panic.
Lu expressed that while everyone is watching the same thing, we all have different takes. He personally thinks now is a good buying opportunity. “Just because the market is really battered right now along with these companies’ stock prices, it doesn’t mean that these companies are not still good,” Lu said. Either way, investors must remember to stick to the basics and avoid mere speculation by looking for companies with a strong balance sheet and favorable market share.
Kwok, meanwhile, appreciates that this is indeed a historic time. “A lot of Directors are excited about the opportunities that this kind of market is bringing us. At the same time, none of us directors have lived through this kind of experience before. These market conditions are really unique. Everyone’s been talking about how we haven’t seen anything like this in decades,” he said. Kwok admits that the turnaround, however, will most likely be as slow as other past market crashes and recoveries have demonstrated. “We’re prepared for a long process on the way back up, and we’ll look for opportunities on the way,” he said.
In recent weeks, the media and the American people have put a lot of pressure on the two Presidential candidates about their economic policies if elected, especially during the various debates. There has also been a lot of speculation about how each candidate’s successful election would impact the stock market and the overall economic confidence level. Members of the Blyth Fund may have their own separate political opinions, but in regards to the economics of it all, they can pretty much agree that election results will not have as much impact as some may believe. “At the end of the day, the stock market is going to be more dependent on the companies that are in play, the industries they operate in, and the customers they work with, much more than who is in the White House,” Kwok said.
The economy and stock market in particular have certainly att
racted a lot of attention in recent months. Only time will tell if all of this will attract people to stocks or just turn them away. Either way, the Directors of the Blyth Fund will continue to do their thing.
The Blyth Fund was originally established in 1977 through a gift from Richard Link and named after the legendary banker Charles Blyth. The two primary goals for the creation were asset preservation and education. Two other Funds were started at Stanford and Caltech, but only Stanford’s still exists. Since the Blyth Fund is completely student-run, there is no way the administration can effectively interfere with its decisions, leaving the students to do what they want and monitor themselves. The administration has its own portfolios and endowment funds to worry about.
The Blyth Fund admits new members in the spring semester for participation during the following school year. The admissions process is rigorous and involves resumes, essays and interviews. The formal application for next spring is already available online at http://asoc.oxy.edu/blythfund/apply.html. The current directors recommend using the CAE and the CDC for assistance in putting together your resume and writing your essays. They insist that anyone who is interested in the stock market at all should apply, not just Economics majors.
Because the Blyth Fund is such a unique and powerful experience, members usually come away with a greater understanding of the financial world, not to mention an amazing resume addition. “Blyth Fund members tend to go on to exceptional jobs after they graduate,” Studenmund said.
“At the end of the day, we’re here for the learning experience,” Kwok said.
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