Tuesday, September 16, 2008 9:47 PM CDT
Wall Street woes affecting finance students in real ways
By NATHANIEL WEST, Staff Writer
nwest@jg-tc.com
CHARLESTON — The Eastern Illinois University students were glued to the television feed that takes up almost the entire east wall of the Securities Analysis Center in Lumpkin Hall.
But it wasn’t SportsCenter or afternoon baseball that kept them so captivated. These fledgling stock brokers, analysts and financial advisers watched as the Dow Jones industrials lost about 100 points, only to regain it all and then some over the course of a half-hour, following the Federal Reserve’s surprising announcement Tuesday afternoon that it was leaving interest rates unchanged.
For these college students, it matters because there’s real money on the line. And during such turbulent times on Wall Street and throughout the U.S. economy, EIU finance majors are getting more than an education — they’re witnessing the potential pitfalls of their chosen careers play out in real-time.
“It’s just incredible to see everything going on,” said Jacques Beezley, a senior finance major at EIU. “Everyone says it’s history happening.”
History, indeed. The Fed’s decision Tuesday follows the worst day on Wall Street since the Sept. 11 attacks, as the Dow plummeted more than 500 points Monday on news that Lehman Brothers Holdings Inc. is filing for bankruptcy, Merrill Lynch & Co. is being sold to Bank of America Corp. and threats to American International Group Inc.
continue to mount — all of which promise to reshape the entire U.S. financial system.
The markets rebounded somewhat Tuesday, with the Dow sustaining a triple-digit gain at closing.
And students in the Applied Securities Analysis class at EIU are feeling the nauseating effects of this merry-go-round. After all, they are responsible for managing a $100,000 portfolio on behalf of the EIU Foundation.
Following the drama already this week, Beezley said, “I actually see the risk, what goes into decision-making.”
Adam Kestel, an EIU senior who serves as the qualitative portfolio manager for the securities class, said the ability to look at the numbers objectively is as important as ever in light of the upheaval on Wall Street.
“I’m learning how to balance my emotions, (to) keep emotion out of it and stick to a more statistical approach ... especially now,” he said. “I know it’s real.”
The events of this week have been particularly hard on Jake Byrne, a second-year MBA student and graduate assistant who interned with Merrill Lynch over the summer.
The forced sale of the iconic Merrill Lynch to Bank of America “surprised everyone, but it will turn out to be a good thing,” Byrne said.
He said these kinds of unexpected moves are reinforcing the fundamentals of investing. “It’s making (students) much more understanding of the risks,” he said.
“It makes you look a lot more at individual stocks; it makes you look a lot harder at individual companies, (which) makes this a really good learning experience.”
Finance educators echoed these sentiments.
Douglas ZuHone, instructor of finance at EIU’s Lumpkin College of Business and Applied Sciences and teacher of the Applied Securities Analysis class, said his students “generally” are grasping the situation on Wall Street.
“Current conditions in the financial markets create teaching opportunities,” ZuHone said. “This is an excellent opportunity for students to see our capital markets at work — the ups and the downs.
“Investment markets are increasingly complex and these dramatic events have increased the volatility and risk premiums of the market. We’re able to discuss and experience these happenings and their effects on their investments.
“It is a good learning experience and gives them greater appreciation for the challenges inherent in investment management.”
Richard Whitaker, associate professor of finance at EIU, said he and his students are talking about the theoretical and practical aspects of the ongoing economic woes.
“The current financial upheaval does not alter financial theory; but rather, (it) serves to illustrate what happens when market participants ignore financial theory,” Whitaker said.
“Real-time examples always serve to enhance teaching. It makes it easier to apply the classroom to what is happening in the marketplace.”
And he is keen on making sure the lessons learned now stick with his students throughout their careers in finance. “I hope that they will always remember that risk always exists,” Whitaker said.
“The time to be most concerned about risk is when it isn’t evident that any risk exists at all.”
At Lake Land College in Mattoon, economics instructor Brian Lynch said the crises on Wall Street and in the economy are proving useful in the classroom. “I am using (these) when I talk about capitalism and the role of the government in the economy,” he said.
“They have been helpful in the sense of getting students to understand that in a capitalist system, anyone can fail, no matter how long they have been in business.”
He said his students should “be armed with more knowledge, or maybe even scared to the extent that they might need to become more knowledgeable of what is going on in the financial sectors and the economy as a whole.”
Contact Nathaniel West at nwest@jg-tc.com or 238-6860.
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