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Business schools debate role of applied investment

In a time of economic uncertainty, the volatile sciences of investment banking and money management may be all the more difficult to teach. In a program at the Kenan-Flagler Business School of the University of North Carolina at Chapel Hill, however, students learn the ups and downs of the market for themselves, investing real money in the stock market.

Along with teaching money management skills and knowledge of the market itself, the program aims to instill in masters of business administration students responsibility for the consequences of their actions in a real-world financial setting.

"You make decisions day by day and live by them," said Program Director and UNC Professor Mustafa Gultekin.

Entitled "Applied Investment Management," the program manages two separate endowments. The Reynolds Fund began in the 1950s at an amount of around $10,000 and through years of management has grown to $350,000; the Cherry Hills Fund recently began in 1999 and has a current value of $500,000.

The course consists of 28 selected students who hold weekly portfolio management meetings and engage in stock pitches to decide their investment strategies.

Any profits generated by the investments go to charities. For the Reynolds Fund, the proceeds are given to the United Way, while the Cherry Hills Fund contributes to the Durham Scholars, a mentoring program for city schools.

"They are really working for the good of others," Gultekin said.

Although many other universities--such as the University of Virginia, Cornell and Notre Dame--have similar applied investment programs, the UNC program is unique in that its profits go to charity, not back to investors.

Kevin Moon, who participated in the program and graduated from Kenan-Flagler in 2000, now works for Birinyi Associates, a market research firm. He attributes much of his success in the working world to his participation in Gultekin's program.

"It was one of the better things I did in business school," he said.

Moon said that his hands-on experience with the market gave him an added credibility that helped him in the interviewing process. He also said that working closely with mentors and advisers to the program improved his networking skills.

At Duke's Fuqua School of Business, however, some professors expressed skepticism of the merits of such applied management programs.

"You do not need money to invest to learn how to in-vest money," said Fuqua Professor Campbell Harvey.

Harvey is the faculty adviser to Fuqua's Finance Club, which manages money from the Reynolds Fund, the same fund used by Kenan-Flagler. Unlike Kenan-Flagler, Fuqua does not have a course that manages the fund's money.

"There is not enough money to get a diversified portfolio," he said.

If the Reynolds Fund were larger, Harvey said he would consider creating a course like Gultekin's to apply the skills learned in his stock selection courses.

However, he added that "having the actual money would be useful as an applied exercise of the tools [students] have learned; it is not a substitute for the tools as it might be in some other schools," he said.

Fuqua Professor Michael Bradley said that applied management courses would only serve to teach "the vernacular of how the markets work," not the theoretical science behind finance.

"To have money on the line is not really a valuable pedagogical endeavor," he said.

In addition, Bradley said that such programs are becoming antiquated across the nation, citing Duke as an example. "More schools are moving away from trading clubs in general," he said. "The lack of direct faculty support at [Duke] is indicative of the absence of such a program's benefit."


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