Tenn. students beat Wall Street in TVA challenge

Student investors outperformed Wall Street for the Tennessee Valley Authority in 2007, beating the Standard & Poor's 500 index for the seventh time in nine years and earning more than $900,000 for the nation's largest public utility.

Tennessee Tech University in Cookeville bested 24 other schools in TVA's annual Investment Challenge Program with a 29.8 percent return on investment, followed closely by the University of Tennessee-Martin with a 28.1 percent return and University of Memphis with 23.2 percent.

"If they could do that every year, they'd be managing all my stock," Tech finance professor and program coordinator Bob Wood said with a laugh. "They had a good year."

This isn't a game or class project.

Knoxville-based TVA entrusts budding financiers with real money _ $10 million _ from a special $1 billion fund it will need one day to pay for decommissioning its nuclear plants.

Altogether, last year's student investment teams produced a 9.79 percent return on that $10 million, or about $980,000. That compares with an S&P 500 return of 5.5 percent. The entire $1 billion fund, most of which is managed by investment professionals, posted growth of 4.4 percent.

Well-endowed universities in other parts of the country have offered similar programs to give students a marketable taste of real world investing. But such offerings were rare in this region before former TVA Chief Financial Officer David Smith set up TVA's program in 1998 and opened it to universities throughout the utility's seven-state territory.

"The program has been a win-win for TVA and the universities," Smith's successor, Kim Greene, said in a statement. "The universities have generated positive, absolute and relative performance for TVA while providing real-world learning experience in portfolio management for students."

Investing real dollars brings value to the exercise, Wood agreed, even though TVA places some limits on the amounts and categories of investments. There's also real anxiety.

"You can do all you want on a dry-erase board. Messing with real money changes the performance," he said. "They will call me because they are worried about a trade they made. It is money that is being lost or it is money that is being gained."

The Tech team involved two sets of 20 to 25 students each semester. Student-developed portfolios on the companies were presented to the group, which would decide which stocks to buy.

"They would start out with something they had read or heard about a particular company then work backward, looking at the companies and their financials," Wood said.

As it turned out, "they just picked the right stocks," he said. "They just made some right decisions."

Tech's top performers in 2007: Apple Inc., Southern Copper Corp., Transocean Inc., Focus Media Holding Ltd. and Netflix Inc.

But nothing lasts forever. Wood said the Tech team has already sold three of the five holdings.

Market conditions change, too. TVA reported Monday in its quarterly financial statement that its decommissioning fund lost $103 million in value between Oct. 1 and March 31.

However, Wood said TVA told him the student investors remained "a little bit ahead of the market portfolio overall."

TVA pays cash awards based on performance. What will Tennessee Tech do with the $7,581 it will receive?

"We are getting ready to build a trading room," Wood said.

The other participating universities are: Austin Peay State, Alabama A&M, Belmont, Christian Brothers, East Tennessee State, Lipscomb, Middle Tennessee State, Mississippi, Mississippi State, Mississippi University for Women, Murray State, Tennessee State, Trevecca Nazarene University, Union University, Alabama-Huntsville, Kentucky, North Alabama, Tennessee-Knoxville, Tennessee-Chattanooga, Vanderbilt, Western Carolina and Western Kentucky.