It all started with 2,500 shares of H&R Block. More than four decades and hundreds of student investment managers later, the Caltech Student Investment Fund exceeds, as of November 2020, one million dollars in value. (The fund's initial value was $64,949.62.)
"It's a little surreal because at this point it's obviously more money than any of the students have dealt with on their own," says Ethan Jaszewski, a senior and the current president of the fund. "There's a responsibility that comes along with it." That's not only because the members of the SIF are responsible for such a sizeable sum; it's also because a percentage of the fund's earnings are used to support Caltech student clubs and organizations each year.
Scott Richland, Caltech's chief investment officer, says that alumnus J. Stanley Johnson (BS ‘33, MS ‘34) and his wife Mary Johnson donated the initial batch of shares back in 1978. "It was originally designed to give the students the experience of managing a portfolio, and then the secondary reason was to take the earnings and use them for student functions and needs," Richland says.
To protect those functions, the fund is bound by certain rules that steer it away from high-risk investments. Students are not allowed to "short" stocks, for example; a practice that involves betting a stock will decrease in value. Beyond those few restrictions, however, the SIF students enjoy wide latitude to pitch investment ideas to one another and pursue their vision in the market.
"There's a remarkable amount of freedom the students have in terms of buying and selling and how they build portfolios," says Michael Ewens, faculty adviser to the fund and professor of finance and entrepreneurship. Richland notes that a representative of the Caltech Investment Office visits the students once or twice a year to discuss endowment and portfolio management, but otherwise the Institute allows the students to find their own way.
The club meets weekly to hear investment ideas from members and vote upon them. "There's a core group of stocks that have been in there a long time, but we make an active effort to give people the opportunity to invest," Jaszewski says. "We want to give new members a chance to make their mark and shape the portfolio." Because of Caltech students' particular affinity for technology, the SIF tends to contain a heavy share of tech stocks such as software companies. However, Ewens also encourages the students to balance the portfolio and make it less vulnerable to volatility in any one sector. Jaszewski says this focus on stability helped the SIF weather the market upheavals that were the result of the havoc wreaked by the COVID-19 pandemic on the American economy.
Ewens is now going further in teaching the students to think like investment managers. He has begun asking them to compare their performance against industry benchmarks, such as the performance of the S&P 500, to give him quarterly presentations about the fund's performance, and to outline their decision-making process for the SIF's future.
The Student Investment Fund's long, slow rise to $1 million has created new opportunities for ways to spend that money to enhance the student experience. The SIF can spend up to 4 percent of its earnings on one-time purchases for student organizations; these purchases typically comprise the kind of machinery or equipment that would be out of reach of a club's ordinary budget. "The robotics club is a consistent ask," Jaszewski says. (Student organizations can apply for disbursements and check the rules here.)
"We're making decisions that are not just about fun or what we want to do, but will serve the community and make sure the fund continues to grow," Jaszewski says. "That's a key part: having a chance to manage a fund that's beyond what you could do yourself."