October 10, 1996

Money managers in the making

Management adjunct professors Murray and Ken Lester

by Daniel McCabe

Some students have to watch movies for their courses. Others do experiments in a lab. Ken Fridman gets to manage over $80,000 of McGill's money. Really.

Fridman is one of the 30 or so management students currently enrolled in that faculty's applied investments course. One of only a handful of courses of its kind in Canada, the class offers students hands-on experience in the world of investment. Armed with about $775,000 in real money, the students get to choose the stocks, bonds and equities they want to use that money to invest in.

The course was created to honour the memory of Barry Zukerman, a McGill science graduate who became a successful investment counsellor. After his death in 1987, Zukerman's wife Helen suggested creating a course that could offer students a real taste of the sort of work her husband had relished. She gave the Faculty of Management $300,000 to turn the idea into reality. Other donors have since chipped in an additional $236,000, including a further $50,000 from Helen Zukerman.

Shortly after McGill received the initial bequest, Dean of Management Wallace Crowston called investment counsellor Murray Lester to ask if he would be interested in teaching the innovative new course. Lester recalls that the dean liked Zukerman's idea for the class, but wanted to ensure it would be offered on a sound footing. "Dean Crowston thought, 'No way am I going to let students blow all this money in one shot.' He started looking around for (professionals to help guide the students) and he found us." Lester teaches the course with his son and business partner, Ken.

The students who've taken the course in the eight years it's been offered have actually proven themselves to be rather adept in their financial dealings. They've netted about $239,000 through their investments, generating an average annual income of 6.2% after commissions.

While the students are given a fair amount of leeway in choosing their investments, there are constraints. Each team of five students has to invest a certain amount in stocks, bonds and equities. The students can't place more than $9,000 in any one holding and the teams consult with professional brokers recruited by the Lesters. The sorts of high risk financial shenanigans that trader Nick Leeson indulged in when he inadvertently brought the august Barings Bank to the brink of ruin are an absolute no-no.

"We do vet the students' choices. We want to know what they want to buy," says Ken Lester. "We try to steer them into diversification. We want them to experiment in all kinds of investments."

Still, Lester says he and his father try not to shoot down too many ideas. "We'd seriously discourage them from investing in anything that seemed really problematic, but if the group gave us a compelling reason for it... well, maybe.

"The purpose of the class isn't really for the students to make money," explains Lester. "We want them to be able to do their own research, make their own choices and to be able to justify why they bought and sold certain things."

Each student team creates a fictitious client and they try to tailor their investments to suit that client's needs. "Our particular 'clients' want to save their money for their children's education, so they don't want us doing anything too risky," explains Fridman.

Fridman says that one of the course's strengths lies in the Lesters' ability to attract interesting guest speakers who give the students their own views about investing.

"We've seen a few people worth millions of dollars and we've seen investment professionals who manage million-dollar portfolios."

The course is also unusual in that it runs for a full calendar year. It begins in January. When the semester ends and summer rolls around, the students are expected to keep in touch with each other and with their broker. The course winds up the following autumn semester.

Ken Lester says students who take the course tend to evolve over the year. "They usually start off kind of cautious. Sometimes they're pretty raw when they come in--they don't always know the difference between stocks and bonds, for instance. But as they get more familiar with the market and as the course progresses, the trading really picks up. They become much more comfortable with the whole process of buying and selling."

Some graduates of the course have gone on to become professional money handlers, says Murray Lester. The course is becoming increasingly popular--only one out of every four students who wants to take it can be accommodated.

Ken Fridman isn't surprised.

"I've heard of similar courses at other schools where the students work with computer simulations, but I can't see how that could compare to this. We're using real money to buy real stocks--that definitely adds excitement."