A True Taste of Trading
Alumnus Jarrett Lilien '84 donates use of his company's professional trading platform for students to gain experience investing in the stock market
- By Jon Reidel
Talking with Michael Tomas’ students, you'd think it was their own money on the line with investments made during the associate professor's "Financial Institutions and Markets" course.
“I felt sick to my stomach after losing $30,000 on my first day of trading,” says senior Zach Pion, who later redeemed himself with an eight percent return on an investment in Southwest Airlines. “I had to remind myself it was just a game.” Classmate Sarah Perda had never traded a day in her life before the course and now obsessively looks for potential investments. “I’ve gotten very attached to my money. It hurts to take a loss,” she says.
These emotions -- and this level of engagement -- are precisely what Tomas was hoping his 60 students would experience when he developed the class' final project, which requires them to create their own portfolio and invest $1 million of play money in an equity fund using stocks in the S&P 500. His only rules: invest at least $500,000 with a minimum of 20 different security positions by March 15; don’t keep more than $100,000 in cash; maintain at least 20 equity positions throughout the competition; no buying on the margin; and no short selling.
Tomas infused some reality by tying investment performance to final grades (arguably as valuable as cash to the college student). The five highest risk-adjusted returns based on the Sharpe Ratio -- a formula used to determine whether a portfolio’s returns are due to smart investments or a result of excess risk -- get their grade increased by one increment (B becomes a B-plus, etc.). Additionally, the five highest fund managers get treated to lunch at a “restaurant of their choosing,” which Tomas slyly notes on the syllabus is Ri Ra Irish Pub.
“My main goal was to get them to just start trading,” says Tomas, who previously worked at the Chicago Board of Trade as the group manager for financial product research. “I thought it would be helpful to use a simulation model so they could get a feel for what it’s like to actually trade and interface with a financial market. I told them to start by picking something they know about, sort of like playing to your forehand in tennis. Although they are not investing their own money, they are using the same platform as people who do invest real money.”
Alumnus provides access to professional trading platform
The idea for the project picked up steam when Tomas met alumnus Jarrett Lilien ’84 on a trip to New York as adviser to UVM’s Finance and Investment Club. Lilien was speaking to students about his career and current endeavor, the online trading platform Kapitall, known for its game-like interface to help users understand the stock trading world. “I asked him if we could use the (Kapitall) system that he designed, and he said ‘yes, what do you need?’” says Tomas.
Lilien, former E*Trade financial president and chief operating officer, had hired UVM junior Dave Seeber as an intern for the summer of 2013, placing him on a team tasked with finding ways to introduce Kapitall on college campuses. Three ideas emerged: through the classroom, through university investment clubs and direct to students. “Through Dave’s efforts with Professor Tomas, UVM is our first test of Kapitall in the classroom,” says Lilien, who donated the use of the platform free of charge. “All in all, this has been a successful collaboration between current students, alumni and the university. Everyone will get a taste of what the markets are all about and will see that the markets are not as inaccessible and intimidating as they may seem.”
Tomas says Kapitall’s platform has an intuitive interface that students grasp quickly with features that allow them to learn about stock valuation. “Analyzing and trading stock is as easy as drag and drop,” he says. Other features include the “turbo chart” that provides valuation metrics, information about the company and news; the “Compar-o-matic” tool to analyze multiple stocks along valuation and business characteristics; and learning tools like the “explore stocks” menu or the “markets insights” link to gather information about companies by sector, check out what’s hot, or even look at what major investors like Warren Buffet are buying.
“It’s one thing to read about investing, but it’s completely different to actually trade,” says Perda. “It’s a much more dynamic learning experience than the classroom.”
School is in session
Lilien agreed to participate in the tournament and at last check had a comfortable lead. “Better lucky than good, as they say,” he says modestly. “I look for three basic things when choosing stocks: I like a good chart, meaning good trading patterns; I then look for good fundamentals in the company, meaning good trends in revenues, operating cash flows and earnings; and finally, I like a good theme, meaning something that will help the first two continue in a positive way. If I can find a company with all three, I tend to do pretty well.”
When Lilien, a big believer in experiential learning, graduated from UVM he went to work as an equity block trader to learn about the markets first-hand. After a couple of years of trading, he says he wanted to learn more about investing and took a job in equity research before starting his own institutional brokerage firm, which he later sold to E*Trade.
“I wish there had been something like Kapitall when I was coming up, because it allows members to experience investing by actually doing it,” says. “In the live markets, gaining this experience requires that you have some money to invest and some money that you are prepared to potentially lose as you are learning, which can make it expensive and not so rewarding. This is what makes the virtual world so valuable. One can get the real-life experience without large amounts of money and without taking risk that one might not be able to afford. Once one begins to get the hang of it, members can graduate to the real world and open live accounts.”