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Williams Investment Society at W&L Bets on PB&J

When Warren Buffett’s Berkshire Hathaway announced it was joining with the Brazilian investment group 3G Capital to buy H.J. Heinz Co. for $23.3 billion, members of the Williams Investment Society (WIS) at Washington and Lee University began to look for a new investment themselves.

WIS is a student organization that manages what is currently about $1.6 million of W&L’s endowment in equity securities.

Because the Buffet purchase would take Heinz from a publicly traded company to privately owned, the student directors of WIS decided they could better allocate the $112,000 of capital elsewhere rather than continuing to hold their 1,550 shares of Heinz. They purchased the shares in November 2008 and added additional shares in March 2010. When they liquidated the shares, they realized a $45,000 gain on their investment — approximately 50 percent.

Heinz was the society’s largest holding. So the next question was where to allocate the capital.

Their answer? The J.M. Smucker Co., popularly known as Smucker’s.

As they analyzed the possibilities, the WIS students decided to stick with a company with staples that should provide steady demand.

“Heinz ketchup and other core products are the foundation of diets across the world,” explained David Fishman, a Washington and Lee junior who is executive director of WIS. He’s from Westfield, N.J. “As incomes increase in emerging market populations, there’s going to be an increased demand for these sorts of staple products. We take these supplementary foods for granted, but more people in emerging markets are incorporating them into their diet. That will benefit Heinz and ensure its continued growth. And that’s why Smucker’s will continue to grow in the future as well. Also, don’t have much volatility, and we think this industry is going to be a pretty stable investment regardless of whether the economy is in a recession or a boom.”

According to Fishman, the 50 percent return on investment from Heinz was good but not a record for WIS, which has sold some of its investments for a 100 percent return or more.

Henry Portwood, a junior business accounting major from Atlanta, leads the society’s consumer staples group — one of nine industry groups designed to mirror the S&P 500. In recommending the sale of Heinz and subsequent purchase of Smucker’s, Portwood said, he and his colleagues in the group had whittled their way down from a dozen possibilities.

“We spend most of our time discussing potential stocks with our individual industry groups,” said Portwood. “But we also reach out and get all the information we can. None of us is an expert. In addition to talking with David, we’ll typically have conversations with faculty members and have begun having regular discussions with alumni who act as advisors in the various industry groups.

“We take it very seriously. I was really impressed when I found out just what WIS does. It’s the best real-world investing experience you can get as an undergrad.”

As an example of the organization’s success in managing its stock, Fishman points to the WIS holdings in Dollar Tree, which currently has an unrealized gain of approximately 140 percent.

“Dollar Tree is doing well primarily because of the elevated U6 rate, which incorporates unemployed, underemployed and discouraged workers,” said Fishman. “Consumers are suffering from decreased discretionary income, which translates into people purchasing Dollar Tree’s cheaper goods in order to reduce household expenditures. Still, the American economy is forecast to continue its tepid-to-moderate expansion into the foreseeable future. As this drives the U6 rate lower, stimulating consumption of higher-end products, the economic outlook might not bode as well for Dollar Tree’s sales, so we’ll have to consider these headwinds going forward.”

• Download the Fall 2012 Williams Investment Society Portfolio and Market Outlet (pdf)

The 10 voting members of WIS decide which shares to hold, buy or sell. A 60 percent majority is required to make such a decision.

In addition to consumer staples, the WIS members are divided into basic materials; consumer discretionary; energy; financials; health care; industrials; technology; and utilities/telecom. The groups range from three to five students, and each industry head makes a presentation once a semester on an equity that the group thinks is worth either buying or selling.

Students must apply for one of the spots in the society, which is open to any undergraduate. Among the questions that they must answer on the application is which stock in the current WIS portfolio they would sell, and why. They are also asked to name a stock in which they would invest and to explain why.

Since the society’s inception in 1998, WIS has outperformed the S&P 500, although it hasn’t performed as well during the past five years due to higher volatility during the 2007–2008 economic downturn. But things have steadily improved and, over the past two months, WIS’ net asset value has increased from $1.58 million to $1.65 million.

WIS was a principal reason Fishman chose Washington and Lee, since the society offered him and his colleagues the chance to invest actual money.

A double major in accounting and business administration and economics, Fishman said: “I was looking for a college that would give me very good exposure to finance. Although W&L doesn’t have a major in finance, WIS gives me valuable experience in key concepts such as valuation and equity research that complements my academic studies in accounting and economics.”

Adam Schwartz, the Lawrence Term Professor of Business Administration, advises WIS along with Robert Culpepper ’66, ’69L, visiting professor of business administration. The Lawrence Term Professorship held by Schwartz was endowed by a gift from Larry and Sally Lawrence, parents of three W&L grads. The Lawrences wanted to recognize the important role faculty advisers have in the experience of the investment society, and their professorship rotates among the faculty who work with WIS.

“WIS is ‘experiential learning’ at its best,” Schwartz said. “Through their participation, W&L students have the chance to learn about investments and financial analysis by managing a million-dollar portfolio. It’s also a great deal of fun.”

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