At the beginning of spring semester, the Student and Foundation Fund (SAFF) class in the Kenneth W. Monfort College of Business created an economic forecast during a bull market. By the time they left UNC for spring break on March 13, things weren鈥檛 looking so rosy. In just a month, the DOW had dropped more than 20% to enter bear territory for the first time in 11 years.

John Clinebell, Ph.D., a professor of Finance in the Monfort College of Business, has been teaching the SAFF class for many of the years since its inception in 1992. The 16 students in his class this past January weren鈥檛 just putting together a theoretical economic forecast鈥嗏�斺�唗hey were preparing for a semester where they would manage a substantial portfolio for one of the earliest student-managed funds in the country.

鈥淢ost of the (other student fund) programs were done at a graduate level,鈥� Clinebell says. 鈥淎 lot of people consider it very risky to let undergraduate students manage money. Our Foundation board and the investment committee is fantastic. They were extremely supportive and were willing to give it a chance because they could see the potential learning benefits for students.鈥�

The first class started with a portfolio of $200,000. Currently鈥嗏�斺�唀ven with the volatility of the past few months鈥嗏�斺�唗he class has two portfolios totaling about $2.7 million of the UNC Foundation鈥檚 investment assets.

鈥淥ver the years the Foundation has given us more money. We鈥檝e given them money back (for student scholarships). About six years ago, a donor gave us more money to manage, so we鈥檙e now actually managing two separate portfolios,鈥� Clinebell says. 鈥淥ne portfolio has a traditional investment strategy while the other has a strategy that includes alternative investments.鈥�

As news of the coronavirus first began to emerge early in the semester, students began to debate and discuss what its impact would be on the U.S. markets.

鈥淥ur SAFF class meets every Wednesday, and from the beginning of this semester when the COVID-19 virus was starting to spread in China, we expected some impact on the U.S. economy,鈥� says senior Finance major Samuel M. Tegethoff from Fort Collins. 鈥淭here were pretty strong opinions on both sides, with some students thinking the economy was going to take a major hit and some鈥嗏�斺�唅ncluding me鈥嗏�斺�唘nsure how much of a negative impact the virus would have on the U.S. economy. I based my opinions off the relative strength of U.S. equity risk markets, and the mature bull market economy we鈥檝e been experiencing for many years.鈥�

Clinebell says there were some discussions and concerns about the virus impact before break, but not enough for the class to really take any major actions at that point. 鈥淭he last time we met before break, I think it had spread to Iran and maybe Italy. So, some students were concerned about potential global impact, but we really didn鈥檛 have a lot of information yet about the U.S.,鈥� he says.

Colby Simpson, a senior Finance major from Paonia, 黑料社区, says that it was over spring break when the class began to realize COVID-19 would not be a short-term setback for the market. 鈥淲e witnessed the market as a whole drop by almost 30% and enter bear territory,鈥� he says. 鈥淧rior to the bear market, the fund was over $3 million. My first thought was, 鈥榃hat a semester to be in the SAFF class.鈥� We鈥檝e seen some of the worst days and losses in 30 years, but my mindset throughout it all has been to not panic. At the end of the day, we have a long-term outlook on the fund, and the fund will undoubtedly be back up over $3 million in the next five years.鈥�

Tegethoff echoed Simpson鈥檚 long-range views. 鈥淭he time horizon of this investment fund is very long, meaning that short-term volatility and fluctuations aren鈥檛 really a factor in our decision making. We try to look five years into the future and predict how certain assets will perform over the long term.鈥�

If they sound calm in the face of a market that has caused others to panic, it鈥檚 a reflection of the teachings and philosophy of the class. In the last 28 years, Clinebell鈥檚 seen the class鈥嗏�斺�哸nd the fund鈥嗏�斺�唚eather crashes before.

As the class logged on for their first post-spring break class, he told them, 鈥淭his happens if you鈥檙e going to be an investor, you鈥檙e going to run into situations you can鈥檛 predict. No one predicted this virus, and no one predicted 9/11 either.鈥�

Clinebell remembers the SAFF class meeting the night of September 11, 2001. He鈥檇 planned to cancel class, as most classes at UNC that day had been canceled. But the class was set to meet for a few minutes, which turned into almost the full three hours.

鈥淚 asked them, 鈥榃ell, do you want to just sell everything off when the markets reopen?鈥� and they were like, 鈥榃ell, no, we can鈥檛 do that. That wouldn鈥檛 be right.鈥欌�� They ended up discussing what to watch for and what they expected to have to deal with.

鈥淢ost of them are very good about trying to be objective because if you鈥檙e managing money, especially if you鈥檙e managing money for a foundation for someone else, you can鈥檛 let your emotions drive your decisions. You have to be objective. You have to try to be analytical.鈥� He says the market鈥檚 volatility in March, with record-high days followed by record-low days, was in part due to overreaction and uncertainty.

As the class logged onto Zoom remotely on that first day back after spring break, they started by working through a range of estimates in the decline of the Gross Domestic Product (GDP) of about 10% to 15%.

鈥淭hey estimated a pickup in the third quarter,鈥� Clinebell says, 鈥渁lthough they鈥檙e still kind of arguing about how much they think it鈥檚 going to pick up. Some think that by the time we get to July, August and September, you鈥檙e going to have pretty strong growth in the economy, upwards of 15% or 20%. Some of the students are a little more hesitant鈥嗏�斺�唗hey think it鈥檚 probably going to be lower in the third quarter.

The students threw out different ideas, began to research what others were forecasting, then spent the next week coming up with their own forecasts and deciding which sectors of the economy they wanted to overweight and underweight. The students must invest according to the Foundation鈥檚 Investment Policy established by the Board of Directors and the Investment Committee and use the research to make decisions according to this direction.

鈥淭hey鈥檙e the ones responsible for managing money, so they have to decide what they believe,鈥� Clinebell says. 鈥淚 don鈥檛 know where they鈥檙e going to come out because that鈥檒l be in our next session. They鈥檙e going back now and doing their work on their own to research and come up with their proposals.鈥�

Before the next class, each student will submit their proposals to the other students to allow everyone time to review them.

Then, says Clinebell, they鈥檒l present their proposals in class. 鈥淢aybe someone will say, 鈥極K, listen, I think we need to put more money into Duke Power, which is a utility company because it鈥檚 defensive and has a good dividend.鈥� And they鈥檒l go through all the reasons why we should put money into it, how much they think we should buy. They鈥檒l explain why and how it fits into the portfolio and how it meets all our goals and objectives.鈥�

Then, after some intensive discussion and questions, the class votes. Clinebell explains that the class makes the final decision.

鈥淭hey鈥檙e the managers. For it to be a real experience, they have to be responsible. So, when it comes to votes, I don鈥檛 vote, and I don鈥檛 veto their decisions.鈥�

Clinebell lets them make those decisions, even in the face of a crisis like the coronavirus.

鈥淭hese kinds of crises are horrible for individuals鈥� portfolios and for retirement accounts, they hurt the economy, and cause unemployment and tremendous pain, but they provide tremendous learning opportunities,鈥� he says.

And the SAFF class lessons are opportunities that both Tegethoff and Simpson value.

鈥淕oing through such a volatile time in the market has taught me to remain calm and not make rash decisions,鈥� Tegethoff says. 鈥淪tick to your fundamentals and trust in your forecasts.鈥�

Simpson agrees. 鈥淒r. Clinebell has preached patience and hasn鈥檛 allowed us to overreact. We have no doubt the market and economy will eventually rebound, so making the most through that rebound and setting the fund up properly for the summer is our main goal now,鈥� he says. 鈥淭his experience has been invaluable. Despite being in one of the worst semesters in terms of market losses, the experience is probably much more valuable than if the market just steadily increased. Sell-offs like this will no doubt continue to occur throughout our lives, so having some real-world experience under your belt with watching a $3 million portfolio lose over a quarter million dollars really teaches you how to not overreact.鈥�