Investment Challenge Program

1. Investment Challenge Program July 2002, Volume III, Issue 6 Investors, Summer Portfolio Management…. Well, June came and went, and there was still no rejoicing on Wall Street. In fact, Wall Street was covered with angry faces after hearing pleas of innocence from corporate America. However, we should look on the bright side and remember this whole mess just gives us an opportunity to buy good stocks cheap. That’s what we want, isn’t it? I know, I know. Sometimes its hard to look that far into the future, but ten years from now you’ll be thinking “Wow, what a deal stocks were back in 2002!” Also, please be patient with the Mellon changes that have been taking place over the last month. We are sorry for any inconvenience this has caused you. During the summer months, it is important that the ICP portfolio be actively managed. Many professors and students have inquired about setting stop-loss orders. A stop-loss is designed to limit an investor’s loss on a security position. Most investment professionals suggest setting a stop-loss order for 10% to 15% below the original purchase price. The disadvantage to a stop loss order is the stop-loss price could be activated by short-term fluctuations. Another thing to keep in mind, once a stop loss order is activated it turns into a market order which can sell for significantly less than your stop-loss order price. Another idea for consideration is setting limit orders to lock in profits. This can be done by setting a limit order at a price higher than the original purchase price. This usually is the target price of the stock. There are no concrete rules for where stop-loss orders or limit orders should be placed because this depends solely on investing goals. June Portfolio Performance…. For the month of June, the Investment Challenge portfolio returned a -6.8%. By comparison, the S&P 500 returned a -7.1%, the BARRA Growth Index returned a -8.0%, and the BARRA Value Index returned a –6.3%. Individual university results were as follows: Rolling 3 Year Performance June Performance YTDPerformance Market Update…. Even though indices have struggled lately, there are still individual sectors performing well. Sectors and sub-sectors performing well recently include Materials, Software, and Transportation. Also, small-cap value stocks are still outperforming large-cap stocks in the market. • The biggest news of the month came from WorldCom’s accounting scandal, in which they allegedly covered up some $3.8 billion in expenses, which could cause the company to file for bankruptcy. Coincidently, the company was audited by Arthur Andersen in 2001, though Andersen is denying any wrong-doing. • The Federal Reserve decided on June 26th to leave rates unchanged. Currently, rates are at four decade lows. • Martha Stewart, currently being investigated for insider trading on nearly 4000 shares of Imclone, saw shares in her company drop over 45% since the investigation began. Though she claims innocence in the matter, charges of perjury and obstruction of justice are also possible. • Northrop has agreed to pay $7.8 billion or $60 per share for arms and auto parts maker TRW. This hostile takeover would make Northrop the second largest defense contractor. In The News…. Website of the Month: Check out www.Barra.com for returns and other information on the S&P 500, BARRA Growth, and BARRA Value index.