Handing high school students $35,000 with which to play the stock market might not seem like the best way to boost a school endowment, but in 1997, that is what trustees at Flintridge Preparatory School did.
The gamble has paid off.
Over the years, students in Assistant Headmaster Peter Vaughan's investments class have turned the $35,000 grubstake into a $188,000 portfolio that helps support school arts and athletic programs.
When Vaughn launched the class, he half expected his students to gamble away the principal — $35,000 cobbled together by school trustees — on penny stocks.
“I learned many things about kids and money,” Vaughan said. “You think they are just going to blow it. You think they are going to be wild and crazy. You think that they aren't going to take it seriously. Wrong, wrong, wrong.”
Class after class took charge, investing in Apple Inc., Johnson & Johnson and Union Pacific Corp. The Standard & Poor's 500 Index has grown about 40% since 1997. The Flintridge Prep investments class portfolio — bolstered by more trustee contributions — has grown at about twice that rate, Vaughan said.
During the fall semester, Vaughn puts his students, all seniors, through the “business school paces,” an introduction to macroeconomics and finance, balance sheets and income statements.
Students then research the portfolio before deciding what investments to shed and what to pick up. Vaughn executes the transactions via an online account.
Debates about what to buy and what to sell can get heated, and often turn on the perceived ethics of the companies involved.
On Monday, Charles Ayers, 18, advocated strongly that his fellow students hold on to 32 shares of Goldman Sachs stock despite turmoil at the Wall Street investment bank.
“You really want to keep the stock or you really want to sell the stock, and those are beliefs you hold really near and dear to your heart,” Ayers said afterward.
Eli Weinstein, 17, who argued to sell the Goldman Sachs shares, said the class offers “a crash course in various industries, and you look at the world a different way.”
During the 1999-2000 school year, Vaughan recalled, two students tried to convince their classmates to dump tech investments and buy shares of Phillip Morris. Many were reluctant on moral grounds to investment in the cigarette giant, but they moved ahead anyway, placing about half of their assets in three tobacco companies just before the tech bubble burst.
“Everyone got wiped out, and the portfolio went up because tobacco stocks went up,” Vaughn said.
If the portfolio grows more than 20% in a single year, dividends are directed to on-campus programs such as the athletic department or the arts program, Vaughn said.
Students in the class say they feel responsible for carrying on Flintridge Prep's money-making tradition.
“I would be very disappointed if we did not end up making money for the fund with this group of people,” Ayers said.