Beyond the Numbers

Students participating in TVA’s Investment Challenge Program will remember 2020 for more than a pandemic. For many, it was a year they successfully navigated a global economic crisis to beat the S&P 500 Index. We caught up with Murray State professor Dr. Sunayan Acharya to learn more.

Many students will remember 2020 for social distancing, virtual classrooms and the stress of not being able to enjoy campus life. For Dr. Sunayan Acharya’s, professor of Economics and Finance, Murray State University, investment challenge students, the 2020 global market meltdown will be remembered as an investment opportunity. Acharya points out that “This event could never be simulated in the classroom. TVA’s Investment Challenge Program taught my students to look beyond the numbers, and focus on what a business actually does.” 

For almost a quarter century, students from 24 of the region’s top universities have grown TVA’s $12 million Investment Challenge Program into one of the nation’s largest and most successful student-managed investment programs.  

Tammy Wilson, TVA Vice President, Treasurer, Chief Risk Officer and Investment Challenge Program executive sponsor, caught up with Dr. Acharya to learn how his students succeeded during one of the most volatile market events since the 2008 crash. 

Here is what Dr. Acharya had to say:

  1. Tell us about your background? How long have you been with the ICP program?

    It may surprise you that I didn’t start in finance. My undergraduate work is in electrical engineering. Then I switched to physics. Engineering and physics give you a unique look into numbers. I found I enjoyed finance when I started post graduate work. I earned my Ph.D. in Finance in 2012. Now, I’ve been teaching at Murray State for almost nine years.     

    I learned about ICP in 2015. Dr. Durr, who led ICP at Murray State, was transitioning to become head of the university’s foundation. In preparation for his departure he wanted me to observe how things were being conducted. This experience was invaluable because it gave me an opportunity to observe everything.

    In January 2020, I took over ICP. It was going great...until the global pandemic and the market crash in March.   

  2. What was investing like in 2020? Have you ever seen anything like this in the markets?  

    I don’t know if I have bad luck or bad timing. I started my Ph.D. program in 2007. You know what happened in 2008 - the whole thing crashed. Remember, I’m an engineer and physicist. I’ve never taken finance classes before. This was brand new to me. I was seeing in real time a gigantic market crash. It was a great learning opportunity. Finance is all around you, and 2008 was a great motivating factor to learn about it.

    Now, fast forward to the 2020 crash. With all the challenges, it gave my students a firsthand look into what a financial crisis looks like. I can tell them about 2008. But, most of them were 10 or 11 years old at that time. So they have little context. To understand a crash you have to live through it and be in the middle of it. That way you can see what led to it and navigate through it.  

    Bottom line, I would say there are opportunities every time there is a crash. When there is so much volatility, and you are not really sure which sectors are going to bounce back. It takes a lot of hard work to succeed.   

  3. What is the value of ICP to your students? What did 2020 teach them?

    ICP provides phenomenal value for students. Murray State gets a lot of first generation college students and students with diverse backgrounds. ICP is a very valuable opportunity to get hands on experience for what is traditionally a very academic exercise at most universities.

    2020 showed students that adversity improves critical thinking skills. Anyone can randomly put together a stock portfolio. To make money, you have to critically think about what sectors took a hit and what’s likely to come back. ICP forces you to evaluate the opportunities that you have. In that context, ICP gave students an insight into how markets performed. It forced them to think more. They really liked the experience.

    As a career development tool, the fact is the ICP gives our students an advantage. Every semester I tell students to put ICP on their resume. ICP is such a rare thing to have access to. I’m grateful that TVA has provided this opportunity to students.

  4. Are there any similarities between the crashes in 2008 vs 2020?

    Industry experts know 2008 was very different than 2020.  

    From a student’s point of view, they don’t understand the intricacies of the event. For 2008, students don’t understand how there was a market contagion. Why banks bought into mortgage back security which then were not priced properly. What they do understand is the media reports and the people around them saying the sky was falling.

    For 2020, the same factors are at play. It’s difficult for students to appreciate what and why it is happening unless you are a market insider. Big picture, students see the similarities as a market panic. There are reactions and over reactions. As a teacher, the challenge is pushing through the hype and getting students focused on investing fundamentals.   

  5. How should someone deal with volatility in the markets?  

    The first thing I would say is, there will be a next time. There is always a next time. Whenever we go into long periods of market expansions or gains, at some point there is going to be a correction. Corrections can be by natural causes or by some underlying economic issues. That is something that we have observed over and over again.

    The second thing I would say is stay invested. Historical evidence says that if you’re invested over the long-term you will be fine. For example, if you are 40- or 45-years-old and your retirement horizon is another 25 years, markets tend to go up. You will recover short-term losses. It would be different from someone who is closer to retirement. Then of course you cannot afford to wait around. Hopefully, you are more broadly diversified, and invested in lower volatility assets.

    If you’re in it for the long run, stay invested. That is what Warren Buffett advises. Now is a good time to reevaluate your goals and seek out an investment professional for advice.     

  6. Murray State has beat the S&P 500 Index for the last 4 years. What has contributed to your students’ success during volatile market periods?  

    What is the secret in our sauce? A combination of diversification, luck and mostly looking beyond the numbers.   

    The trap students fall into is only looking at the numbers. Don’t focus solely on quantitative data – market to book ratios, P/E, etc. Market professionals have been using quantitative and traditional stock data since the 1970s and 80s. Investing has evolved way beyond that. 

    We look at what a company really does. Is their business sound? Do people want to buy their product?

    If the answer is yes, then we look at how the stock relates to our portfolio. Focus on what kind of business the company actually runs versus focusing on the mechanics of the stock prices or earnings ratios. Ratios change so much you can be prone to turning over your portfolio every semester. This approach has given us continuity. If you want to buy or to sell - fine. But you have to have a solid reason for doing so.  

  7. How is ICP able to leverage diversity - in the form of backgrounds, thoughts, experiences – to make portfolio management successful?
    There are several benefits from having a diverse student body.

    First, diversity for any investment team is very valuable. The more diverse the student body the more diversity of opinions we get when making stock decisions. Literature shows that human beings are prone to bias. Diversity reduces the potential for investing bias. That is the biggest impact of having diversity in a classroom.

    Second, traditionally finance is a male dominated field. It really shouldn‘t be. Murray’s professors try to recruit female students to join the ICP Team. I’ve observed that ICP helps bring more female students into finance careers. It has paid off with our year-over-year performance.

    Finally, diversity is more than race or gender. The best classes have at least one older student. Older students bring leadership. Older students motivate the younger students to step up as well.

    An extra benefit of having older students is that it gives younger students the opportunity to learn to work with someone who may be much older than them. This is important when they go into the work force.