Carleton students turned $550,000 into millions. Here’s the investing advice they swear by - Toronto Star

The Carleton University students managing millions say the formula for building wealth isn’t complicated — it just requires patience.

Get rich slowly: The Sprott Student Investment Fund’s refreshingly undramatic approach to building wealth.

Morgan Combden was listening to The Economist podcasts and tracking market news long before she was old enough to manage a multimillion-dollar investment portfolio.

Now 21, the Carleton University finance student helps oversee a fund that has turned a $550,000 endowment into $3.5 million — and she says the secret is simpler than most investors think: patience, and only buying what you truly understand.

That philosophy has paid off. The Sprott Student Investment Fund (SSIF), a student-run investment fund at Carleton University’s Sprott School of Business, launched in 2007 with $50,000 in university endowment money. After proving the concept, Carleton added $500,000 in 2013. Since then, the fund has averaged about 16 per cent annually — well above the S&P 500’s 10 to 11 per cent — and has grown to $3.5 million.

The 20 or so students who work on the fund each year, after completing a selective application process, are the type who would rather browse Bloomberg terminals than catch a movie, says Howard Nemiroff, dean of Carleton’s Sprott School of Business and SSIF faculty adviser.

Morgan Combden, left, a fourth-year finance student at Carleton University and Sprott Student Investment Fund portfolio manager, works with Naomi Tsirkin to help guide smart investment decisions.

The fund is essentially a learning lab, giving students a real sense of what a career in investing looks like. SSIF members deal with real money and the fund is held accountable to the university’s investment committee. “This is university endowment money, so there’s care in the stewardship,” Nemiroff says.

Combden started as an intern in her first year as a finance major before rising to portfolio manager, a role she holds in her fourth year. “I’m constantly evaluating risk and how we might be overweighted or underweighted in certain sectors compared to the S&P 500 and the TSX,” she says. Any trades the SSIF considers need to align with the investment committee’s expectations and long-term outlook.

When a student pitches a stock trade during the SSIF’s weekly meetings, “there are 19 other pairs of eyes that are eager, bright, energetic, inquisitive, curious students who are trying to punch as many holes into it as possible,” Nemiroff says. “Due diligence is everybody’s responsibility. At the end of the day, we will only buy what we truly understand.”

The average Canadian investor can learn from the SSIF’s philosophy: think long-term, know what you own and don’t flinch in the face of market volatility.

Ben Felix, chief investment officer and portfolio manager at PWL Capital, began forming his investment philosophy as a stock-picking analyst for the SSIF while completing his master’s in business at Carleton in 2014.

“They focus on doing great analysis and selecting individual stocks, which they’ve been fairly successful at,” he says. But for the average investor, he adds, it’s genuinely hard to get those picks right — and as his career progressed, he came to see that beating the market consistently is something most active managers fail to do.

The SSIF has access to resources most retail investors simply don’t, including a team of analysts, research tools, an experienced faculty adviser and a rigorous evaluation process.

For most people, Felix says, the better path is bypassing individual stocks altogether and putting money into low-cost index funds. Composed of stocks or bonds, these funds mirror the performance of market indexes like the S&P 500 — offering instant diversification across a broad basket of companies. “Investors can access broadly diversified portfolios with low-cost index funds very easily today,” he says.

Combden agrees. Start with an exchange-traded fund (ETF) or index fund, watch it grow, and gradually build market knowledge by following the news, tracking individual equities and learning from gains and losses over time. “I think you start to build your own investors’ intuition,” she says.

Gregory Poapst, founding managing partner at Fundviews Capital in Florida and a former SSIF quantitative analyst, put that approach into practice by helping his parents build portfolios made up mostly of ETFs and index funds. “The best thing you can do is diversify,” he says.

Asked about the SSIF’s success, Nemiroff says “there is no silver bullet.” The fund has had its share of home runs — buying shares of Taiwan Semiconductor Manufacturing Company (TSM) at $10, for instance; today, they trade at around $400 — but an investment possibility that seems too good to be true usually is. “As much as we would love to continually find the TSMs out there, consistently beating the market is not a common occurrence.”

Nemiroff believes Warren Buffett said it best: “Get rich slowly.” Compounding, he adds, does the heavy lifting.

Howard Nemiroff, second from right, dean of Carleton’s Sprott School of Business and SSIF faculty adviser, works with members of the Sprott Student Investment Fund at Carleton University’s Sprott School of Business.

Felix sees the SSIF’s track record as proof that staying in the market for the long haul pays off.

“The stock market often gets perceived as a little bit of a casino where you’re actually more likely to lose money than win,” he says. Trading individual stocks and options, he adds, often undermines long-term growth. “You can win occasionally, which gets people really excited and keeps them hooked,” however, “you expect it to lose in the long run.” He points to the growing popularity of prediction markets as a more extreme example. “We’re gambling at that point,” he says, and “gambling has a negative expected return.” Diversified, long-term investing, by contrast, carries a positive one.

“For young investors, patience and a long time horizon are powerful advantages,” says Chris Koutsikaloudis, equity research analyst at CI Global Asset Management and a former SSIF sector manager.

“Every semester, there is always something unexpected that happens in the markets,” Nemiroff says. While he understands the urge to react, selling during volatile periods without careful consideration can be a costly mistake.

“Wealth is often built by staying invested through market ups and downs rather than reacting to them,” Koutsikaloudis says. “Continuing to buy when prices fall means acquiring more at lower cost, and a decades-long horizon gives markets ample time to recover from downturns.”

Tune out the noise, Felix says. “If you’re uncomfortable with the portfolio that you have based on what’s happening in the world at a moment in time, I think that just means that your portfolio is not the right portfolio for you.” That’s a signal to reassess your risk tolerance and how it’s reflected in your investments. “You’ve got to be comfortable with your portfolio through the inevitable bad times that will come,” he adds. PWL has a free online tool to help you assess your risk tolerance.

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A baseline of knowledge helps. Felix says understanding what research says about long-term returns makes it easier to stay the course. “Buying and holding, and sticking with what you’re doing in the long run, is the best way to reap the benefits that the stock market has to offer,” he says.

To build that knowledge, Felix recommends podcasts — including his own, “Rational Reminder” — and checking out YouTube channels. Prioritize credentialled voices, such as chartered financial analysts, and watch out for sponsored content.

Keep emotions out of it, Poapst says. “Do your own research. Stay rational.”

Lora Grady is a personal finance reporter for the Star. Reach her via email at lgrady@thestar.ca.