Volume 4 The Official Newsletter of the Smeal College Trading Room

From Penn Stateto Merrill Lynch

and Back:William Schreyer

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The Trailblazing Life of William Schreyer................................................. 4Graduating in 1948 from Penn State University with a degree in Commerce & Finance, William Schreyerwould go on to lead Merrill Lynch & Co. and help build it into one of the greatest financial services firms inthe world. While Schreyer was a passionate and successful businessman, he also gave back tremendously toPenn State and currently continues to shape the direction of his beloved alma mater.

Charlie Smith: A Lifetime of Learning...................................................... 9Born in Cape Town, South Africa, Charlie Smith would overcome odds to become the department head ofAccounting/MIS and KPMG Professor of Accounting in the Smeal College of Business. Through a love oflearning and travel, he found his way across the world and into the hearts of so many Penn State students,faculty, and alumni.

Trade Secrets: Smeal Students WinInternational Trading Competition ......................................................... 15This past February, four Penn State students representing the Smeal College of Business traveled to Torontoto participate in the Rotman International Trading Competition. They competed against over 100 studentsfrom top business schools in a fierce competition designed to test their trading, portfolio, and riskmanagement skills. When the final bell rang, the Smeal College students were standing alone in first place.

F E A T U R E D A R T I C L E S

Inside this Issue...

T A B L E O F C O N T E N T S

Director’s Note ......................................................................................... 3

The Trailblazing Life of William Schreyer ............................................. 4

Smeal Vision

Smeal Beyond the Classroom ................................................................ 6

Bridging the Gap: The Smeal College Trading Room,Wall Street, and Penn State .................................................................... 8

Charlie Smith: A Lifetime of Learning ................................................... 9

The Value of Analyst Recommendations ............................................ 11

Alumni Impact

Cracking Open the Door to Wall Street ............................................... 13

Alumni Q&A with Craig Columbus ...................................................... 14

Student Focus

Trade Secrets: Smeal Students WinInternational Trading Competition ....................................................... 15

Alumni Notes ......................................................................................... 16

LionTrader Staff ..................................................................................... 16

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T his issue of LionTrader isdedicated to WilliamSchreyer to recognize hislifelong professional accom-

plishments, his dedication andgenerosity to Penn State, and his never-ending efforts to open up opportunitiesfor Penn Staters on Wall Street.

And talking about opportunities forPenn Staters on Wall Street—this hasbeen the best year ever for placement.At last count, over twentyundergraduate and MBA studentshave accepted job offers from WallStreet firms. And our placements haveprimarily been at the major firms —Merrill Lynch, Goldman Sachs, BearStearns, Citigroup/Salomon SmithBarney, and JP Morgan. I believe thatthere are several factors that havecontributed to the great placements—Wall Street firms are hiring more thisyear; the Schreyer Honors College hasbeen putting an emphasis on WallStreet careers; our alumni have beenvery loyal, and our students arenetworking with them more oftenthrough efforts like the Wall StreetInitiative; and our students are

becoming better prepared to competefor Wall Street jobs due to theirinvolvement with the Penn StateInvestment Association and the SmealCollege Trading Room.

For the second year in a row, SmealCollege students have won aninternational trading competition.In February, four students traveled toToronto for the Rotman InternationalTrading Competition. The two-daycompetition included student teamsfrom over twenty schools from theU.S., Canada, and the U.K. TheSmeal College team included SachinAggarwal (B.S. and M.S. in Finance),Jay Hammerstadt (B.S. in Finance),Mat Shopp (M.B.A.), and BradBarnhorst (M.B.A., who also won theSmeal College-FTS Global TradingCompetition last year). For theirwinning efforts, the students tookaway the first place prize of $10,000.The only bad news was that the prizemoney was paid in Canadian dollars!

Two new developments are going tohave a significant impact on thefinancial education of Smeal Collegestudents. In a major move forward forthe Smeal College Trading Room, Dr.David Haushalter has been hired asthe Administrative Director of theTrading Room. In this new position,David will oversee the day-to-dayactivities of the Trading Room, workwith faculty to integrate their coursesinto the Trading Room, and developand teach trading courses. David hasa perfect background for this position.He comes to Penn State fromSusquehanna International Group,LLP, where he was the CorporateResearch and Educational Associate.David traded equity and foreigncurrency options before going back toschool and earning a Ph.D. in Finance

from Purdue University in 1996. Hewas on the faculty at the Universityof Oregon before moving to Susque-hanna in 2000. We are very excitedto have David taking this position.

In another major development, theSmeal College is on the verge ofannouncing a formation of a student–managed investment fund (SMIF).There are over 100 colleges anduniversities that have SMIFs. But theSmeal College SMIF will be unique.Instead of having students manage apiece of the University’s endowment,the funds invested by students in the“Nittany Fund” will come frominvestors. As of this writing, we arecompleting the legal work to form aLimited Liability Corporation (LLC)that will form the basis through whichinvestment funds will be raised fromaccredited investors. Much of thestructure and organization of the“Nittany Fund” follows the work ofthe Penn State Investment Association.The minimum investment will be$25,000, and our target is to raise $5million for the students to manage.Between 20 to 25 student portfoliomanagers will be selected in the fallsemester, and the funds will beinvested beginning January 3, 2005.Additional details on the fund will beforthcoming soon.

On a final note, in this issue ofLionTrader we are initiating a sectiontitled Alumni Notes. Our objective isto let you know where our Wall Streetalums are these days. If you havechanged jobs or want to update yourfellow alums on your whereabouts,send me an e-mail at jrw@psu.edu.

—J. Randall Woolridge, Director of theSmeal College Trading Room

Director’s Note

J. Randall Woolridge, Professor ofFinance and the Goldman, Sachs and Co.and Frank P. Smeal Endowed UniversityFellow; Director of the Smeal CollegeTrading Room

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WilliamSchreyer

The TrailblazingLife of

In 1948, a man by the name ofWilliam Allen Schreyer graduatedfrom Penn State University witha degree in Commerce & Finance

and a life full of successes ahead of him.He had a vision, a quick smile, a bigheart, and a hunger to excel, qualities thatwould prove essential throughout his lifeand career.

Schreyer was born on January 13, 1928in Williamsport, Pa., the same townwhere he would begin his life-long careerfor Merrill Lynch. His father ran the localMerrill Lynch office in Williamsport, aplace he frequently visited in high schooland where he became familiar with thefinancial services industry. After highschool, it was no surprise that the youngSchreyer decided to further hiseducation. Choosing a college was adifficult decision. His father was partialto Bucknell University, where he hadattended college, but a number ofSchreyer’s friends were attending PennState. In the end, he decided to join Lioncountry, where he could be with hisfriends, get a good education, and enjoythe small town lifestyle in State College,which he was accustomed to fromgrowing up in Williamsport.

At Penn State, Schreyer excelled from thestart. He and five friends decided to jointhe Sigma Epsilon fraternity, of whichhe would later become the president.It was right after World War II, so therewere many ex-GIs returning to attendcollege. This created an interestingatmosphere. The ex-GIs were older anda great source of learning. Schreyerspecifically recalls one of his roommates,an engaging ex-Air Force Captain, fromwhom he learned a great deal aboutbalancing fun with academics.

In those years, Schreyer recalls that muchof the school life revolved aroundfraternities. The hotspots to gather withfriends were some of the same places stillfrequented by students today, such asThe Rathskellar and The Corner Room.He recalls the typical evening out routineat that time: “No one had cars, so Iwould walk to my friends’ dorm to meetthem. Then we would walk to TheCorner Room, where I would usuallyorder my favorite sandwich, the ‘Ham aLa Corner’. After eating we might walkaround the streets before we would walkback to their dorm at the end of thenight.” Ironically, some friends lived inAtherton Hall, which has since becomethe home of the Schreyer HonorsCollege.

Schreyer knew what he wanted to dobefore even starting college. He wantedto go to Harvard Business School to gethis M.B.A. and then work in thefinancial services industry. He decidedto go on the fast track at Penn State andcomplete his undergraduate degree asemester early in order to be eligible forenrollment in Harvard in fall 1948. Withthe assistance of Dean Pugh, heinterviewed for enrollment, an interviewhe recalls as being “tough.” He wasaccepted for enrollment a year later thanhe had wished, fall 1949. BecauseSchreyer was anxious to keep learningand stay ahead of the curve, he decidedto return to Williamsport, Pa., and enrollin a new internship program with MerrillLynch, a company with which he wasvery familiar.

Throughout the internship program,Schreyer rotated through differentdepartments of the firm and, after twoyears, was made the assistant to a pensionfund manager. He then transferred toBuffalo, N.Y., where he began workunder a very demanding, but fair,manager and became an account

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executive. It was from this manager thathe learned the ropes of good manage-ment, qualities that he used as he movedup the ranks in the firm. One lesson hepicked up from this gentleman was toget straight to the point in conversations.That manager used to caution, “You cantalk to someone on the phone toomuch,” and to this day Schreyer notesthat he still is very short when speakingon the telephone. After a few years inBuffalo, he was called to duty to fulfillhis ROTC Commission as 2ndLieutenant in the Air Force.

While stationed in Germany for thearmed forces, one of Schreyer’s Generalsfound out he had worked in thesecurities industry. The General hadsome money he wished to invest, andasked Schreyer if he could be ofassistance. He invested the General’smoney in a petroleum stock, and ittripled in a week. Word spread fast, andhe began opening accounts in MerrillLynch’s Geneva office for other Generals.While he didn’t receive any compen-sation, he sure was noticed. Aftercompleting his stint in the service,Schreyer went back to Buffalo, N.Y., andbegan Merrill Lynch’s managementtraining. Once completed, he transferredto New York City to become the salesdirector for Merrill’s Metropolitan regionoffices. He turned around manytroubled offices, and after three years,was quite known within the firm.

Up to this point, Schreyer had primarilyworked in the Global Private Clientdivision of the firm. In 1973, he wasasked to be the chairman of MerrillLynch Government Securities Inc., asubsidiary that operated as a primarydealer of U.S. government securities. Hequickly learned the dealer business, andsoon after was appointed to head all ofthe firm’s capital markets operations. In1978, Schreyer was made president ofMerrill Lynch, Pierce, Fenner & Smith.He pushed for globalization andincreased focus on the firm’s investmentbanking business by assisting the firm

in its acquisition of White Weld & Co.,a prestigious investment banking firmat the time. As president, he was alwaysmindful of the firm’s communityresponsibilities. He organized aChristmas Charity program that enabledelderly citizens to use Merrill Lynch’sphone lines to call loved ones free ofcharge.

Schreyer became CEO of Merrill Lynch& Co., Inc. in 1984, and chairman ofthe board in 1985. His legacy is inMerrill Lynch’s global expansion andprofitability. He was also a most popularCEO, known for his tremendousrelationship skills and friendships acrossthe world.

William Schreyer not only helped buildone of the greatest financial services firmsin the world, but he has also contributeda great deal back to his old alma mater,Penn State. In 1997, he and his wife,Joan, donated $30 million to fund theSchreyer Honors College in hopes ofimplementing the vision shared byPresident Graham Spanier—“to attractgifted students, provide them with a richhonors education, inspire them, and helpopen their eyes to global opportunitiesand civic and social responsibilities.” TheHonors College has been a great leapforward for Penn State and has attractedmany highly motivated students withexceptional talents.

But Schreyer’s generosity has not stoppedthere, for he has also been a greatbenefactor to the Smeal College ofBusiness. In addition to a lecture series,scholarships, and a library endowment,Schreyer has provided financial supportfor the Center for Global BusinessStudies. He also endowed the WilliamA. Schreyer Chair of GlobalManagement, Policies, and Planningwhich is currently held by Dr. FariborzGhadar, who is also director of theCenter for Global Business Studies

Regarding Schreyer’s endowment of afaculty chair, Judy Olian, Dean of SmealCollege of Business states, “Thesespecial opportunities enable us toattract teachers and researchers withoutstanding international credentials,and lift the reputation of the entirecollege.”

Ghadar explains how Schreyer’sendowment has advanced the researchinterests of the college, “The endowmenthas given the research center, students,faculty, and, of course, me theopportunity to explore and undertakeresearch on business issues that shape theglobal business environment. Ourresearch will ultimately enrich ourclasses, excite our students, and makesure our work remains relevant to thebusiness practitioner.”

In addition to Schreyer’s significantfinancial support of the college andPenn State, he has personally influencedSmeal students through his frequentmentoring and participation inextracurricular events such as SmealSurvivor. He has also played the centralrole in increasing Penn State’s visibilityamong Merrill Lynch recruiters. Becauseof his efforts, Penn State is now a targetschool for Merrill Lynch. Other WallStreet firms have since followed MerrillLynch’s lead, and now recruit at PennState, opening doors for Penn Stategraduates seeking work on Wall Street.

—Jonathan Wyss, LionTraderManaging Editor

Joan and William Schreyer

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As the spring semester came to a close, Smealcontinued to host and take part in an array ofenriching activities. The college has alwaysdevoted substantial time and effort to providing

its students with activities to enhance the overall learningexperience and prepare them for the transition into theworkforce. This past semester, Smeal involved itself inseveral dynamic programs: Conversation with BusinessLeaders, Smeal Survivor, the Arlene Shapiro Kaplan lectureseries, and the Farrell Center for Corporate Innovationand Entrepreneurship. Each program aims at developingstudents’ understanding of the real business world throughvarious platforms.

As Smeal continues to foster the relationship betweenstudents and Wall Street alumni, Conversation withBusiness Leaders afforded students a wonderfulopportunity to network. The event took place on April 29in New York City at Credit Suisse First Boston’s corporateheadquarters. Although the occasion was targeted at Smealalumni and the Board of Visitors, current undergraduateand graduate students were welcome to participate. Theprogram focused on identifying talent and leadership inthe corporate world and aligning those skills with therequirements of particular companies. The forum was ledby four distinguished executives: Randy Battat, presidentand CEO of wireless internet concern Airvana; StephenW. Delaey, CEO of electronics manufacturer Celestica;John Thompson, vice chairman of the executive searchcompany, Heidrick & Struggles; and Patricia Sellers, Editorof Fortune.

Smeal hosted the fourth annual Smeal Survivor event onApril 14. The event provided twelve students theopportunity to act as a CEO of an authentic publicly-traded company. The students took part in macroeconomictraining through the renowned think tank, the Center forStrategic and International Studies (CSIS), in WashingtonD.C. They were exposed to the Seven RevolutionsInitiative, a program that focuses on major economic trendsexpected to impact public policy and strategic businessplans. These trends are forecast forward until the year 2025

Smeal Beyond the Classroomand cover seven main areas: population, resourcemanagement, technological innovation and diffusion,generation and distribution of knowledge and information,economic integration, global instability and conflict, andthe challenge of governance. Students prepared for thecompetition by developing a thorough understanding ofhis/her individual company and assessing the impact ofthe Seven Revolutions in the company’s future.

The competition itself consisted of members of the SevenRevolutions Initiative intensely prompting participantswith various scenarios. The students had to think quicklyand effectively articulate to the audience and judges astrategic business plan to deal with the scenarios.Contestants only had a few minutes to formulate andpresent their responses and were judged by a panelincluding Dean Judy Olian and executives from Johnson& Johnson, C-Cor, and PNC Financial Services. Based

Conversation with Business Leaders: (l-r) John Thompson, StephenW. Delaney, and Patricia Sellers (Not pictured: Randy Battat)

Conversation with Business Leaders: (l-r) John Thompsonand Stephen W. Delaney (Not pictured: Randy Battat andPatricia Sellers)

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Tony Warren,

Farrell Clinical Professor

of Entrepreneurship and

Director, The Farrell Center

for Corporate Innovation

and Entrepreneurship

As part of the continuing Arlene Shapiro Kaplan lectureseries, Julie Hembrock Daum recently spoke to Smealstudents regarding her role as a managing director atSpencer Stuart, an executive search firm. A Penn Stategraduate with a degree in health planning andadministration, Daum also holds an M.B.A. in corporatefinance from the Wharton School of Business. She spoketo students about the revolution in the corporateboardroom as corporate governance and fiduciary dutyremain pressing issues. Recently, Daum has recruiteddirectors for Charles Schwab, General Mills, e-Bay, andthe New York Times. Her past work included a role asexecutive director of Corporate Board Resources atCatalyst, where she helped manage the activities of boardsof directors and helped them recruit female directors. Inaddition, she serves as a member of the NorthwesternConference on Corporate Governance, the Wharton/Spencer Stuart Director’s Institute, and acts as a judge forthe Wharton Board Excellence Award.

The Farrell Center for Corporate Innovation andEntrepreneurship recently received a grant from the EwingMarion Kauffman Foundation based in Kansas City inthe amount of $48,559. In addition, Penn State will givethe center $57,370 to assist in the development of itsCenter for Entrepreneurship Learning. The center isdesigned to provide both students and instructors with anenvironment in which problem-based cases are analyzedfrom an entrepreneurial perspective and will reach out toteachers and students outside of Penn State within two-and four-year colleges and high schools. Last spring, theCenter for Entrepreneurship Learning implemented testversions of the proposed course offerings to 100undergraduate students. In addition, the Center aims tohelp implement entrepreneurship issues into existingcourses, provide training for entrepreneurship teachers, andmarket the services to colleges, school districts, andcompanies throughout the U.S.

In keeping with its tradition of offering students with anarray of activities and initiatives, Smeal continues to bridgethe gap between classroom learning and real-worldapplications. As Smeal further develops these activities andworks to initiate new programs, its students continue gaina strong and well-rounded education.

—Lauren Ruane, LionTrader Staff

on the thoroughness and practicality of the students’answers, the student CEOs either advanced through thethree rounds or their company became bankrupt. ErikPeterson, the director of studies at CSIS, commented, “Itis crucial that we prepare future leaders in business forpotential crises and encourage them to think about over-the-horizon issues.” Prizes this year included a first placeprize of a ticket to the World Business Forum held in NewYork City valued at more than $2,000 and provided byPNC Financial Services. This year’s winner, Joe Hoelscher,acted as the CEO of Procter & Gamble and was promptedwith questions regarding rising oil prices, the advancementof nano-technology, and the impact of outsourcing jobs.He believes that the event helps participants to distinguishbetween managing and leading a business.

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The Trading Room OversightBoard and interns are glad tosay that they have successfullyachieved what they set out to

do in the beginning of the year. Theyhave been constantly working toimprove and increase the exposure ofthe Smeal College Trading Roomamong the public and alumni.

The Trading Room staff dedicateditself to achieving a list of goals andobjectives during the 2003–2004academic year: product presentations,web exposure to current andprospective students and faculty,integration of the Trading Room intothe academic curriculum, and asuccessful transition of leadership roles.

During the year, the Trading Roomstaff has initiated a series of threeproduct presentations on each of thefour software packages: Bloomberg,Moneyline Telerate, TradeStation, andFTS. About 400 undergraduate, MBA,and doctoral students, as well asfaculty attended a total of 13 productpresentations, which allowed them tobenefit from the interns’ knowledge ofpicking and analyzing stocks,derivatives, trading strategies, and

Bridging the Gap:fundamental analysis. In addition, theTrading Room continued its lectureseries by hosting seven extremelyinsightful Penn State alumni to sharetheir professional experiences on WallStreet.

The Trading Room staff had theopportunity to transform the TradingRoom Web page to a comprehensiveTrading Room Web site by publishinginformation on the Global TradingCompetition, information on productsand teams, intern registration forms,and facility and lectures information,which assisted the goals of reaching outto alumni, faculty, and students. Also,the Trading Room staff has beenworking with the Smeal College facultyto further integrate the Trading Roominto the faculty’s curricula. Eachproduct team worked on thepreparation of finance-relatedassignments and presented thoseassignments to the faculty.

Many undergraduate Trading Roominterns found exceptional full-time andinternship placement opportunities attop Wall Street companies. Theseaccomplishments further provideevidence that the Trading Room

Oversight Board’s efforts to completeits goals were met.

The Trading Room Oversight Boardacts as the entity responsible for thevision and the future direction of theTrading Room and has already startedworking on new ideas and initiativesfor the next year. Those initiativesinclude an online Trading Roomcalendar, the Trading Room logocontest, introduction of Reuters3000Xtra to the Smeal community,collaboration with faculty to furtherintegrate the Trading Room into theircurricula, organization of a SecondGlobal Trading Competition, and the“Nittany Fund.”

David Haushalter from SusquehannaInternational Group, LLP will bemanaging the Trading Room next year.With his exceptional career andknowledge of financial markets and thecontinued hard work of the TradingRoom staff, all these initiatives will betaken a step further, and Penn Statewill be closer than ever to Wall Street.

—Cagatay Culcuoglu, ManagingDirector of the Smeal College TradingRoom

The Smeal College Trading Room,

Wall Street, and Penn State

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Growing and maturing from apoverty-stricken childhood inCape Town, South Africa tobecome the one-time

department head, and a long-timeprofessor of accounting, Penn State’sown Charles H. Smith’s life trulyencapsulates the American Dream.Through a love of learning and travel,along with a little assistance and advicefrom the right people, he found his wayacross the world and into the hearts ofso many Penn State students, faculty,and alumni.

As a young child, Professor Smith(known to many of his students simplyas Charlie) was told by his mother,“Steal with your eyes and never withyour hands!” He was constantly pushedtowards learning and higher education.However, due to insufficient money, hewas forced to withdraw from schoolafter the eighth grade in order to takeup work at the Cape Town Municipalityas a messenger boy. A continued desireto learn, though, enabled him to attendcollege at night where he had the choiceof only three majors: business, speech,and drama. It was a simple choice forCharlie; he studied business for the next5 years of his life. When he finishedschool, people began to take interest inhis tremendous potential andwillingness to learn. A friend ofCharlie’s, Arthur Claire, helped himbegin a career in public accounting atthe firm Sebba, Lentin, Gordon, andWillis. He later joined another publicaccounting firm in South Africa, H.Tarley and Co.

Charlie Smith:A LIFETIME OF LEARNING

Even though things at H. Tarley weregoing well, Charlie still maintained astrong interest in higher education andtravel. After applying to some of the bestbusiness schools in America, includingHarvard and Stanford, Charlie had toface the fact that the costs were just toosubstantial and accept more financiallyfeasible realities. The more affordabletuition and financial aid of Penn Stateled Charlie there, where he was able toobtain his Masters in Accounting. Aftergraduating, he once again returned toSouth Africa where he worked at severalpublic accounting firms including CecilKilpin and Co. and GreenwoodPoulton and Co. However, politicalunrest in South Africa and fondmemories of State College broughtCharlie back to obtain his Ph.D. in1964 and begin a lifetime of teaching.“I am often asked whether I have anyregrets about the events of life that ledto a permanent move to a new countryand to a career path in academia andpublic accounting. My quick, shortresponse is a confident ‘no.’ I viewmyself as most fortunate to have beenable to participate in so much that thiswonderful country has to offer.”

His teaching journeys led him into someof the nation’s most prestigiousuniversities, including the University ofWashington, the University of Texas,Arizona State University, the Universityof Illinois, and finally a return to PennState in 1987, where he served as thedepartment head for over thirteen years.“My decision to return as chair of the

Accounting and MIS department inJanuary 1987 was based on Penn State’scommitment to being counted with thetop ten public universities in the U.S.;because I wanted to see if I could givesomething back to the institution thathad given me so many opportunities;and because my wife Anjoe and I havealways liked State College as a place tolive.”

As department head, Charlie was ableto elevate the Smeal accounting andMIS programs into some of the best inthe nation through hiring quality facultywho had an “open-door” policy withstudents. According to Charlie, “Thiswas not a formal, official policy. It cameabout because of a very clearcommitment to the Ph.D. program.Over these many past years of beinginvolved with Ph.D. programs at a

Charles Smith, KPMG Professor ofAccounting

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number of different schools, I havecome to find that Ph.D. students needsignificant ‘processing’ attention fromfaculty in order to get the students onthe road to becoming quality andproductive researchers. It is not worthmuch if we have faculty with nationalreputations who then operate with theirdoors shut. The evidence is very strongthat the faculty of some of the bestaccounting programs do not have thesame ‘processing commitment’ that wehave here at Penn State. This ‘open door’approach has ensured the current andfuture success of the program.”

Charlie currently serves as the KPMGProfessor of Accounting at Penn State,specializing in financial accounting and

auditing. According to Charlie, themost meaningful rewards in his life havecome from the great number and varietyof his experiences: “The developmentof my mind; the freedom that comesfrom being able to think openly andfreely; the interactions with such a greatvariety of people; the feeling ofsatisfaction that comes from positivefeedback from these many differentpeople; and my good fortune in beingable to see so many different parts ofAmerica as a result of being associatedwith five different universities (some ofmy friends say that I have not been ableto keep a job).”

Still practicing his “open door”approach to learning, Charlie continues

to pass on his experiences to the nextgeneration of pupils. His dedication tohis students has been recognized bythe Pennsylvania Institute of CertifiedPublic Accountants, who has namedhim 2004 Outstanding AccountingEducator. He says, “I have my manystories with my students as I try toencourage them to not give up in theface of adversity. I try to convince themthat, if they ‘keep on trucking,’ goodwill eventually come from their sacrificesand efforts.”

—Eugene Weissberger, LionTrader Staff

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in its fifty-year history, all of the SmealCollege facilities will be collocatedunder one roof.

Penn State’s Board of Trusteesofficially approved plans for the newbuilding in March. The project willcost $68 million, with $39 million ingeneral funds from Penn State and$29 million from private donors. Thegroundbreaking ceremony for thenew building is slated for October 31,2003, with construction scheduled tolast until 2005.

The Value of AnalystRecommendations

In 1940, Fred Schwed comicallychronicled the investmentbusiness in his highly entertainingbook titled Where are the

Customers’ Yachts? As suggested by thetitle, Schwed’s ten years of workingexperience on Wall Street led him toquestion the value of brokers’ advice.The following quote from the booksummarizes his overall assessment ofthe business: “Wall Street is a streetwith a river at one end and a graveyardat the other. This is striking, butincomplete. It omits the kindergartenin the middle.”

Since Schwed penned his classic overa half-century ago, the stock markethas produced double-digit annualreturns and the investment bankingand brokerage businesses havethrived. And yet over that time manyothers have questioned the ability ofWall Street analysts to pick stockmarket winners. Of particular note areBurton Malkiel’s Random Walk DownWall Street and Eugene Fama’swritings on efficient capital markets.Nonetheless, you open a financialpublication, go to an investingwebsite, or turn on CNBC today, anda Wall Street analyst will be giving hisor her advice on what stocks to buy.

As such, the primary premise ofSchwed’s book remains a majorquestion mark: Is there value in thestock recommendations of Wall Street

brokerage firms? Penn State’sJ. Randall Woolridge addressed thisissue in a recent study. He evaluatedthe performance of the stockrecommendations made by analysts atthe 15 largest brokerage firms over theperiod of 1993-2002. The studyanalyzed data from quarterly surveysprepared by Zacks InvestmentResearch and published in The WallStreet Journal. His study is unique in

that it (1) employs a very public sourceto track the performance of the stockrecommendations made by the selectbrokerage firms, (2) examines the rawand risk-adjusted performance ofbrokerage firm stock recommen-dations over a ten-year time period,and (3) evaluates the stock recommen-dation performance of individualbrokerage firms to assess which firmshave provided the best advice.

J. Randall Woolridge, Professor of Finance and the Goldman, Sachs and Co. andFrank P. Smeal Endowed University Fellow

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His overall findings were that therecommended stocks of brokeragefirms underperformed the S&P 500(see Exhibits A and B, below). Therecommended stocks provided acompounded annual return of 8.97%over the ten-year period, while theS&P 500 boasted a return of 9.35%.A $1,000 investment in therecommended stocks was worth$2,358.85 after ten years comparedto $2,443.46 for the S&P 500. Thisstock performance over 10 years isknown as the Cumulative WealthIndex (CWI).

The study also compares theperformance of the recommendedstocks of individual brokerage firms.At the end of the study, ten firms haddata for the entire 10-year period.These firms are categorized as eithertop-tier, mid-tier, and regionalbrokerage firms. For top-tier firms,Merrill Lynch performed the best,

boasting positive, risk-adjustedreturns and an average annual returnof 12.86%—3.5% higher than theS&P 500—and producing a CWI of$3,346. In terms of middle-tierbrokerage firms, Bear Stearns alsoproduced positive, risk-adjustedreturns with a CWI of $3,017.Raymond James, the leading regionalfirm, produced an annual return of14% with a CWI of $3700. RaymondJames’ stocks come from a differentasset class than those of the other firmsand thus their data is statisticallyinsignificant. Exhibit A displays theperformance of the top-tier brokeragefirms, while Exhibit B displays theperformance of the mid-tier firms.

There are four important points totake away from Woolridge’s study.First, the performance of stocksrecommended by the selectedbrokerage firms between 1993 and2002 was slightly below that of the

S&P 500. Also, the recommendedstocks’ returns were riskier and morevariable than those of the S&P 500.Secondly, the recommended stocks ofmid-tier and regional brokerage firmsperformed slightly better thanrecommended stocks of top-tierbrokerage firms with a little less risk.Thirdly, the risk-adjusted perfor-mance of recommended stocksis slightly below the market.Finally, there is considerablevariability in the performance of therecommendations of individual firms.But the results show that there arethree firms that produced superiorstock recommendations over the pastten years: Merrill Lynch, Bear Stearns,and Raymond James.

—Adam Braham, LionTrader Staff

PERFORMANCE OFRECOMMENDED STOCKS

Mid-Tier Brokerage Firms

Firms: Annual(ranked by alpha) Return Beta Alpha

Raymond James 13.87% 0.94 6.56%

Bear Stearns 11.68% 1.03 2.26%

Standard and Poors 500 9.35% 1.00 0.00%

A. G. Edwards 8.50% 1.12 -1.39%

Prudential Financial 6.35% 1.09 -2.93%

Exhibit B

PERFORMANCE OFRECOMMENDED STOCKS

Top-Tier Brokerage Firms – 1993-2003

Firms: Annual(ranked by alpha) Return Beta Alpha

Merrill Lynch 12.86% 0.92 4.27%

Standard and Poors 500 9.35% 1.00 0.00%

Credit Suisse First Boston 9.99% 1.31 -0.88%

Morgan Stanley 7.65% 0.95 -1.04%

Goldman Sachs 7.95% 1.11 -1.75%

Salomon Smith Barney 4.47% 1.09 -4.79%

Lehman Brothers 4.06% 1.40 -7.05%

Exhibit A

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James Mahn, director of fixedincome, fixed incomederivatives, and creditderivatives at Bloomberg

recently visited the Smeal CollegeTrading Room to provide studentswith advice about entering the jobmarket. Mahn grew up in northernNew Jersey and graduated with anMBA in finance from the SmealCollege of Business in 1991. Aftercompleting his graduate studies, hewas hired at Credit Suisse First Bostonas a foreign exchange and interest ratederivatives trader. After working therefor five years, he joined his currentemployer, Bloomberg.

Cracking Open the Door to Wall Street

Jeff Kleintop

Mahn strongly suggested to all Smealstudents, “Utilize your contacts.Contact all of your immediate familyand find out if they, or someone theyknow, works in your area of interest.In particular for Wall Street—as it isthe hardest sector to crack—havingthe advantage of someone you knowputting in a word for you, or handingyour resume to the right person canmake all the difference.” Heelaborated, “If you do not use yourcontacts on ‘The Street’, someone elsewill.” Not only should you ask yourcontacts if their firms need help, butask them if they know anyone else thathas an opening.

Furthermore, students should bepersistent with their contacts. Manypeople on Wall Street are extremelybusy and may easily lose track ofstudents that have contacted them forhelp; however, that does not meanthat they do not care or do not wantto help. “It is easy to fall down thepriority ladder of someone you aretrying to reach or meet, as people arebusy with their own jobs, but bepersistent without being a nuisance.It will keep you at the top ofsomeone’s list when they have anopening,” Mahn stated. He alsoadded that it is a fine line betweenpersistent and annoying. You shouldalways act positive, and whencontacting people, understand thatthey can help you, but they do nothave to. Nevertheless, because of thenature and intensity of the work, it iseasy for students to get lost in theshuffle. Thus, occasionally remindand refresh them about what they are

supposed to do for you, or how theywere going to help you. Mahnemphasized “Be Persistent!!!! Anystudent can contact me for advice, butI may be tied up or out of the office,so BE PERSISTANT!”

“Don’t be afraid to ask for a job,” wasMahn’s other tip for prospectivestudents. Once you have a contact andare interacting regularly, do nothesitate or be afraid to ask for a job,because it might be the only way thatyou can get one. “If someone lets youin the door, they know what you arethere for; A JOB!” he said. However,if you do not feel that it is appropriateto ask for a job, ask him what the nextstep should be, or what you shoulddo to get a job. Penn State studentsshould also take advantage of the greatalumni presence on Wall Street, andtheir willingness to help the futuregenerations of students.

Mahn’s final bit of advice was, “Onceyou do get the job, work as hard asyou can to prove to everyone else thatyou have what it takes, and that youare willing to put in the extrahours to make the difference.”He elaborated that even if you do notlike the desk or sector that you areworking in, work hard so that whenan opening becomes available you willbe one of the first candidatesconsidered for the position.

—Jon Hammarstedt, LionTrader Staffand Jay Hammerstedt, LionTraderPhotography Editor

James Mahn addresses Smeal students

A L U M N I Q & A

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with Craig ColumbusCraig Columbus, Chief Market Strategist at

Thompson Financial, has a live spot eachMonday afternoon on Power Lunch on CNBC.After law school, Craig graduated in 1994 with

an MBA from Penn State.

How have your Penn State education and prior careerexperiences led to your current position as ChiefMarket Strategist at Thomson Financial?

The communications component of the MBA programhas been very helpful in the work I’ve done on television.It really was ahead of its time nationally, and now a lotof the top business schools have tried to integrate similarcommunications skill building in their curriculum. SinceI work closely in financial market regulatory issues, mylegal background has been an asset for me. I was thefounder of a financial software company that wasultimately acquired, so I am a big believer in the abilityof the upstart to use technology in strategic ways.

What does your role as Chief Market Strategist involve?

Developing proprietary equity analytics and promotingthose capabilities to our customers, the professionalinvestment community.

How do you prepare for your weekly spot on CNBC?

Since the show airs live every Monday, I spend eachSunday night reading through research reports about thecompanies I will discuss the next day. It’s a drag for myfamily—but they are very understanding.

How have the financial markets changed since youhave been involved in them?

The markets are much more volatile and more heavilyregulated, with stricter disclosure requirements and stifferpenalties for non-compliance. It seems to me that thereis a renewed focus on stock picking and the quality ofearnings, as opposed to market momentum. Andindividual investors have begun to better understand theirpersonal risk tolerance. Finally, by removing the

restrictions that separated commercial banking andinvestment services, the American financial servicesindustry has gone through the first of several waves oflarge-scale consolidation—and has started to look a lotlike Europe in that regard.

What is your take on the market right now?

We don’t make calls on market direction. We aretechnology suppliers. We give professionals the tools thatallow them to hopefully make the right calls themselves.

What advice can you give current Penn State studentswho are interested in pursuing a career in the financeindustry?

Be persistent. Reach out to the Penn State alumnicommunity in the industry, which is among the mostloyal groups out there. Pick Dr. Randy Woolridge’s brain,as he is so highly regarded by the professional investmentcommunity.

What do you see yourself doing down the line?

I love the financial markets and new technologies, but Iam also very active in public policy issues, particularlydisability and special education issues. I think we allhave a responsibility to apply our unique talents tofurther some aspect of the common good.

—Alicia Cheng, LionTrader Staff

Craig Columbus on CNBC

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Smeal Students Win International Trading Competition

Imagine over 100 of the brighteststudents from top businessschools from all over the worldcompeting in a fast-paced Inter-

national Trading Competition. Nowimagine four Penn State representativesthriving and prospering in victory at thesound of the final bell. MBAs BradleyBarnhorst and Matt Shopp teamed upwith undergraduate students SachinAggarwal and Jay Hammerstedt this pastFebruary to conquer the RotmanInternational Trading Competition inToronto. The four financial phenomsused their forecasting and trading skillsin the fast-paced, realistic environmentto claim victory.

The competition took place at theRotman School of Management’sFinancial Research and Trading Lab. Thelab is considered one of the leadingfacilities of its kind at a North Americanbusiness school. The dynamic learningcenter contains all the resources of a realtrading floor and gives students hands-on experience to test their trading,portfolio, and risk management insightin a real-world environment where theycan put finance theory into practice. The

competition was initiated with an openoutcry case intended to act as anicebreaker, but also had a small weightingin the team’s final score. During theoutcry market, the participants weretrading a single stock futures contract.A live news feed provided informationthat would affect the final futures prices.Participants traded futures contracts withone another via the outcry system.

The core of the competition consistedof three custom-designed FTS marketcases that required the teams to be brokendown into analysts and traders. The twoanalysts built economic models based onboth historical financial reports and liveinformation. Analysts made EPSestimates for companies’ “quarterly”results and were graded based on howaccurate and timely the estimates were.They then posted this information to ananalytics page where the other two teammembers actively traded the stocks in anattempt to be the most profitable. Eachround of the competition presented aunique financial case situation and aschedule of hypothetical and marketevents occurring simultaneously. Teams

had to respond using financial theory toestimate value, applying skills incorporate earnings forecasting, andtrading a variety of products includingstocks, bonds, and options contracts.

The Penn State team employed a strategyof trading off of expected values basedon a financial model devised from Excel.The team bought and sold based on theseexpected values and took advantage ofthe overvaluing of certain stocks.“Basically, if there was money on thetable, we took it,” commented SachinAggarwal on his team’s strategy.

At the end of the two-day event, the fourPenn State students dwarfed thecompetition and each walked away with$2500 and a new pair of coveted Rotmanred suspenders. This victory representeda great accomplishment for both theparticipants and the student body atlarge. It illustrates that Penn State is aleading force in business education andthat the Trading Room at Penn State istruly bridging the gap between theclassroom and Wall Street.

—Adam Braham, LionTrader Staff

Smeal Students (l-r) Bradley Barnhorst, Matthew Shopp, Sachin Aggarwal, and Jay Hammerstedt (not pictured) won first place in theRotman International Trading Competition in Toronto last February.

TradeSecrets

TradeSecrets

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EDITOR-IN-CHIEFBill Gushardwrg112@psu.edu

MANAGING EDITORSJonathan Wyssjaw932@psu.edu

Sean Spillmanses936@psu.edu

COPY EDITORSachin Aggarwalsua104@psu.edu

PHOTOGRAPHY EDITORJay Hammarstedtjmh420@psu.edu

This publication is available in alternative media on request.

Penn State is committed to affirmative action, equal opportunity, and the diversity of its workforce.U.Ed. BUS 04-74e DS74036clh

StaffSTAFFAdam BrahamAlicia ChengJamie GreshJon HammarstedtLauren RuaneElizabeth StaffordEugene Weissberger

TECHNICAL ADVISERSuzanne Wayne

Alumni Notes2000s

TIMOTHY COONEY graduated in 2000 with a B.S.in Finance. He works in US Institutional EquitySales at Goldman, Sachs & Co., 1 New YorkPlaza, 50th Floor, New York, NY 10004.

RYAN FLEMING graduated with an undergraduatedegree in Finance in 2001. He is a Sales andTrading Associate at Citigroup Global Markets,390 Greenwich Street, New York, NY 10013.

MATTHEW LOTA received his undergraduate degreein 2000. He is an Associate Trader (NASDAQ)at J.P. Morgan, 277 Park Avenue,New York, NY 10172.

JEFFREY MITZAK, class of 2002, is aFinancial Analyst at Goldman, Sachs & Co.,1735 Market Street, Philadelphia, PA 19103.

MADHU NAMBURI graduated in 2000 with anM.B.A. He is a Vice President of InvestmentBanking at J.P. Morgan, 277 Park Avenue,20th Floor, New York, NY 10172.

RYAN NEWMAN received his undergraduate degreein 2001. He is an Associate in the InvestmentManagement Division at Goldman Sachs & Co.,1735 Market Street, 26 floor,Philadelphia, PA 19103.

MICHAEL SANFORD received his undergraduatedegree in 2003. He is an Investment BankingAnalyst at the Banc of America Securities, LLC,9 West 57th Street, New York, NY 10019.

ROBERT WALL graduated in May of 2004. He isan Investment Banking Analyst, DiversifiedIndustries at J.P. Morgan at 277 Park Avenue,16th Floor, New York, NY 10172.

1990s

HENRY ADKINS graduated in 1991 with a B.S. inFinance. He is a Vice President and Corporate/Agency Floating Rate Note Trader at J.P. MorganSecurities, 270 Park Avenue, 8th Floor,New York, NY 10017.

BRIAN CALLAHAN received his undergraduatedegree in 1995. His position is Vice President,Par Loan Trader at Merrill Lynch, 4 WorldFinancial Center, Floor 7, New York, NY 10080.

CRAIG COLUMBUS graduated in 1994 with anM.B.A. He is Chief Market Strategist atThompson Financial in Scottsdale, AZ anda regular guest commentator on CNBC.

BLAKE HALLINAN received a B.S. in Finance in1999. He is an Investment Banking Associateat Merrill Lynch at 4 World Financial Center,New York, NY 10080.

JEFFREY KLEINTOP graduated in 1995 with anM.B.A. He is Chief Investment Strategist and aSenior Vice President for PNC Financial Advisers,with offices at 1600 Market Street, 29th Floor,Philadelphia, PA 19103.

JIM MAHN received an M.B.A. in 1991. He isthe Director of Fixed Income and Derivativesat Bloomberg LP, 499 Park Avenue,New York, NY 10022.

JOHN MANCUSO received his undergraduate degreein 1991. His position is VP Institutional Equitiesat J.P. Morgan, 277 Park Avenue,New York, NY 10172.

DAVID MARCINEK graduated with a B.S. inFinance in 1993. He is the Vice President,FICC Derivative Products at Goldman Sachs& Co., located at 85 Broad Street,New York, NY 10004.

WILLIAM MCBRIDE graduated in 1993 with anM.B.A. He is Head of Technical Sales at DeutscheBank in New York.

1980s

CHRIS MORRIS received his M.B.A. in 1989.He recently assumed the position of ManagingDirector, IB Global Consumer Retail Group atLehman Brothers in New York.

ALAN WERLAU graduated from Penn State in 1982.He is a Managing Partner at Black Arrow CapitalManagement, LLC, 73 Arch Street,Greenwich, CT 06830.