I read a great post about how in this economy, we’re all entrepreneurs. Our educational system is built to print out mass quantities of specific “student templates,” like Accounting major, Finance major… and restock the large institutions.  While this works in a growing economy, when the Big 4 just hire all the Accounting majors, it doesn’t prepare them for a competitive job market. For the most part, graduating students have been commoditized. How do they compete with all the other Accounting majors when they are exactly the same in all relevant respects?

What our educational process needs is a dose of entrepreneurship. It needs to teach students to sell themselves, find a unique niche in the organization to serve (NOT a mass-produced, interchangeable cog), and establish a personal brand (or unique identity if you think the phrase “personal brand” belongs to those with scents). But most of all, students need to pursue something in which they’re interested. Too many have gone the Accounting/Finance track because it’s well defined  and makes good money (see Brittany’s post).

Those who followed the easy path straight into a career they didn’t really enjoy will most likely be the first to get cut. They aren’t passionate about their work, and don’t provide more value than they cost to the firm in the downturn.

Those who follow what they love make a job for themselves, either by working for themselves (startup, freelancing or consulting) or by convincing others to create a job at a company for them. When a company creates a job for you, you get to do exactly what you’re passionate about (by design), and there’s no competition for that position – who is more qualified at being you than you?

While the financial organizations might be “too big to fail,” the individuals at those organizations aren’t. When you work for someone else, there’s not much you can do to prevent yourself from getting fired – it’s mostly out of your hands.

Howard Lindzon came up with the term “too small to fail.” When you’re self-employed, you can’t fire yourself. If you need more money, you work harder or find different things to work on.

This is the entrepreneurial spirit, and a lot more people are going to need to find it if they want to succeed in this environment.

For one of my classes (FINC 421) we started our own hedge funds. We were given $30M in a program called StockTrak with the ability to buy 50% on margin, access to Bloomberg, and a few basic QUANT rules. Over 3 months we were able to generate over 20% return, which is amazing.

Our professor started this project to see if a student-run, QUANT-based hedge fund would be possible here at Texas A&M. After these great results, there’s a pretty good chance we’ll be getting a hedge fund here in the next few years. We already have a student-run stock portfolio (The Tanner Fund).

Here’s the presentation we’re giving tomorrow on our results:

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‘The Real American Gladiators’ is the name of our Hedge Fund; I’m not sure who came up with that name.

For those that are interested, here’s a few details on how we made so much:

• We downloaded the most recent data on about 7000 stocks from Bloomberg, rated them based on (Free Cash Flow)/(Enterprise Value) and Return on Invested Capital, then sorted them from most undervalued to most overvalued.
• After eliminating all with a market cap below $1B, we went $30M long on the first 10 and $30M short on the last 10. This long-short strategy allowed us to make money despite market conditions. In effect, we were betting that one group of stocks was relatively mispriced against another.
• After 2 weeks we closed out our positions and repeated.
• After about 4 trades we integrated Reversal into our strategy – that is the concept that the best performing stocks this month will be the worst performers next month (see graph in slideshow for more details).
• Towards the end of the presentation we show what “our fees” were. This is based on a management fee of 20% profits + .5% of assets under management.
• I was amazed at how well these QUANT strategies worked. We had such great results because we were unemotional (never using our “gut”) and made our trades a few hours after computing the data, while it was still fresh and relevant.
• While the annualized return is 115%, I don’t think we could expect that high of a yearly return. I think our portfolio did so well because of the increased volatility in the market recently. I don’t think these results are typical; however, I do think the QUANT strategies would continually beat the market. Just not as much as we were able to do over the past 3 months.