The First Report Card
Two weeks later.
After a morning of nonstop lectures with not even a single break, the students were slumped over their desks or staring blankly out the windows.
Professor Warren Cromwell glanced at the wall clock, then closed the thick textbook in front of him.
"...All right, that's enough for today."
He was ending class thirty minutes earlier than anyone had expected.
Cheers and the scrape of chairs erupted all around the lecture hall at once.
Victor, sitting beside me, tipped his head back and stretched.
"What gives? Professor Cromwell’s ending class early?"
Just as the students were starting to grab their bags, the side door to the lecture hall opened and the teaching assistant came in carrying a thick folder and a stack of transparent OHP sheets.
Cromwell tilted his chin toward him.
"And now, the moment we’ve all been waiting for. It’s time to see the results of the mock investment competition over the past two weeks."
"Oh..."
The brief cheer in the room quickly gave way to tension.
The assistant stepped up to the lectern and laid the first transparent sheet onto the OHP.
On the screen, a faint grid appeared with the title floating over it.
[FIN 101 VIRTUAL PORTFOLIO – WEEK 2 PERFORMANCE REPORT]
Everyone’s two-week return was about to be laid bare.
In effect, a public execution.
The assistant aligned the sheet and began speaking.
"For this mock investment, orders submitted directly to me by 9:00 a.m. every Friday were treated as executed at actual exchange prices from that afternoon through next Thursday. The professor followed the same procedure. Next week will work the same way. For sells, you’ll submit them the same way as buys, and the submission form is posted on the bulletin board in front of the faculty office. Don’t just buy and sell randomly, so be careful."
The assistant flipped to the next OHP sheet.
"Then let’s begin with the returns. First, Professor Warren Cromwell’s portfolio and performance."
He wrote at the top of the sheet with a pen.
[Professor Warren Cromwell – Initial Capital: $100,000]
Everyone’s eyes widened as they waited to see how the professor’s fictional starting capital of one hundred thousand dollars had changed over the past two weeks.
Then the trade history for four representative stocks was listed as examples.
1) Chevron (CVX) – integrated major oil refiner
Buy: $52.00 → 1,000 shares ($52,000)
Sell: $57.50 → 1,000 shares ($57,500)
2) Raytheon (RTN) – defense and electronic warfare equipment manufacturer
Buy: $44.00 → 500 shares ($22,000)
Sell: $49.20 → 500 shares ($24,600)
3) The Coca-Cola Company (KO) – flagship global consumer stock
Buy: $30.00 → 300 shares ($9,000)
Sell: $33.00 → 300 shares ($9,900)
4) Medtronic (MDT) – leader in medical devices and pacemakers
Buy: $26.00 → 400 shares ($10,400)
Sell: $28.80 → 400 shares ($11,520)
The rest of the assets had been scattered in small allocations across blue-chip consumer and healthcare names like Johnson & Johnson (JNJ), AT&T, and Procter & Gamble (PG), which he had simply held without selling.
The assistant wrote the final total.
"Total invested: $99,400. Valuation after two weeks: $110,100."
Including cash on hand, the return was +10.1%.
A textbook blue-chip value portfolio.
Broadly diversified across energy, defense, consumer goods, and healthcare, with a controlled amount of risk and a structure designed to beat the index.
Professor Cromwell spoke.
"Chevron was a bet on postwar oil-price stabilization. Inventory was being built back up, and refining margins were recovering. Major refiners have low volatility, but their short-term rebound power isn’t bad. Raytheon drew attention during the Gulf War when Patriot missiles intercepted Scuds. It was obvious government orders would increase. In fact, it rose further after the Pentagon budget announcement. Coca-Cola and Medtronic are, quite simply, safe assets. Consumer goods and medical devices hold up well in a downturn, and both have sturdy long-term growth stories. Diversifying to control risk while timing each sector to capture returns—that’s the basics."
The assistant finished the tally.
"Therefore, Professor Warren Cromwell’s total assets for Week 2 are $110,100. The return is +10.1%."
Applause and cries of admiration broke out all over the lecture hall.
"Ten percent in two weeks? If that had been real money, he would’ve made ten grand sitting right there."
"That’s why he’s the guy who used to advise Wall Street."
"Damn, why is my account all in the red..."
"I’m finished. I’m probably down around ten percent already... How did the professor pick only the stocks that went up?"
In a volatile market, +10.1% was the kind of number that deserved applause.
By the book, it was more than enough.
"From here on, I’ll read the students’ returns in attendance order. Because of time, I’ll only announce the names and the returns."
A new sheet went up on the screen, and names with percentages began to appear one by one.
"Adams, –3.9%. Baker, +2.8%. Chen, +1.2%..."
On the OHP screen, the numbers piled up like scattered dots between –5% and +5%, with 0% as the baseline.
Every time a negative return was called out, sighs and low groans rolled through the room.
When a +4% or +5% appeared now and then, there were murmurs that it wasn’t bad, but they were always followed by, Still not as good as the professor's.
By and large, everyone had bought the usual names—General Electric (GE), Coca-Cola (KO), the sort of stocks their fathers would have recognized.
At last, Victor’s name came up.
"Victor. –5.2%."
He buried his face in his desk and muttered, "I should’ve just listened to you, Sanha. I went into General Motors and Pan Am for nothing... Haa."
The assistant kept reading out returns without any major surprises.
Most of the students had already resigned themselves to defeat.
Only one person had not.
Grace.
"Grace, +7.4%."
She had posted a return that rivaled the professor’s and thoroughly crushed the morale of everyone around her.
And then it happened.
As the assistant read the next name, he paused.
"Sanha Lee..."
He glanced back and forth between the original papers in his hand and the OHP sheet, blinking several times.
Cromwell asked, "Is there a problem?"
The assistant blurted out the number first.
"The return is... +35.8%."
For a moment, all sound vanished from the lecture hall.
Professor Cromwell adjusted his glasses and asked again, "Check that once more. You’re saying the first two-week return was +35.8%?"
"Yes, Professor. Initial capital of $100,000 is currently valued at $135,800. There’s no calculation error. It’s student Lee Sanha from the College of Business."
Only then did the room explode into noise.
"That’s insane, it’s more than three times the professor’s return!"
"35.8% in two weeks? If that had been real money, he’d have made thirty-five thousand dollars!? That’s half my dad’s annual salary."
"Isn’t that the same East Asian guy who memorized a thousand digits of pi last time?"
"That doesn’t even feel like the kind of thing intelligence alone can do. Did he use some kind of Chinese sorcery? Or summon a genie from a lamp?"
Beside me, Victor shot upright.
"Sanha, what did you do? How do you even end up with numbers like that?"
Professor Cromwell’s voice rose as well.
"Very interesting. Mr. Lee, would you stand up and explain to everyone which stocks you invested in, how, and why?"
"Yes, Professor."
I rose from my seat and walked up to the OHP.
Taking the pen from the assistant, I wrote across the top of the screen.
ENERGY – EXPLORATION & PRODUCTION (E&P)
Below it, I listed three stocks in table form.
1) Apache Corporation (APA) – independent E&P centered on Texas and New Mexico fields
Buy: $20.00 → 2,500 shares ($50,000)
Sell: $27.80 → 2,500 shares ($69,500)
2) Anadarko Petroleum (APC) – holder of Gulf of Mexico offshore exploration projects
Buy: $30.00 → 1,000 shares ($30,000)
Sell: $37.50 → 1,000 shares ($37,500)
3) Noble Affiliates (NBL) – mid-sized E&P player in the Gulf of Mexico and North Sea
Buy: $18.00 → 1,100 shares ($19,800)
Sell: $26.00 → 1,100 shares ($28,600)
Total invested: $99,800 → valuation: $135,600.
Total assets including cash: $135,800.
Return: +35.8%.
The students started murmuring.
"Apache? Anadarko? I’ve never even heard of those companies."
"They’re all oil companies? None of them are those blue-chip names my dad told me about."
"All three climbed twenty to forty percent. How did he pick those?"
In a sector from my memories before regression, the outcome had been especially clear.
I had concentrated my capital into just three names.
That was my approach in this round.
Cromwell rested his chin on his hand and asked, "Good. But why those companies specifically? Can you tell us the criteria and your reasoning?"
"Right after the Gulf War ended, most people thought oil prices would stay depressed for a long time. But I thought that was excessive pessimism."
"Hmm. Excessive pessimism? On what grounds?"
"According to U.S. Department of Energy statistics, commercial crude inventories were still more than 10% below the five-year average before the war. During the process of rebuilding inventories, demand will probably come in stronger than people expect."
Cromwell cut in.
"Then what if Middle Eastern supply comes back? If Kuwaiti fields are restored, couldn’t we see an oversupply?"
"The Kuwaiti oil-field fires still haven’t been fully extinguished, and there’s no telling when sanctions on Iraq will be lifted. For Middle Eastern supply to return in earnest, it’ll take at least a few more quarters."
"What about OPEC?"
"At the latest OPEC meeting, Saudi Arabia mentioned defending sustainable oil prices. I took that as a signal they won’t let prices stay this low for long."
"Good. And Greenspan?"
"Chairman Greenspan keeps cutting rates. The U.S. economy is bottoming out and preparing to rise, and when the economy recovers, energy demand is one of the first things to increase."
"Right. But why did you choose these smaller exploration companies instead of majors like Chevron or Exxon?"
He wasn’t asking because he didn’t know. It was a good question, asked with the answer already in hand, because he wanted the students to learn from it.
So I answered in the spirit he intended.
"Apache, Anadarko, and Noble Affiliates are all pure exploration and production companies, not integrated refiners. They’re the sort of companies that drill the oil out of the ground and sell it. If crude rises by just a few dollars, their profits can explode exponentially. They’re what you’d call high-beta names."
"Specifically?"
"For example, Apache had production costs in Texas and New Mexico that were one to two dollars lower per unit than its competitors. Even at the same oil price, it kept a larger margin."
Cromwell pointed to the second name.
"Well analyzed. Then Anadarko?"
"It had just announced successful new exploration in the Gulf, and I got in before the market fully priced it in. Exploration success leads directly to proven reserve growth, and that was a clear trigger for a re-rating."
"Exactly. Noble?"
"Its Gulf of Mexico and North Sea projects were right before commercial production. The company was undervalued relative to its asset base, and as the start of production approached, the valuation gap narrowed."
Cromwell folded his arms and thought for a moment before speaking.
"Summarize it in one sentence."
"Oil prices aren’t at a bottom right now; they’re catching their breath before the next move up, and I concentrated my capital only in companies that could leverage that rise the most... that’s more or less what it means."
Everyone was too busy taking notes to breathe.
Except one person.
..."
Grace Fairfax, seated in the middle rows, had set down her pen and was quietly listening to me.
Cromwell let out a loud laugh.
"Excellent. The analysis was superb, and you had the nerve to back it up too. But... the next two weeks won’t be easy. I’m thinking of taking on a bit more risk myself."
After the professor finished the line that signaled the end of class, the students started getting up.
We left the noisy Sanders Theatre behind.
As we went down the stairs, I tapped Victor on the shoulder.
"Victor. Let’s go to the library right now."
"Right now? Why all of a sudden?"
"Because I owe you one. You put me in touch with your father last time."
"Aw, you don’t need to repay me for that. I didn’t even do anything. You and my dad just kept yapping away in a conversation I couldn’t understand a word of... Oh, right! My parents said to bring you home sometime. They want to buy you a good meal. And they kept telling me to be friends with you, too. I said we already were, and they got mad and told me to be even closer friends with you. What exactly did you talk about with my dad for so long?"
"I’ll explain later. More importantly, I’m really grateful they thought well of me. That means I have to repay you even more. From now on, let’s do this as a real team. You’ve got to post a gain this time too, don’t you think?"
"Oh! If that’s the kind of repayment you mean, then I’m in!"
Victor’s eyes lit up.
* * *
Meanwhile.
"..."
There was one pair of eyes quietly watching the two male students disappear toward the library.
Grace Fairfax.
Her gaze was fixed on the back of her East Asian classmate as he moved farther and farther down the stairs.
Crinkle—
The sheet of paper in Grace’s hand creased.
Printed across the top of that sheet, in bold letters, were the words: Club Registration Form.