So far, playing for keeps has worked out well for a group of business students from the University of Pittsburgh who are out to prove that investors can get above-market returns by investing in companies that try to do the right thing.
After managing a theoretical portfolio of socially responsible stocks for a few years, the students invested $100,000 in real money Feb. 4, 2013, from a grant they received from business school dean John T. Delaney. Over the next year, their 30-stock portfolio earned 23.6 percent, outperforming the S&P 500, which returned 19.8 percent over the same period.
"What we're trying to prove is that in the long run, socially responsible investing is the best way to invest," says Christopher Smith, 21.
The Bethel Park senior is the president of the club that runs the Socially Responsible Investment Portfolio.
Finance professor Jay Sukits started the experiment in 2007 with two goals in mind: developing the financial analysis skills of students and making them understand the importance of doing business ethically. Students spent the first few semesters coming up with a definition of what makes a company socially responsible, looking at mutual funds that applied social screens in their stock selection process.
Defining what makes a company socially responsible is more art than science. Some funds shun alcohol, tobacco, and defense and gambling stocks, while others rely on more nuanced criteria.
"Where's the cutoff? As a group, that's what we're sort of striving to agree on," says Kyle Kranzel, 20, a sophomore from Mechanicsburg, Pa., who joined the club in the fall.
The students launched a theoretical portfolio in 2009. Three years later, the group, which started as part of Pitt's David Berg Center for Ethics and Leadership, became a student club.
The Pitt fund automatically excludes tobacco makers and companies that conduct business in Cuba, Iran, Sudan and Syria, countries the U.S. State Department defines as state sponsors of terrorism. Beyond that, students look at a company's community investment habits, environmental and human rights practices, employment policies, the products and services it provides, and its ethics and corporate governance policies to decide whether it is eligible for consideration.
If 80 percent of the club's members vote that a company qualifies, its financials are analyzed to determine whether an investment is warranted.
Mr. Sukits attends the club's weekly meetings. He will occasionally provide guidance, but prefers to let students make the decisions.
"When this became a club, it became the students' project. That's where I'd like it to be," Mr. Sukits says.
Mr. Smith says the professor strikes a balance between providing guidance and giving the students autonomy. Although Mr. Sukits has the authority to, "I have never seen him veto or change a decision we made and passed through the voting process," Mr. Smith says.
Investing real money has prompted students to approach their work more diligently. They meet once a week for 90 minutes to evaluate their holdings and to research and discuss potential investments. They also spend several hours outside of class each week doing additional research.
When it was play money, "If you required them to do too much work, they'd leave," says Mr. Smith, who says there is a more serious tone to club meetings these days.
Caroline Hooper, who heads the team assigned to follow information technology and telecommunications stocks, says when it was pretend money, "There were no repercussions had things not worked out so well."
"It feels real. It's not just a game you're playing," says Ms. Hooper, a 22-year-old senior from Bethlehem, Pa.
Many schools offer similar learning opportunities. Students at Penn State's Smeal College of Business have been doing it since 2005. Their Nittany Lion Fund currently manages about $6.3 million for private investors. Duquesne University has two student-managed funds that invest real money.
The Pitt fund's socially responsible mandate adds a twist to the learning experiment. Two Pittsburgh companies -- PNC Financial Services and PPG Industries -- are included in its portfolio. Other holdings include Starbucks, Google and Microsoft. Mr. Smith said the club had considered buying Apple when the company's stock was priced at about $700 per share, but passed because of its labor practices in China.
Mr. Smith, who joined the club in September 2012, said it's not easy to become a member. Applicants have to submit a resume and are interviewed. Only 15 of the 76 applicants who applied last fall were accepted, he said.
Mr. Sukits' ambition to teach students the importance of ethics in business has had an impact on Chelsea Berger. The 21-year-old senior from Upper St. Clair heads the team assigned to health care and financial stocks.
"I was a little skeptical at first," she admits, "but after using socially responsible investing for a couple of years, I see it can work."
Len Boselovic: email@example.com or 412-263-1941.