Millions Won and Lost:
Students Gain Authentic Experience without Losing a Dime in Professor Oltheten's Finance Classes
by Claudia Petty
Making money on a first-time investment in today's financial market is not ultimately an advantageous experience, suggests Elisabeth Oltheten, Professor of Finance at the University of Illinois at Urbana-Champaign. Oltheten believes that when individuals effortlessly build capital in today's financial markets they are likely to assume that anyone can benefit monetarily without first developing an understanding of the theories and applications associated with finance and investments. Oltheten says that the best scenario for developing an understanding of today's financial markets is for individuals to loose money immediately, which in turn encourages the development of questions and answers that can ultimately help in the long term pursuit of money making.
Since 1993 students in Professor Oltheten's finance courses have lost millions. One student in particular lost $2,000,000 in less than a month and another student ended the semester with losses of almost 400% on his original investment of $1,000,000. Did Oltheten scold these students for their disastrous financial mistakes? No! She simply asked these students what they had learned from their experiences knowing that they had not lost real money but rather mock investments in the University of Illinois Securities Exchange Simulation (UISES), an online financial simulation project that she designed with colleagues for the purpose of helping students gain real world experience with investments.
 Working within the UISES simulation, students in Professor Oltheten's classes are immersed in inquiry learning. Although Oltheten doesn't use this particular educational term to describe her teaching, she is quite familiar with the process of engaging her students in real world experiences in order to heighten their desires to develop questions and seek out answers. In doing so, she strives to capture the attention of her students and accomplishes this most effectively by utilizing teaching techniques that require students to actively participate in the learning process.
Professor Oltheten motivates her students not only through the UISES simulation project, but also by involving them in classroom lectures and discussions. Oltheten believes that engaging students in discussions and encouraging students to think about how particular topics may directly connect to their UISES simulation activities far surpasses mere note taking, which Oltheten defines as "the art by which information is passed from the board of the professor to the notebook of the student without passing through the mind of either."
Pulling Not Pushing
"Oltheten suggests that she is not interested in "pushing" information at students. Instead, she wants students to be engaged in activities that heighten their desires to "pull" information from a vast array of resources as a means for developing more sophisticated understandings of the processes underlying particular financial outcomes."
Oltheten suggests that she is not interested in "pushing" information at students. Instead, she wants students to be engaged in activities that heighten their desires to "pull" information from a vast array of resources as a means for developing more sophisticated understanding of the processes underlying particular financial outcomes. Oltheten goes on to suggest that students will be more likely to "pull" information when they are actively involved and when when they are learning from their mistakes. Oltheten reports that the student who lost $2,000,000 in less than a month learned from the mistakes he made in her course and eventually went on to "do quite well for himself" in the field of financial trading. She remembered that every time he made a disastrous financial decision in the simulation he turned it into a learning experience and then proceeded to share his insights with classmates. Oltheten said that when this happened she knew that the creation of UISES was something special. It provided opportunities for students to contribute significantly to the teaching and learning process.
Students in the Driver's Seat
Teaching in this respect is a two way street, and Oltheten has worked hard to design a course that gives her students experiences in the driver's seat. Upon finding herself face-to-face with the challenge of designing a business finance course at Illinois after completing her Ph.D. in theoretical economics, Oltheten knew that she wanted her students to be prepared for the real world. Having worked at the Royal Trust Company in Canada for six years, Oltheten was well aware of the number of MBAs who graduated lacking a true understanding of the nature of portfolio management. In addressing this educational deficit, Oltheten knew that she wanted her students to gain the skills necessary to run and administer a portfolio while maintaining accurate records. In contemplating these goals, Oltheten found herself reflecting back on the specifics of where and how she had come to learn these necessary financial proficiencies. As she thought about her own experiences, she came to appreciate that her mentor at Royal Trust and her real world experiences had been her best teachers. Although Oltheten readily recognized the value of learning through real world experience, she was also aware that learning on the "fast track with real money" was not always advantageous for employers and/or clients. Knowing full well the potential consequences of real world experiences, Oltheten decided to help her students gain valuable experiences by providing them with opportunities to work and learn within the controlled environment of the UISES simulation.
Losing and Learning
Within the controlled environment of the classroom, each of Professor Oltheten's students receives $1,000,000 of mock money to invest. Although some students are anxious about the prospect of investing this amount of money even within a simulation, she is careful to reassure them that "the worst that can happen is that they can lose it all." With respect to investing, Professor Oltheten's students can either form a partnership of one, or form a partnership with up to five other students. Oltheten discusses the pros and cons of working within partnerships and reminds students that if a "partner goes berserk at 3 o'clock in the morning and makes a risky investment and doesn't think to renege the order before the markets close at 3 in the afternoon, then the other partners are stuck with the binding actions of the one partner." Oltheten reminds her students that just as in real life, liquidating a portfolio is a legal issue, and in their case will not be resolved before the end of the semester.
Once partnerships are created, Oltheten encourages her students to buy stocks. In choosing stocks, Oltheten advises students to pick a company they know or to pick a company that makes a product they like. In saying this, Oltheten knows full well that every semester Anheuser-Busch will be a favorite stock purchase by many students. The truth is, however, Oltheten doesn't care which stocks are purchased by her students since course grades are in no way determined by the amount of money that is either lost or gained. Over and over, Oltheten enthusiastically encourages her students to buy, buy, buy, knowing full well that a substantial number of them will make disastrous financial mistakes somewhere along the way.
 By the end of the first month of the course, Oltheten requires students to spend 50% of their portfolio. After purchasing the stocks, students conduct research on the companies in which they are now part owners. Oltheten laughs as she relates a story of a group of students who lost substantial amounts of money on the company that made Miller Light. What they learned after conducting research was that Phillip Morris, the producer of Miller Light, was in the middle of lawsuits due to their involvement in the manufacture of cigarettes. Upon learning this information they approached Oltheten with the comment, "Oh, they make cigarettes too?" Oltheten chucked and responded, "you aren't just buying and selling so that the buying price and the selling price are different and the selling price is higher. This is not just about riding a bandwagon. This is about the fact that you own the company and you better know something about the company." After reflecting upon this story, Oltheten commented on her belief in the power of experiential learning and emphasized her confidence in learning environments that are not solely reliant on professorial lecture.
After investing at least 50% of their portfolio and researching the companies that they hold shares in, students are required to develop a stewardship report, which is a detailed account of all portfolio transactions that are developed on behalf of a client. During the second month of the course, students are required to invest 90% of their portfolio, generate a capital gain or loss in one of their positions, and develop another stewardship report. Finally in the third month of the course, students are required to take at least one non-U.S. position and generate a capital gain or loss in a foreign currency. To accomplish this task, students use UISES to trade in Amsterdam, Frankfurt, Paris, Athens, Milan, London, or Toronto. Because these foreign markets sell shares that are denominated in Euros, Pounds, or Canadian Dollars, students must spend foreign currencies that they may not even have. When this happens students must decide whether to spend American Dollars to buy the foreign currency that will cover the debt or decide to retain the foreign debt, which constructs for them another risky position. What is exciting about this type of foreign trading, says Oltheten, is that students start "thinking about currency and exchange rate risks as separate from equity risk." Through this type of experiential learning students realize that within an international market, investors "can either balance to book or balance to market, but not to both."
Power and Success
"Outside of assignments and record keeping, Oltheten opens the parameters so that there are no rules for buying or selling commodities. In this way she gives her students permission to learn through experimentation."
In using UISES, Oltheten places emphasis not on incomes or losses but rather on the processes involved in conducting clean accounting on investment structures and keeping track of portfolio transactions. "I maintain very strict guidelines with respect to assignments and records. This is not Enron, this is investments; market trades to the penny." Outside of assignments and record keeping, Oltheten opens the parameters so that there are no rules for buying or selling commodities. In this way she gives her students permission to learn through experimentation.
Oltheten believes that the power and success of any simulation project relies heavily on the structure of the classroom and the teaching style of the professor. She adamantly believes that a simulation project as well as real world experiences, case studies, and the like, cannot be thoughtlessly layered on top of an existing course structure. In her estimation, "it just doesn't work." What is required, according to Oltheten, is that professors meet the challenge of integrating "engaged learning" activities into the structure of their courses. If this is done, students will more likely develop enthusiasm, confidence, and deeper understandings of subject matter than they might in more passive learning environments.
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