Investing in education has a little different meaning for a class of nine seniors in Gonzaga University's School of Business Administration.

Class members have their hands on real money—typically $100,000 split between two teams—to invest in stocks of publicly traded companies they've researched and selected.

"It's amazing how well we do," says Clarence "Bud" Barnes, dean of the business school and an economics professor. "When you've put $50,000 in the hands of 21- to 22-year-olds, they're pretty good about being serious about what they're doing."

Great Falls, Mont.-based investment firm D.A. Davidson & Co. provides about $50,000 in funding for the program. Additionally, the business school matches the D.A. Davidson amount with a separate $50,000 from an endowment fund held in a trust at the investment firm. The class breaks into at least two groups working as teams of four to five students, with each group selecting a handful of investments in an attempt to earn a profit during the academic year.

Some of their stock picks this year include Apple Inc., Amazon.com Inc., Humana Inc., General Dynamics Corp., and Caterpillar Inc.

The Gonzaga students do this activity as part of an elective class called Portfolio Management, which meets one hour a week over three semesters, starting in the springs of their junior years. They spend the first two semesters learning the fundamentals of market investments and portfolio management, Barnes says. He teaches two classes in this subject, one for juniors and the other for seniors who started with him the prior spring.

By late fall or early December, the seniors in teams select exactly which stocks to purchase—usually investing in eight to 12 companies.

"The teams will present their ideas for investments," Barnes says. "There are no speculative stocks, futures, or options."

Barnes says the students usually stick with the same stock picks through the end of August, although in the past, teams have occasionally traded a selection in cases when a company has reported a significant setback.

For most of the 10 years Barnes has taught the class, his seniors have turned a profit, a portion of which stays with the business school and goes into a fund now at about $26,000 for student support, such as for presenting at a national meeting. Barnes says that if a profit is gained with the D.A. Davidson-designated $50,000 under its program, about $2,000 goes back to the firm to cover execution costs, and the school and the firm split any remaining profits.

D.A. Davidson absorbs any losses if the program-supported investments end the year down. Overall, the D.A. Davidson Student Investment Program offers the $50,000-per-school funding for a total of 20 colleges and universities across seven states in the Pacific Northwest and Rocky Mountain regions. Regionally, participating schools include Gonzaga, Washington State University, Eastern Washington University, University of Idaho, University of Washington, and Seattle University.

"I think they gain knowledge of security markets, and they gain a respect for investment markets; it can be so volatile," Barnes says about the students who participate.

Many have gone on after graduation to work at investment firms, including Matt Lusk, a Spokane-based D.A. Davidson senior financial consultant who took the class at Gonzaga in the early 2000s. Lusk now visits Barnes classes at least once a year to speak.

"The take-away is they learn it's a value set," Barnes adds. "It's not Monopoly because it's real money, and it's a serious venture. They become more critical investors and learn the importance of doing your homework about companies."

Barnes says D.A. Davidson's $50,000 is held in an account at the firm each academic year beginning in the fall, and he has his students do in-depth analysis of companies before individual stocks are bought.

Senior Matt Patterson says the knowledge that the students' decisions affect real money—and the potential gain or loss of those dollars—differs significantly from other business courses that have students select hypothetical investments.

"You have to have a responsible investment when you're dealing with the university's endowment money, or the D.A. Davidson money," he says. However, he adds, "We learn how to best manage the investments, but the investments also are made to win the competition. You only have a certain handful of stocks, so you have to play it a little riskier."

Student Matthew Hansen adds that students pour over company balance sheets, debt loads, cash balances, and market and industry influences. "We gain a lot of knowledge in how to evaluate income statements, and how to pay attention to the markets, watching and seeing what's happening."

Diversification is another factor that plays into the investment decisions. Hansen says, "Each group had a bunch of tech stocks (initially), and we had to pick which were the one or two best."

Aldis Ozols, another senior, adds that the students focus on best-performing companies, those that are industry leaders and, ideally, pay a dividend. "We focus on the best of the breed among companies," he says. "We had an issue in selecting from two health care companies, for example. We chose the companies that are doing the best in their industries."

Roughly a month into their investments, the current crop of seniors had a 1.3 percent gain in investment as of mid-January and ranked third among the 20 schools. Early results showed WSU had a 6.3 percent gain, and EWU was at a 0.5 percent loss.

Last year's Gonzaga seniors garnered one of the strongest D.A. Davidson program results yet, earning $9,000, or a gain of 18.6 percent during the 2010-2011 academic year, compared with the Dow Jones gain of 16 percent for the same period. Barnes says he can't remember which companies specifically that group invested in, although he knows one was Apple Inc.'s stock.

"We have finished as high as first among the other schools," Barnes adds.

Other positive investment years included 2005, when the Gonzaga class's selections made almost $14,700, Barnes says. In 2008, students saw a $1,500 gain, and for 2009, that class's investments earned $5,000.

Of course, at least a couple of years showed losses in down markets. In 2007, the Gonzaga student-run D.A. Davidson investments lost $4,400, and another loss came in 2010, with a negative $3,000.

The students who take Barnes' class are required to hold at least a 3.0 GPA and have declared one of three majors: finance, accounting, or economics. The class size usually runs from 12 to 20 students.

The business school's funding toward the student learning project also has proven to be a good investment. Barnes says that for each of the years the school has matched D.A. Davidson's money, including sometimes a third $50,000 installment for a larger class, the school's endowment fund hasn't had to absorb any losses.

"The students don't know which half is D.A. Davidson's and which half is the school's until close to the end of the year," he adds.

Overall, Barnes says, the program adds to what the students learn in his class about handling and building investments, and many of his students are preparing to work in the industry as financial advisers or managers of a portfolio for a trust, pension, or annuity fund.

"Most employers funnel into retirement funds through a portfolio manager who tries to grow the fund, produce an income stream, and keep it secure," Barnes says. "The first semester is just textbook learning. By the summer, I have them do research, and into the fall, further analysis."

D.A. Davidson's Lusk remembers specifically a moment as a student in Barnes' class when he realized how important a skill it is to be able to do the analytical work to understand financial markets, yet be able to communicate that well to others.

"It was one of the first moments in my college life when I realized it wasn't all about being smart or getting an A," Lusk says. "I realized that there are few people who can do the analytical work and take it to other people and make them understand it."

Lusk says that when he goes into the classroom at Gonzaga or EWU, he tries to mentor to the students about the different jobs available in the finance and investment world. It may be that some discover they are a better fit doing research at a firm, or in mutual fund portfolio management.

"They'll either have a better understanding of how to manage investments for themselves, or as a manager of funds for someone else," he adds.

Joshua Garcia, also in Barnes' senior class, gives another reason why the investment project is important among those who plan to work as financial advisers or portfolio managers.

"More and more Americans are having to retire with the help of a retirement account or a 401(k), versus having a pension or relying on Social Security, so you need to know how to do this well so you can help people live better lives," he says.