As a student in UNC’s full-time MBA program, I was recently selected to participate in the Cornell MBA Stock Pitch Competition, one of the premier business school investment management events.
I’m happy to announce that our team was voted as a finalist in the competition (a great showing for UNC!), although we ended up losing out to NYU and Wharton in the finals. Some background on the event:
Cornell MBA Stock Pitch Competition
Teams from each school are provided a list of stocks at 11am on Thursday, and 3 powerpoint stock pitches are due by midnight – trust me when I say that it’s a wild 12 hours.
The pitches are then presented on Friday morning in front of portfolio managers at buy-side institutions like Fidelity (the lead sponsor), American Century, and Putnam Investments.
Each pitch is 10 minutes long, with a 5 min Q/A afterwards, and teams can recommend a long, short, or hold on each individual stock.
Every team was required to pitch the same stock in the first round, and then could pick one stock out of the lists for each of the two subsequent rounds.
Round 1: Required – GMCR
Round 2: Advertising – LAMR, CCO, IPG
Round 3: Asset Managers – FII, TROW, LM, WDR
Can anyone guess the stock I ended up pitching?
Although my investment philosophy has been refined over time, my process has always centered on finding businesses that are mispriced in some capacity.
I’ve had the most success among the deep value stocks found in the microcap realm, but I can also appreciate buying great businesses at fair prices – even if those businesses are outside of the normal ‘value investing’ metrics.
Even with this open mindset, I find that some businesses are trading at such high prices that I couldn’t even imagine the possibility of investing there…
Enter Green Mountain Coffee Roasters (GMCR)
GMCR is probably the ultimate anti-value investing stock – the company is selling at a P/E of 70x, has negative free cash flow, heavy insider selling – the list goes on.
At the same time, it is expected to grow 100% in the next year and has been one of the fastest growing companies over the past five. Due to these and many other factors, it is probably one of the most controversial stocks anywhere (outside of maybe NFLX).
To make it even harder, David Einhorn of Greenlight Capital fame just unveiled a scathing 110-page powerpoint presentation on the stock at the recent Value Investing Congress, causing a 40% sell-off in the last month or so.
As a team we decided that we wouldn’t be able to add anything unique or original to Einhorn’s presentation in such a short period of time, and therefore decided to go long GMCR (I know, I know).
We ended up splitting up the responsibilities so each team member worked on an individual stock, and the GMCR assignment fell to me – which is ironic since the stock is pretty much on the complete opposite end of my normal investment universe.
Anyways, here is what I was able to put together in 12 hours:
Although it was very difficult to put myself in the mindset of someone who could be long GMCR, I think it was a great exercise that will improve my overall investing approach. A few lessons from the experience:
- Buying behavior – how does it apply to a company’s products?
- Growth dynamics – what combination of factors leads to such explosive growth?
- Acquisition strategy – can buying up competitors ever be strategic enough to ignore fundamentals?
- Identifying the opposing rationale – are all alternative viewpoints explained by the investment thesis?
- Valuation – how to value high-growth companies with little or no cash flow?
- Investment Thesis – how to synthesize vast amounts of information into the key points within a tight time window?
The greatest investors not only have the fortitude to follow a strategy during difficult times, but the ability to incorporate divergent viewpoints. I want to make sure that I stay open to other investing styles as I develop in my investing career.
Analyzing a stock – especially an extreme case like GMCR – from such an uncomfortable viewpoint provided a great deal of perspective. I hope to carry these lessons into future investment decisions.
Even so, I won’t be buying GMCR anytime soon.