When MBA Stock Picking Prowess Is Put To The Test

Devon Pennington and Elise Radolf figure they put a total of 100 hours each into the pitch last year. But the competition was tough for the first-year MBA students at Kenan-Flagler Business School. They were competing against stock picking teams from Wharton, Chicago Booth, Columbia Business School, among many others.

All told, there were 48 would-be Warren Buffetts and John Templetons from 16 top MBA programs trying to impress 50 judges from 30 different investment management firms. Pennington, 34, and Radolf, 27, along with their third team member, Anthony (Peiheng) Xu, not only walked away the winners of the Alpha Challenge, which bills itself as the “premier investment management competition.” The judges paid them the ultimate accolade. “All the other teams were competing for second place,” an official conceded. “You were in first place by a mile.”

The competition requires teams to prepare and deliver three pitches—a long, a short and a wild card pick out of a specific industry sector—in front of different sets of hard-nosed judges from a wide variety of sponsoring firms that include Fidelity Investments, T. Rowe Price, Franklin Templeton Investments, and Janus Capital Group.

STOCK PITCHING CONTESTS AT CORNELL, MICHIGAN, VIRGINIA, UCLA & IVEY

Last year’s contestents had to research and pitch stocks in the retail and retail-related sector. The winning team’s final gambit was to sell the judges on a buy of Sonic Restaurants, the American drive-in fast-food restaurant chain based in Oklahoma City, OK. The Kenan-Flagler team convinced the judges that the company’s management was underrated and making intelligent decisions through product mix, store restructuring and the deployment of capital.

The judges told Pennington that the UNC team won based on the depth and thoroughness of its stock analysis and the evident teamwork on display during their seven-minute pitch and 10-minute Q&A session. The stock’s subsequent performance tended to mimic the wild swings of this year’s Presidenial election. At one point, the stock’s market value climbed by 25% but it has since fallen to a more modest rise of 5%.

Now the Pennington and Radolf, both second-year MBA students at the University of North Carolina-Chapel Hill, are helping to host what will be the 12th annual Alpha Challenge on Nov. 17 and 18th. Like business plan and case study competitions, stock pitching tournaments on business school campuses are not new. They’re held annually at a number of schools, including the University of Virginia, UCLA, and the University of Michigan. Cornell University’s Johnson Graduate School of has been doing one every year since 2006 when a team of MBAs from Northwestern’s Kellogg School of Management claimed first prize.

THE CHANCE TO LEARN AND APPLY THE TOOLS OF INVESTMENT ANALYSIS

It was the announcement of Cornell’s contest that led to the Alpha Challenge. Jim Jones, a 2006 MBA graduate of Kenan-Flagler and now a partner at William Blair Investment Management urged the school to do its own investing tournament.“Twelve years ago, Jim Jones and a couple of business school buddies told us, ‘We don’t want to go to Cornell. Why don’t we do one here,”” recalls Chip Snively, a senior lecturer and professor of finance at Kenan-Flagler.” The Alpha Challenge was result of those conversations.

For winners, the cash prizes from these contests tend to be less consequential than the bragging rights. At the University of Michigan’s Ross Innvestment Competition in mid-October, the top prize is just $4,000. At the University of Virginia’s Darden School, the annual investming challenge dangles a $3,000 cash award in front of students. The real benefit for MBA candidates is the chance to learn and apply the tools of investment analysis in pitching ideas to investment pros who could very well provide an internship or full-time job offer.

At Alpha Challenge, each team consists of three full-time MBA students, including at least two first-year students. Teams makes three recommendations in seven-minute presentations followed by a 10-minute Q&A: a long and a short from a pre-defined universe of stocks, and also a long only wildcard. Teams are asked to make their investments on a 12-month horizon and assume they represent a $1 billion fund that will fully invest in the three positions. The seven teams with the highest overall score from their three pitches advance to the finals where they make one last pitch.