Can MBAs deftly pick stocks? Is it a better plan to invest in an established American bank or a massive Canadian convenience store chain? And are men or women better at evaluating and picking stocks? Some answers to all of these questions were answered at Columbia Business School’s Pershing Square Challenge. The short answers are certainly, the latter and women.
Each year since 2008, around 40 teams of first and second year MBAs enrolled in Applied Security Analysis have competed for $100,000 divvied three ways and the street cred that comes with winning an investing competition at the home of value investing. This year more than 30 teams and over 100 MBAs were whittled down to five teams to pitch Pershing Square Founder and CEO, Bill Ackman, and a panel of judges. But when Ackman introduced this year’s finals, he was armed with a curveball. This year it would be all or nothing.
“Usually it’s $60,000 for first, $30,000 for second and $10,000 for third. But beforehand, Bill said, ‘I think we’re actually going to do winner takes all,'” recalls first year MBA and member of the second-place team, Daniel Rudyak.
SHATTERING THE PERSHING SQUARE CHALLENGE GLASS CEILING
The winning team came out slinging a curveball of their own: Invest in a Canadian convenience store chain. Forget banks, energy, pharmaceuticals or even the petroleum companies that supply oil to convenience store chains. Couche-Tard, one of the world’s largest chain of convenience stores, was the stock option to woo the panel with multiple billionaires and Ackman himself and claim the $100,000.
“We talked to a team member from a previous winning team and he said they practiced 53 times,” first year MBA and winning team member Joanna Vu says on a phone call with Poets&Quants. “So we decided to practice ours 53 times.”
It certainly paid off. Vu, alongside teammates Thais Fernandes and Melody Li shattered the Pershing Square Challenge glass ceiling by becoming the first entirely woman-led team to make the finals and win. “When we put together this team we wanted to prove that women can play just as hard with the guys in this industry,” Vu says. Mission accomplished. And this year, the women played harder.
‘CIGARETTES, BEER AND SLIM JIM BEEF JERKY’ FOR THE WIN?
After the team was formed, they each brought stock options for companies with more than $10 billion market capitalization, per the challenge’s rules. Fernandes, who has a background in investment management in her native Brazil, presented Couche-Tard. In Brazil, Fernandes says, the convenience store market is very consolidated compared to the United States and Canada.
During the pitch, which was replicated on CNBC’s Fast Money, Vu explained their investment thesis is “three-fold.” First, the team claimed Couche-Tard has proven to be recession resilient. Next, the company flied under the radar. Finally, Vu explained, and perhaps most importantly, the founder still runs the company and has a proven successful track record in mergers and acquisitions–thus driving home the whole consolidating a fragmented market theory.
Fast Money’s Karen Finerman, who also was a judge at the challenge, said on Fast Money the last point was what pushed this team over the edge and to the top. “The evolution of the business from mom and pops to big chain stores is very attractive,” Finerman said. Still, the attraction to convenience store market in general also proved viable. “People wonder, when gas prices go down, are you going to make less money? And in fact, they showed that hasn’t happened and the margins are great on the convenience store business with cigarettes, beer and Slim Jim beef jerky,” Finerman said, garnering laughs from her Fast Money co-hosts.
CHARLES SCHWAB: THE ‘PERPETUAL GROWTH MACHINE’
But the curveballs didn’t stop there. Two teams were so close, for the first time ever, the second place team was awarded an additional $50,000. Rudyak joined forces with second year MBAs, Brandon Cohen and Chris Andreola and pitched banking behemoth, Charles Schwab.
“A lot of people think it’s an interest rate play, but in fact, it was the only one of the finalists, in Bruce Greenwald’s opinion, that essentially was not dependent on future uncertain growth opportunities and rather an investment just looking at the core business and value in the core business,” Rudyak claims, referring to the Director of Columbia’s Heilbrunn Center for Graham and Dodd Investing.
According to Rudyak, Cohen came across Charles Schwab while researching investment options for his own family fund. No doubt the threesome did some deep investigation. After a second place finish in 2015’s challenge, Cohen came into this year’s competition with a chip on his shoulder and business to settle. The team devised a 80-page thesis, interviewed employees at Charles Schwab and its main competitors, Etrade and TD Ameritrade and even looked at investment gurus, Lou Simpson and Glenn Greenberg’s 13F filings. “We realized in the short-term, this is a perpetual growth machine,” Rudyak says. Indeed, Rudyak sent Poets&Quants an incredibly well researched two-pager outlining why Charles Schwab is poised to steamroll nearly anything in its path.
AT LEAST HALF OF WINNINGS GO TO ‘PHILANTHROPIC’ CAUSE
Looking back, Rudyak believes what set his team and Couche-Tard apart from the rest was looking at the less “sexier” stocks. “I think the youth don’t really look at financials or investing in financial institutions as something sexy or something that could actually yield high returns,” he says. Indeed, the millennial stereotype–still gun-shy from Great Recession residue–doesn’t bode well for trust in the financial types that thrust them into an underwhelming market. Yet, Rudyak and his seasoned teammates were able to capitalize on the hesitancy from others.
With the winning money, the teams are encouraged to give philanthropically with at least half the winnings. For the Couche-Tard team, the plan is to create a scholarship for women interested in investing. The Schwab team plans to give back to the Heilbrunn Center.