Each week, select Babson College students find themselves pitching a stock to their classmates, portfolio managers, and some well-known chief investment officers, who serve as Executives in Residence (EIRs) for the program.
With five minutes to make their stock pitch and another 10 minutes to field questions, these students are then put to a vote on whether their stock pitch merits investing a portion of the College’s endowment.
The Babson College Fund (BCF)
The Babson College Fund (BCF) is an accredited course in which select students from both the undergraduate and graduate schools manage $3 million of the College’s endowment. The program is for highly self-motivated individuals with a strong interest in finance and investments.
The program seeks to provide a rich educational experience through the development of investment research skills and the acquisition of portfolio management experience. These skills and experience are highly valued by employers in the investments industry.
The Stephen D. Cutler Center for Investments and Finance advances financial education and improves the skill set and marketability of Babson students.
The Essence of a Good Stock Pitch
According to the program’s Faculty Director and Babson College Senior Lecturer Patrick Gregory, CFA, to outperform the market, you must have a differentiated viewpoint and you need to be right.
“This requires developing an edge—whether it be informational, analytical, or psychological—on the stock,” says Gregory. “Without it, you’d be better off investing in an ETF or some other passive investment vehicle.”
You also must be able to explain why the stock is mispriced and where the consensus is wrong. This is essence of a good stock investment and requires a lot of primary research with the goal of teaching a veteran portfolio manager something that is underappreciated by the market.
Gregory has been managing the BCF program since 2016. Before joining the faculty, Gregory was an institutional portfolio manager, where he managed the healthcare, internet, and telecom sectors of a $6 billion equity portfolio.
Pitching a Legendary Investor
Following the recent grand opening of Babson’s new Finance Lab, BCF students, alumni, and EIRs gathered for the rare opportunity for select students to pitch in front of legendary investor Peter Lynch.
Each student had no more than three minutes to make their stock pitch to Lynch, who then asked questions and provided suggestions on how to think about investment opportunities.
For Blake Greenhalgh ’20, the experience taught him to condense pages of research and information into a two- to three-minute pitch and anticipate questions.
“If you can’t explain it to a second grader in three minutes, then it’s not a good idea,” he said.
Isabelle Tabak ’20 echoed that sentiment: “I learned to be even more clear and concise. After doing extensive research, it can be hard to distill it down to just a few key points, but this skill is extremely important so the audience stays engaged.”
“Think about the long term,” said George Massey MBA’20, who focused more on the time horizon of the investment opportunity. “Look 10 years back and 10 years forward. You need to focus on the future and not just on what the company has done in order to prepare for questions.”
In preparation for this opportunity, these students got to collaborate one on one with Gregory and EIRs Peter Saperstone and John Hickling, both who spent time employed by Fidelity.
How to Prepare for a Stock Pitch
The students are taught the importance of having an in-depth understanding of the company they’re pitching. “This includes understanding why the company is a market leader, how their products work, and what’s driving major items on the financial statements,” said Greenhalgh.
When pitching a stock, you also want to explain your differentiated view on the stock, highlighting what the market has not priced in. For Tabak, she takes the time to build a valuation model for the company and conducts a thoughtful comparable company analysis. By analyzing the company’s financial statements, listening to earnings calls, and assessing industry factors, she can evaluate the assumptions in her model and develop her investment thesis. She also speaks with different sell side analysts on their opinion of the overall industry and thoughts on growth prospects for the company.
Massey also prepares for a stock pitch by listening to the latest earnings call to make sure their strategy is sound and that the team is delivering on prior guidance. When focusing on the actual pitch presentation, Massey emphasizing why he thinks the stock is cheap and what catalysts will move the stock higher.