MBA TOP 6: CLASSES

By some stroke of luck (or maybe greenhouse gas emissions), we're having an unseasonably warm week in February. With temperatures dipping above 50 degrees, I'm starting to think of spring … and summer …

…and unfortunately, the end of my MBA! I can't believe we're about 7/8 of the way there. Everyone says that business school flies by, but to be honest, I didn't really believe them at first (especially with the intensity of the Core Curriculum first semester!) In fact, I recall telling my learning group, one night at 11:50pm when we were gathered around a study room table trying desperately to figure out in our Marketing Conjoint Project, "man, I feel like this will never end…" Now, I eat my words, as the real world waits just around the corner of Broadway and 116!

Academics were an key aspect of the MBA program. Unlike college, there was a much greater dispersion of approaches to academics in the master's program. Each of us came in with a different set of developed skills and a different set of areas we'd like to improve. I personally wanted to develop my technical skills (excel, running analyses, statistical testing, etc.) as well as become a better presenter. Others came into the program with a focus in completely changing careers. As a result, we all valued different aspects of the degree and had different attitudes toward classes. I came to learn - not to get grades - so I'm grateful to have taken such a variety of different classes in terms of both style and subject matter.

These are some of my favorites (in no particular order).

Economics of Strategic Behavior
Professor Angelucci
Type: Case-Based, Elective

This class explores the bases of a firm's profitability with an economics lens (with quite a bit of game theory thrown in). We went through several pivotal cases of firm strategies that blazed the trail for how American corporations operate - or aspire to operate - today. We started with the framework that economic profitability is not just about the ability to form and protect competitive advantages but also operate within an environment of low rivalry and cooperative peers. The former (competitive advantages) is something that I had always looked for when I worked in asset management before business school, but the latter (rivalry) was something that had never even been mentioned in my investment memos.
My mind was absolutely blown by some of the examples of how rivalry has destroyed profitable industries, as well as how some boring sectors thrived and collected huge margins due to the degree to which the firms play a good game: cereal, for example (who'da known, right?) Professor Angelucci was an incredible instructor, who made us think for the entire 90 minutes we were in class. He also has a great sense of humor that comes off as almost inadvertent. For example, one time, when he was teaching us about how companies in collusion were incentivized to "rat out" their peers by getting amnesty for their own price fixing in Europe, one student asked, "wouldn't it be obvious to the public once they read the financial statements, and one company of the peer set doesn't have a fine and the others do?" to which Prof. Angelucci said, "well, they have some way to protect the firm, like maybe they all depreciate the fine over 200 years." Somehow, maybe the way he said it, was so unbearably hilarious. We all cracked up. Now, that's the first (and probably last) time I think a joke about depreciation made me laugh!



Operations Management
Professor Hall
Type: Mixed Case/Lecture, Core

I came into this class with very little knowledge about how "real businesses" that make gadgets and widgets actually work. Having always been in the financial services industry, the only "Inventory" I'd ever seen were printer paper and pens. But I'd always been interested in how retail companies work. I learned so many different ways of thinking about business decisions, and how to think about competing risks (risks of overstocking and spending too much money vs. understocking and not meeting customer demand).

Operations Strategy
Professor Singh
Type: Case-Based, Elective

There is no better way to top off core Operations Management than by taking Professor Singh's sequel, Operations Strategy, which takes the frameworks we developed in Ops Management and applies them to how a business can be profitable (or improve and move toward profitability if it's not already there). Prof. Singh utilized examples from all industries (healthcare, technology manufacturing, etc.) but one of his favorites was the auto industry. Now, I'm the first to admit that I know almost nothing about automobiles and have never owned an automobile (#NYCliving). I still know almost nothing about the sedan-next-door, but I can tell you that I know a whole lot about not only HOW a car company operates efficiently but also WHY.

The 90 minutes of class just flies by because Professor Singh keeps us on the seat of our pants with a combination of cold calls, anecdotes, questions of substance, and of course, carefully timed jokes that have us clutching our sides.

Corporate Finance
Professor Hertzberg
Type: Mixed Case/Lecture, Core

Corp Fin is such a foundational class. I had taken a version of this class in undergrad, but this is very different (and I'm glad that I did not try to take the exemption test to avoid taking this course). Each class builds on concepts learned in previous classes, so there was a high amount of reps behind bond math, calculating the cost of capital of an organization or investor, making decisions on how to allocate money toward projects, etc.

This class really challenged me to think about the drivers behind corporate decisions and question the assumptions behind them rather than accept them as gospel truth.



Strategy Formulation
Professor Meier
Type: Case-Based, Core

I think this is the type of "standard" class that people think of when they think of a general management MBA program. I knew going into it that I would learn a lot, but I was surprised by the sheer number of considerations that firm managers must think of to compete effectively. Professor Meier was an amazing facilitator of discussions, bringing our class forward by asking the exact questions to get us to think on the right track. Then, he pulled it all together to create several large themes of competition - creating and capturing value, intelligent design of corporate scope, anticipating your competitors' next moves to inform your own. These all enabled me to think of business as a dynamic flow rather than stagnant stock.



LEAD: People, Team Organizations
Professor Akinola
Type: Mixed Discussion/Lecture, Core

This class has a really long title (and I'm pretty sure LEAD itself is an acronym) especially for a week-long class, but I think it's completely apropos, because this class covered such a breadth of topics designed to help make us better managers of people, products and processes as well as greater leaders of new thinking. We were all required to take this class as a cluster our first week of the MBA and I learned so much about my classmates - what makes them tick, what they perceive as weaknesses and strengths in organizational leaders.

Professor Akinola also really inspired me from a career perspective. She has a mix of academia and professional backgrounds so she could speak from both hats. She's also been such an amazingly successful as female leader, and I feel lucky to have found a role model at business school, whose successes serve as a guidepost for my own pursuits.

Now that I'm a seasoned MBA class-taker, I've gained a some insights on course selection. If I could go back in time and give myself some advice, it would be this:

• Savor the core curriculum. From a time input perspective, the Core is no joke, and I would be kidding myself if I tried to claim that I got enough sleep that semester. But looking back, the end was truly worth the effort. Four of my six favorite classes, as you can see, are from the core. It was the first time that I had been exposed to so many disciplines all at once. My professors were excellent, and had a mix of academic knowledge and practical prowess. 
• Pick professors, not "course titles." I think there is always a temptation during class bidding time, to choose classes that sound sexy. Something about VC's or startups. Or buzzy buzzwords like "blockchain" or "disrupt." I definitely thought with that frame of mind in my first elective semester, but quickly realized that the classes I found myself diving into most deeply, being most engaged in, and learning the most from, are simply classes that had great professors who can read the class audience and pull the best insights from all the students. Thus, to my own surprise, two of my favorite classes are in Operations, a business area that prior to my MBA, I had written off as "boring." Operations might be the backbone value of businesses at large and often not looked at with the same shining eyes as technology or other growth opportunities, but I happened to have two really tremendous professors - Joe Hall and Medini Singh - who brought the field to life. They showed me the critical importance of managing inventory well and how truly riveting it can be to think about plant set-up as a driver of business success. Well, lesson learned on judging a book by its cover! 
• Case is king. Haha, get it? (Those of you who took Accounting will … it's a spin of "Cash is king.") I didn't realize the value of the case-based class before starting my MBA. I thought, "how could I possibly learn from other folks who are just as inexperienced as me? I'd rather hear the professor talk - he or she is a learned expert in this field." Wrong! The classes that I've enjoyed the most have had some element of case to them. It's not possible for all classes to be solely case-based (e.g., Corporate Finance by default needs some form of basic bond pricing math lecturing), but by and large most classes have found some way to incorporate historical business examples. The value of the case-based class is two-fold: 1) you're hearing perspectives from individuals with varied past backgrounds, 2) you're synthesizing while you're discussing - and you'll remember it forever.

I can explain... :C

Hi, 2018. It's been a long, long, long time since I've actually written here. And I promise, I have a good reason.

First of all, I've been really sick. I'm talkin' Pepto-Bismol Country-Fried Dancin' commercial sick (click here if y'all don't know what I'm talking about). Here's a selfie (yaaaas). Bundled up, no makeup (aka no eyebrows), feeling and looking generally gross. But whatever. I'm glad it's happening now and not earlier. Two weeks ago, I was probably as close to my most stressed out state as possible and had I gotten sick then, it would have been terrible. But now, I am perfectly content sitting around being sicky.


That's because two weeks ago, I was in the home stretch of my final exams of the most brutal semester of my life. More on that later. But first, let's catch up on all things blog.

"Blogger"


I'm ashamed to admit that I really thought I was finished with this platform. I know it came back for a bit when I was into the whole investment blogging phase, but if I had to be real with y'all (and I always am!) the blogging passion plus investment analysis marriage was one of convenience. I LOVE writing (even essays) and I was truly interested in investing in equities, too. Just not the two together. It was not fun for me. So again, my blog fell into a hiatus. Why? There were a couple of reasons: 1) I really believe no one reads this blog or watches my videos, unless I purposely send them the link (and that just feels self-promotey). And what's the point, if it's for no one but myself? and 2) I saw it as a waste of time, when I had so many pressing things to do during the semester (and even during my breaks). I was in a constant state of having not enough time. So with that resigned attitude, I let my domain name expire, I privated my YouTube channel and unpublished many of my blog entries. Finally, 3) I felt overwhelmed by how "professional" other people's blogs and vlogs and instagrams looked -- and felt that I had insufficient time and expertise to curate mine likewise.

So, I more or less forgot about / abandoned TCB. But now that I'm on winter break, I've been watching vlogs and reading other people's stuff -- and going back to re-read old blogs and it made me so nostalgic on their behalf. How cool is it to be able to look back in time and recall/re-savor the details of moments already lived and savored?

So, I guess, "I'm BACK, bitches."

And you know what else? I'm going to really invest in my social media outlet. Because I want to be a writer. What is the point of half-asking this thing (LOL, I typed something else but apparently my MacBook autocorrect thinks "half-asking" is a more appropriate term so I'm gonna leave it. Y'all can probs figure out what I was trying to say.) If I want to do it, I gotta give it a good effort. Otherwise, I'm never going to keep it up. And then I'll be sad later ... like I am now.

Scholar

So here's the deal. Business school has been TOTES different from what I expected. And I had pretty reasonable expectations going in, because I had researched the heck out of it. But I think I took a pretty nontraditional route with how I chose to use my time here.

Now, not to toot my own horn but I am a strong personality ... I'm self-motivated and I make my own decisions, do my own research, carve my own path, yada-yada-yada. But I think inherent in all of us is some sense of needing to respect the dreams of our parents. And, I also believe that we all have an "unrequited lover" syndrome for something (or ... I guess for a lot of people ... it is a someone, if it is actually be an unrequited lover lol). For me, that's my totally-unused chemistry degree. Yup, I majored in chemistry and never-ever-ever-ever-ever did anything with it. And I'd always felt a little rotten about it. Pair that with my mom's insistence that I should get a super-super-super advanced degree in something because she fears that a bachelor's degree may not be enough in today's world. Well, I don't one-thousand-percent agree with you, Mom, but you've done your job in embedding that in my mind.

A toxic combination of those two factors and my -- being totally blunt and honest here -- dead-end job (Yup, I said it) led me back to a university campus. I didn't get into the schools I wanted to go to, either (my top choices were chosen primarily based on location). So I was going into an MBA program in a place I didn't want to be, and I had just gone through a breakup I didn't see coming (again, due to location)... clearly this is a recipe for disaster. So when I was admitted and matriculated, I actually really was not in the right mindset. Especially when orientation started and it was a week straight of people in their mid/late-20s goofing off ("forming a class bond" they say) and drinking excessively. I was that bitter, sober person lurking in the back of the classroom, wondering  if I could get my deposit and tuition back if I maneuvered a way out of this damn commitment.

From day one, I decided I didn't want "the typical MBA experience" and this was fueled more by the circumstances of my start than anything else. I pored myself into finding alternative paths. At that time, I noted that what I had valued most of my undergrad experience was having a "liberal arts" all-encompassing education that was much wider than it was deep. I was determined, from the very start, to spend as little of my time in business school classrooms and as much of it as possible exploring other disciplines. I sat through a super difficult math class. Then a series of engineering modules last semester. They were really hard. After 5 years of nothing but excel spreadsheets, I didn't remember enough from my undergrad chemistry days to actually help me form a clear understanding of material balances. But I did it, and I'm actually very proud of myself for having done that. Academically, I have done well. Beyond just auditing these other departmental classes, I also kept up my business school class work ethic and got achievement awards. But, nearing the end of the MBA experience (and with all of the negativity that marked the beginning in the rear window), I now feel a bit remorseful that I've pushed away "the typical MBA experience," especially when I am scrolling through instagram and seeing all the traveling, networking and -- well, FUN -- that I missed out on by pushing this part of school away. It's not too late, though. I still have one more semester, and I can make it into whatever I want it to be. And I WILL make it into something that I will cherish and enjoy and deem worthy of the $200k+ 2 year cost (ouch.)

Writer?

Oh, another thing, I want to write a book. I LOVE reading fiction -- I always have. When I was younger, I used to write stories all the time on Word on my family's shared desktop computer that ran Windows 98 lol. It was super slow and clunky. It was a childhood dream of mine to publish one of these. It can still be my dream.

In defense of the Endowment Model

When I began my first job as an investment associate, looking at fund investments, I was told by a senior associate to read “Pioneering Portfolio Management,” by Dave Swensen, the former CIO of the Yale endowment. Swensen and other CIOs who followed the approach detailed in this book, were looking for a long-term, sustainable method to the madness of trying to create value out of something so unpredictable. It was a terrific book, by the way. Despite being written by such a celebrated, famous investor, it was easy to read and understand even for a 22-year-old who has not had any investment experience. Even today (after 5 years of IM experience), I find myself digging it out to re-read select chapters.

In business school, I found that people had all sorts of opinions about the investment model used by endowments – with and without basis. I find myself defending these 3 aspects of the endowment model the most:

1) Discipline, not Dead-set. Other students sometimes tell me that endowment analysts will one day find themselves out of a job, their professions replaced by computers. Underlying this thought is that any machine can be programmed to “follow rules,” and that the endowment model is really just about following some set rules about how much to allocate to particular asset classes of investments, and finding the highest-returning (risk-adjusted or otherwise) managers within each asset class. In my experience, this is far from the truth. While there are strategic allocations by investment class, they are not set in stone. They are framing guidelines and the investment team, using what they know of market sentiments, special endowment needs, and sometimes even a little bit of intuition, looks at a broad array of investment possibilities, and determines the best fit for the portfolio. From experience, this is not necessarily the manager with the highest returns or best sharpe ratio. More than anything, it provides a sort of discipline, allowing the analyst or portfolio manager to gut-check.

2) Flexibility, not Forced allocations. The endowment model is not a fixed, inflexible set of target allocations, but rather, a framework for thinking about tradeoffs. Swensen’s book talked about the importance of maintaining a tactical aspect of asset allocation, and over or under-allocating to targets as needed. This has definitely been my experience at the firm in which I began my career. There were periods of time when the actual allocation was notably different from the allocation targets. Sometimes it was because it was an inopportune time to exit certain investments (e.g., after the market correction of the Great Recession) or there were tremendous once-in-a-lifetime investment opportunities aplenty in one particular asset class. Robots and computer programs certainly can’t replace that.

3) Context, not Constant. Each investment decision and the target allocations are re-evaluated year over year by committees of informed individuals. Many more things come into consideration than just the return profile. Universities are often leaders of thought and the endowment reflects that. For some institutions, this has meant divestment from certain asset classes (in spite of returns or diversification arguments in favor of investing) such as tobacco as a message of its commitment to betterment of the world. For religiously-affiliated schools, this may mean refraining from investments that are in contradiction to their founding missions.

I’m so grateful to my previous job for teaching me these aspects of the endowment model. I may not be returning to asset management in the context of an endowment after my MBA program, but the lessons it taught me about being curious, trusting your gut, and taking pride in my work will frame the rest of my career.

Pitch: UAA (Long)

Under Armour class A share price has come down significantly in the past few months despite outpacing peers and indices since inception as a publicly-traded firm (as illustrated by Fig. 1 in appendix), which could be attributable to a sales growth decline in 2016, a slight decline in operating margin (of 1.6 percentage points from 2015 to 8.7% in 2016), uncertainty about the future of its distribution channels (sporting goods and mall-based stores), and skepticism over its ability to capture additional markets (footwear, connected fitness, women, international). However, I believe that Under Armour’s business prospects and current share price, make it an attractive long investment.

• Wide market opportunity: The market is undervaluing the addressable market that Under Armour has remaining and its growth potential as it becomes a truly global fitness lifestyle brand. At inception, Under Armour addressed an unfulfilled need by the athletic performance market (for sweat-wicking, and heat-retaining fabric) and has since gained an almost “cult-like” brand loyalty particularly among the teenage athletic demographic. Under Armour recognizes its over-indexing on US-based male athletes and has since diversified to women athletes, casual wearers (fashion rather than athletic wear) and internationally. Additional growth areas include direct-to-consumer and connected fitness.

International sales still account for a very small proportion of total revenues (just 17% of sales in 2016) and there remains tremendous opportunity in women’s apparel, particularly with a shift into athleisure. To the extent that Under Armour could penetrate the women’s activewear market dominated by the likes of Lululemon and Gap Inc.’s Athleta, it would be well positioned to expand revenues rapidly due to both higher price points (comparable to LULU and Athleta) and greater addressable population. Many doubters believe that athleisure is simply a fad; however, UA’s competitor Nike showed that with a strong enough brand and proposition to customers, an entire lifestyle change can be built. Before Nike, “sneaker” lifestyle was certainly not nearly as prominent in the US and Europe.

• Brand power/partnerships: The market is also undervaluing Under Armour’s brand is built on its reputation for high-quality performance materials that can weather wear and wash. Indeed, in the Q4’16 earnings call, CEO Kevin Plank remarked that while they are strategically moving into apparel at large, “performance” quality is still something that is very much expected of them. Through this enduring commitment to quality products, Under Armour has been able to garner value-additive partnerships, including one with Samsung to develop connected fitness applications. Connected Fitness is a binary bet for Under Armour. Though currently small, if it does take to market, it could follow on the success of devices such as the Apple Watch and FitBit. It could be revolutionary: UA’s existing R&D in materials technology could enable it to incorporate fitness tracking into clothing and accessories in ever novel ways. On the flip side, even if it does not take off, UA’s business prospects are virtually unharmed since it is such a small part of their business (1.7% of revenues for FY 2016).

• Channel/omnichannel: The opportunities for Under Armour to expand via channel opportunities is tremendous. In the FY15 shareholder letter, management pointed out the desire to provide products at multiple price levels and offer superior alternatives to competitors. UA has delivered on this by distributing through wholesale, opening its own retail stores, and more recently, offering outlet alternatives. This allows UA to effectively price discriminate. In addition to marketing through several fitness arenas, UA is also unique among its peer group in its aggressive pursuit of the direct-to-consumer channel through online. Unlike Nike and Adidas, UA has fewer physical stores, so it does not bear as tremendous a restructuring cost as the two larger players would in converting to e-sales. Interestingly, UA also has far more factory stores (151 as of 12/31/16) than house retail stores (only 18 as of 12/31/16). I believe that they are astutely using house retail stores only as a “seat saver” (a la Warby Parker model) in major athletic cities like Boston, but using factory stores to rid excess inventory without affecting pricing through its other channels (profit-maximizing price discrimination).

• Execution: Under Armour has been successful in expanding its product offering and customer base. For example, in 2016, its newly-minted footwear segment grew 49.1% to $1.0B in net sales, led by running and basketball. The basketball sales give credibility to UA’s sponsorship of the NBA and illustrates that such marketing efforts are bearing fruit. But what is more impressive is its penetration into the running population, an area once well-guarded by the two major US shoe-dogs, Nike and Adidas. This gives me high conviction that Under Armour would be able to expand its brand reach to geographies where brand perceptions matter (e.g., East Asia, Europe) and technology via connected fitness.

Valuation: Based on a 15-year DCF, Under Armour has a fair price of about $28/s, which represents 40%+ upside. This intrinsic valuation acknowledges a continuation of its current high growth in apparel, footwear and accessories for the next 5 years, then tapering off to a 3.0% growth rate which it will continue beyond the explicitly modeled period. This 3.0% reflects long term GDP growth of the global markets and productivity gains.

Pitch: GILD (Long)

Gilead Sciences is a research-based pharmaceutical company that develops and commercializes drugs in high-impact therapeutic areas, including those treating chronic immunological diseases, oncological indications, and inflammatory and cardiovascular illnesses. Gilead is known for its portfolio of effective antiviral HIV/AIDS and hepatitis treatments, developing its treatments both internally as well as through select acquisitions of existing competencies. Gilead is underpriced, because the market fails to recognize the value of its current and future therapeutic (and therefore revenue) power, and because it holds too much weight on short-term news about downward pressure on its treatment pricing.

Investment Thesis
Gilead’s key competitive advantages lie in its structural advantages and leadership in pharmaceutical development and commercialization across a vast array of therapeutics addressing unmet needs.

Drug portfolio: Gilead’s approved (and future approved) drugs are by nature long-term revenue generators, because the majority of them aim to treat chronic illnesses. The development has also been focused on life-critical treatments, so price elasticity of demand should be very low. Gilead has shown this through its leadership in HIV treatment and prevention (Truvada and Atripla). Gilead has also found a viable cure for Hepatitis C with its Sovaldi and Harvoni drugs, as well as its newest single-dose Epclusa (approved in 2016) and Vemlidy (approved 2016).

Beyond its current slate of impactful treatments, Gilead has a valuable array of drugs in progress, including hematological/oncological, inflammatory/respiratory candidates in phase 3 clinical trials. For example, Idelalisib would address patients with relapsed leukemia, and an investigational antibody, GS-5745, would treat gastric cancer. Both are increasing in prevalence today.

Partnership/Scale: Being a larger player in the antiviral and antiretroviral (and increasingly, chemotherapeutic) space affords Gilead the ability to acquire competencies, assets and talent to fuel research and development. The Gilead team has shown capability in making value-additive acquisitions. For instance, its acquisition of Triangle Pharmaceuticals enabled development of HIV treatments, and its 2006 acquisitions of Corus Pharma for $365M paved the way for entry into the respiratory space. By acquiring Pharmasset in 2011, Gilead capitalized on existing R&D at the firm to develop its acclaimed Sovaldi.

Finally, Gilead is able to capitalize its reputation to partner with other companies on higher-risk drug development. Last year, Gilead closed on a collaboration and licensing agreement with a clinical stage firm, Galapagos, to develop a phase 3 drug with three potential indications: rheumatoid arthritis, Crohn’s disease, and ulcerative colitis, all three of which are markets with expansion opportunity.

Cheap option: Gilead is trading at such a cheap multiple that it is akin to paying a small premium for the optionality of the next blockbuster. From a policy perspective, the new administration may be more open to M&A activity, which would benefit Gilead’s business model.

Valuation
Gilead Sciences is currently undervalued at $67.10/share, representing a $87.7B market capitalization (as of April 3, 2017 market close). This reflects a 6.8x P/E ratio, which is extremely low compared to its peers of similar size and therapeutic areas (including Amgen, Celgene, Novo Nordisk, Biogen, Shire, CSL and Regeneron) as seen in Fig. 1. Gilead is favorably positioned to continue growing in the therapeutic areas for which it has market power, as well as in transformative new pipeline drugs that could prove to be blockbusters. Even with a sizeable discount to peers, Gilead should trade at least in the 10-12x range or about $96.27/s - $115.52/s.