MBA: Not a Magic Bullet to Public Equity - Part I

MBA: Not a Magic Bullet to Public Equity - Part I

For the next two weeks, I discuss why MBA is not a magic bullet to break into institutional public equity investing (at a mutual fund, hedge fund, family office, pension fund, etc.). Before you think, “Oh, maybe I should just get a CFA and a MBA, and getting an investment management job will be easy.” No, it will not. (Please also read my view on the CFA)

In Part I, I discuss how MBA is not a memoryless system and how MBA lacks classroom training content for investment management.  

Based on my own experience, I strongly agree with many on online forums who highlight the following five MBA programs as the best destinations for investment management: Harvard, Stanford, Wharton, Columbia and Booth (I am making up this term “HSWCC”). For MBA students who went through investment management recruiting at schools other than these five, I believe their experience should resonate with mine to a high extent.

There are always exceptions. You are welcome to hold on your own belief if you strongly disagree with my views.

I studied math/statistics in undergraduate, did not know accounting, valuation, and never read a 10-K before MBA. I did my MBA at a top 15 US program where I was a leader of the investing club, portfolio manager of the student fund and made finalist at one of the major MBA stock pitch competitions and spent my second year interning at a sizeable hedge fund.

Despite checking all the boxes for required activities during MBA, I found all my internships and jobs through my own networking. So much for paying for an expensive networking opportunity.

I am not dissuading anyone from pursuing an MBA (though many should not pursue an MBA because of the wrong motives). My goals are: 1) painting you a realistic picture of what it is like to pursue investment management through MBA 2) how to take advantage of all the resources during MBA to achieve your goal (which I will cover in a separate article.)

MBA is not a memoryless program

Investment management firms like to hire from Investment Banking and Equity Research because the firms do not want to train juniors the foundational skills. In MBA, you will be competing with classmates who already have the prerequisite skills.

While you are learning competitive strategy and accounting in the first semester, your classmates with prerequisite skills are already working on compelling stock ideas and networking with funds. Meanwhile, you are scrambling to mash together your first stock pitch without having the frameworks to generate ideas and develop variant views. Even worse, some classmates have pre-MBA public equity investing experience: they are good to go from day 1.

Remember that life isn’t fair? Well, no one starts at the same starting line for MBA. MBA will provide you with a rebranding opportunity, but it is very competitive to get into investment management from MBA. Just be aware of that.

Most programs don’t have dedicated investment teachings

Investment management is a skill-based profession. A generic accounting class, a financial modeling course, and a competitive strategy course are not remotely adequate for basic competency to generate actionable stock ideas or even just analyze a business. Sadly, that is what most business schools can offer in the classroom.

Just be aware that you will be on your own to pick up all the frameworks to be comfortably identifying compelling investment opportunities and crafting convincing stock pitches for competitions, networking and interviews.

Yes, most schools have an investment club and some even have a student fund. You should definitely participate, but the quality of the students dedicates the quality of your experience in those activities. In a Wharton Investment Management Fund or a Cayuga Fund (Cornell Johnson) where the processes are robust and the students are engaged, you could get a valuable experience. Otherwise, there is always the risk of a “blind leading the blind” situation, rendering the learning experience low quality.

Speaking from experience, I was a portfolio manager for the student fund. Each student member is responsible for pitching one stock during the semester. Almost all of them prepared their stock pitch 20-30 minutes before their presenting session. You can imagine the quality of the discussion is very low.

Conclusion

I hope you now understand you will need to be a significant self-starter to thrive in an unfair game if you contemplate an MBA to break into public equity investing, which is even true if you go to the very top schools. 

Next week in Part II, I discuss why aiming for HSWCC is so important in maximizing your learning and investment management job prospects.

Disclaimer: This is not a sponsored post – I do not believe HSWCC needs any advertising for those aspiring to get an MBA.

If you are interested in learning more about professional equity investing (the "buy-side"), I have two other great articles for you:

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