Tag: investing



As the passive investing strategy has taken the market by storm, criticism of index funds and common ownership have increased: Are index funds evil (as asked by The Atlantic)? Are they bad for the economy?

Common ownership came under fire last year with a study finding that “airlines compete less vigorously on price because they are owned by the same handful of investors,” writes David Nicklaus.

However, in an interview with The St. Louis Post-Dispatch, Olin’s Todd Gormley, associate professor of finance, provides a defense for companies with higher index-fund ownership: They actually have better governance.

An active money manager who doesn’t like the way a company is run can simply sell the shares. The passive manager doesn’t have that choice. “In their view, the only way they can protect themselves is to make sure there are good governance structures in place,” Gormley said.

Besides, he said, long-term passive investors often back activist hedge funds that attempt to shake up a company. “We found a positive influence on governance,” Gormley said. “The presence of these index funds makes it easier for other investors, the activists, to get into a company and provide discipline over management.”

Gormley was recently quoted in the Princeton Alumni Weekly on the same subject, where he discusses the evidence of some positive effects of passive ownership.

Read the full article on The St. Louis Post-Dispatch and Princeton Alumni Weekly.




I came to Olin after striking out with a pre-medical curriculum my freshman year. Looking back on that first year at Washington University, it seems like my aspirations to become a doctor were a lifetime ago.

I now spend my time on campus very differently—splitting my day between classes, running the WU Investment Banking Association, and providing strategic consulting services to startups through Bear Studios. The culmination of these experiences at Olin have helped me define value, otherwise understood as what is at the core of a good, durable business. I have been exposed to various business models operating in different business cycles, from startups to sophisticated financial institutions.

During my time at Olin, I’ve developed a dynamic definition of value, and these insights have changed the way I assess and think about businesses.

When I first joined Bear Studios, I anticipated an opportunity to work with founders that had self-sufficient business models with clearly articulated business plans. Instead, I found the opposite. Many of these founders, often working on innovative projects in software, pharmaceuticals, and medical technology, did not have a thorough understanding of how to operate a business. However, what they lacked in business acumen they compensated for with vision, conviction, and a nuanced technical skill set with little replicability.

Our job was less about fleshing out existing businesses; it was taking a founder’s idea and creating a sustainable operating model around it.

As a finance major and aspiring investment banker, my first impulse to assess the performance of a business is to look at its financial health. My challenge working with our clients in Bear Studios was reorienting my brain to ask the right questions when metrics like revenue, profits, or growth rates were not available to me. I found this to be interesting, albeit much more difficult than I initially anticipated. Founders often came in with no business plan or model. It was up to us to offer suggestions on product distribution, strategic partnerships, cash generation, and strategic thinking around scale.

Through this exercise, I gleaned a few essential insights:

1. The value early-stage businesses provide materializes in the future.

For a venture capitalist or seed investor providing capital to early-stage businesses, the potential scale of the idea, conviction of the founders, and feasibility of the business model matter far more than the business’ ability to generate cash or dividends in the short term. Value here is based more on trust, and how much a allocator of capital connects with an idea or founder.

2. Having a concrete plan to scale early is incredibly helpful.

This step is even more valuable for founders with a developed product or who have started beta/clinical testing. Investors feel more secure with their investment if a non-cash generating business has an adaptable, scalable strategy to eventually return money back to the owners of the business.

3. Founders are short-term focused—they want to deliver a product.

This is reasonable, and it should be the sole responsibility of the founder in the beginning. However, this lends substantially more importance to surrounding the founder with a team with complementary skill sets. Many startup founders in high-growth industries such as technology and pharmaceuticals have a specialized skill set. Receiving input from people who have prior experience developing  businesses or products can be crucial for founders’ development as a manager as the business scales through its cycles.

Value in finance, traditionally, can typically be identified along simple financial metrics. Investment professionals typically look for ability to generate cash, prudent supply chain management, and efficient cost structures to identify a valuable business.

Those metrics manifest themselves in the daily operations of the business. Apple is a great example of a traditionally valuable business.

Ability to generate cash

Many gladly pay an “Apple premium” for an iPhone or iPad. Coupling steep prices with high volume, the cash generated by their products trickles down to the investor, and the potential for future growth in cash generation makes it a particularly valuable business.

Prudent supply chain management

Over the years, Apple has vertically integrated, allowing them to not only keep their costs down, but also to have complete freedom over the manufacturing of parts for their products.

Efficient cost structures

Apple has successfully cut inefficiencies. Whether it’s outsourcing assembly, consolidating internal teams, or reducing headcount when necessary, Apple has been able to keep costs efficient, therefore maximizing their ability to return money to investors.

While many investors look for these traditional metrics to assess businesses by, many businesses simply can’t be defined the same way. Startups don’t have sophisticated operations in the beginning, so they must lean on the quality of their idea to create value.

During my investment banking internship this past summer, I had the privilege of working with large corporate clients in the financial institutions sector. Banks, insurance companies, and payment processing companies are typical of businesses found in this sector. These companies often make money differently than businesses providing a singular product or service. Banks profit by lending money, and receive payments from customers in the form of interest. Insurance companies generate income from premiums paid by their customers. Since the considerations here are different, there are more macro-economic facing factors that affect the performance of the business, ultimately nuancing the way value is determined in parallel with these kinds of companies.

My main takeaway from this experience was that while it’s useful to have a standardized tool kit to assess a traditional business (like Apple), a more important soft skill to possess is adaptability.

While a basic, standardized framework is essential to assess any kind of business, being a versatile thinker able to process and synthesize multiple parts of a business makes one an infinitely better banker, consultant, or operator.

While I’ve been lucky to stumble upon many of my professional experiences, I encourage everyone to seek out opportunities that allow them to become adaptable problem solvers. In my circumstance, I could leverage Olin’s liberal arts and business curriculum along with my professional experiences to create a robust framework for defining value. Going forward, I’m excited to work with businesses across business cycles, and hope to continually refine my understanding of what makes a great business.

Guest Blogger: Syed Ahsan, BSBA’18, is majoring in Finance; he is a strategy fellow at Bear Studios LLC.




Adena T. Friedman, president and chief executive officer of Nasdaq, will be on the Washington University in St. Louis campus at 4 p.m. Thursday, Oct. 19, in Knight Hall’s Emerson Auditorium as part of the David R. Calhoun Lectureship. Co-sponsored by Olin Business School and Arts & Sciences, the lecture series aims to bring to campus well-known national leaders discussing how their value system and global experience creates an impact in the business environment.

Friedman assumed the role of Nasdaq president and CEO in January 2017 and proceeded to steer the company through the implementation of new architecture — called Nasdaq Financial Framework — that earned her Institutional Investor’s No. 1 spot in its 2017 Tech 40 list of financial technology leaders.

While serving as Nasdaq’s president and COO through 2016, Friedman oversaw the company’s business while focusing on driving efficiency, product-development growth and expansion.

Wrote Friedman in an Oct. 6 LinkedIn blog post:

“To Nasdaq, tomorrow isn’t an expression of time but a story to rewrite about a connected ecosystem that constitutes a market of possibilities. We possess what is needed to unleash those possibilities: the leading-edge technology, the forward thinking, and the power of data and analytics. We have the ingenuity to power economies, the insights to empower people, and the integrity that is the cornerstone of all markets.

“With those resources, we are going to rewrite ways to expand wealth, create jobs and enrich people’s lives. We aim to set the pace for all that — for re-thinking capital markets and economies anywhere and everywhere.”

Friedman earned a bachelor’s degree in political science from Williams College and a master of business administration from the Owen Graduate School of Management at Vanderbilt University.

The Calhoun Lecture is free and open to the public but registration is encouraged as seating is limited in Emerson Auditorium. A reception will follow.

Guest Blogger: Chuck Finder, The Source. Photo credit: Matt Greenslade/photo-nyc.com




Today, new rules go into effect that allow anyone to invest in a startup and receive shares in that startup. Previously, the Securities and Exchange Commission required investors backing private companies to have a minimum net worth of at least $1 million or an annual income of at least $200,000.

Olin’s Cliff Holekamp, senior lecturer in entrepreneurship and director of the entrepreneurship platform says the new rules will expand the entrepreneurial playing field, to a point.

Cliff Holekamp

Cliff Holekamp

“Due to concerns for consumer protection from fraud, the SEC has historically restricted the right to invest in startups and other private investments to wealthy ‘accredited investors.’ The new rules going into effect this week open the door slightly to allow non-accredited investors to invest small amounts into startups under certain limits and with additional regulatory and reporting requirements for the entrepreneurs,” said Holekamp.

The major shift enables crowdfunding for debt and equity. Startups raising seed money through SEC-approved online sites will now be able to sell shares to people regardless of their wealth. Previously, those companies were limited to rewarding backers solicited from crowdfunding sites with in-kind types of rewards, such as branding materials or early product prototypes.

While the change is seen as a way to make the entrepreneurial investment process more equitable, Holekamp says don’t expect a free-for-all.

“These rules do not bust the door wide open to wild-west wheeling and dealing that many detractors had feared, nor does it open up the capital markets to the degree that many entrepreneurs had hoped. It does, however, offer an incremental step toward a more even playing field where average investors would have the same rights as the wealthy,” Holekamp said.

by Erika Ebsworth-Goold, WashU, The Source




WUSIF students at USC Investing competition

From March 4-5, 2016, I had the privilege of traveling with three of my peers to southern California to participate in the USC Value Investing Group’s First Annual Investment Conference, where we were awarded 2nd Place.

Our team was comprised of members of the Washington University Student Investment Fund (WUSIF): Vaibhav Sharma (Junior), Peter Lu (Junior), Ray Su (Junior), and myself (Freshman). WUSIF is a group of students who are passionate about long-term value investing and have been given the opportunity to manage approximately $150,000 of Washington University’s endowment fund. This semester, Vaibhav is serving as Co-President of the fund, while Peter, Ray, and I are involved in portfolio management.

Our team came together after receiving an invitation to the USC competition from a former Washington University student. The competition required an initial submission of a two-page executive summary, a commonly used form of reporting in equity research.

We scoured the market for a company we believed investors were currently undervaluing and ultimately settled on Arista Networks. A relatively new competitor in the network technology field, Arista’s stock (NYSE: ANET) was not recognizing its full value due to an ongoing lawsuit with industry giant Cisco and overly conservative estimates about the company’s ability to expand their customer base. As we researched, formulated an investment thesis, and built our valuation model, we became confident that Arista was, in fact, a diamond in the rough.

We faced some adversity after our initial submission in early February. The market began to realize the very same thing we had. When we submitted our executive summary, ANET was trading around $59 per share. By the time we were headed off to Los Angeles, ANET was trading at nearly $67 per share.

However, we faced some adversity after our initial submission in early February. The market began to realize the very same thing we had. When we submitted our executive summary, ANET was trading around $59 per share. By the time we were headed off to Los Angeles, ANET was trading at nearly $67 per share. Though our base case still maintained a 24% upside, pitching Arista Networks as an investment had just become significantly more challenging. However, with Vaibhav’s encouragement, we remained confident that Arista still had room to grow.

The competition was spread out over two days. The first day consisted of a keynote address from Arthur Lev, the former Chairman of Morgan Stanley Investment Management, and a networking dinner that was held in USC’s finest dining room. The second day consisted of the teams’ pitches: we were divided into rooms and were evaluated by a preliminary panel of judges. Following the pitches, we were treated to lunch and given the opportunity to learn from all of the judges in the form of a career panel. The three finalists were announced and we presented our pitches to the final panel of judges.

All facets of the competition were valuable experiences, but we were particularly impacted by the chance to present to notable members of the finance community and hear from them in the career panel. We were excited to finish in 2nd Place, but are also looking forward to attending future competitions and continuing to represent Washington University in a positive manner in the financial services industry.

Guest blogger: Daniel Mangum, BSBA ’19, is a member of the Washington University Student Investment Fund.