Tepper School MBA students Saurav Sen and Max Egan make a surprising find. Each of their computer stock-analysis programs, which they developed independently of each other, has identified a relatively obscure Chinese telecom stock, Spreadtrum Communications, as a strong buy.
After Sen and Egan compare notes, they take the recommendation to the rest of their Tepper teammates in the MBA Faceoff. Sponsored by cable network CNBC, the contest is a stock-trading competition among eight of the nation's top business schools: Carnegie Mellon, Cornell, Michigan, Georgetown, Ohio State, Notre Dame, Texas, and The University of Chicago. Each school received $1 million in hypothetical trading credit. The school with the greatest return after eight weeks will be the champion. Win or lose, the prestige of being selected to compete in the televised competition will add a nice touch to every participant's résumé.
Egan (DC'06, TPR'12) and Sen (TPR'12) have emerged as leaders of the 10-member Tepper team because of their expertise with stock screens, the computer programs that scour the world's stock markets to detect good deals. Egan has developed a screen based on a complex set of market indicators. Sen's is based on risk factors and stock fundamentals. So, when Spreadtrum pops up on both lists of likely winners, Sen and Egan agree to buy it, and their teammates agree.
On the first day of the competition, they confidently purchase 20,000 shares at $20.49 per share. However, their screens-which are designed to consider myriad market factors-can't account for government inquiries. Just days after their purchase, the U.S. Department of Justice announces an investigation into Chinese Internet companies, causing Spreadtrum's value to plummet 27%. Big losses in precious-metals markets in the portfolio add to the pain. Tepper goes from first to last place in the first week of the competition.
The team regroups. Further research shows that they should hold onto Spreadtrum, because it's not truly an Internet company. But from now on, there will be no big plays on the direction of commodities markets; the team relies instead on buys and hedges designed to produce regular returns while limiting downside risk. The new strategy builds momentum. At the end of week two, they are in seventh place. Fifth place at the end of week three. Fourth at four. And second place in week five.
By the last day of the contest, Spreadtrum closes 53% over its purchase price, and the Carnegie Mellon team comes within $200,000 of the winning University of Chicago team. Spreadtrum, it turns out, is regarded as one of the competition's best buys.
-Tom Imerito
