Jesse Berger, a masters of business administration graduate, was at his new job at a Toronto-based management consulting firm for only a few weeks when he jumped out of his chair and fist-pumped his cell phone into the air.
Despite the eyes on Berger from co-workers he was just getting to know, Berger had a smile on his face that didn’t leave for a day: he had learned that his team won The Economist’s Real Vision Case Study competition for their unique investment model.
The Economist Real Vision Case Study is an annual competition wherein three students from competing schools produce an analysis and five-minute video about their investment idea. The winner takes home a $10,000 prize and a trophy. This year’s challenge was a 10-year investment portfolio that pit Walmart against Amazon — both behemoths in the mass retail industry with drastically different business models.
Berger and second-year masters of business and administration student, Krysten Connely, had success before in case competitions, winning first and second place in most of their respective previous competitions. Their teammate, Saad Rahman, had just started the master’s program, but quickly impressed director of graduate studies at the Ted Rogers School of Management, Dale Carl, and landed the final coveted spot on Ryerson’s team.
“[Rahman] is imaginative in the way that he breaks down and evaluates different scenarios…. He brought a different level of thinking to the table and brought some things that, frankly, we didn’t see coming,” said Berger.
Connely said they weren’t all investment-savvy people going into the competition, but each member had different skill sets and expertise that united the team. “When you put all our heads together, it made for a really neat approach,” she said.
The trio took note of Amazon and Walmart’s unique business strategies and analyzed the respective strategies with retail trends — a step they say set them apart from their competitors.
“One of the most interesting things we did was the [retail] trend analysis, which I don’t think many teams really thought of.… We looked [at what] different firms had put out predictions on what the retail landscape would look like 10 years down the road,” said Connely.
The Ryerson team combined analysis of macroeconomics, retail trends, and respective business strategies to forecast share prices for Walmart and Amazon 10 years from now.
The result showed that Walmart has a better value as an omnichannel retailer, which is a sales approach that provides the customer a combination of different ways to shop online, by phone, or in store. Walmart exceeded Amazon with a 93 per cent return on investment over 10 years, increasing to 127 per cent with payouts to its investors. Amazon is projected to return only 78 per cent.
“We built a model to help us make an informed decision because 10 years out is essentially guesswork, especially in the investment world,” said Berger. “Our big challenge was to quantify qualitative information 10 years in the future.”
Their investment portfolio, which combined two models, accounted for as many variables as possible to forecast whether Walmart or Amazon would be the better investment. The lesser-weighted first model compared the current share prices for both companies in the context of greater economic and stock market trends. The second model used a three-year discounted cash flow analysis (which provides a present value estimate that allows the investor to evaluate the potential for an investment) and a weighted retail trend forecast (which broke down and analyzed past and projected trends in the mass retailer industry) to account for the remaining seven years.
Featured image courtesy of James DesRoches