NYU Portfolio Managers Battle Over Crocs

Rationale for Passing on Growth Plays

There are a few theories on both sides for why the IAG members would choose to pass on a growth play: the company really is a bad choice for the portfolio, new members don't have the background to make informed investing decisions, the cases weren't argued properly at the meeting, and so on.

It's important to remember that this kind of thinking isn't relegated to the halls of NYU -- it's part of a decision-making process plenty of investors go through when taking a look at a stock that's enjoying a high.

In terms of Crocs, during Tamagnini's sell pitch, the core of his thesis was that "there is a low barrier to entry." Tamagnini said, "Any footwear maker can start making a 'Crocs shoe.' In fact, [Skechers] SKX just did. The footwear industry is so volatile with the trends that we're seeing [that] we might see things go back to high-cost shoes in the next few years or so."

IAG member Jonathan Goto (sophomore), who voted against Crocs because he felt that it was over-hyped and ready to deflate, echoed a few of Tamagnini's points and offered his own take on growth-stock investing.

"I disagree with the notion that IAG has 'avoided' growth stocks, as Neal [Sangani] likes to argue. At the same time, the market has a historical tendency to 'overvalue ' growth, and stocks whose valuations are based on ebullient expectations are prone to disappoint. Crocs, to me, is an interesting trade. It's got a lot of short interest in it, and if it beats expectations, then sure, it'll pop. At the same time, the expectations that are built into giving Crocs a nearly $6 billion market cap are so optimistic that I question their sustainability. I see low [and/or] no barriers to entry into Crocs' market, and I question the soundness of putting Crocs into the portfolio. Neal didn't provide enough data to convince me that our potential upside outweighs the real risk that Crocs will not perform to expectations. I wouldn't want to play this company long or short ."