Back to Class: Investment Management and Entrepreneurial Finance

Warren Buffett made his first of many appearances in Professor John “Jack” McDonald’s course on investment management in 1976. The Berkshire Hathaway chairman and CEO would become a familiar presence in the class, dropping by in person and virtually to dispense advice and bon mots. “I do this for Jack because he teaches the right way to invest,” Buffett told the Stanford Graduate School of Business student newspaper, The Reporter, in 1998.

Buffett was just one of the many fans of what was known as “Jack’s course,” which McDonald, MBA ’62, PhD ’67, taught for a remarkable 50 years from 1967 to 2017. (He died in 2018.) Drawing from classic texts and principles he’d learned from investors such as Philip Fisher, MBA ’29, McDonald constructed a sought-after and emblematic Stanford GSB elective taken by more than 5,000 students (and counting).

Investing, McDonald believed, wasn’t about the latest hype cycle or hot play, but learning how to think. “The essentials of financial analysis and the basic tools and disciplines that one must learn in becoming a fundamental investor are not really all that new,” he told Stanford Business School Magazine in 1989. “They are essentially the same as they were 20 years ago, although the setting continually changes.”

Jack McDonald (in the classroom in 1968) taught his course on investing for 50 years. | GSB Archives

“When Jack would teach how to invest, it was really fundamental analysis,” recalls Carter McClelland, MBA ’73. “What really is the business of a company? What are the underpinnings that make it successful? And then you look at the industry: Is it an industry where if you pick the right company you’re likely to be successful?”

McClelland, who has spent more than 50 years on Wall Street, is one of many former students who credit McDonald with helping them find their way in the industry. He returned to the class to present a case in 1985 and would do so for the next 30 years. “It was the most nerve-wracking day of the year for me,” he chuckles.

Practitioners brought the curriculum’s core ideas to life. Berkshire vice chairman Charlie Munger was an occasional guest; Fisher, the author of Common Stocks and Uncommon Profits, made his last appearance in 2000, when he was in his 90s. Buffett’s visits were particularly memorable; some students bought Berkshire shares after he stopped by.

As the world of finance evolved, McDonald’s course became common ground for a growing community of alums. “Jack acted as a hub for investors,” explains Gina Jorasch, MBA ’89, who cites McDonald as the inspiration for the Initiative for Investing she’s developing at Stanford GSB. “He really felt like he was creating the next generation of investing leaders. He built an ecosystem that not only created successful investors but furthered their success with a network where they could help each other.” McDonald’s legacy has also inspired a wide range of investment-related courses that build on themes from his teaching.

On the surface, Finance 321 may have been about how to build wealth, says John Hurley, MBA ’93, a technology-focused investor who began coteaching the course with Steven Grenadier, the William F. Sharpe Professor of Financial Economics, in 2018. “But underneath that explicit lesson there were all kinds of implicit lessons, and those mostly had to do with issues of character. Jack didn’t use the word ‘karma’ much, but he thought a lot about it.”

Melody McDonald, an investor who attended her husband’s course for many years, echoes that sentiment. “Jack would want people to remember three things: integrity, working hard — no matter what he did, he gave it 100% — and kindness,” she says. “Each student was an individual to him — and a very important one.” She also notes that McDonald was dedicated to his fellow veterans; the Jack McDonald Military Service Appreciation Award has been presented annually since 2009.

Guests in Finance 321 included investors such as Philip Fisher, MBA ’29, and Warren Buffett (center). | GSB Archives

This fall, Erik Ragatz, MBA ’01, a longtime private equity investor, will step into the lecturer spot alongside Grenadier. (Hurley moved into a senior role at the Treasury Department in July.) “Fundamental investing is still a very relevant skill set,” he says. “As the world moves faster and faster, speculative behavior seems to dominate markets more and more. But this makes the fundamental investing skill set more, not less, relevant.”

The course will continue to be a venue for the next generation of investors to learn from the pros and join the network McDonald created. “I love investing, I love the GSB, and the ability to impact somebody’s career and help them grow and find joy in the learning process of investing are things that I’ve always found really meaningful,” Ragatz says. “I’m approaching this with a lot of humility, and I’m confident this class will continue to provide students with the tools they need to become great investors.”