Following is a trail of some interesting but unique experiences I had while working on the Equity Research Project (ERP) during Michaelmas (winter) term of my Masters of Finance (MFin) program with Judge Business School at the University of Cambridge.
October 20th 2015. We were given two tasks under the Equity Research Project (ERP-a core module of the Cambridge Master of Finance Program):
1. Submission of a Research Report with a valuation, buy or sell recommendation and analysis of risk. The focus of the report was to analyse the investment potential of a company and to make an active recommendation to buy or sell shares in the assigned company.
2. An Oral Presentation to a professional audience including industry fund managers from London and Europe.
My group’s assigned equity was Royal Mail PLC (A FTSE-100 Corporate with a business history of 500 years). My team was not only diverse in their geographical backgrounds, one student from South Asia, one from Latin America, another from Europe and two from the Far East, but also in their work backgrounds as one group member was previously a Corporate Banker, another an Industrial Engineer, one a M&A investment Banker, another a Central Banker & one with experience at the Ministry of Finance.
My group’s initial meetings started in early November. We allocated tasks considering every member’s strength and level of expertise. I was allocated the STRATEGY portion of the ERP whereby I would have to prepare a SWOT (Strengths, Weaknesses, Opportunities).
As we began the project, I started analysing Royal Mail’s stock and informed my group to wait for Royal Mail’s quarterly meeting that was to be held on November 19th, with my assessment that there would be a ‘rise’ in the share price.
November 22nd 2015, my message to the group was “As I hinted in the last meeting, Royal Mail’s share price has increased from £440.20 to £485.20. 10.26% increase in one week.”
Working on Christmas:
December 24th 2015 9:57am, when I reached Judge Business School to collect data from the school’s Bloomberg terminal, I was the only person in the entire building. At 11:00 am, three other group members joined me and our last member joined our meeting through a video conference call from Germany to discuss the valuation of our stock, our projected growth rates, cost cutting synergies, predication on company’s Christmas sales, etc. Our project was underway and we were working hard towards our end goal.
Trials and Tribulations:
January 7th 2016. Sick from a winter cold & stressed from studying for one of the semester’s toughest exams the next day, I insistently motivated my team members that everything would be managed well for our ERP. Later in the day, our rehearsal presentation to Simon Taylor, the Director of the MFin programme, went quite well as he presented us with constructive criticism that was crucial for our presentation.
January 9th 2016, I forgot lunch and everything that day, and focused my attention on researching and identifying the best pair trade stock for a long short hedging position against Royal Mail. It felt like I was finding a needle amidst an enormous haystack of London FTSE 100, 300, all stocks. I even smile now when I recall that a classmate came and saw me working in the computer lab, and said to a group member “What is this crazy man doing?”
Several hours later I was briefing my group that I had found a ‘good’ stock which had a correlation coefficient of above +0.7 even over daily stock price returns with our original stock of Royal Mail. I explained to my team how the pair trade I had found would multiply investor’s profits roughly three times over while reducing risk by 66%.
January 10th 2016. A day before the ERP presentation, I sat with a group mate and reviewed the final draft of our ERP report over several hours. Everything was coming together, finally.
January 11th 2016. At noon my group and I reviewed our ERP presentation and I provided my group with some anticipated questions beforehand. At 5:30 pm presentations began and we were group 12. It was quite an anxious moment for me as I sat patiently waiting for our group to present. When it was our turn, one of my teammates gave a solid presentation on behalf of the group, while the rest of us handled the Q&A session really well. Finally, we had finished our project, it had been quite the experience.
January 27th 2016, I was printing class reading material in the library, when one of my teammates, called me saying ‘Shahid, we have scored the highest mark for ERP.” It was a great moment for me and I am very thankful for the opportunity to have worked with such a strong team.
Later that day, I checked the share price for Royal Mail and saw that the stock was soaring at £457.43 from £435.16 (price on January 11th when we recommended a “Buy”) and that was ‘my measure’ of ‘highest marks.’