Business Studies Scholarship Program – A Study in Quantitative Analysis

Name: Angela Zhong
From: Cypress, Texas
Grade: 12
School: Harvard University
Votes: 0

A Study In Quantitative Analysis

J.P. Morgan is the company I would invest in relative to the financial sector. There are a few reasons why this company stood out amongst its competition. First, a strong consumer banking division compared to other banks (despite a reduction in interest rates this year) has given the company increased profits that caused it to exceed earnings expectations. This is a testament to J.P. Morgan’s ability to keep high profits even in difficult conditions which will be important as 2020 portends volatility as issues such as trade and the elections can drastically move markets. Second, its investment banking division has been the facilitator of many market-moving events such as the initial public offering (IPO) of Saudi Aramco – a company that just days after its IPO is valued at around $2 trillion.

Get The Full Seth Klarman Series in PDF

Get the entire 10-part series on Seth Klarman in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Q1 2020 hedge fund letters, conferences and more

Some of the main indicators I used to come to this decision include but are not limited to: the profit margin, beta, overall trends, P/E ratio, expense ratio, Sharpe ratios, and reported plans for the organization. Having such financial tools at my disposal are important to sift through the overwhelming amounts of data provided on trading platforms and interpret them accurately, however, are not my only metrics for evaluation since it provides a snapshot of current and past earnings, not a trajectory of future earnings which I utilized qualitative reasoning for.

Deutsche Bank SWOT Analysis

Additionally, I accounted for dividends and noticed that the qualitative SWOT and PESTLE analyses were exportable across sectors and became a staple of my investment process. Whenever I am conflicted about making investments like Deutsche Bank AG (NYSE:DB), I would account for the strengths, weaknesses, opportunities, and threats in comparison to another potential selection, J.P. Morgan. This procedure became the backbone of some of the investment decisions I made. One example of a SWOT analysis I completed for Deutsche Bank is included below.

Strengths
  • A structured organization focused on growth and client satisfaction.
  • Alignment between performance and pay, incentivizing gains.
Weaknesses
  • Many concerning expenses were reported recently such as US Supreme Court Class Action Lawsuit and the US Securities and Exchange Commission litigation regarding corruption law violations
Opportunities
  • There are many efforts to implement remote banking and  use data for customer relationship management.
  • Customers' data are being used to advance Business Intelligence.
Threats
  • Given that the British election happened very recently, I was nervous and unclear as to the economic trajectory of the Eurozone and Britain’s actions regarding Brexit.

There are many similarities between the two, given that they are in the same general economic sector, but the difference is that J.P. Morgan has both a consumer and investment banking division whereas Deutsche Bank (DB) only focuses on the latter. Thus, I looked towards which one has better investment banking services and whether the consumer banking division grows profits. In the end, I concluded that J.P. Morgan’s investment banking division was more profitable since they were projected to secure larger deals (such as Saudi Aramco) - a prediction that turned out to be correct. Furthermore, the consumer banking division allowed for more revenue streams, reducing overall risk.

This approach to selecting between similar options is one that encapsulates all factors of the stocks, which set my portfolio up strongly. I would recommend this qualitative method to other traders as well.

Online Trading Simulation

Quantitatively, I was enrolled in an online trading simulation activity in which I invested significantly in J.P. Morgan. Not only did my portfolio carry relatively low risk since it generally moved with the market, but it also provided solid returns. While the portfolio did produce slightly fewer returns than the S&P 500 over the 10 weeks, I was unsure about the short-term strategy for about 4 weeks and held around $20000 in cash until I found suitable companies to invest that cash in (which is why my returns at the beginning were not very high). Overall, I placed in the top nine percent after this period with over seven hundred competitors from around the world.

Analyzing these companies particularly challenging because there was a surfeit of economic and political externalities that impacted the results of our investments. Because of the unpredictable and inevitable nature of these external stimuli, it was hard to translate these factors into the impact it would have on a particular stock, making my decision-making calculus more complex. The nuances of trading that I discovered has made me more understanding of the economy’s depth and the widespread impact of current events. Ultimately, I thoroughly enjoyed applying asset management techniques in the real world. As a high school student, I have a dearth of resources to actually invest.

This opportunity not only gave me a rare, accurate glimpse into the daily work of asset managers and investors but also advanced my fascination with business with a hands-on approach. It has also given me very salient practical skills, notably, the process of building my portfolios and working with stock cultivated our business-oriented design thinking, allowing me to be more intelligent decision-makers in our daily lives for profitable investments.