Saturday, January 20, 2007

First week of classes

Yes, the sun is shining again in London. The storm is over and it is not raining anymore. What a change. Other than the weather, which is a very important topic in Britain, the main topics at London Business School are the summer recruitment and the start of classes. I am very positive about classes so far, at least more so than in the first term. What did we have?

- Finance: as I already said, and Martha and Patxi wrote the same, Joao Cocco is a great teacher. He manages to teach at a very high level and fast pace and at the same time entertain and engage everyone. Finance continues to be my favourite class. This week we did mergers and acquisitions and analysed many newspaper articles on deals and discussed why share prices of acquirers, targets and competitors in the same industry moved the way they moved. Especially helpful for the hundreds of classmates applying for Investment Banking jobs!

- Decision and Risk analysis: so far we have not done much new but refreshed the statistics pre-course (which I waived), but it seems it will be mainly about using excel and building models, which I find very useful. The teacher is energetic and cheerful, so the class is entertaining.

- Discovering Entrepreneurial Opportunities: We do what the name suggests, try to find opportunities for new product development. In our first class we had a visit from an entrepreneur whose business failed and we discussed the case of his start-up and he shared his experience of the liquidation of his business. The teacher is also very good and senior.

- Managing Organisational Behaviour: I cannot comment much on the class or faculty as of yet because we spent most of the class watching a video. It was about Nick Leeson, the guy who traded Barings Bank into bankruptcy. I found the documentary fascinating. The link to MOB was to discuss what was wrong in the organisation to enable such a massive fraud to happen.

- Marketing: this maybe one of the more disappointing classes. Unfortunately in some core courses (same last term) the programme office has assigned us very junior teachers, and unfortunately sometimes people with PhDs from Harvard or MIT aren't necessarily great teachers. Especially with fluffy topics I find experience is key. Chicago GSB has an advertisement saying "Our full-time MBA faculty is the same as for the Executive MBA" and I wish it was the same for London Business School. But it's not.

In addition to those classes, summer jobs are on everyone's mind! On Thursday, Morgan Stanley hosted a lovely and delicious dinner for 20 female MBAs and they came with ~ 10 female Managing Directors from all divisions. They were great, charismatic women, we had lovely dinner and lots of wine and were laughing a lot, I don't think we ever talked about finance or investment banking, it was more about getting to know each other and also seeing how they managed to have kids and be MDs (all of them had children). It was a great evening and very inspiring. I also met a woman who is head of equity derivatives and has a degree in international politics like me. So we had a nice chat about how to leverage political insights for a career in trading.

Yesterday, I had my first interview with a hedge fund and got an interesting brainteaser:
company A and company T both have oil fields, company T has one in Texas and company A has one under the arctic ocean. Both have a market capitalization of $1bn. Who has more barrels of oil in the field? Then: okay, where is the price of oil? Let's assume tomorrow the price of oil jumps from 50 to 100, whose market cap will rise more? It was quite fun and I solved them quickly, so it was no problem.

Then they asked if I could do DCF and LBO modelling, and they also gave me some questions like "ok, assume I have a company with an EBITDA of 10 and sales of 100 and CAPEX of 5, make some assumptions and tell me how you would value the company in your head? I tried the lazy way of saying I would just assume an EBITDA multiple and multiply it by the EBITDA :-), but then they still pressed for the DCF valuation, as expected.

I liked the experience and it was very good practice for the upcoming sales & trading interviews (only 1 week to go!). The question that always knocks me out is when they ask if I have ever invested money. The truth is that I never had a any money left, or when I was younger I did but I didn't really know about investments. As soon as I had $1,000 saved I would just go on a long holiday, spend it all and come back home and start saving again. But I don't think it makes sense to hastily start trading FX or whatever just so I can claim in interviews that I have done that. I hope it is okay. Not everybody has experience investing in their twenties, right?


Anonymous said...

Hmmm, interesting...
So, which company has more barrels?
and why?

Anonymous said...

Hi Angie

Wow the questions seem so interesting! Once I had to answer a question on why the yield curve was horizontal or something like that. I am pretty sure I didn't answer it right! LOL!

So, I am curious too, what was your answer?

Also, to your question about investing, not to worry. I would say that you are an avid stock follower, and your current model portfolio would have stock x, y, and z. and say why etc.

There seems to be so many opportunities at LBS!!! I love the fact that you guys have so many 'office' visits to make you get a feel for the place. From reading other school blogs(Oxford), it doesnt seem the same.

Question: Does the hunt for summer jobs interfere with those looking for jobs at graduation? Or are there specific ones for graduation etc?



angie said...

I will post the answers later, might be good practice for some not to have the answers :-).

Michelle, you're absolutely right, I cannot imagine any other school with such close links to companies. Since September, we've had dozens of events hosted by companies from Diageo to Lehman Brothers, from L'Oreal to Goldman Sachs, it is very easy to meet up with alumni and others in your target company.

So this is definitely unique and a great advantage in recruiting - you can have met the employees many times before you start your interviews.

The job ads for summer interns and full-time associates are completely different so I don't think we interfere in any way.

Anonymous said...

Interesting teaser.
My interviews are next week, I'll let you know if there was any different question.

Good luck!

Anonymous said...

hi there, you have a quite interesting blog

Anonymous said...

Hey I still can't figure out the answer??? Hint? Was it the Artic company?

Now I am freaked out by all of these brain teasers...just promise to hire me on day...:-)

angie said...

Since both have the same market capitalization, the one with the lower profit per barrel must of more barrels of oil in the field. From there you can work the rest out.

Anonymous said...

wow, I am surprised.. these questions look like a piece of cake to me ))
interesting that they get to ask them.
good luck with interviews

Anonymous said...

hi angie

can you also answer the following: where is the price of oil? Let's assume tomorrow the price of oil jumps from 50 to 100, whose market cap will rise more?

shouln't market cap remain the same for both?

angie said...

anonymous: no, market cap will not stay the same, nor will it be the same for both.

Assume the cost of attraction in the arctic is $40 and only $20 in Texas. Therefore, the company A makes $10 profit per barrel, while company T makes $30 profit at a price of $50.

If the price jumps to $100, company A's profit jumps from $10 to $60 (i.e. by 500%), while company T's profit rises only from $30 to $80 (less than 300%).

Since the complete absolute price rise of oil goes directly to the bottom line, the market cap rises proportionately more for the company that had lower profits before.

Anonymous said...

thank you for answering my question angie. hope today's interview went well. with two offers in hand, you can afford to relax a bit! have most of your classmates found internships as well? I read on another blog that at insead and LBS, only about 30% students manage to get summer internship offers? that statistic is sounding a bit scary to me. I am a career changer and am considering an MBA at LBS. Would you say the figures are true? and would they be the same at all business school? thanks very much for your help

angie said...

anonymous, yes I would say that most of my classmates have good offers and many have multiple offers as well.

The 30% stems from the observation that usually around 1/3 get offers in the "milkround", which is the first two weeks of recruiting where the top ibanks and consultancies come. So 1/3 tend to get offers from Lehman, Morgan Stanley, Booz Allen, McKinsey etc..

The other 2/3 all get offers, but this may be with industry firms (Google, American Express, BP, Shell, Johnson & Johnson, L'Oreal... are all extending offers to my classmates), small hedge funds, investment management or private equity firms, as well as marketing agencies, NGOs, international organisations (World Bank, IFC, Asian Development Bank).

So rest assured that everybody gets an internship, historically only 1/3 get into the associate programs of the top banks & consultancies. My impression though is that this year many more than 1/3 have offers either from ibanks or consultancies, though my perception may be skewed.

Anonymous said...

Oil company question: something to do with capex needs of a company in arctic. higher PP&E required, fixed assests to variable assets ratio, greater depreciation on fixed assets, regulations on environmental effect etc. so in that case, so given the same number of barrels of oil, arctic drilling co will have a lower valuation. if same valuation, arctic co probably has more barrels of oil.

for the ebitda, capex..what is your assumption on the capex?