Roe Morris
Business Administration
GNI Capital/Elliot Davis Investment Advisors
Greenville, SC
The three most important goals of this internship included learning how to value a firm, how and why various market forces can affect the stock market, and how important using timely data is when making a financial decision.
When an investor is deciding which company to invest in, several factors affect their decision. First, the investor utilizes a top-down analysis of the macro environment. Historically, stock prices tend to begin with a movement in industry trends. Whether the current environment is defined as a bull (expanding) or bear (contracting) market, it is important to determine which sectors are growing (i.e. IT) and which sectors are more stagnant (i.e. Manufacturing). Once sufficient research is gathered to make decisions, a growing industry is chosen. After an industry is chosen, a fundamental bottom-up analysis is applied to attractive looking companies that are cheaply priced, exhibit strong earnings growth or potential, demonstrate financial ratio strength, or possess a trait that may cause the market to price it inefficiently. Bottom-up analysis can be conducted without first looking at the industry in which the company resides, but typically growing industries are a good starting point when searching for attractive companies to invest in.
The stock market is affected by a variety of market forces. The five forces that play the biggest role in determining how markets work are buyers, sellers, substitute goods, barriers to entry, and industry rivalry. Buyers determine at what price they will purchase a good or service. Sellers determine at what price they are willing to sell their product or service for. Substitute goods determine whether a good or service could be forgone for something else. Barriers to entry play an important role in determining how difficult it is for a firm to enter an industry and how saturated the market can become. Finally, industry rivalry drives firms to achieve a competitive advantage either through a low-cost structure, differentiated product, or other form.
The old saying is history tends to repeat itself. In some sense this is correct when explaining that businesses go through cycles of growth, declines, and stagnant periods. It is a mistake however, to evaluate a firm solely by its historic performance. New government regulations, proprietary fraud within a company, or a new competitor can significantly affect the performance of a firm that looks on their financial statements. Timely data, as well as forecasts that factor in some element of uncertainty are important when evaluating a firm.
The most rewarding aspect of this internship was essentially the amount of experience and knowledge I was fortunate to receive by working in the same office as my supervisor Allen (the Principal of the firm). When asked if I wanted my own office, I politely declined because I wanted to sit near Allen and listen to his daily conversations in order to learn more about how he runs his business and the techniques he applies when deciding when to buy and sell a security. This internship really turned me on to a possible career in finance and I will continue interning for Allen two days a week during the school year.
This experience was definitely beneficial for my work ethic, problem-solving skills, communication techniques, and networking abilities.
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