Merrill Lynch blog 12/2

I haven’t blogged in quite a few weeks so I am going to start by recapping what has happened.   Since my last blog, Mr Warren has been very busy and I have been able to sit in with him on a few conference calls in which I was able to observe him in a client conference call in which they discussed the sale of the client’s business after which he explained to me how those prices get determined and the value of a sale based on the P/E multiple (price over earnings).  It surprised me that the average price of a private company is between 5 and 7 times annual earnings depending on projected growth. I thought that number would be much higher closer to 8 to 15 times which actually is what companies in the S&P 500 (the 500 largest public companies in America) usually sell for (16.8 average). After this call, I was also able to listen in to an interview he had with a potential employee (which I do not believe I am allowed to discuss details of interview) which I found interesting.

In another visit, Mr Warren talked to me about being a good salesman and the difference between an amature and professional salesman.  According to him, anybody who tries to sell anything in the first meeting is an amature sales rep as anything prepared before meeting the person will have been a “cookie cutter solution that they can find anywhere”.  He explained how the first meeting is designed for you to ask questions about your potential clients position. He claims if you can find pain from that point on you would have to be a bad sales rep not to close after that.  It is very rare that he is unable to sell if finds pain

In my most recent visit Mr Warren was not their as he was out of town for a conference so I spent the first 45 minutes of my internship sitting behind __________ learning about the actual BMC software Merrill Lynch uses to track the market.  He then set me up with my own account which I will use a small portion of my time the next several weeks going through an online training which must be completed on one of their office computers. After I finish it I will be certified by Bloomberg and will be able to navigate the terminal by myself.  This is really exciting for me for two reasons. One, I will be able to understand a lot better when they show me different things so we won’t have to take the 10 minutes to explain to me what it is about every time a different type of chart is shown. The second reason is that I will actually be certified in the terminal which is standard across the industry around the world.  The training is comprised of four different nodes, each estimated to take approximately two hours. In Mr Warren’s absence I was able to complete the first hour and a half of the first node which talked about the precursors for GDP increase or decrease.

I have thus far really enjoyed this internship and think it would be really cool to be an investment banker one day, however it feels like a lot of pressure to manage the accounts of people with so much money where any mistake could cause millions to be lost.  It surprises me how calm everyone is. On one of my visits, when they were showing me how the terminal worked, they had to sell one of the stocks which multiple clients held as it had sharply declining the past few days. In trying to sell it they experienced a delay in the computer for a few minutes that, had the stock gone down further, would have lost the clients more.   Shortly after the sale went through this stock declined further and by the end of my visit was already down 1% in the last hour.

Merrill Lynch First 2 Weeks

I have spent the last two weeks on Wednesdays from 8:30-11:00AM at the JP Morgan Chase tower working at Merrill Lynch.  These first few weeks Mr Warren (my supervisor) is simply teaching me the ins and outs of working as an investment advisor and more specifically the philosophies of Merrill Lynch.   After these first few weeks I will start to try to better support the team with small tasks that “simply need to be done.”

On the first day Mr Warren went through in depth definitions of what a stock is and what a bond is and the differences between them.  As the stock market goes down the value of bonds goes up and vice versa.  This is because bonds being more stable than stocks are what people turn to if the stock market is declining making demand for bonds go up.  Bond prices decrease when the stock market is doing well as demand is higher for stocks in those times.  We also briefly discussed the difference between the stock market and the market cycle.  The stock market is completely unpredictable while the market cycle gives hints as to whether the economy as a whole will continue to do well or start to do poorly.  If the market is doing farther than 2 standard deviations from projections “bad things happen”.  If it is going down the obvious happens where people get scared and sell their shares which makes it worse.  The less obvious scenario with the market doing better than 2 standard deviations makes a lot of people believe that the market will stay good forever but when it inevitably goes down the extra exposure causes many people to lose lots of money, accentuating the loss.

In my second visit he walked me through a set of many different cycle charts ranging from more obvious ones like stock price to less obvious things such as small business loans.  The reasoning for having so many charts was, because of the unpredictability in the stock market, if one chart did well or poorly it could just be a good or bad day.  If however, all the charts have cooperating information you can be more reasonably sure that the market will continue to move in that direction whether that be good or bad.  For the second half of this visit Mr Warren had a call that he had to join so I observed one of his coworkers to see “the average hour” and see how the software they have integrates the cycle charts in order to know when to buy specific stocks.