IBD Interview Question: How to prepare for market trend question?
Should I focus on the recent deals or should I prepare market trend questions the same way as asset management interview questions ( basically everything from stock market, fixed income market, commodities, FX to real estate)?
From what I've experienced they usually don't ask market-related questions. That being said, if you're interviewing for specific groups (Tech, Energy, etc.), they will ask some industry-specific questions and see if you've been following the trends in the industry. You can usually find relevant reports from advisory firms like Deloitte.
Good advice. On top of that I'd add that it can vary by firm. If you're dealing with a highly specialized group or firm they're going to screen to make sure you actually understand and care about the industry/function in question. For example an interviewer with HL RX is probably going to ask you about which bondholders get paid what during a bankruptcy, Signal Hill is probably going to ask about the satellite industry, and Sandler O'Neil is going to ask you some FIG questions.
Bad news is it's tough to brush up on this overnight. You have to actually research the industry and study it a bit. If you can steer some of your coursework that way (like pick out a sector company for a term paper). Another easy way to pick up some basics quickly is to find some relevant podcasts and listen to them while driving/working.
If I am just interviewing for a generalist SA position, but my interviewer happens to beworking in industry groups such as TMT, do you think he will ask me TMT specific questions or trends in TMT industry?
Interview Question - Is the stock market overvalued (Originally Posted: 12/06/2015)
Hi I am preparing for a interview tomorrow and struggling with the title question. Any suggestions? How should I approach a question like this?
Your answer and your reason, talk about the high p/e valuations and the possible interest rate hikes
From a historical perspective, the current P/E of the stock market is approaching the high side, but doesn't look overvalued (http://www.multpl.com). In this interest rate environment, with the economic data that has been coming out recently, this stock market is not overvalued.
That being said, I believe there is one major cause for concern that the growth expectations currently implied by the market will not be fulfilled. Primarily, firms are increasingly spending capital on buybacks, in lieu of investing in organic growth, new technology to increase efficiency, etc. (this http://www.businessinsider.com/contribution-buybacks-eps-growth-2015-11). This is a rash generalization, but based on data in that article, if there were no buybacks in the last 15 quarters (i.e. only using BI's organic NI growth number), current P/E would be 1,022x - maybe a little high. Obviously that number doesn't mean much, but it does go to show the impact of buybacks on the market at the moment, and how their eventual decline will affect the market. Then when we hop back and realize firms aren't growing EPS organically and have dried up all of their cash on buybacks, things could get messy.
Okay that probably doesn't help you, just wanted to ramble for a bit. Seriously though, you just need to have an opinion. If you don't know where to start, just pick a side, try to prove that side right, try to prove it wrong. You'll learn a lot in the process. Also, try to think about things from a theoretical perspective. E.g. the value of a firm, or a combination of firms (the stock market), is equal to Cash Flow divided by (Cost of Capital minus Growth Rate). Think about where each of those items stand now, how you expect them to change in the next 6-12 months, and what that implies for the stock market. For example, "I think rates are going up in [month], which would increase cost of capital for firms, which increases the denominator of above equation, decreasing stock market value. This [has/has not] been priced into the market, and as such I believe the market is [o/uvalued]."
That would be my approach, definitely don't live or die by it, hopefully some others can provide some input as well.
Over/undervaluation is a relative, so would answer in that regard. Is the stock market "expensive" relative to where it was X years ago? Maybe - the average multiple of S&P 500 companies is higher and PE firms are paying higher take private multiples / needing to use higher leverage. What about where you think the market will be in another X years? Maybe not - economic growth blah blah.
They are not looking for anything in particular. This is an opportunity to show them that you follow the markets. Just because the interviewer asks a question (especially questions on this nature) it doesn't mean you have to answer that question specifically. You can say, well it depends on the sector right? Me myself, I follow X sector and blablabla
If you follow no sectors, start following one ASAP.
Thanks, everyone for your great insights!
How to best answer open ended market questions (Originally Posted: 08/24/2011)
Hello, I was actually hoping to get some insight from some people about what is a good way to answer some of the broader, open ended interview questions. Some examples of the types of questions I am referring are where do you see the economy going and what do you think will happen with interest rates. I seem to get these questions rather often, so I figured I would ask if anyone had an opinon on them.
Does the interviewer look for you to give specific details and numbers, or are they just testing that you keep up with the news? Can someone give me an example of how they would answer where do you think the economy is going if they were asked it in an interview? If anyone has any other experiences with these types of questions, feel free to share. Thanks in advance for the help.
I had this question for a SA interview. I just focused on my macro view and why I believed that was the case. So, I focused on interest rates, QE2 and the effects once it would end, where I saw gold and crude in the next few months and fiscal and monetary policy changes in the major economies (EU, US, UK, and China).
That seemed to do the trick.
So long as you end each answer by reinforcing how big your cock is, nothing else you say will matter.
I second Walkio, and also this is a really good opportunity to turn the interview into a conversation. As long as you're clear on what you expect have solid reasons for why you believe those things, you should be fine. Make sure you do your research.
the key part is explaining your viewpoint. Having a logical argument for why you predict such-and-such. Actually being right doesn't matter- it's not like they're going to wait and see.
There are 3 ways you can answer these questions in the future (1) learning economic theory and applying it to current situations (difficult) (2) learning economic history and applying outcomes of past events to hypothesize on current situations (easier) (3) stealing someone else's analysis the day before every interview (barron's, economist, blogs, etc) (easiest).
^ Pretty much
economy/market trend questions (Originally Posted: 03/14/2011)
Hi Guys,
For econ/market trend questions, how much should we cover? Is it just in general how the stock is doing and giving reasons? Do we need to include things like 10 yr treasury yield?
Thanks.
Where are we in the biz cycle? How does this stock move with the biz cylce? I can't see what the treasury curve would have to do with it besides being able to borrow or issue debt at lower cost.
You don't need to know the exact yield. Just know generally whether short and long-term yields are up/down/flat/high/low. That's about the level of detail that's expected across the board (unemployment, GDP, etc.) unless you're interviewing for an econ specific job.
market forecast questions (Originally Posted: 09/27/2010)
When asked to predict DJIA or S&P in 5, 10, 15 yrs, how am I supposed to answer the question? What about commodities? Thanks :)
In 15 years, the conservative assumption would be to say that the index would have increased by the risk free rate + the market risk premium. What are these returns? Who knows. For 5 or 10 year periods, the results could be literally anything. You want to answer this question by saying you could estimate a range (increasingly narrow as the time horizon gets longer) of probable values based on a mean return (explained above) and a historical rate of volatility. With a mean and a standard deviation, you have yourself a bell curve. But that's all you have, son.
thanks, jhoratio! very helpful
Market Question for interview (Originally Posted: 01/03/2014)
I'm reading this renowned book called "Heard on the Street, quantitative interview". And came across this question in section 5.4.2. While this one doesn't come with solution, I wonder what is the actual intention behind the question? "Suppose that the S&P500 index has a P/E ratio of 20. How would you value a manufacturing company with earnings of one million dollars?"
I might say S&P's PE is slightly above average, however due to the current recovery of the US economy, it's not overpriced and still have potential appreciation. Nonetheless, a one million corporation doesn't belong to the S&P index, the two information is merely correlated, I will follow the normal company valuation route. So I'm not sure what exactly it's looking for as solution. Appreciate in advance for any comment! Cheers.
Its really looking for you to think/touch on three points:
As you said, what do you think of the macro picture in terms of where we are in the cycle. Is 20x expensive/cheap/fair etc and why you think that.
Should s manufacturing company in general have the same P/E ratio as the average S&P500 stock and just as importantly, is P/E the right ratio to analyze a manufacturing company
As you sort of touched on, for a very small company what adjustments would you make
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