Sizing Up the Stock Market

Historically, only the wealthiest people took advantage of the stock exchange; now, more and more people are buying shares to benefit from a company’s success. Working the stock market does not actually require much work at all. In fact, it is a great way to accumulate wealth without ever working. For this reason, many people are attracted to the idea of buying stock but lack a fundamental understanding of how Wall Street works. An increased interest in the stock market has resulted in an increased demand for financial analysts to serve as industry experts.

Every year, the Chartered Financial Analyst (CFA) Program hosts the Global Research Challenge, where teams of aspiring financial analysts come to exhibit their understanding of the complexities of the stock market. In this competition, teams are tasked with analyzing a publicly traded company and giving a convincing recommendation on whether to buy, hold or sell that particular company’s stock. There are two main components of this challenge— producing a written report and presenting findings in front of a panel of industry experts.

Led by Dr. Jack Wolf from the Department of Finance, the Global Research Challenge Creative Inquiry team is composed of four senior finance majors: Cooper Burdick, Blake McCall, Jeff Sinkel and Andrew Weber. As participants in this year’s CFA competition, the team was assigned to evaluate stock for a particular airline company. “We had to thoroughly analyze not only the domestic economy, but also the broader global economy as well,” Burdick said.

Evaluating the potential success of a particular stock is primarily rooted on the question of how the company makes money and whether they will succeed going forward. The team has to consider all the possible challenges and emerging competitors that the company and the rest of the airline industry could face. They have to determine the bargaining power of customers, intensity of competitive rivalry and even the threat of substitutes. External factors such as the future cost of fuel also play an important part in their assessment.

Consequently, the written report the team produces has considerable breadth and depth. With a panel of industry experts judging them, the team needs detailed supporting information to give a compelling oral defense of their analysis and conclusion. “The students were most anxious about the Q&A session that followed the presentation. However, after all the hard work they had put in, they knew the airline industry inside and out,” Wolf said. After taking finance classes for four years, the team was able to learn first-hand how difficult it can be to predict the future of stock in an intricate and sometimes uncertain market. Significant risk often accompanies remarkable reward potential, and the work this Creative Inquiry team has done serves to navigate this fine line.