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A Week in the Life of an MBA student on an internship:

Andrew May
Internship with: Citibank, United Kingdom

Week 1 Week 2 Week 3 Week 4 Week 5
Week 6 Week 7 Week 8 Week 9 Week 10

Week 1(Posted June 19, 2000)
Hello from London! It has been a wonderful first week on this ten-week adventure to the UK. I am pleased to report that despite getting lost on numerous occasions, being blown away at some of the food combinations (they put cucumbers on everything!), and continually having to remember to look the opposite way before crossing the street, I have enjoyed my first week here immensely. I am doing my best to fit in and am faring better in some areas than others. I have shown vast improvement in understanding how to get around London using the tube since my first day. When arriving here last Saturday and asking the tube attendant for a map that included train times, he gave a look of complete surprise and then exasperation as he exclaimed, "Tube times? This isn't Switzerland buddy!" I guess the depressing part about that comment is that I didn't even know what he meant by it. I have figured out since then though that the tube comes every 3-5 minutes on practically every line eliminating the need for time listings - a far cry from Chicago.

My job at Citibank has gotten off to a good start. I am working in the European Equities department and have been given two initial assignments. The first is to gain further insight into the impact that the Internet will have in Europe as a whole. Will Europe be driven by content providers specific to Europe (i.e. European companies) or will the Yahoo's and MSN's of the world continue to dominate as the top European domains? Amazingly, eight out of the top ten global domains in Europe are American websites. On a different note, how will Europeans access the Internet? It seems to be increasingly apparent that it will not necessarily be from computers, but most likely from handheld devices including mobile phones. The most important challenge concerning this first assignment is to determine who will come out on top as the Internet evolution plays out in Europe.

My second assignment is to examine the European equities markets with the goal of determining what makes them attractive. The European Monetary Union and the Euro are causing a rightward shift in European politics towards a more market-friendly economy. The result is a economic revolution whereby free trade, deregulation, integration of capital markets, and corporate modernization are taking hold. As we have learned in school, change brings about opportunity and before too long winners will emerge from Europe that will be global players providing superstar returns along the lines of US - stars that have largely been absent in European markets.

On a lighter note, I have gotten caught up in Euro 2000 fever. England suffered a severe setback in its first round loss to Portugal this week. Their next round opponent is arch-rival Germany, which promises to be a great match. I may have to watch this one at a pub just to get the full effect. I am trying hard to refer to it as "football" rather than soccer when talking with my coworkers.

Week 2 (Posted June 26, 2000)
At the end of the second week, I am happy to report that I am starting to figure out the London tube system. My only problem now is that I keep referring to it as the 'L'

At work, I have spent the week developing a presentation to be given next week to German investors on the attractiveness of European equities. This is one of the projects I mentioned in last week's entry. There are many reasons to be investing in the European markets. One that many Europeans are still attempting to grasp is the technology revolution that has only started to hit Europe. It becomes the job of the investment community to educate investors on the blockbuster gains that can be made from entering the game now.

Next week I will be attending a couple of seminars regarding Internet Business-to-Business and B2B automotive e-commerce. I hope to learn a lot with respect to my longer term project on how the Internet will impact Europe. I will look forward to reporting the events and my progress next week.

Also, I am headed to see Stonehenge and Bath this weekend. Just this week the gates were removed from Stonehenge allowing visitors up to the stones apparently for the first time. I will try not to pull a Chevy Chase and knock them over. Cheers.

Week 3(Posted July 5, 2000)
My third week at Citibank was an excellent one. On Monday, I attended an automotive e-commerce seminar to determine what effect the Internet will have on the auto industry. It was fascinating. The main topic attempted to answer the question, "Will the Internet cause the auto market to restructure from build-to-market (meaning cars built and delivered as ordered in bulk by dealers) to build-to-order (meaning cars custom built for specific consumer orders and delivered in a matter of days rather than the current 60 delivery period)?" Speakers included a former top Chrysler executive, a JD Powers executive, and an Internet auction executive. The overall consensus was that the Internet will speed up the time from manufacture to delivery and will lower the price per car which will be passed on to the consumer. But the dealer has a lot of value and won't soon be replaced by build-to-order over the Internet.

I am taking the lead from this seminar and several others to focus my research on the impact of the Internet in Europe to specific sectors. That is a logical approach to attacking what is a difficult process of forecasting the future impact of this new technology on old economy sectors. I'll be sure to provide updates on my progress.

Week 4(Posted July 10, 2000)
This week I started work on predicting how Internet Service Providers and Portals will develop in Europe. That is a hot topic in Europe so I decided to make it my first sector. Analysts here feel that there isn't room for more than a very few winners in the ISP/portal market. There are about seven portals that are big enough to provide the services necessary to gain loyal customers in future years. Winners out of these seven will separate from the pack by creating barriers to entry. Barriers to entry can be thought of as a circular barrier. Dominant portals should be able to attract more content, online vendors and advertising than other portals. Consumers will be attracted to dominant portal due to its larger choice of content and online vendors. So traffic on that dominant portal should grow relative to other portals. Higher traffic attracts further content, more vendors, and more advertising. What you have then is a circular effect between building content, vendors, and advertising, driving traffic, which rings more content, vendors, and advertising, which brings more traffic. The yellow pages serve as a good example. The Yellow Pages has long been a primary means to locate local services. By developing a valuable service, the yellow pages built up its brand name. Brand name development led to traffic. Traffic led to transaction revenues in the form of more advertisers wanting to advertise in the yellow pages. This led to enhanced brand name development. And there is your circle.

Another project I am currently working on involves identifying investment styles of key Citibank competitors in Europe. Primarily, what funds do competitors have that compete directly with Citibank's European funds and how does their style differ. How do they reach their investment decisions? What is their annual turnover? What are the primary sectors they hold? It is an interesting project that is teaching me a lot about the industry.

Lastly, I met some classmates in Amsterdam this past weekend. What an eye-opening experience! As we witnessed, anything and everything goes on in Amsterdam. It is also a beautiful city. The horseshoe set up of the city makes everything reachable by foot and the canals through so many of the streets are breathtaking. We visited the Van Gogh museum, walked through a street fair, and visited endless numbers of small stores. All in all, it was a great trip.

Week 5(Posted July 17, 2000)
This week I spent a lot of time doing research on competitor mutual funds. As I mentioned last week, my goal is to identify how and why certain competitors are outperforming Citibank. In several instances, the answer is easy to see: they have assumed more risk. By calculating the standard deviation of a fund's performance, volatility can be measured. Investment theory equates volatility with risk. In order to generate higher returns, certain funds assumed more risk. In other situations, a competitor may have similar volatility measurements and still have outperformed our fund. As I'm learning, further research may yield several explanations. By looking at what sectors the competing fund is most heavily invested in (i.e. financial sector, pharmaceuticals, oil, etc.), or by looking at what countries the fund is heavily invested in (many European funds may invest heavily in certain European countries), a clearer picture of performance can be seen.

I traveled to Crookhaven, Ireland this past weekend. Crookhaven is a small town on the Southwest tip of Ireland on the Atlantic Ocean. To get to Crookhaven, one would fly into Corc and drive about 2 hours directly West. There are very few expressways in that part of Ireland so the drive takes you through lots of small Irish towns. That was one of the best parts about the weekend. That part of Ireland is essentially all rural. Rolling green hills for as far as the eye can see characterized the entire drive with the exception of enormous rock formations developing as we neared Crookhaven. The drive and Crookhaven itself reminded me very much of the scenery in 'Waking Ned Devine.' The people were so friendly in Crookhaven and we made several friends in O'Sullivan's bar. They served us fantastic food and the best looking and tasting Guinness I have ever come across. Our classmate John would have been proud.

As I look forward to next weekend, my eyes are set on somehow getting myself to the British Open at St. Andrews. Wish me luck.

Week 6 (Posted July 24, 2000)
This week I have continued my research into competing funds. Last week, I mentioned that often times the explanation for performance differences can be found in the risk assumed by the fund. I have found that several funds competing against Citibank invest both in large cap index stocks and smaller cap stocks that the fund managers feel will rebound from a recent slide. This approach differs from the Citibank fund I am currently working on. The Citibank fund invests primarily in index stocks and will deviate slightly overweight or underweight from the percentage held of that stock in the index depending on the momentum of that stock. This investment style is obviously conservative with a goal of slightly outperforming the index that serves as the fund's benchmark. Comparing this style to competition that invests in large cap index stocks and smaller cap stocks that are rebounding helps to explain why such funds may outperform Citibank. To invest in smaller stocks that have tanked recently means assuming more risk. In several of the cases I have researched, those bets have paid off.

On the weekend note, I made it to the British Open. What an incredible experience! As an avid golfer, I felt upon entering the grounds at St. Andrews as if I had reached the Promised Land. Everything about St. Andrews reeks of challenge, heritage and class. From the mogul-filled fairways, to the crevice-like bunkers, to the enormous yet slick greens, one has the feeling that playing the Old Course requires creativity and precision. And the first and eighteenth holes, surrounded by the club house, old vintage St Andrews' hotels, flats, and private clubs, is the most attractive golf setting I've ever seen.

As for the tournament, as you can imagine, all the talk was about Tiger. We got to see him on two holes, but the Tiger bandwagon was so great, it became too much to handle. We spent time at the 11th tee and 17th green and saw pretty much all the weekend players. It really was a great experience. I told myself before we left that I must make it back sometime to actually play the course.

Week 7(Posted August 1, 2000)
This week I have continued my search into how the Internet will develop in Europe. As The U.S. currently represents 80% of worldwide Internet use, I have found it much more useful to focus on lessons learned from the U.S. that can be applied to Europe. While there are difficulties with that approach (including the fact that Europe has many languages and cultures, a problem not nearly as considerable in the U.S.) I think this approach is still useful.

The Internet has evolved into a winner-take-most-medium. The extraordinary NASDAQ decline since March 2000 and collapse of many Internet companies since then has reaffirmed that the Internet is cutthroat and only the strong will survive. A network effect (which I mentioned in my Week 4 entry) reinforces that there will only be room for a very small number of players in each industry.

Another effort I am undertaking is to determine how Internet companies create value and how can that value be measured. Those companies that are creating value are doing it in two primary ways: through value transfer (cannibalization from traditional companies) and by unlocking value. AOL is an excellent example of value transfer. AOL customers are spending more and more time on the Internet. In 1995, they spent 7 minutes per day on the Internet on average. Today, that number has increased to 60 minutes. They are doing this in lieu of watching television for the most part. AOL is therefore transferring value from other media. Amazon.com serves as a good example of unlocking value. Amazon.com can sell books more efficiently then its offline competitors because the Internet is a more efficient means to sell products. Bookstores must provide shelf space to communicate information about books (in the form of the books acting as their own personal billboards). That is expensive. Amazon.com can provide information over the Internet much more cheaply while offering every book on the planet without using the shelf space to do it.

As far as measuring that value and actually explaining the atmospheric valuations, that is another story. So far, I think the best way to approach that problem is through discounting of future cash flows. Fast growing companies make revenue and earnings multiples very difficult. More than anything else, I am realizing that above and beyond valuation methods, all of which are difficult at this point, investing in an Internet stock is a big bet on your beliefs about the importance of the Internet as a medium and whether or not that particular company will come out on top.

Week 8(Posted August 9, 2000)
My Internet presentation has really started to take shape. As I have mentioned before, I have concentrated on two main impacts of the Internet: value transfer and unlocking value (which I have re-termed efficiency creation). I have decided that efficiency creation is the more important of the two mainly because it refers generally to B2B, which will represent upwards of 80% of all Internet transactions. There are three key components of efficiency creation: 1) the Internet will make business more efficient mainly through removal of Internet barriers 2) efficiency creation will lead to Real GDP growth and 3) the majority of the efficiencies will be passed down to consumers through lower prices.

I have discussed value transfer in previous entries so I won't belabor the issue. I think there are two main points regarding value transfer: 1) There are certain types of products and services that are ripe for transfer to the Internet, which include services or information transfers that can utilize the nearly free online distribution (i.e. research that would be retrieved from portals, travel agency services, software or games, and insurance just to name a few); products that have a high price to distribution cost relationship (i.e. jewelry is expensive and inexpensive to ship while dog food is not overly expensive and very expensive to ship); and finally the tactile element. There will always be products that people will want to feel and touch (i.e. dresses or pillows) and 2) the network effect will make first movers in these businesses incredibly successful companies.

I should mention that there are most certainly more criteria that makes certain businesses more ideal for value transfer than I have listed. I found that the best way to derive that list was to think logically about how people buy products.

On the social front, I have stayed in London the past couple of weekends and taken in the sights. My favorite museum by far has been the Imperial War Museum. I actually visited it twice over the past two weeks. The museum has an extraordinary Holocaust exhibit that begins with Germany's defeat in World War I, then gets into the rise of Hitler and anti-Jewish sentiment, then examines the pre-World War II military build-up and the beginning of persecution, followed by the start of World War II and development of concentration camps, then Hitler's domination of Europe and beginning of the exterminations, and finally to Hitler's demise, examination of the atrocities and their after effects. It was incredibly moving. I also took in two plays: Mamma Mia, a musical based on the music of Abba, which was outstanding, and Fosse, a musical review, another good play.

Week 9(Posted August 14, 2000)
I finished up my presentation in preparation for giving it at the beginning of next week, my final week here. I'm really looking forward to the presentation because I'm anxious to hear other's thoughts on my findings. One thing I've found is that the impact of the Internet is extremely controversial. Over the weekend, I read an article in a special Forbes magazine on B2B about a book by Grady Means and David Schneider, both Strategy Consulting Leaders at PriceWaterhouseCoopers, called 'MegaCapitalism.' This book states that 'the period 2000-2002 will represent the single greatest change in worldwide economic and business conditions ever.' They also argue that most of the new wealth created, as a result of the Internet, will go into corporate pockets. As I stated last week as point #3 of efficiency creation, my contention is that most of the savings created by the Internet will be passed on to consumers. Interestingly enough, the author of the article agrees with me.

I do agree with the book authors that there is room for companies to reap some of the rewards, just not the majority. While the Internet creates efficiencies, it also creates new and more competition. But companies like Ford and GE make me wonder what they are up to. Ford has stated its intention to essentially become an e-business. For an example of an e-business look at Cisco Systems. Cisco actually doesn't make the majority of what it sells. It never even sees the product. It books the order, forwards it to a supplier who builds the product and ships it (and covers the shipping costs). Cisco bills the customer, pays the supplier, and pockets the difference. It seems as if Cisco is more about the brand name than anything else.

Now back to Ford. Ford is in the process of spinning off most of its suppliers into a company called Visteon. In April, Ford announced that it was returning $10 billion to shareholders, capital it would no longer need because of reduced physical assets. At the same time, Ford has recently purchased Jaugar, Aston Martin, Volvo, and Land Rover, companies that are high on brand names but low on physical assets considering the over $12 billion that Ford paid for them. It seems that Ford is starting to look more like Cisco and less like a traditional car company. What do they see?

At GE, Jack Welch has mandated that e-business would 'change the DNA of GE forever by energizing and revitalizing ever corner of this company.' He directed 600 senior level executives to develop e-commerce strategies for their respective departments within a few months. And he believes that e-business can save GE between 20-50% of their SG& costs. Rather than allow Web start-ups or e-exchanges to come in and manage this transformation, Welch has built an internal Web technology-enabled division and is even selling this technology to other businesses. What does Jack Welch see?

I traveled to Cambridge this weekend for the day. I'm now able to compare Oxford and Cambridge. I absolutely loved both places. But I must say that I really loved Cambridge. The architecture was stunning, the river running through the city with punts (Venice like boats with the men pushing you along with their long sticks) was a fantastic surprise, and the food was fantastic. Plus, I was so impressed with both the wealth accumulated there (Trinity College, a college within Cambridge, is the wealthiest college in the world. It actually owns a good portion of the United States, which it will have to return in several years much like the English returned Hong Kong to the Chinese. It would destroy the world economy to force the US to buy it back and with the collection of first draft works including the original Bible, in Latin, and Winnie the Pooh. Only one week to go.

Week 10(Posted August 22, 2000)
Well, I am in my last hour of my last day of the internship. Wow how time flies. I have truly had a fantastic experience. I had hoped to gain down and dirty exposure to the money management business and that is exactly what I got. I have seen the inner-workings of the investment process from portfolio construction to portfolio review and individual sector and stock analysis. I have witnessed and participated in the relationships between portfolio managers and both sell and buy side analysts.

Likewise, I have had the opportunity to research the impact of the Internet on business and present my work to the European Equities team here at Citibank. I have also been able to use much of what we learned in school in order to evaluate Citibank's investment performance for its United Kingdom investment fund to try and determine reasons for superior or inferior performance versus the competition.

As if that wasn't enough, I have lived in London and traveled to other parts of Europe over the past 10 weeks, an experience most people only dream of. I am truly appreciative for this opportunity. In addition to the work experience I have gained here, I will always remember the friendships and memories from this adventure.

 

 

 

 


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