Challenges and Drawbacks

Hey Everyone!

Over the past week I've got my critiques for my methods proposal and began fixing it. For the most part, the big problem with my proposal was in the way I explained it, so now it's time to get down to business and begin my research! 

My original plan for my research began with the collection of data for all of the companies in the social media industry that I planned to analyze for my comparable firm analysis. Although I have begun my data collection, I have not completely finished as much as I initially wanted to. This is primarily because I have been focusing on my methods assignment rather than my research this week. In the coming weeks, when I have far more time to work exclusively on my research, I don't envision the same problem arising again. Another unanticipated drawback that I have experienced in collecting data is the amount of tedious searching I have to do on NASDAQ's site. Historical data isn't listed directly in a table for companies, so I have to manually go through each company in the industry, and record their historical data at various IPO periods. Thus, I must sort through close to one thousand companies on NASDAQ's site. This may take longer than I initially anticipated, and I think two more weeks is an appropriate amount of time to set aside for the task. The good thing about the data collection, however, is that I only have find data points corresponding to five different time periods, rather than ten or twenty.

This puts my schedule about three to five days behind what I originally projected. However, I am not too worried about such drawbacks, because the data collection was already the most tedious part of my methods section, and I expected to spend a long time with it. For the most part, I have created my schedule so that I have "buffer room" each week in case an activity is more difficult than I envisioned it to be. The other part of my methods that will most likely be tedious is the selection of comparable firms for each of the five firms that I am analyzing. After this, I expect the methods implementation to be on par, if not easier than what I originally expected, as I have become more familiar with the implementation of the methods after reading and thinking about them more.

Finally, I initially planned me methods implementation to last until February 20th. This gives me a week of extra squeeze room in case something goes completely unexpected to plan. Otherwise, I'm feeling great about research, and I'm excited to be doing it! (449)

Signing Off,

Akash

Flaws in the Plan

Hey Everyone!

It's been a pretty long time since I've last posted, and in the time between I've submitted my official methods proposal. Right now, we're critiquing out proposals with others. Although we haven't gotten to my proposal yet, I still think it's important for me to analyze my own methods and determine the weakest parts of it to discuss with my group later.

So here it goes...

Personally (I don't think it's that much of a secret though), I think the weakest part of my proposal is my explanation of technical equations and terms that come up in my paper. I've been working on it a lot, and my explanations have come a long way, but I definitely have a lot of work to do in making sure every term and formula is explained correctly to the reader. If not, I could risk confusing my reader, and in turn, undermine the significance of my results and discussion section. I think I particularly need to do a better job of explaining how I derive the equations that I plan to use in my research and what their implications are in terms of the data. In general, because the formula's deal with more abstract statistical methods, I've been trying to describe them through more concrete examples. There's still a lot more work to do, though. Discussing my methods with my group will be really helpful in explaining the equations, so I'm not too worried about this weakness. I just need to keep on drilling at the problem.

Walking hand in hand with my confusing explanations is my method section's second weakness: length. My section is far over the word limit, and I need to cut it down. The big problem is that I need more words to explain most of the technical terms in my paper. Ultimately, I think the problem with the section is that I reiterate too many terms from the literature review. Deleting some of my re-explanations will be crucial to keeping my paper under the word limit, but I need more guidance on what exactly is explained well initially, and what needs more explaining. I'll be sure to discuss this with my group in a few days, but I am definitely be open to any other suggestions on things I could cut out or ways to reduce my word count in my paper.

Other than that, I think my methods section is pretty solid (I guess we'll really see in three days).
No it's time to do some real research! (424)

Akash

Lets Talk About Scheduling

Hey everyone!

This week's blog post involves setting up my research schedule and discussing the data analysis techniques within my study. So, without further hesitation. Here it is:

January 16th-23rd: Compile data on all NASDAQ companies in the industries that Yelp, Facebook, LinkedIn, Twitter, and Tencent Holdings Inc. are in. Begin separating data based upon the different financial variables I will be analyzing in the study. These financial variables are based upon the multiples I have decided to use within my study.

January 23rd-30th: Finish separating and entering data on different financial variables into Excel. Write R program that parses the excel data to find comparable groups for the firms I plan on analyzing in my study. This is done with a technique implemented by a research study on biotechnology firms. To find a group of comparable firms for a particular company the study groups all firms in the companies industry into nine portfolios, sorted based on total assets and EBITDA, which is essentially earnings less any operating costs. The portfolio matching the company being analyzed is used as a comparable firm group for the company.

January 30th-February 13th: Perform all projections and error estimates for each multiple and method, recording the data in an excel spreadsheet. This is the bulk of my research and where the method section is implemented. As my entire research is essentially data analysis, the data analysis section is mostly integrated into this period of time.

My methods are detailed as follows:

I will use a linear approximation of price using a comparable multiple. This multiple will be determined in three different manners: using a harmonic mean, mean, and median of the comparable firms from the comparable firm group.

I will record the over or underestimation of the estimate price from the actual price of the IPO for each firm and each method. Ultimately, this allows me to compare the error terms more efficiently.

February 13th-20th: I will finish analyzing the error terms and make conclusions based off of the values I receive. I will compare multiples across different methods, determining which multiple was the most effective overall in valuing a firm as well as which method provided the most accurate results. This will be done by averaging errors in different cross-sections and comparing their values. The smallest errors for each section I analyze will represent the most optimal multiple in this circumstance.

After this is done, I will begin drafting my paper, including the results, conclusions, and future implications of research section. I will also begin compiling tables based off of the data analysis I will have conducted.

So that's my plan for my research! If I stick to it I'm sure that I can produce an incredibly high quality paper. (458)

Akash

I can't sing... or Pitch

Hey all,

Here's a video I made about my research. Overall, I feel like it was worth the effort.

Akash

Method Madness

Well, our methods assignment was due today, and the good thing is that I have never felt so good about most of my methods!!! Hopefully the feeling will stay with me throughout the rest of my research project.

After looking at various other research papers, I am particularly confident, as I was not before, with the statistical analysis that I will be performing on the comparable firm firms as well as the sample limitations that I must justify within my methods. The statistical analysis of the different comparable firm multiples, as I found out, is implemented through two closely related methods in the literature. The older method estimates price base off of a slope-intercept type equation, disallowing any y-intercept, with the slope as the comparable multiple. This method is "old" because in order to estimate the comparable multiple in the first place, it uses a mean or median estimate of the multiple based off of a company's comparable firms. This essentially means that comparable multiples for "similar" or comparable firms are calculated and used to determine the multiple for the company being analyzed. The newer method, instead of using mean or media, uses a harmonic mean estimate for the multiple, claiming that studies have shown the harmonic mean method to work more effectively. A harmonic mean is essentially an inverse mean of inverses, so essentially the entire equation for the mean is "inverted twice" to achieve a harmonic mean.

The second thing I am fairly confident about is limiting my sample within my methods for validity precautions. Because the validity of a sample is essential in data analysis (because it can potentially skew results), it is essential to provide a systematic way of limiting the sample. In the context of my research project, this means providing a systematic way for selecting comparable firms for a firm I want to analyze. Luckily, I found a good study done on biotech IPOs that showed me an efficient method of finding comparable firms. Essentially firms in the industry are divided into 9 classes based on their total assets and EBITDA, a financial variable for a firm. Then, the firm being analyzed is classified in the same manner, and once in the specific class, certain firms having the closest total assets as the firm are chosen as comparable firms. Doing so ensures that the best, most representative firms are picked each time.

One part of my methods that I am somewhat unsure about is which multiples to use within my research. There are several different multiples and narrowing these down is difficult. Although one source I was reading did provide me with a starting point, by looking towards those most commonly used in practice and academia, I still have a long ways to go. I am currently reading a source describing certain multiples based off of financial variables as well as their uses. This will help me in this part of my methods. However, because non-financial variables may also play a large role in valuing social media IPOs, I don't want to discount these and need to find a way to include these as well. I anticipate most of the coming weeks to be concerned with this issue in particular.

I'm constantly thinking about these problems, but at least thanksgiving is here so I can gorge myself with Turkey!! See you next week! (560)

Akash

The Meat of The Matter

Well, Trimester 1 has finally ended, and that means that I can finally stop being productive! (Just Kidding).

Onsets of Senioritis aside (JK), this Trimester is going to be LIT, and even more so than our Lit reviews. I'm really looking forward to crafting my methods and actually getting into my research!

The last couple of weeks have been especially hectic, but I'm happy to finally write blog posts again.

I learned A LOT in the past trimester, and looking back I can't believe how much my project actually changed. I went into the class only knowing that I wanted to analyze stocks through different valuation methods, and now my project has become far more well-defined. Most of the trimester was spent learning everything that I could about stocks and the way investors valued and priced them. I learned about intrinsic valuation methods and comparable firms approaches, the drawbacks of each approach in different situations, and how they were actually implemented. I managed to focus on the Social Media industry, and (thanks to some lucky timing), a specific event that would give my research increased context (the future IPO of Snapchat). More importantly than everything I personally learned in just raw information, I learned to actually explain my area of research clearly and concisely, so that any person who could read my paper could understand it with the definitions I presented. I think the biggest problem for me was this, and usually I would resort to using general, meaningless phrases to attempt to convey meaning to certain explanations. Mostly, though, it just came out as useless information. Revising this information truly helped me grasp my topic better and fully understand the material that I was working with. Now I can clearly explain to someone that because intrinsic valuation methods use inaccurate models to predict financial variables, which are difficult to predict in the Social Media industry itself, the comparable firms approach to pricing social media firms is more effective.

So thank you Mrs. Haag for working this through with me and not getting mad at the numerous morning meetings that I held with you!

Looking into the future, I need to figure out the methods with which I am going to conduct my analysis. I know I need to do a quantitative analysis, but I am unsure over how to justify which specific comparable firm multiples to use, because in the literature (from my point of view), it seems like the justification for the multiples used is rather arbitrary. Additionally, in the methods section of several other papers that I have read, papers tend to exclude several companies or general data points from their analyses (I'm not fully remembering which ones), and I need to mimic these provisions for testing the accuracy of comparable firm multiples as well in my study.

Anyways, that's what the future of my methods section holds (or at least what I think it holds). Hopefully, it works out like I'm hoping college apps will! (504)


Akash

Feeling Kinda Weird

Well, another week has gone and my Lit Review Outline is in a pretty weird stage: I'm having difficulty figuring out how to open my paper: I think I have a solution though, and I need to talk about it with someone this week.

Anyways, I need to come clean about my feelings this week, so lets get into it before I think too much.

So on thing that I'm feeling really good about is actually choosing the companies that I want to analyze for my research. I figured out that I'm going to look at 5 companies, which essentially compromise the main area that I am planning on looking at: Social Media firms with largely user-based revenue platforms. After cross-referencing two Indexes, the Solactive Social Network and Solactive Social Media Indexes, I found that companies that appeared on both were: Facebook, Twitter, Yelp, LinkedIn, and Tencent Holdings. This last company may seem out of the ordinary, but it actually runs WeChat, the largest and basically, only, social media site in China. These companies are very similar to one another, and I think that they are really a logical choice to use within my research.

One thing that I'm feeling a bit eh about is picking the specific valuation models for my research within my method. There are a TON of different papers booing some models and praising others, even in the specific area that I am looking in, so I need to do a lot more work on justifying my choices. Right now, I could possibly consider using what an old study on valuing IPOs did in the late 1900's, but I feel like this might have limitations as well, given that it is really old. Maybe I could combine more modern sources, but generally I don't have the clearest idea of which models I will chose. Ultimately, though I don't think it will be the BIGGEST problem, probably a slightly minor bump.

The biggest problem I have in my research is going to be justifying my analysis method and doing some of the stats in the project. When I read some finance papers, I don't understand certain statistical justifications that they use. Like I saw a word called "endogeneity", and had didn't know what it meant. Luckily now, I know it means being affected by outside factors, or outside influence, but the point is that I must read a few statistics papers before beginning my project. Although this is a lot of work, I'm still sure I can pull it off. The good thing is, though, that I understand most of what the major analysis of the project is about.

Well, that's all folks! Hopefully I'm not in way over my head! (470).

Akash