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Welcome to the second meeting of the UIC: Investing 101. Market Update: August 5 th , 2007. Prepared by: Govind Anand Chief Investment Strategist. Last Week…Overall Markets. The Dow industrials rallied 247.44 points to 13289.29, Oil jumped 2.5% to $73.51.
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Market Update: August 5th, 2007 Prepared by: Govind Anand Chief Investment Strategist
Last Week…Overall Markets • The Dow industrials rallied 247.44 points to 13289.29, • Oil jumped 2.5% to $73.51. • A survey by mortgage bankers found that loans on investment homes account for a big chunk of the defaults in Arizona, California, Florida and Nevada.
Last Week…Overall Markets • The U.S. economy grew at a faster-than-expected 4% rate last quarter but growth is expected to slow significantly..
Last Week…Major Stocks • Altria (NYSE: MO) signaled it likely will spin off its international tobacco operation soon and said it plans to shrink its U.S. headquarters.
Last Week…Major Stocks • DaimlerChrysler (NYSE: DAI) announced a stock buyback and an improved profit outlook, pushing the company's shares up 3.9% to $87.61. • Dell (NASDAQ: DELL) reported a 46% jump in profit and a 4.8% increase in sales, exceeding Wall Street estimates
This Week…Overall Markets • Market Summary • Dow 13,305.47 -143.39 (-1.07%) • Nasdaq 2,605.95 -24.29 (-0.92%) • S&P 500 1,472.29 -17.13 (-1.15%) • Companies raised $2.69 billion in the U.S. in August IPOs, despite market volatility.
This Week…Overall Markets • Wheat futures hit a record of $8.10 a bushel on the Chicago Board of Trade amid anxiety over shrinking world supplies. • Weak U.S. sales in August deepened the gloom and damped forecasts for major auto makers, despite growth at GM. • U.S. stocks fell for the first time in three days after pending home sales tumble
This Week…Major Stocks • Mattel (NYSE:MAT) : Consumer Product Safety Commission investigating the timeliness of Mattel's disclosures before a recent round of recalls. • HSBC (NYSE:HBC) offered $6.3 billion for a majority stake in KEB, • Merck & Co. (NYSE: MRK) reported that it had a new experimental drug called Cordaptive
This Week…Major Stocks • Yahoo (NASDAQ: YHOO) agreed to buy online advertising company BlueLithium for about $300 million in a move to expand its ad reach. • Home Depot (NYSE: HD) said it expects to buy back nearly 290 million of its shares for $10.7 billion as a result of a tender offer.
This Week…Major Stocks • Apple (NASDAQ: AAPL) unveiled a new version of the company's popular iPod media player • Microsoft (NASDAQ: MSFT) cut Zune prices by $50
Investing 101: Asset Types Prepared by: Justin Anderson President
Asset Classes • Equity • Public Equity • Private Equity • Debt • Bonds
Debt • Issued by companies to raise capital • Also used by the US government • Companies are issues credit ratings which help determine rates • Bondholders have higher priority claim to company in the event of bankruptcy • Principal investors are financial institutions, i.e. mutual funds, hedge funds
What is a bond? • A bond is a contract which allows an investor to lend money to a corporation in exchange for a series of interest payments in addition to the principal amount invested. • Terms: • Coupon - % interest paid over one-year period • Maturity – Redemption date of the bond • Price – Current market price of the bond • Yield – % change based on current price and price at maturity
Types of Bonds • Government Bonds (T-bills) • Infinite credit rating – no risk of default • Corporate Bonds • Issued to raise capital • Rates determined based on credit ratings • Zero-Coupon Bonds • No interest payments, acts like a T-bill • Convertible Bonds • Bond which is exchangeable for a predetermined number of shares of company stock
Credit Ratings • Companies bonds are rated based on their ability to pay bondholders interest • The higher the risk of default, the lower credit rating a company will receive • Bonds above BBB are known as “investment grade” • Bonds below BBB are called “junk bonds” or “high yield bonds”
Debt - Marketplace • No central exchange(s) for bonds as there are for stocks • Exception for major corporations which trade bond on major equity indices • Trading is normally executed through bond dealers, or more specifically, bond trading desks of major financial institutions • The dealer provides: • Markets • Liquidity • Information flow
Equity • Public • Stocks listed on major indices • Traded by the general public • Private • Act like stocks • Not accessible to the general public • Requires large capital contributions • Slower returns
Equity – What is a stock? • Represents ownership in a company • When the company profits, you can profit in two ways: • Capital gains • Dividends • One share = one vote • Bottom of ownership ladder • Higher returns, higher risk than bonds • More liquid markets than debt
Equity – Three Major Indices • Dow Jones Industrial Average • Covers 30 large cap stocks • Companies viewed as economy leaders • Editors of the WSJ choose stocks includes • S&P 500 • Consists of 500 stocks chosen based on market cap, liquidity, and industry • Considered to be a more accurate indicator of US markets • NASDAQ • Consists of companies which trade on the NASDAQ stock market • Companies tend to be technology or internet related
Equity – Market Capitalization • Equals the number of shares outstanding times the current share price Market Cap = Share Price * No. of Shares • Represents the true value of the firm • Used to classify stocks into different groups
Equity – Market Capitalization • Nearly 80% of US companies are mid-cap or smaller.
Investing 101: Equity – Value vs. Growth Prepared by: Lyndon Tucker Chancellor
Equity – Value vs. Growth • Value Stocks • Equities trading at a price lower than their fundamentals • Tend to have high dividends and low PE ratios • Characteristics: • High daily volume • Large cap • Steady dividends • Growth Stocks • Companies which are expected to grow at accelerated rates • Typically do not have dividends • Can lead to overvaluing • Characteristics: • Small Caps • Higher returns, higher risk • No dividends
Equity – Value vs. Growth • Value – Wal-Mart (WMT) • Long established company • Fourth largest employer in the world • Market Cap of nearly $200BN and average daily volume of over 20M shares • Growth – Under Armour (UA) • Currently trading at 70 times earnings • Market cap a little over $2BN and average daily volume a little over 500,000 shares
There’s a lot out there • With so many options, it is important to carefully consider what is the right portfolio for you • By mixing assets, you can achieve lower risk and more stable returns • Education is the first step – you need to know what’s out there and how you can make money from it
Investing 101 Fundamental Analysis Mihai Savu September 5th, 2007
What is it? • The very basics: • Is the company’s revenue growing? • Is it actually making a profit? • Is it in a strong-enough position to beat out its competitors in the future? • Is it able to repay its debts? • Is management trying to "cook the books"? • Fundamentals: Quantitative and Qualitative • Financial Statements: • Balance Sheet • Income Statement • Statement of retained earnings • Cash Flow Statement (IMPORTANT) 32 08/09/2007
Fundamental Analysis: Qualitative Factors Energy Industrials Expansion Materials Health Care Consumer Discretionary Consumer staples Contraction Technology Utilities Financials Business Model 33 08/09/2007
Fundamental Analysis: Qualitative Factors • Management • Quarterly Conference Calls: pay attention to Q&A part • Management Discussion and Analysis: found on the annual report • Ownership and Insider Sales: is management selling our stocks? • Past Performance: e.g. Alan Mullaly (Ford), Carlos Ghosn (Nissan) • The Industry • Customers: how many? where? sensitive to price changes? • Market Share: % can be deceiving • Industry Growth • Competition: barriers to entry? heavy competition? • Regulation 34 08/09/2007
Financial Statements • The Balance Sheet • Represents a record of a company's assets, liabilities and equity at a particular point in time • Assets = Liabilities + Shareholders' Equity • The Income Statement • Measures a company's performance over a specific time frame. • Contains revenues, expenses and profit that was generated as a result of the business' operations for that period. • Statement of Cash Flows (IMPORTANT) • Represents a record of a business' cash inflows and outflows over a period of time. • Operating Cash Flows, Cash Flows from Investing, Cash from Financing • Statement of retained earnings • Found on a company’s 10K and 10Q statements 35 08/09/2007
Ratio Valuation and Discounted Cash Flows • DCF • The premise of the discounted cash flow method is that the current value of a company is simply the present value of its future cash flows that are attributable to shareholders. • Ratio Valuation • Mathematical calculations using figures mainly from the financial statements • Used to gain an idea of a company's valuation and financial performance 36 08/09/2007
Conclusion • Before you start investing: • Understand what the company does • Understand its market and the industry in which it operates • Understand financial statements, their purpose and how to interpret them HAPPY INVESTING! 37 08/09/2007
Investing 101: Technical Analysis- An Overview Prepared by: Govind Anand Chief Investment Strategist
Preliminary Questions • What Stocks Should I Buy? • Fundamental Analysis • When Should I Buy The Stock? • Technical Analysis • Purpose Of This Presentation • Introductory • Not Set In Stone!
So, What Is Technical Analysis? • Most General Definition of TA • Technical Analysis is the forecasting of future financial price movements based on an examination of past price movements. • Like weather forecasting, technical analysis does NOT result in absolute predictions about the future. Instead, technical analysis can help investors anticipate what is "likely" to happen to prices over time. • Technical analysis uses a wide variety of charts that show price over time. • Too Many & Complex to Cover Them All
The Basis Of Technical Analysis • DOW Theory: 3 Major Points • Price Discounts Everything • Similar to the strong and semi-strong forms of market efficiency • Technical analysts believe that the current price fully reflects all information • Technical analysis utilizes the information captured by the price to interpret what the market is saying with the purpose of forming a view on the future.
Price Movements Are Not Totally Random: Trend Spotting One way of viewing it is that markets may witness extended periods of random fluctuation, interspersed with shorter periods of nonrandom behavior. The goal of the chartist is to identify those periods (i.e. major trends)
"What" is More Important than "Why" • "A technical analyst knows the price of everything, but the value of nothing".—Oscar Wilde • Technicians, as technical analysts are called, are only concerned with two things: • What is the current price? • What is the history of the price movement?
Chart Analysis • What Are Charts? • A price chart is a sequence of prices plotted over a specific time frame. In statistical terms, charts are referred to as time series plots.
Bollinger Bands • Developed by John Bollinger, Bollinger Bands are an indicator that allows users to compare volatility and relative price levels over a period time. The indicator consists of three bands designed to encompass the majority of a security's price action. • A simple moving average in the middle • An upper band (SMA plus 2 standard deviations) • A lower band (SMA minus 2 standard deviations)
