Finding and Researching Investment Ideas   Speaker Position Company smart woman securities © 2010 Smart Woman Securities. ...
Announcements <ul><li>Please enter any SWS related announcements here. </li></ul>
Last Seminar Recap <ul><li>There are many different types of companies and stocks, which change with time.  </li></ul><ul>...
Tonight’s Agenda <ul><li>Market Update </li></ul><ul><li>Investing in Stocks – Issues to Consider </li></ul><ul><li>How to...
Market Update <ul><li>Have speaker comment on what happened in the markets for past week.  </li></ul><ul><li>We encourage ...
Market Update Example Slide <ul><li>There were mixed technology results as Apple & Microsoft posted solid positive third q...
Getting Started
<ul><li>So you’ve opened an investment account: now, what stocks do you invest in? </li></ul><ul><li>One approach would be...
Getting Started with Stocks <ul><li>Alternatively, you could try to beat the market on your own, by doing the research and...
How to Begin? <ul><li>How do you begin thinking about which stocks are good investments?  </li></ul><ul><li>How much of “w...
How to Begin? <ul><li>While researching a company is critically important (we’ll learn more about this later), finding a c...
Finding Investment Ideas
How to Start? <ul><li>While researching ideas is critical, finding a list of potential ideas is just as important. </li></...
How do Sectors Perform? Annual Percentage Returns by S&P Global Sector (2000-2009)  Source: IShares, S&P Global Sector Ind...
<ul><li>How did the huge companies that you probably know perform in 2009?  </li></ul><ul><li>Here is the performance for ...
<ul><li>Now, let’s take a look at the top performers in all of the S&P 500 for 2009. Remember that the S&P 500 are larger ...
<ul><li>Top performance doesn’t always have to be from big companies or companies that you know. There are thousands of sm...
<ul><li>Let’s hop in a time shuttle to take a look at some past small company top performers. The date: 2005 </li></ul><ul...
<ul><li>The greatest stocks of the past decade are not the ones you'd expect.  Microsoft  isn't on the list. And  Starbuck...
<ul><li>The greatest stocks of the (1996-2005) decade were: </li></ul><ul><ul><li>Obscure </li></ul></ul><ul><ul><li>Ignor...
<ul><li>There are always investment ideas around you – just think about what you are seeing, buying, and interested in. He...
<ul><li>Where else in your life can you find ideas? </li></ul><ul><ul><li>Read the newspaper – what companies are being wr...
<ul><li>Remember that just because you buy a product or use a service, that doesn’t mean the stock is a good investment. I...
<ul><li>If you have your eyes open and you’re still at a loss, don’t fret, there are other ways to find ideas that might h...
Guru Focus <ul><li>Guru Focus is a website that tracks the investment activity of the top value investors in North America...
Magic Formula <ul><li>Magic Formula is a website founded by Joel Greenblatt, a well known investor. It is a screen that at...
Value Line <ul><li>Value Line tracks approximately 1,700 stocks in over 90 industries, publishes reports four times a year...
Value Investors Club <ul><li>Value Investors Club is another website run by Joel Greenblatt. It is a club whose members sh...
13-F Filings <ul><li>A 13-F filing is a document that hedge funds are required to submit quarterly listing their stock inv...
Investing Blogs <ul><li>A great method for finding investment ideas to research is reading other people’s blogs. There are...
Investing Blogs <ul><li>Here are some recommended blogs to get you started:       </li></ul>http://www.gurufocus.com/news....
Deeper Dive <ul><li>Whether the investment lead comes from a particular blog, Guru Focus, or Value Investors Clubs, it is ...
Researching Investment Ideas
<ul><li>Investing can be nerve racking – how can you be better than lots of other investors? </li></ul><ul><li>Rely on thr...
<ul><li>Researching your investment ideas is pivotal in determining if they’re good investments or not.  </li></ul><ul><li...
<ul><li>You need to do a fair amount of work to be able to analyze a stock, but keep in mind that it can be broken down to...
<ul><li>We’ll spend a lot of time on financial analysis in upcoming weeks, but solid company and industry analysis is a ve...
<ul><li>When you look at a company, you want to get a solid understanding of the firm, operations, and strategies. </li></...
<ul><li>Major Products and Services </li></ul><ul><ul><li>What are the characteristics of the products or services?  </li>...
<ul><li>Management </li></ul><ul><ul><li>What is the quality of the management? </li></ul></ul><ul><ul><li>What are their ...
<ul><li>Company Analysis </li></ul><ul><ul><li>Read the company’s annual report  </li></ul></ul><ul><ul><ul><li>There is g...
<ul><li>You also want to learn about the industry and what that means for the company? </li></ul><ul><li>Competitors and M...
<ul><li>Production Profile </li></ul><ul><ul><li>Is it a labor or capital intensive industry? </li></ul></ul><ul><ul><li>I...
<ul><li>Regulatory Environment </li></ul><ul><ul><li>Is it a regulated industry? If so, who regulates it? </li></ul></ul><...
<ul><li>Industry Analysis </li></ul><ul><ul><li>Read industry reports </li></ul></ul><ul><ul><ul><li>Look online for repor...
<ul><li>With time, your ability to research investment ideas will become better and better. </li></ul><ul><li>At first, it...
Seminar Recap <ul><li>Finding a company that has investment potential makes your job a lot easier. </li></ul><ul><li>To fi...
<ul><li>Week 4: </li></ul><ul><li>Understanding company and industry trends </li></ul><ul><li>Analyzing an industry </li><...
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  • Ask yourself a question, “Why do you invest?” “ What is it you truly want to win?” Winning should be reaching your goals, having the financial capacity to achieve your life goals … … not anyone else’s. Remember, you want to build a financial house that won’t fall down in a strong wind. To do that, you need to start with a plan -- a blueprint. And one of the best plans around is asset allocation.
  • Ask yourself a question, “Why do you invest?” “ What is it you truly want to win?” Winning should be reaching your goals, having the financial capacity to achieve your life goals … … not anyone else’s. Remember, you want to build a financial house that won’t fall down in a strong wind. To do that, you need to start with a plan -- a blueprint. And one of the best plans around is asset allocation.
  • Ask yourself a question, “Why do you invest?” “ What is it you truly want to win?” Winning should be reaching your goals, having the financial capacity to achieve your life goals … … not anyone else’s. Remember, you want to build a financial house that won’t fall down in a strong wind. To do that, you need to start with a plan -- a blueprint. And one of the best plans around is asset allocation.
  • - Other possible emerging trends to mention: large-cap pharmaceutical companies acquiring promising biotech or specialty pharma companies to diversify, increase drug offerings or replace those going off-patent; restaurants that fall between fast-food restaurants and high-end dining given that more Americans are eating out
  • - Other possible emerging trends to mention: large-cap pharmaceutical companies acquiring promising biotech or specialty pharma companies to diversify, increase drug offerings or replace those going off-patent; restaurants that fall between fast-food restaurants and high-end dining given that more Americans are eating out
  • Here’s another look at the importance of diversification. This chart shows the relative performance of a broad range of market segments since 1986. As you can see, leadership changes quite frequently. The markets are not static. Diversification is the steady path that can take advantage of the opportunities of investing -- wherever and whenever they occur.
  • Seminar 3 finding and researching investment ideas

    1. 1. Finding and Researching Investment Ideas Speaker Position Company smart woman securities © 2010 Smart Woman Securities. Materials are for SWS members’ use only. All rights reserved. Date
    2. 2. Announcements <ul><li>Please enter any SWS related announcements here. </li></ul>
    3. 3. Last Seminar Recap <ul><li>There are many different types of companies and stocks, which change with time. </li></ul><ul><li>As an investor, you have to understand what meets your investment goals and invest in those types of stocks and investment vehicles. </li></ul><ul><li>The stock market has many moving parts, but understanding how the process works is important when investing. </li></ul><ul><li>Investors are not always rational, which leaves opportunities for you to invest. Make sure you don’t become an irrational investor. </li></ul><ul><li>Some of the best stock pickers in the world rely on a few fundamental investment rules, which should help guide you as well. </li></ul>
    4. 4. Tonight’s Agenda <ul><li>Market Update </li></ul><ul><li>Investing in Stocks – Issues to Consider </li></ul><ul><li>How to Invest </li></ul><ul><li>Types of Accounts and How to Get Started </li></ul><ul><li>Introduction to Investing Summary </li></ul>
    5. 5. Market Update <ul><li>Have speaker comment on what happened in the markets for past week. </li></ul><ul><li>We encourage speakers to create a slide of important occurrences (see next slide for example). </li></ul>
    6. 6. Market Update Example Slide <ul><li>There were mixed technology results as Apple & Microsoft posted solid positive third quarter earnings; raising concerns about semiconductor valuations </li></ul><ul><li>Merrill Lynch wrote down $7.9b in losses from subprime losses, which adds more wariness around the health of the housing market. </li></ul><ul><li>Bank of America announced 3,000 job cuts, which adds concern to the state of the economy. </li></ul><ul><li>Crude oil futures climbed above $92; analysts expect it to surpass $100, a strong sign for the economy. </li></ul><ul><li>S&P500 gained 2.3% on the week; DJIA was up 2.1% while the NASDAQ was up 2.9% as investors seemed less concerned about risks in the credit markets. </li></ul>
    7. 7. Getting Started
    8. 8. <ul><li>So you’ve opened an investment account: now, what stocks do you invest in? </li></ul><ul><li>One approach would be to put your money in an index fund and make the returns of the market. </li></ul><ul><ul><li>This is the best option for those who don’t have the time, energy, and interest in researching stocks. </li></ul></ul><ul><ul><li>If you can’t commit the time, look into index funds. </li></ul></ul><ul><ul><li>They are much better in terms of fees than mutual funds and typically returns are just as good, if not better. Hence, less cost, equal or better return = good idea. </li></ul></ul>Index Funds or Individual Stocks?
    9. 9. Getting Started with Stocks <ul><li>Alternatively, you could try to beat the market on your own, by doing the research and picking stocks that you think are strong buys. </li></ul><ul><li>This is what we do in SWS and what we’ll hopefully help you learn how to do. </li></ul><ul><li>With this approach, some things to ask yourself: </li></ul><ul><ul><ul><li>What is your time horizon of investment? </li></ul></ul></ul><ul><ul><ul><li>What level of risk are you comfortable having? </li></ul></ul></ul><ul><ul><ul><li>What type of stock (growth, income, value, etc.) makes the most sense for these goals? </li></ul></ul></ul>
    10. 10. How to Begin? <ul><li>How do you begin thinking about which stocks are good investments? </li></ul><ul><li>How much of “what you know” can translate into a good stock pick? </li></ul><ul><ul><li>Like everything else, we recommend looking at trends in the macro marketplace and in your everyday life </li></ul></ul><ul><ul><ul><li>One of Lynch’s picks was L’eggs, because his wife saw an emerging trend where women wanted to buy high-quality pantyhose in convenient places. You can find great investments around you, but you also have to do work on the companies! </li></ul></ul></ul>
    11. 11. How to Begin? <ul><li>While researching a company is critically important (we’ll learn more about this later), finding a company with good potential really helps out the end result. </li></ul><ul><li>That way you won’t be researching every company in sight or one at random. </li></ul><ul><li>You want try to identify a company that might be a good investment early on –it’ll save you a lot of time later. </li></ul><ul><li>Some reasons why a company might look like a good investment include: </li></ul><ul><ul><li>The stock is undervalued (in other words, it’s cheap!) </li></ul></ul><ul><ul><li>The company has a great business model that will stand the test of time – it still might be expensive, but at least you have a starting point. </li></ul></ul><ul><ul><li>There is an industry trend that could be favorable for the company. </li></ul></ul><ul><ul><li>And many, many more that you’ll start to realize. </li></ul></ul>
    12. 12. Finding Investment Ideas
    13. 13. How to Start? <ul><li>While researching ideas is critical, finding a list of potential ideas is just as important. </li></ul><ul><li>You want to start with investment ideas that have potential, rather than looking at every stock or companies at random. That process is time consuming and often in the end, less fruitful. </li></ul><ul><li>Coming up with a starting list of companies that actually have real potential is a great way to start. </li></ul><ul><li>Now, the important part is how to come up with that list in the first place. </li></ul><ul><li>Let’s take a look at how different companies have performed in the past. </li></ul>
    14. 14. How do Sectors Perform? Annual Percentage Returns by S&P Global Sector (2000-2009) Source: IShares, S&P Global Sector Index, <ul><li>As we saw in week 1, no one sector leads every year in terms of stock performance. So, we can’t just rely on a certain sector. </li></ul>
    15. 15. <ul><li>How did the huge companies that you probably know perform in 2009? </li></ul><ul><li>Here is the performance for the top 10 largest companies in the S&P and their performance. </li></ul>What about Huge Companies? Source: http://www.articlesbase.com/investing-articles/2009-stock-market-review-what-happened-1751266.html
    16. 16. <ul><li>Now, let’s take a look at the top performers in all of the S&P 500 for 2009. Remember that the S&P 500 are larger companies and more liquid stocks. </li></ul><ul><li>How many of these companies do you know? Look around you – they’re everywhere! </li></ul>Or the S&P? Source: http://www.articlesbase.com/investing-articles/2009-stock-market-review-what-happened-1751266.html
    17. 17. <ul><li>Top performance doesn’t always have to be from big companies or companies that you know. There are thousands of small companies that are publicly traded. </li></ul><ul><li>Many products or services that you use every day are probably provided by public companies. </li></ul><ul><li>And often times, these stocks can be the best investments! Why? </li></ul><ul><ul><li>They aren’t as well followed by Wall Street or investors. </li></ul></ul><ul><ul><li>If you do research, you’re probably one of the few. </li></ul></ul><ul><ul><li>You can find hidden gems that other people aren’t paying attention to. </li></ul></ul>Big Vs. Small
    18. 18. <ul><li>Let’s hop in a time shuttle to take a look at some past small company top performers. The date: 2005 </li></ul><ul><li>Below is stock performance for the top performers in all of the US stock market for a 10 year period (1996-2005). </li></ul>What about Small Companies? http://www.fool.com/investing/small-cap/2005/12/29/the-markets-10-best-stocks.aspx
    19. 19. <ul><li>The greatest stocks of the past decade are not the ones you'd expect. Microsoft isn't on the list. And Starbucks doesn't crack the Top 50. </li></ul><ul><li>These companies are obscure. Hansen Natural, the greatest stock of that decade, sold all-natural juices and sodas since the 1930s. Chico's sold clothes to women in their 30s. SCP Pool with 45% annual returns sold swimming pool supplies and chemicals wholesale! </li></ul><ul><li>At the beginning of the period (1996), none of these companies were heavily followed by the pros on Wall Street, and even more incredibly, some still weren’t even after the end of the decade in 2005. </li></ul><ul><li>Finally, none of the companies were worth more than $200 million in 1996. And even in 2005 after 10 years of incredible growth, seven of them were still small caps! Only Chico's, NVR, and American Eagle moved comfortably into mid-cap status. </li></ul>What’s in Common? http://www.fool.com/investing/small-cap/2005/12/29/the-markets-10-best-stocks.aspx
    20. 20. <ul><li>The greatest stocks of the (1996-2005) decade were: </li></ul><ul><ul><li>Obscure </li></ul></ul><ul><ul><li>Ignored </li></ul></ul><ul><ul><li>Small </li></ul></ul><ul><li>Now, this doesn’t mean you can’t find great opportunities in large caps (look back at those first few charts). </li></ul><ul><li>But, it does mean that there are often times a great deal of opportunities in small caps. </li></ul><ul><li>So, make sure to keep your eyes alert for both – those large companies, but also those smaller, more obscure, and likely ignored companies. </li></ul>Top Performance Bottom Line http://www.fool.com/investing/small-cap/2005/12/29/the-markets-10-best-stocks.aspx
    21. 21. <ul><li>There are always investment ideas around you – just think about what you are seeing, buying, and interested in. Here are some questions to get you started: </li></ul><ul><ul><li>What restaurant did you eat at this week? </li></ul></ul><ul><ul><ul><li>Perhaps you went to Chipotle (CMG), a fast growing chain. </li></ul></ul></ul><ul><ul><li>What products do use every day? </li></ul></ul><ul><ul><ul><li>You probably use an ipod, iphone, ipad, or perhaps all three! Apple (AAPL) makes them all! </li></ul></ul></ul><ul><ul><li>What companies are increasing hiring on campus? </li></ul></ul><ul><ul><ul><li>Is it J.P. Morgan (JPM) or General Electric (GE)? </li></ul></ul></ul><ul><ul><li>What websites do you frequent regularly? </li></ul></ul><ul><ul><ul><li>Are you always on Google (GOOG) or Facebook (still private)? </li></ul></ul></ul><ul><ul><li>What type of car do you drive or aspire to have? </li></ul></ul><ul><ul><ul><li>Perhaps it is a Ford (F) or a Toyota (TM)? </li></ul></ul></ul><ul><ul><li>What company picks up your trash everyday? </li></ul></ul><ul><ul><ul><li>Is it one of the two huge companies, Republic Services (RSG) or Waste Management (WM)? </li></ul></ul></ul>Where to Find Ideas?
    22. 22. <ul><li>Where else in your life can you find ideas? </li></ul><ul><ul><li>Read the newspaper – what companies are being written about? Are there ideas you can glean from here. </li></ul></ul><ul><ul><li>Read magazines – BusinessWeek, Fortune, Forbes, Economist, and many more are all great ways to look at a business, sector, or industry. </li></ul></ul><ul><ul><li>Talk to your friends and family – What are they buying, where are they working, what experiences do they have with different companies? </li></ul></ul><ul><ul><li>Keep your eyes alert for different opportunities – Many great investments come from your everyday life. </li></ul></ul><ul><ul><li>And start thinking about company and industry trends (more on this next week) – What’s happening in the world around you and how is that going to affect companies. </li></ul></ul>Ideas Around You
    23. 23. <ul><li>Remember that just because you buy a product or use a service, that doesn’t mean the stock is a good investment. It just means you need to do more investigation. </li></ul><ul><li>However, if it is a company that you are using, then lots of other people might be too, so it could be worth more work and research. </li></ul><ul><li>The one main thing is that you have to open your ideas to opportunities around you. </li></ul>The Deeper Dive
    24. 24. <ul><li>If you have your eyes open and you’re still at a loss, don’t fret, there are other ways to find ideas that might help you get started. </li></ul><ul><li>We’ve found a few sources that we recommend to look to for guidance and ideas. </li></ul><ul><li>But, the most important thing to remember is that these sources are for idea generation, not immediate investment. </li></ul><ul><li>You want to do your own independent work to determine if you think a stock is a good investment. </li></ul><ul><li>These sources could be just plain wrong sometimes! </li></ul>Where Else?
    25. 25. Guru Focus <ul><li>Guru Focus is a website that tracks the investment activity of the top value investors in North America. </li></ul><ul><li>It offers free and paid subscription options. The free version allows users to access information with a quarterly delay where $200 per year allows them to view the most recent activity of top value money managers. </li></ul><ul><li>In addition, the website also has forums, articles, investment screens, and other useful services. </li></ul><ul><li>Where: www.gurufocus.com </li></ul>http://www.gurufocus.com/news.php?id=87863
    26. 26. Magic Formula <ul><li>Magic Formula is a website founded by Joel Greenblatt, a well known investor. It is a screen that attempts to generate a list of good quality companies trading at low prices. </li></ul><ul><li>The list of companies is generated by searching thousands of companies and ranking them based on two quantitative factors: return on capital and earnings yield. </li></ul><ul><li>It takes quite a bit of work to go through the list before deciding which ones are worth further investigation. </li></ul><ul><li>Magic Diligence however can help with this, as its author takes ideas from Magic Formula and writes investment reports about them. While the Magic Formula is free, Magic Diligence costs $89 per year. </li></ul><ul><li>Where: www.magicformulainvesting.com </li></ul>http://www.gurufocus.com/news.php?id=87863
    27. 27. Value Line <ul><li>Value Line tracks approximately 1,700 stocks in over 90 industries, publishes reports four times a year, and publishes weekly full-page reports on approximately 130 stocks. </li></ul><ul><li>While an annual subscription is available to individual investors, you may be able to access the online version through your local library. </li></ul><ul><li>The Value Line Ratings and Reports (R&R) sheets contain a wealth of information, including records such as the earnings per share for several years, depending on the company. </li></ul><ul><li>Value Line is a well-respected research firm providing services that are wonderful sources of good investment ideas. </li></ul><ul><li>Where: www.valueline.com or through your library </li></ul>http://www.gurufocus.com/news.php?id=87863
    28. 28. Value Investors Club <ul><li>Value Investors Club is another website run by Joel Greenblatt. It is a club whose members share their investment ideas with each other. </li></ul><ul><li>It is open to the public, however, only about 250 people are allowed to submit investment write-ups. Those who are not accepted as contributing members are still allowed to view these write-ups but with a 45-day delay. </li></ul><ul><li>In value investing, it usually takes longer than 45 days for the market to adjust its mispricing, so this delay does not disadvantage noncontributing members too much. </li></ul><ul><li>Where: www.valueinvestorsclub.com </li></ul>http://www.gurufocus.com/news.php?id=87863
    29. 29. 13-F Filings <ul><li>A 13-F filing is a document that hedge funds are required to submit quarterly listing their stock investments. By looking at 13-Fs you can see what portfolio managers are buying and selling. </li></ul><ul><li>You can look at what top investment managers (look at Guru Focus to determine who they are) are buying. From here, you can see if any are worth doing more work on. </li></ul><ul><li>You can subscribe through Super Investor Insight for $149 per year or access it through one of many blogs for free, although this requires you to do a bit more work finding them. </li></ul><ul><li>Where: www.superinvestorinsight.com or blogs </li></ul>
    30. 30. Investing Blogs <ul><li>A great method for finding investment ideas to research is reading other people’s blogs. There are thousands of blogs dedicated to investing. Most of these authors love to share their ideas with other investors, and they do it for free. </li></ul><ul><li>While other sources such Value Investors Club limit who can publish investment research, anyone can start a blog. This can be good and bad. Because Greenblatt limits who can be a contributing author on Value Investors Club, this ensures high quality write-ups, but on the other hand, it keeps good ideas from being exposed from other investors. </li></ul><ul><li>The negative aspect of reading blogs is also its strength – anyone can have a blog. As an investor, you have to decide on your own which blogs are worth your time. </li></ul><ul><li>Where: all over the internet </li></ul>http://www.gurufocus.com/news.php?id=87863
    31. 31. Investing Blogs <ul><li>Here are some recommended blogs to get you started: </li></ul>http://www.gurufocus.com/news.php?id=87863
    32. 32. Deeper Dive <ul><li>Whether the investment lead comes from a particular blog, Guru Focus, or Value Investors Clubs, it is only the beginning of the research process. </li></ul><ul><li>You should never make an investment decision based solely on a report provided by one of these sources, however they can be a great jumping off point. </li></ul><ul><li>If you really want to be a good investor, you will perform your own due diligence to make sure that the investment idea fits into your investment strategy. </li></ul>http://www.gurufocus.com/news.php?id=87863
    33. 33. Researching Investment Ideas
    34. 34. <ul><li>Investing can be nerve racking – how can you be better than lots of other investors? </li></ul><ul><li>Rely on three competitive advantages: </li></ul><ul><ul><li>Better Information – DIG DEEPER! </li></ul></ul><ul><ul><ul><li>By conducting your own analysis and really getting to know the company and industry, you’ll be doing more than a lot of people. </li></ul></ul></ul><ul><ul><ul><li>Focus on the factors that matter and due your own work on them. </li></ul></ul></ul><ul><ul><li>Better, More Robust Analysis </li></ul></ul><ul><ul><ul><li>Learn about business cycles, pay attention to industry and company trends, and forecast secular shifts that might be a positive or negative. </li></ul></ul></ul><ul><ul><li>Objectivity </li></ul></ul><ul><ul><ul><li>Take advantage of market psychology when it is wrong – surprisingly, this is a lot!! </li></ul></ul></ul>Why are You Better?
    35. 35. <ul><li>Researching your investment ideas is pivotal in determining if they’re good investments or not. </li></ul><ul><li>You’ll want to look at qualitative factors about the company as well as the industry. You’ll also want to analyze the company’s financials. </li></ul><ul><li>We’ll learn more about how to analyze a company through qualitative and quantitative means over the next few weeks, but first, we want to give you an overview of how to go about getting started. </li></ul><ul><ul><li>What do you need to know in the first place? </li></ul></ul><ul><ul><li>Where do you find this information? </li></ul></ul><ul><ul><li>How do you learn more about a company or industry? </li></ul></ul>Research Overview http://www.kellogg.northwestern.edu/student/club/imc/Downloads/Stock%20pitch%20primer%20(Nov%202007).pdf
    36. 36. <ul><li>You need to do a fair amount of work to be able to analyze a stock, but keep in mind that it can be broken down to these few points: </li></ul><ul><ul><li>Get a solid understanding of the company, operations, and strategy. </li></ul></ul><ul><ul><li>Understand the industry and company’s key value drivers. </li></ul></ul><ul><ul><li>Understand the company financials and what they mean for the business. </li></ul></ul><ul><ul><li>Don’t rely on other people’s work or thoughts – do your own! </li></ul></ul><ul><ul><li>And remember, Peter Lynch estimates that the top stock pickers are right 60% of the time, so don’t stop even if you get it wrong. </li></ul></ul>The Quick and Dirty
    37. 37. <ul><li>We’ll spend a lot of time on financial analysis in upcoming weeks, but solid company and industry analysis is a very critical element. </li></ul><ul><li>It allows you to understand the qualitative aspects of a business, which the numbers only further demonstrate. </li></ul><ul><li>This analysis is especially important early on in your research as it can help you rule out potential investments or narrow your field. </li></ul>Company and Industry Analysis
    38. 38. <ul><li>When you look at a company, you want to get a solid understanding of the firm, operations, and strategies. </li></ul><ul><li>Firm Overview </li></ul><ul><ul><li>What is the age of the firm? </li></ul></ul><ul><ul><li>Where is it in its economic life cycle (start up, growth, mature, decline)? </li></ul></ul><ul><ul><li>Where is it headquartered? </li></ul></ul><ul><ul><li>What is the company history? </li></ul></ul><ul><li>Key Lines of Business </li></ul><ul><ul><li>How many lines of business are there? </li></ul></ul><ul><ul><li>Is the company diversified? </li></ul></ul>Company Analysis http://www.kellogg.northwestern.edu/student/club/imc/Downloads/Stock%20pitch%20primer%20(Nov%202007).pdf
    39. 39. <ul><li>Major Products and Services </li></ul><ul><ul><li>What are the characteristics of the products or services? </li></ul></ul><ul><ul><ul><li>Commodity? </li></ul></ul></ul><ul><ul><ul><li>Specialized, quality? </li></ul></ul></ul><ul><li>Primary Markets </li></ul><ul><ul><li>How do sales break down geographically? </li></ul></ul><ul><ul><li>How many major customers does it have? </li></ul></ul><ul><ul><li>Is it dependent on a few customers? </li></ul></ul><ul><ul><li>Are the markets diversified? </li></ul></ul><ul><li>Current Operating Strategy </li></ul><ul><ul><li>Is the company growing organically (from within)? --Google (GOOG) </li></ul></ul><ul><ul><li>Or is it growing through acquisition (buying other companies)? </li></ul></ul><ul><ul><li>Is the company restructuring or in a turnaround situation? --Ford (F) </li></ul></ul><ul><ul><li>Is the company in decline or downsizing? --NYTimes (NYT) </li></ul></ul><ul><ul><li>Or is the company mature and in steady state? --McDonalds (MCD) </li></ul></ul>Strategy http://www.kellogg.northwestern.edu/student/club/imc/Downloads/Stock%20pitch%20primer%20(Nov%202007).pdf
    40. 40. <ul><li>Management </li></ul><ul><ul><li>What is the quality of the management? </li></ul></ul><ul><ul><li>What are their strengths and track record? </li></ul></ul><ul><ul><li>How long have they been with the company or in the industry? </li></ul></ul><ul><ul><li>What is their relevant experience? </li></ul></ul><ul><ul><li>What is their reputation? </li></ul></ul><ul><li>Corporate Governance </li></ul><ul><ul><li>What is the quality of the governance? </li></ul></ul><ul><ul><li>Who is on the Board of Directors and how do they oversee the business? </li></ul></ul><ul><ul><li>Are there any major red flags? </li></ul></ul>Management http://www.kellogg.northwestern.edu/student/club/imc/Downloads/Stock%20pitch%20primer%20(Nov%202007).pdf
    41. 41. <ul><li>Company Analysis </li></ul><ul><ul><li>Read the company’s annual report </li></ul></ul><ul><ul><ul><li>There is great info in the Management’s Discussion and Analysis section </li></ul></ul></ul><ul><ul><li>Reading any publicly available reports on the company </li></ul></ul><ul><ul><ul><li>See if you can find some online reports or reach out to an analyst at a bank to see if they’ll send you theirs. </li></ul></ul></ul><ul><ul><li>Talking to customers, competitors, investors, analysts, etc. </li></ul></ul><ul><ul><ul><li>There is nothing better than trying to talk to people who have interactions with the company. </li></ul></ul></ul><ul><ul><li>Reading presentations </li></ul></ul><ul><ul><ul><li>In the Investors Relations section of the website, there are often recent company presentations. </li></ul></ul></ul><ul><ul><ul><li>They’re often only online for a few weeks, so save a copy before it’s gone! </li></ul></ul></ul><ul><ul><li>Attend an investors conference or watch a presentation </li></ul></ul><ul><ul><ul><li>There are lots of conferences hosted by investment banks on particularly companies. </li></ul></ul></ul><ul><ul><ul><li>Look on the company’s website for upcoming events. </li></ul></ul></ul><ul><ul><ul><li>Contact an analyst to see if you can attend or if that’s not an option, see if a webcast or a video presentation is on the company’s website. </li></ul></ul></ul><ul><ul><li>Listen to a earnings call. </li></ul></ul><ul><ul><ul><li>Most companies host a quarterly earnings call for investors. </li></ul></ul></ul><ul><ul><ul><li>You can call in and listen to the call and get an update on what is happening. </li></ul></ul></ul><ul><ul><ul><li>It’s a great way to see what is going on now. </li></ul></ul></ul><ul><ul><li>Doing your own work </li></ul></ul><ul><ul><ul><li>Looking at a restaurant company, go check out the local franchise and kick the tires. </li></ul></ul></ul><ul><ul><ul><li>If it’s a small company, see if you can’t call the Investors Relations contact. You never know, they might be willing to talk to a student! </li></ul></ul></ul>Where do You Find this Info?
    42. 42. <ul><li>You also want to learn about the industry and what that means for the company? </li></ul><ul><li>Competitors and Market Share </li></ul><ul><ul><li>Who are the competitors in the industry? </li></ul></ul><ul><ul><li>What is the market share for each of them? </li></ul></ul><ul><ul><li>Are any competitors taking or losing share? Why? </li></ul></ul><ul><li>Competitiveness Level </li></ul><ul><ul><li>Is the competition domestic, foreign or both? </li></ul></ul><ul><ul><li>What are the characteristics (strengths, weaknesses, strategies) of the major competitors? </li></ul></ul>Industry Analysis http://www.kellogg.northwestern.edu/student/club/imc/Downloads/Stock%20pitch%20primer%20(Nov%202007).pdf
    43. 43. <ul><li>Production Profile </li></ul><ul><ul><li>Is it a labor or capital intensive industry? </li></ul></ul><ul><ul><li>Is it a unionized industry? </li></ul></ul><ul><ul><li>Are there any constraints on raw materials, labor, or other inputs? </li></ul></ul><ul><li>Business Drivers </li></ul><ul><ul><li>What drives success in the industry? </li></ul></ul><ul><ul><li>What drives returns of companies in the industry? </li></ul></ul><ul><li>Growth Profile </li></ul><ul><ul><li>What are the historical, current, and projected rates of growth? </li></ul></ul><ul><li>Seasonal or Cyclical Patterns </li></ul><ul><ul><li>How sensitive is the industry to the business cycle? </li></ul></ul><ul><ul><li>Is it a cyclical (goes up and down with the economy) business or defensive (stays relative stable despite the economy? </li></ul></ul>Industry Structure http://www.kellogg.northwestern.edu/student/club/imc/Downloads/Stock%20pitch%20primer%20(Nov%202007).pdf
    44. 44. <ul><li>Regulatory Environment </li></ul><ul><ul><li>Is it a regulated industry? If so, who regulates it? </li></ul></ul><ul><ul><li>What are the future outlooks for regulation? </li></ul></ul><ul><li>Macro Conditions </li></ul><ul><ul><li>How sensitive is the industry to macro conditions (interest rates, inflation, consumer confidence, oil prices, etc)? </li></ul></ul><ul><ul><li>What is the market share for each of them? </li></ul></ul><ul><ul><li>Are any competitors taking or losing share? Why? </li></ul></ul><ul><li>Technological Change </li></ul><ul><ul><li>Is there a lot of innovation in the industry? </li></ul></ul><ul><ul><li>Is that a positive or negative thing for the company? </li></ul></ul><ul><ul><li>How have they reacted in the past? </li></ul></ul>Industry Dynamics http://www.kellogg.northwestern.edu/student/club/imc/Downloads/Stock%20pitch%20primer%20(Nov%202007).pdf
    45. 45. <ul><li>Industry Analysis </li></ul><ul><ul><li>Read industry reports </li></ul></ul><ul><ul><ul><li>Look online for reports on the industry – you can often find some great ones on various components of it. </li></ul></ul></ul><ul><ul><li>Find out as much as you can about the industry online </li></ul></ul><ul><ul><ul><li>Look online to see if you can learn more about the history, trends, growth, market share, etc. </li></ul></ul></ul><ul><ul><ul><li>You’d be surprised at how much is available online and with the use of Google. </li></ul></ul></ul><ul><ul><li>Talk to investors, analysts, or others in the field </li></ul></ul><ul><ul><ul><li>See if you can’t tap the brain of someone who works or invests in the industry. </li></ul></ul></ul><ul><ul><ul><li>The insight they’ll have can be invaluable. </li></ul></ul></ul><ul><ul><li>See if there are industry publications </li></ul></ul><ul><ul><ul><li>You can often find trade magazines or journals that can be helpful. </li></ul></ul></ul><ul><ul><li>Attend an industry conference </li></ul></ul><ul><ul><ul><li>Most industries have conferences for people in the business. </li></ul></ul></ul><ul><ul><ul><li>See if you can attend or watch a presentation online – they’re great for learning. </li></ul></ul></ul>Where do You Find this Info?
    46. 46. <ul><li>With time, your ability to research investment ideas will become better and better. </li></ul><ul><li>At first, it can be daunting to research an industry that you are not familiar with or have no experience in. </li></ul><ul><li>The important part is to create a plan, have clear deliverables, and decide early on how you’re going to do your research. </li></ul><ul><li>And trust us, the more research you do, the easier it becomes! </li></ul>Research Gets Easier
    47. 47. Seminar Recap <ul><li>Finding a company that has investment potential makes your job a lot easier. </li></ul><ul><li>To find investment ideas, start looking around you – what companies do you utilize services and products from each day? </li></ul><ul><li>There are some great resources online and elsewhere to come up with ideas, such as various investing blogs or investor records. </li></ul><ul><li>Company and industry analysis is very important to conduct, so have a clear process and plan for how you’re going to approach it. </li></ul><ul><li>And don’t forget researching gets easier the more you do it! </li></ul>
    48. 48. <ul><li>Week 4: </li></ul><ul><li>Understanding company and industry trends </li></ul><ul><li>Analyzing an industry </li></ul><ul><li>Completing qualitative analysis of a company </li></ul><ul><li>Weeks 5-7: </li></ul><ul><li>Learning how to analyze a company through its financials </li></ul><ul><li>Week 8: </li></ul><ul><li>Putting it all together with an investment recommendation </li></ul><ul><li>Weeks 9-10: </li></ul><ul><li>Guest lectures/presentations </li></ul><ul><li>“ Investing without research is like playing stud poker and never looking at the cards.&quot; - Peter Lynch </li></ul>Coming Up

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