The Most Importanat Question In Investments

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This is an investment presentation given to the Haas School of Business that covers the practical aspects of individual company and stock market valuation principles.

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The Most Importanat Question In Investments

  1. 1. We Build and Preserve Wealth Elmwood Wealth Management Financial Planning Investment Management Tax & Estate Services The Most Important Valuation Question In Investments Bob Gillooly, CFA
  2. 2. We Build and Preserve Wealth Elmwood Wealth Management Financial Planning Investment Management Tax & Estate Services Are things getting better, or worse?
  3. 3. We Build and Preserve Wealth Elmwood Wealth Management Financial Planning Investment Management Tax & Estate Services All things equal, every asset has an equilibrium or fair market value, but more often than not these assets trade above or below their calculated fair market value.
  4. 4. We Build and Preserve Wealth Elmwood Wealth Management Financial Planning Investment Management Tax & Estate Services Question: If your own financial situation is getting better, will you spend more money? Answer: Most people will begin to spend more as their finances improve, and the same is true for investors. Investors will pay more or assign a higher valuation for either an improving situation or one with consistency and visibility.
  5. 5. We Build and Preserve Wealth Elmwood Wealth Management Financial Planning Investment Management Tax & Estate Services If All Things Were Equal… a) Investors will pay a higher valuation for investments with greater profitability b) Investors will pay a higher valuation for investments with greater consistency. High Profitability High Profitability High Degree of Consistency Low Profitability Low Degree of Consistency High Degree of Consistency HighProfitability High Degree of Consistency
  6. 6. We Build and Preserve Wealth Elmwood Wealth Management Financial Planning Investment Management Tax & Estate Services Question: How do you decide if something should be above or below fair value? Answer: Look for accelerations and decelerations •How are margins and profitability improving? •How are earnings and revenue improving? •How are results relative to its’ own history? •How are results relative to its’ peers or the market?
  7. 7. We Build and Preserve Wealth Elmwood Wealth Management Financial Planning Investment Management Tax & Estate Services Question: What kind of company are you analyzing? Answer: The answer to this question will determine the appropriate type of valuation metric to use. •Cyclical? •Growth •Mature growth? •Cash flow? •Price/Earnings ratio •Price/Book ratio •Price/Cash flow ratio •Dividend discount model •Discounted cash flow model
  8. 8. We Build and Preserve Wealth Elmwood Wealth Management Financial Planning Investment Management Tax & Estate Services Summary: Valuation shouldn’t be considered in a vacuum, or on a static basis. Recognize what has transpired in the past, and it will improve your valuation of the future.
  9. 9. We Build and Preserve Wealth Elmwood Wealth Management Financial Planning Investment Management Tax & Estate Services Appendix: 1. Chart of Autodesk 2. Chart of Red Hat Software 3. Chart of Dow Chemical 4. Chart of Apple 5. World Earnings Revisions 6. Emerging Market Profitability 7. Global Equity Valuations – Developed Markets 8. Global Equity Valuations – Emerging Markets
  10. 10. We Build and Preserve Wealth Elmwood Wealth Management Financial Planning Investment Management Tax & Estate Services
  11. 11. We Build and Preserve Wealth Elmwood Wealth Management Financial Planning Investment Management Tax & Estate Services
  12. 12. We Build and Preserve Wealth Elmwood Wealth Management Financial Planning Investment Management Tax & Estate Services
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  14. 14. We Build and Preserve Wealth Elmwood Wealth Management Financial Planning Investment Management Tax & Estate Services
  15. 15. We Build and Preserve Wealth Elmwood Wealth Management Financial Planning Investment Management Tax & Estate Services
  16. 16. We Build and Preserve Wealth Elmwood Wealth Management Financial Planning Investment Management Tax & Estate Services
  17. 17. We Build and Preserve Wealth Elmwood Wealth Management Financial Planning Investment Management Tax & Estate Services
  18. 18. We Build and Preserve Wealth Elmwood Wealth Management Financial Planning Investment Management Tax & Estate Services Shannon Lemon, CFP Shannon’s primary responsibilities include working directly with our clients on assessing their financial situation and putting a plan in place to meet their financial goals. Prior to co-founding Elmwood Wealth Management, Shannon worked for Osborne Partners Capital Management for 18 years and was their Chief Compliance Officer and a principal of the firm. Shannon holds the CFP designation and received a B.A. from the University of Colorado at Boulder. Our Team: Robert C. Gillooly, CFA Bob is a portfolio manager and member of the Elmwood Investment Committee. His primary responsibilities include U.S. domestic stock and bond research, as well as working with our financial planners on setting asset allocation for client portfolios. Prior to co-founding Elmwood Wealth, Bob worked for Osborne Partners Capital Management for 18 years and was their Vice President, Chief Operating Officer and a principal of the firm. He was a voting member of the four person investment committee responsible for choosing individual securities and setting asset allocations for over $1 billion of client funds. Bob also had sole responsibility for setting strategy for their approximately $300 million bond portfolio. Bob holds the Chartered Financial Analyst designation and received a B.A. from the University of Michigan. Steve Caltagirone Steve is a portfolio manager and financial planner with Elmwood. Steve works directly with our clients to assess financial goals and objectives throughout each stage of the financial life cycle. Prior to joining Elmwood, Steve worked for Osborne Partners Capital Management where he advised clients across a wide range of portfolio and financial planning matters. Previously, he served as a portfolio manager with Bingham, Osborn and Scarborough. Steve received an MBA from Vanderbilt University and a B.S. from St. Mary’s College of California.
  19. 19. We Build and Preserve Wealth Elmwood Wealth Management Financial Planning Investment Management Tax & Estate Services Bob Gillooly, CFA Shannon Lemon, CFP Steve Caltagirone 510-858-2721 510-858-2722 510-903-5928 bob@elmwoodwealth.com shannon@elmwoodwealth.com steve@elmwoodwealth.com Elmwood Wealth Management 2027 Fourth St., Suite 203 Berkeley, CA 94710 (510) 858-2723 www.ElmwoodWealth.com
  20. 20. We Build and Preserve Wealth Elmwood Wealth Management Financial Planning Investment Management Tax & Estate Services Appendix: Disclosures The information in this presentation is intended for U.S. Residents only and is not intended for distribution in any jurisdiction where Elmwood Wealth Management Inc. (EWM) is not licensed to distribute such information or where such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information provided in this presentation is for information purposes only and should not be construed as investment, tax, or estate planning advice or a determination that a particular product or service is suitable for any individual. This information should not be relied upon in making an investment, tax, or estate planning decision and any decision based on information contained in this presentation are the sole responsibility of the visitor or recipient. This information is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and makes no implied or express recommendations concerning the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. It is the responsibility of any person or persons in possession of this material to inform themselves of and to take appropriate advice regarding any applicable legal requirements and any applicable taxation regulations which might be relevant to the subscription, purchase, holding, exchange, redemption or disposal of any investments. This information neither constitutes an offer to enter into an investment agreement with the recipient of this document nor an invitation to respond to the document by making an offer to enter into an investment agreement. The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk. Past performance is not indicative of future results, which may vary. The value of investments and the income derived from investments can go down as well as up. Future returns are not guaranteed, and a loss of principal may occur. Opinions expressed are current opinions as of the date appearing in this material only. No part of this material may, without Elmwood Wealth Management’s prior written consent, be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorized agent of the recipient

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