Bootcamp Slides Week 1

1. UNIVERSITY COLLEGE LONDON
ASSET MANAGEMENT SOCIETY
Private and Confidential
Please do not circulate

2. Before we begin
Join the whatsapp group!
Updated schedule : 1800 HRS - 1900 HRS
● Week 1 (Introduction to Finance and Investing, UCLAM Investment Philosophy, Fundamental Analysis): 26 Oct
● Week 2 (How to frame a pitch, Bonds, NPV, CAPM and Portfolio): 02 Nov
Reading Week
● Week 3 (3 Statement Accounting & Financial Ratios): 16 Nov
● Week 4 (Valuation Foundations- Intrinsic & Relative): 23 Nov
● Week 5 (Forecasting, DCF): 30 Nov
● Week 6 (Sample Stock Pitch): 7 December
● Week 7 [Optional] (Stock Pitch Competition): 14 December

3. Week 1 Overview
1. Introduction to asset management
2. Investment Strategy: Long-Short Equity
3. UCLAM’s Investment Philosophy
4. Fundamental Investing
5. Time Value of Money (Discounting and Compounding)

4. Asset Classes Overview
4
• Hedge Funds
• Private Equity
• Commodities
• Real Estate
• Collectibles
• Forex
• Derivatives
Long-only investments (e.g. mutual funds)
Cash Alternatives
Bonds Traditional
Equities

5. Asset Management
Capital Appreciation (Risk-adjusted)
Maximize risk-adjusted returns whilst staying within
the fund’s investment mandate and risk appetite.
“Asset Management” is a blanket term applied to all
buy-side investment firms. Different funds specialize
in investments in different asset classes. Different
asset classes have different risk and liquidity
profiles.
Clients investing in these funds (e.g. UHNWI,
pension funds, endowment funds) spread risk by
diversifying their portfolio through investing in
different funds.
Role of an Asset Management Firm How does AM differ from others in the industry?
Firms can be split into the BUY side and the SELL side
BUY SIDE SELL SIDE
Asset Management Firms e.g. Hedge
Funds, Private Equity Funds, Mutual
Funds, etc
Decision-makers who make the
investment decisions. They engage the
sell-side to help them in executing their
investments (e.g. private equity using
investment banks for M&A, hedge funds
using equity research for insights and
S&T to execute trades)
E.g Investment Banks, Equity Research
Houses, Sales & Trading Firms,
Brokerages, Insurance Firms
Client-facing firms/ brokers. They provide
buy-side firms with a variety of services
(e.g. M&A advisory, order execution,
bringing in deals) and take a small
percentage of the deal value as fees.

6. Investing
Types of sectors Types of asset classes
Cyclical Defensive
Consumer
Discretionary
(Travel, Retail, Media)
Consumer
Staples
(Personal & household
goods, F&B)
Industrials Telecommunications
Technology Utilities
Financials
(Banks, Insurance)
Energy
(Oil and Gas)
Real Estate Healthcare
Basic Materials
Fixed Income
(Corporate bonds, Government
bonds)
Real Estate / Property
Equities / Stocks
Cash and Cash equivalents
Forex (i.e Foreign Exchange),
Futures and Other Derivatives
Investment Strategies
Value Investing
(Finding undervalued stocks)
Income Investing
(Securities which pay out returns on a
regular schedule e.g bonds and
dividend paying stocks)
Growth Investing
(Finding companies with high growth
potential, spotting the ‘next big thing’)
Small Cap Investing
(Investing in companies with small
market capitalisation)
Socially Responsible Investing
(Investing in environmentally and
socially responsible companies)

7. Long VS Short Strategy
Long Trades vs Short Trades Long-Short Equity
Long Trades Short Trades
Entry You buy the asset You borrow an asset
and sell it
Wait You hold the asset
and wait for it to
increase in price
before selling
You wait for it to
decrease in price
before buying it back
and returning it to
the seller
Exit You profit from
the sale of the
asset
You profit from the
buy back of the asset
What is Long-Short Equity?
It is an investing strategy which takes:
● Long positions in stocks which are expected to appreciate
(e.g undervalued stocks)
● Short positions in stocks which are expected to decline
(e.g overvalued stocks)
This investment strategy seeks to minimize market exposure and exploit profit
opportunities in both expected upside and downside price movements.
Net Exposure
It is a difference between the long positions and short positions.
Example
Company A employs a long short strategy with a long bias (e.g 130/30, meaning 130%
long exposure and 30% short exposure).
This means Company A has a net exposure of 100% (130% - 30% = 100%)

8. Long VS Short Strategy
Long-Short Equity Strategy in Practice
The Pair Trade
This is a popular variation of the long-short strategy, involving a long position on a stock and a short position on another stock
belonging to the same sector
This strategy is commonly adopted in market-neutral funds
Example:
If an investor takings a long position in Microsoft and offset that with a short position in Apple. The ideal situation for this strategy
would be for Microsoft to appreciate and for Apple to decline. However, even if Apple appreciates - since stocks within a sector
generally tend to move up or down in unison - the strategy would still be profitable, albeit to a smaller extent
Example:
From the previous example, we learn that stocks within the same sector usually move in the same direction thus it might not be wise
to adopt a pair trade strategy using stocks belonging to the same sector. Another common long-short strategy would be using
stocks from different sectors for the long and short legs.
For instance, in the case of rising interest rates, an investor may adopt a short position in interest-sensitive sectors such as utilities,
and take a long position in defensive sectors, such as healthcare

9. Long/Short Equity vs Long-Only
Short Selling
• Short selling allows for L/S investors to capitalize on the decline of a company’s stock price
Higher Risk/Return Appetite
• Investors commonly allocate a portion of their portfolio to L/S Equity where fund managers employ typically higher risk
investing strategies with the goal of achieving higher returns for investors
Absolute Returns
• Aims to achieve returns regardless of market conditions and performance will hence be measured on absolute returns,
instead of relative returns based on market benchmarks as is the case with long-only equity
Downside Protection
• L/S Equity allows for investors to protect gains and minimize losses by shorting stocks (‘hedging’) as it reduces the
investor’s risk exposure to market conditions, unlike long-only equity where returns are highly correlated to market
performance. Hence, if the market crashes, L/S investors might still make a profit while long-only investors will lose
money
Increased Opportunity Set
• Ability to profit from overvalued and undervalued stocks, compared to only undervalued stocks in long only strategies
Active Management
• L/S funds are managed more actively than long-only funds. Investments have a shorter time horizon than long only (5-7
year holding period in a long-only fund versus 45-365 days in a long-short fund)
9

10. UCLAM Investment Philosophy
‘Quantamental’Analysis
• Fundamentals-driven stockpicking approach backed by strong quantitative data and extensive research
Long/Short Strategy
• Hedged investment strategy to protect portfolio against market correlated risks
High Conviction & Alpha-Generation
• Handpicking high-conviction stocks in a high-concentration portfolio to maximise absolute returns
Investing Framework
• Rigorous investing framework with a robust investment process
Contrarian Thinking
• Non-traditional investment strategies and ideas which align with our core values
Risk & Performance Management
• Constant monitoring of our portfolio coupled with a disciplined sell strategy
10

11. Investment Strategy
NEXT-GEN MOATS TRENDS FOCUS VALUATION
• Consideration of
non-traditional
factors for business
development
disrupting status
quo
• Businesses with
sustainable
competitive
advantages or
disadvantages
• Long-lasting global
trends strongly
affecting
companies or
industries
• High conviction
in the best ideas
making up our
portfolio
• Strong focus on
valuation to
maximize returns
and margin of
safety
11

12. Constant idea generation coupled with a well-defined investment universe
Sourcing
• Individual idea generation from wide array of sources such as research reports, conversations with industry experts, internet
forums, thematic trend study, top-down macro-analysis
Screening
• Basic screen to ensure companies fit within our investment universe (e.g., market capitalization above $3B, geography and
sector considerations)
Contrarian Thinking
• Out-of-the-box thinking to identify new investment strategies or ideas that go against the status quo or market consensus
ESG Sources
• Special focus on tailwinds for ESG focused sectors and companies
Step 1: Idea Generation
FUNDAMENTAL
ANALYSIS
QUANTITATIVE
ANALYSIS
PORTFOLIO
CONSTRUCTION
RISK AND
PERFORMANCE
IDEA
GENERATION
12

13. Extensive research to determine fundamentals of company
Competitive Advantage
• We look for solid evidence of business advantages with driven leadership. Questions we ask are: Is there a strong economic
moat? Who are the main competitors and why do we choose this company over others? What is the growth story? Key risks?
Economic Trends
• Macro and industry trends providing headwinds or tailwinds?
Attractive Valuation
• Upside potential at current price?
ESG Considerations
• What is the company’s environmental impact and social impact? How is the corporate governance within the company?
FUNDAMENTAL
ANALYSIS
Step 2: Fundamental Analysis
IDEA
GENERATION
QUANTITATIVE
ANALYSIS
PORTFOLIO
CONSTRUCTION
RISK AND
PERFORMANCE
13

14. Quantitative analysis to determine future value of company
Phase 1 analysis:
• Is the current growth sustainable?
• What are its revenue drivers and margin drivers?
• Financial statements forecasting
• How is the company’s Free Cash Flow position?
Phase 2 analysis:
• New and alternative data analytics
• Discounted Cash Flow valuation and Comparables analysis using multiples
• At least 20% upside at current price
FUNDAMENTAL
ANALYSIS
QUANTITATIVE
ANALYSIS
Step 3: Quantitative Analysis
PORTFOLIO
CONSTRUCTION
RISK AND
PERFORMANCE
IDEA
GENERATION
14

15. Following clear rules to maintain investment discipline
Initial Positions: 2-5%
Maximum Position Size: 15%
Maximum Industry Exposure: 30%
Minimum Number of Industries: 5
Maximum Number of Holdings: 20
PORTFOLIO
CONSTRUCTION
QUANTITATIVE
ANALYSIS
Step 4: Portfolio Construction
RISK AND
PERFORMANCE
FUNDAMENTAL
ANALYSIS
IDEA
GENERATION
15

16. Step 5: Risk & Performance Management
Constant monitoring of portfolio with disciplined sell strategy
Target Valuation Reached or Exceeded
• Price exceeding valuation resulting in realisation of returns
Changes in Thesis
• Changes to original assumptions resulting in change of valuation
More Attractive Competitor
• More attractive competitor due to changes in economic moats
Retail and Media Focus
• Monitoring of volatile stocks influenced by non-traditional information sources and irrationality
PORTFOLIO
CONSTRUCTION
RISK AND
PERFORMANCE
QUANTITATIVE
ANALYSIS
FUNDAMENTAL
ANALYSIS
IDEA
GENERATION
16

17. What is fundamental investing?
• Finding companies that are trading at a discount to fair value and
investing in them
• Idea is that over time, markets will correct themselves and stock
prices will trade at fair value

18. What is a Moat?

19. What is an Economic Moat?
A business' ability to maintain
competitive advantages over its
competitors in order to protect its
long-term profits and market share
from competing firms
- Warren Buffett

20. Economic Moat
Importance of Economic Moat
A modern economic principle says that given time,
competition will erode any competitive advantages
enjoyed by a firm. This is because once a firm establishes
its competitive advantages, there exists a strong
incentive for competing firms to duplicate the methods /
strategy of the leading firm or seek improvement
opportunities for their operating methods.
Thus, an economic moat is important. It is a qualitative
measurement of a company’s ability to keep
competitors at bay for an extended period of time. This
translates into prolonged profits in the future and are
key success factors in a company’s long-term success.
Illustrative Example
Low-cost competitive advantage
Without an economic moat
With an economic moat (Patent)
30%
Expenses
30%
Juice
Patented
Technology

21. Types of Economic Moats
Network
Effect
Switching
Costs
Economies
of Scale
Name-Brand
Recognition

22. Switching Costs
Switching costs: When it becomes too expensive /
troublesome to switch away from a company’s product
● Tangible Costs: Money cost to switch
● Intangible Costs: New learning curve, time spent
on administrative tasks
Common in industries such as insurance, telecom
providers, computer operating systems, banks etc.
where the cumbersome switching costs makes it difficult
for competitors to take market share away from the
industry leader.
Switching costs provide a company with the leverage to
increase prices and deliver substantial profits over time →
pricing power
Switching Costs Lock-In Customers Example
A leader in providing cloud-based solutions that address
many aspects of customer acquisition and retention.
According to Morningstar, its salesforce automation
application is “mission-critical software that helps drive
revenue for users.”
High switching costs as it involves the high
organizational risk of moving away from the platform, as
well as the time, expense, and lost productivity
associated with the implementation of a new application.
Salesforce.com Inc. (CRM)

23. Network Effect
As more people use a company’s product or service,
the value of that product or service increases for
both new and existing users. Customers may switch
to a brand to interact with customers already using
that brand.
Especially relevant as our world becomes
increasingly digitalised.
The term “critical mass” is often used in connection with
the network effect. In game theory, this means that not
all game participants need to be convinced for a strategy
to succeed, just a very specific portion of them. If this
participation threshold is exceeded, the strategy is likely
to succeed of its own accord.
Network Effect Grows with Reach Example
Visa (V)
Visa dominates the global electronic payments industry,
controlling approximately half of all credit card transactions
and an even higher portion of debit card activity. With
almost 16,000 financial institution partners, 3.4 billion Visa
cards in circulation, and over 50 million merchants
accepting Visa, it is great example of how the network
effect creates a powerful competitive advantage.
Other Example:
● Getting a cellphone that’s compatible with your
friends’ phones (E.g: Apple - interconnectedness
between the i_ products)
● A seller listing a product on a large
e-commerce site to access its vast
network of buyers.

24. Name-Brand Recognition
Brand-loyal customers are difficult to be pulled
away thus allowing the company to retain its
market share.
Additionally, brand equity can increase a customer’s
willingness to pay for a product / service (even
though the product / service itself might not be that
differentiated). This allows the company to charge a
significant price premium.
Although name-brand asset is an intangible asset,
it remains one of the primary sources of strong
competitive advantage for businesses and a key
economic moat source.
Branding Raises Hurdles for Competitors Example
Starbucks is the leading specialty coffee retailer in the
world. Its wide economic moat comes from its “brand
strength (evidenced by pricing power), attractive
unit-level economics, successful international replication
and strong results in the retail channel underpinning its
brand intangible asset.”
Starbucks Corp. (SBUX)

25. Economies of Scale (Cost + Size Advantage)
Cost/Size Leadership provides Market Control Example
Companies with a structural cost advantage are able to
exert significant control over market-level prices while
earning relatively high margins. Alternatively, they
undercut competitors on price while earning similar
margins. This squeezes competitors out of the industry,
or at the very least, impede its growth.
Cost advantages are often gained through economies of
scale, lower distribution and manufacturing costs
and/or access to a low-cost resource base.
Cost advantage that competitors cannot replicate is a
very effective economic moat. Companies with
sustainable cost advantages can maintain a very large
market share. However, with increasing competition in
today’s global economy, this makes maintaining this
competitive advantage difficult.
Walmart is a dominant traditional retailer and the
number-one grocer in the U.S. Walmart has become
“virtually synonymous with low-cost items, a product of
its unparalleled purchasing leverage and deep vendor
relationships.” Furthermore, its cost leverage “allows it
to be even more aggressive with pricing, sidestepping
the traffic pressure that other retailers have faced as
channels shift.”
Walmart Inc (WMT)

26. Other examples of Economic Moats
Patents /
Regulatory
Licenses
Network
Effect
Efficient
Scale
Access to
Capital

27. Bottom-Up & Top-Down Investing
Bottom-Up Investing Top-Down Investing
Focus Focuses on individual assets and their
characteristics.
Focuses on large-scale economic factors
and global trends
Logic If an individual stock performance within
the market or their respective industry is
good, then this is the right stock to invest in.
if macroeconomic factors are favorable for a
specific industry or the whole market, the
time might be right to invest in a specific
stock.
Example of Factors ● Fundamental driven
● Price-to-Earnings (P/E) ratio
● Cash flow
● Revenue and/or income
● Earnings Per Share (EPS)
● Net profit margin
● Share price changes
● Company leadership, corporate
culture, brand recognition, market
share etc.
● Thematic trends
● Gross domestic product (GDP)
changes
● Inflation rates
● Interest rates
● Environmental conditions and/or
changes
● Commodity prices
● Market index performance
● Political climate

28. Thank you!
That’s all for content. Hope you enjoyed the past 6 weeks!
Next wednesday, we’ll be doing a case study and preparing for the stock pitch
competition.
More details on the competition as well as the sign up link will be released soon.

29. Bottom-Up Investing
Pros Cons
● Less labor-intensive than the top-down
approach, as it requires you to analyze a
smaller number of factors that are
mostly quantifiable
● The bottom-up approach might help
you find undervalued investing
opportunities that have great potential
for future growth and returns
● Requires you to closely inspect every
potential investment opportunity, its
performance and place in the market,
which leads to more informed
decisions
● Focusing too much on specific
companies or industries might prevent
you from diversifying your portfolio
● Requires some theoretical knowledge
of how financial markets and
instruments function
● Can lead to largely speculative
investments in some cases

30. Top-Down Investing
Pros Cons
● By focusing on the macro factors, this
approach teaches you how the global
economic forces impact the stock
market and how to analyze this
impact
● It broadens your scope and allows
you to consider investment
opportunities across industries,
markets and countries
● Top-down investing does not require
you to have intricate financial or stock
market knowledge
● Generalizing the performance data of
an entire industry or country might
cause you to overlook promising
individual investing opportunities
● Sudden geopolitical or economic
shifts can render your strategy
obsolete
● This approach requires you to
continuously monitor a variety of
complex macro factors

31. Appendix - Economic Moats in Industries
Retail Dining Legacy Brands
Large retail stores enjoy wide economic
moats due to economies of scale,
meaning they can buy large amounts
of inventory for low prices and pass the
savings along to customers.
Additionally, they often have reliable
supply chains. Leveraging on these
advantages allows them to prices out
smaller competitors and retains
customers with low prices and wide
product selection.
Fast food restaurants operate
at low profit margins, which
smaller mom-and-pop
restaurants often cannot
maintain. By operating at a
large and efficient scale, they
enjoy many millions of
low-margin transactions that
add up to great profits over an
extended period of time.
Famous brand-name
companies can experience
years of sustainability based
on their multi-decade
reputations. This grants
them a cost advantage over
upstart competitors that
might need to scramble to
introduce their brands to
potential customers.

32. Appendix - Economic Moats in Industries
Computing Insurance
Large computer companies and software companies enjoy
economic moats created by network effects. When a large
number of customers use a product / service, they bring in
and retain other customers who need those same products
and services to interact with one another. The larger the
customer base, the better the service works.
Scrappy startups may have a hard time peeling away
customers from these brands, which would require the
customers to abandon parts of their networks. When it
would be too inconvenient to abandon an established
company, that company also has pricing power.
It’s common for customers to stick with their
existing insurance policies—whether it’s
health insurance, homeowners insurance, or
car insurance—because of the high switching
costs of changing providers. These switching
costs do not have to be monetary to be
significant. In many cases, they describe the
hassle of the administrative tasks that go
along with switching providers.

33. Which to choose?
Both strategies have their
pros and cons so no matter
which you choose, even if
you choose to carry out
both, it is not possible to
accurately predict / fully
eliminate the risk that
comes with each
investment.
You can however, try to take
calculated risk for each
investment decision, based
on the predicted returns it
would generate.
Taking Calculated Risks
Both strategies have valid applications
in different circumstances
Who is top-down investing for?
Managers of exchange-traded funds typically prefer top-down approach as they
have resources to conduct extensive macroeconomic analysis and are looking to
maximize their long-term returns. As a result, by investing in an ETF, you are
effectively investing using the top-down approach. It is also perfect for beginner
investors who wish to play it ‘safe’ and are looking to build a diversified portfolio or
assets across industries and are also prioritizing long-term returns.
Who is bottom-up investing for?
Since the bottom-up approach largely deals with short-term or real-life data, it is
most useful for short-term, profit-driven investments, which makes it a favourite of
experienced individual investors. “Short-term investments” in this case doesn’t
necessarily mean speculating. However, the bottom-up approach generally
requires investors to act fast, as the financial metrics that this approach analyzes
tend to change quite regularly. It could be a great way to introduce more risk into
your portfolio and, potentially, more return.

34. Unique Selling Proposition
“What makes you different from the competition?”
An opinionated and deliberate USP helps
focus your marketing strategy and
influences messaging, branding,
copywriting, and other marketing decisions.
It’s a position a business takes as a whole
that can be incorporated into their
products, their brand, the experience they
provide, and any other touch point
customers have with the business.
Benefits
USP allows a company to to differentiate their products
and brand from their competitors. A good USP shows the
strengths which a company plays to and the factor which
makes the brand / product uniquely valuable to
customers.
Why is a company’s USP important?
What
customers
want
Organisation’s
strengths

35. Time Value and Cash Flow
Time Value of Money
Why does value of cash depreciate
/ appreciate over time?
The value of money decreases over time
due to inflation and opportunity cost (i.e
the interest rate lost from putting the
money inside a bank instead)
The rate of interest determines the value
of money received either today or in the
future
Therefore, to compare money from
different time periods, we have to either:
● COMPOUND when moving
cash-flow forward in time
(Future Value)
● DISCOUNT when moving
cash-flow backward in time
(Present Value)
Compounding and Discounting
Compounding
Process of reinvesting an asset’s earnings to
generate additional earnings over time
Discounting
Process of determining the
present value of a payment that
is to be received in the future
Given that:
Discount Factor =
Present Value (PV):
While compounding exponentially increases an
asset’s value, it also exponentially increases
liabilities, as interest accumulates on the unpaid
principal amount and previous interest charges.
FV = PV * ( 1 + r)n
Legend:
FV - Future Value , PV - Present Value, r - C - Principal Amount,, r - annual interest rate, n - no. of years

36. Time Value and Cash Flow
● Most important rule when comparing cash flows:
Only compare cash-flows in the SAME time period
e.g. comparing PV (Present Value) cash flows. If you want to compare next year’s cash flow to the present year, then
the stream of cash flow (or cash-flow forecasts) will have to be discounted.
e.g. comparing FV (Future Value) cash flows, vice versa
● When dealing with calculations with stream of cash-flow, discounting/ compounding is used again to sum all the cash-flows
either in PV or FV.
Now, considering the time period for each cash-flow statement is published annually, and future cash-flows have a discounted rate
of 5%, the sum of all cash flows in PV can be calculated as the following: