Investment educational presentation from 9/16/14.

1. The Basics
September 16th, 2014

2. A Stock/Share
• Represents a piece of a company
• Your % ownership depends on how many shares you own and how many shares are
outstanding
• Why does it have any value?
• Companies own assets and (generally) bring in revenue
• If you own part of that company, you have a right to those assets/revenues
• And, if you want a right to that wealth, you have to pay, thus establishing the value

3. Market Capitalization = “Value” of Company
• Market Cap is how we refer to the markets valuation of a company
• It is simply the shares outstanding multiplied by the currently traded value
• Just because a stocks value is higher than another does not mean that company is
worth more than the other
• Companies are often segregated by their “cap size”
• We generally use Small, Medium, or Large cap although there are more subsections
• [Reference: http://www.investopedia.com/articles/basics/03/031703.asp]

4. Efficient Market Reminder
• The Efficient Market Hypothesis is the idea that share prices generally
reflect all relevant information and therefore, it is impossible to consistently
“beat the market”
• While it is highly unlikely that the markets are perfectly efficient, research
has shown that over long enough time horizons, trying to consistently beat
the market is folly
• This was discussed in our summer reading “A Random Walk Down Wall Street”

5. Trading vs Investing
• Investing
• Long-term in nature
• Utilizes a Buy-and-Hold strategy
• More focused on buying fundamentally sound investments with a perceived longevity
• Trading
• Jumps in and out, trying to feel out market highs and lows
• Relies on “timing the market”
• More focused on short-term pricing movements than if a company will exist in 20 years
[Reference: http://www.investopedia.com/ask/answers/12/difference-investing-trading.asp]

6. The E-Trade Account
• Every year students come to us asking how they can start “Investing”
• Usually entails using an online discount broker
• Discount brokers, while “cheap”, eat away your money
• Each trade reduces your return
• We suggest starting a Roth IRA, although most require a minimum deposit

7. Growth vs Value
Growth
• Substantial potential for growth
• Expected to grow faster than the market
• Baidu
• Most of revenue is reinvested to fund growth
• Generally reside in the technology &
alternative energy sectors
• Are more volatile and risky
Value
• Companies that are currently undervalued and
are “due for a market correction”
• Less risky and more-established
• McDonalds
• Money is distributed to shareholders in the
form of dividends
• Seen as stable “blue chips”

8. How do we value stocks?
• Through Fundamental Analysis, many investors seek to find a company’s “Intrinsic Value”
• Accounting Numbers: Revenue Increase = Growth
• Macroeconomic Factors: What does this industry look like 10 years down the road?
• ‘Value’ comes from current cash flow, expected growth, and the riskiness of expected future cash flows
• Financial models [Often Excel spreadsheets] can be developed to calculate these values
• DCF Model: Discount cash flows to the present value and divide by the outstanding shares to find the “true value” of a
stock
• Complexity and results can range by the analyst
• Ultimately, we never know exactly why a stock is trading at x value one day and y value the next.
There are simply too many market forces at work to truly understand all pricing movement.
• With FA we are looking at firm viability and not trying to time the market
• [Reference: http://www.investopedia.com/terms/f/fundamentalanalysis.asp]

9. Value Tools: Style Box
• Segregates by cap size and style
• Used to determine:
• Asset Allocation
• Risk-Return structure

10. Value Tools: Economic Moat
• The competitive advantage that
one company has over other
companies in the same industry.
• Coined by renowned investor
Warren Buffett.
• The wider the moat, the more
sustainable the advantage

11. Additional Information
• You will need to familiarize yourself with security statistics. FIN 300 covers
most of these
• Some statistics include: P/E, EPS, P/B, PM, OM, Etc.
• If you’re feeling up to it, we also suggest revisiting variance & standard
deviation