Perspectives from Buy Side

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The art of Equity Investing

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Perspectives from Buy Side

  1. 1. Perspectives from the buy side The art of equity investing © EduPristine – www.edupristine.com
  2. 2. What is Buy Side vs Sell Side • • • • • • • • Buy side professionals manage money and advise institutional and retail clients Fund managers and analysts make decisions on investments and put money to work Buy side professionals are paid for fund performance  and increasing fund assets under management Eg. Fidelity Investments, Vanguard, Pimco Sell side professionals work in brokerage houses Sell side professionals advise and service their buy side counterparts Sell Side professionals get paid through commissions from the buy side for advicing and executing orders for  stocks, bonds etc. Eg. Goldman Sachs, Morgan Stanley, CSFB © EduPristine | (Confidential) 2
  3. 3. Three Steps in Managing a Portfolio / Fund • Stock Selection ‐ How many stocks in the fund ? • Portfolio Construction / Risk Management ‐ How much of each stock to buy ? • Trading and Monitoring the Portfolio ‐ How often to buy and sell ? © EduPristine | (Confidential) 3
  4. 4. Equity Investing Styles • Quantitative Investment Strategies ‐ Quants make equity investments as scientific as possible ‐ Reliance on computers and statistics to make investing more precise ‐ Heavy emphasis on risk management ‐ Quant strategies are more scalable • Fundamental Investment Strategies ‐ Fundamental strategies invlove deep understanding of a company, its industry and the economy ‐ Labor intensive i.e. involves meetings with management, industry experts, building spreadsheet models of financial      statements ‐ Not scalable and more man‐power required per fund i.e. analysts specializing in industry / sectors © EduPristine | (Confidential) 4
  5. 5. Quant stock selection models • Use database of financial data going back in time ( several years / decades ) ‐ Eg. Compustat, I/B/E/S, Worldscope, CRSP • Create predictive signals for stock return forecasting using statistical methods ‐ Eg., Earnings Yield, Earnings Growth, Free Cash Flow, Share repurchase, Dividends • Combine signals to create stock selection model © EduPristine | (Confidential) 5
  6. 6. Fundamental stock selection  • • ‐ Identify global trends for stock ideas Conduct detailed analysis for Management Quality ‐ Track record and integrity of management, setting expectations ‐ Competitive Position ‐ Monopoly, Oligopoly or heavy competition ? ‐ Financial Strength ‐ Working Capital Management, Debt load, Free Cash Flow production ‐ Catalysts ‐ Unlocking value in hidden assets, management change, key acquisitions, share repurchase, dividends ‐ Improving business fundamentals ‐ New product / product cycle, industry consolidation © EduPristine | (Confidential) 6
  7. 7. Portfolio Construction • Stocks have lots of risk   So diversify across  ‐ Economic Drivers of Returns ‐ Industries ‐ Position Size ‐ Size ‐ Style ‐ Beta © EduPristine | (Confidential) 7
  8. 8. Trading / Monitoring • • • Trade well = Buy low and Sell High Lower commission costs Liquidity • Monitor your holdings ‐ Has your investment thesis played out ‐ Are there better opportunities ‐ Is your portfolios risk out of whack © EduPristine | (Confidential) 8
  9. 9. Investing – Skills needed for a great career • • • • CFA prepares you well – Accounting, Financial Statement Analysis, Portfolio Management theory Brush up your statistics Quants love to work with huge amount of data Factset, Bloomberg, SAS, Morningstar © EduPristine | (Confidential) 9
  10. 10. Thank You ! Visit Us On: http://www.edupristine.com/ca Contacts Us: help@edupristine.com support@edupristine.com Follow Us On: http://www.facebook.com/edupristine Subscribe To: http://www.youtube.com/user/edupristine © EduPristine – www.edupristine.com

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