An Introduction to Investing - for Sales Staff

1. The Stockmarket
No other fields of endeavour offer such huge
rewards so easily
The requirements are great effort combined
with ability and enriched by both judgement
and vision
Philip A Fisher – Common Stocks and Uncommon Profits
1

2. Looking after your Financial Future (Parts 1, 2 and 3)
Part 1 – 1 hour
• Why do my targets go up every year
– The link between revenue and company
value
• How much is a company worth?
• Factors that affect a companies value
• How much do I need to earn to do
something else
– That much?!
• How can I make my; savings, pension,
ISA, work harder
– The rule of 72 and compound interest
– Saving schemes and optimising tax
• Efficient Asset Allocations
• What are Stocks and Bonds
– The Global economy – factors to watch
– Determining bull and bear markets
– Fundamental Analysis
2
Part 2 – 1 hour
• Portfolio Mix
– Are you a speculator or an investor
– Are you an Aggressive or Defensive
Investor
– Back to Company Valuations
– General Rules 1 – The Portfolio
Construction
– General Rules 2 – Buying and Selling
Individual Stocks
– General Rules 3– Buying and Selling
Individual Stocks
– Task 1 – evaluate one company
– Competitive Positioning
Part 3 – 1 hour
• Portfolio Mix
– Which Index Fund
– Which Bond Fund
– Which Unit Trust or Investment Trust
– Creation of a ‘watch list’
• An Introduction to Portfolio and
Technical Analysis

3. At the end of this Part 1, you will know
• Why you need to over achieve your targets
– Why it is good for the company
– Why it is good for you
• How much money you will need when you no longer want to
work for the company, or, when the company no longer wants
you
• The best tax wrapper for you, and how much to invest in each
type, to achieve your goals
• What macro economic factors to watch for to alter your
investment profile
3
It will allow you to speak with a financial advisors with more
knowledge or stimulate your interest to learn more to invest
yourself

4. At the end of Part 2, you will know
• Whether you are a speculator or an investor
• If you are an investor, whether you are aggressive or defensive
• The basics of company valuations
• How to construct a portfolio between major investment types such as
stocks, bonds, cash.
• The important figures to check for any company you consider investing in.
• Carry out an analysis of one company using data from the web to
determine whether it is good value
4

5. At the end of Part 3, you will know
• The differences between index, bond, and equity funds
• The differences between unit trusts and investment trusts
• Creating a ‘watch list’
• An introduction on how to select the best of the above for your portfolio
• How to construct your portfolio with the right level of bonds, stocks, funds
• How to analyse your portfolio to ensure it satisfies your needs
• How to use technical analysis to determine the right time to buy
5

6. Some people risk half their fortune in the stock market. If they spent as
much time in selecting shares/bonds/funds as they do in selecting a car,
they would be much better off.
The city has high ethical standards of doing business,
c/w prostitution, gambling, journalism and political lobbying
Most stock exchange houses are in business to make commissions and
they do that by giving customers what they want, suggestions and
speculative advice which is geared to day by day trading. So they try
hard to help customers make money in a field where they are
condemned by mathematical law to lose in the end.
In order to get the best return on your pensions and savings, you
need to understand what people are doing with your money and to
ensure that their decisions are made for your best interests (not
theirs), and you need to do what is right, backed by evidence,
which may not be what you are told to do.

7. • Company valuations
2 financial approaches
– Ratio based
• How much profit does it make
• What will it cost me to buy it
• Has it got loads of debt
• Is it paying a lot of interest on that debt
• If I invest in it, how much interest is it going to pay me
• Does it have competitive advantage
• What are its prospects like for the next few years
– Intrinsic value
• A stocks worth is equal to the present value of all its estimated future cash flows
– We need to use the present free cash flow, and estimate the companies future sales growth and profit margins
by looking at industry trends, economic data, competitive advantage
– The cash flow we are interested in is the free cash flow – that is the money that is left over, after spending the
money necessary to keep it growing at the current rate. We need to calculate this for now and for the future
and then ‘net’ it back to the present day, and compare the resultant value with the current market valuation to
determine if the company is ‘cheap’ or expensive’
Why do my targets go up every year
7
– Company valuation is dependent on
– General long term prospects for growth
– Profitability
– Competitive advantage
– Quality of management
– Financial strength and capital structure
– Dividend record
– Current dividend rate

8. How much do I need to earn to do something
else
• Standard pension £100 per week
• Inflation
– Currently at 3-4%, rising to 5-6%, longer term around
3-4%
• Bank 3% per year, taxed
• Pension offers from Government
– 40% extra (tax relief up to £30K), this means if you put
£700 in pension, gov puts in £280 (40%) – giving a
total of £980.
– Company Pension providers offers a choice of some
funds
– All funds perform differently
• ISA’s no tax
• Capital allowances
– £10,600 per person on share gain
• No longer any salary based schemes
• Retirement age?
– 40/50/60/70
• You will probably want to do something else
– 40/50/60/70
• Long time to live
– 70/80/90/100
• Illness in old age
– Let’s hope not
• Earnings after 48 reduce
– Less money to save
• How much will you need to live on?
– Per annum after tax
• Will you be supporting your wife?
– Divorce rate is 60%
• Children at private school
– £18000 pa after tax each
• Taxable Pension Income
– First 25% tax free after you are 55 years old
– Cost of annuity - 5% In order to beat inflation we
have to achieve around 4%
after tax on any savings
8

9. How can I make my savings work harder
Rule of 72
• A 7.2% interest compound, doubles your money in
10 years (72/7.2 = 10)
• Double your money in 5 years, (72/5 = 14.5), 14.5%
• Double your software in 3 years, (72/3 = 24), 24%
Compound Interest
• Future Value = Present Value (1 + interest rate)ⁿ
• FV = PV (1+r) ⁿ, where n = number of years
9

10. White Board Analysis
10
Payment per
month (£)
Interest
Rate
Number of Years
Fund
Amount
Pension
Amount
-1000 4% 20 £367,997£515,196

11. Simple Tax Wrappers - Pensions, ISAs, Funds
Pensions
• 40% tax relief for high earners
• Put in £1000 a month, Government puts in £400
• Remember the £1000 is after you’ve paid your tax
• You can take your pension at 55, 25% tax free (optional) as a lump sum, you then buy a regular income
with the rest (annuity, 5%). That monthly income is taxed at normal income rates.
• Or you can use flexible drawdown – you leave it invested and take an income from it, only if you have
an alternative £20k secured pension income, and have finished paying into your pensions
Secured pension income means:
– A company pension being paid to you either from the UK or from Overseas; or
– An annuity being paid to you (from a personal pension or company pension) either from the UK or from
Overseas; or
– A state pension being paid to you either from the UK or from Overseas.
– Our understanding is that secured pension income is taken as the gross annual amount of pension (i.e. before
any income tax is deducted). The requirement to have a secure pension income of £20,000 might change in
future to increase the level of income required.
ISAs
• You can put in £11,280 a year, another £11,280 for your wife, no tax on interest, income or capital gain.
General Savings
• Banks very low interest, even long term
• Capital Gains allowance of £10,280
• Share Income taxed at normal income tax rates (i.e. Added onto your salary)
11

12.  Bank Deposit Account
 0 – 3% and taxed at normal income rates
 Bank Deposit – Longer Term
 3% - 4.5% and taxed as above
 Shares
 variable but risky
 Funds
 variable but less risky
 Company Bonds
 lower returns
 Government Bonds
 lower returns
 Premium Bonds
 Return is too low (1.5%) but no tax
 Property
 mortgage rates are too high
 Pension Providers
 Ok but taxed on income
 Foreign banks and foreign exchange
 don’t know anything about this
 Spread betting
 too risky at this stage
 Shares
 variable but risky
 Funds
 variable but less risky
 Company Bonds
 lower returns
 Government Bonds
 lower returns
 Pension Providers
 Ok but taxed on income
 Foreign banks and foreign
exchange
 don’t know anything about
this
 Spread betting
 too risky at this stage
Savings schemes and optimising tax
12
Remove
the red
ones

13.  Shares
 variable but risky
 Funds
 variable but less risky
 Company Bonds
 lower returns
 Government Bonds
 lower returns
 Pension Providers
 Ok but taxed on income
Savings schemes and optimising tax
13
Remove
the red
ones
 Shares
 variable but risky
 Funds
 variable but less risky
 Company Bonds
 lower returns
 Government Bonds
 lower returns
 Pension Providers
 Ok but taxed on income
 Foreign banks and foreign
exchange
 don’t know anything about
this
 Spread betting
 too risky at this stage
 Shares
 variable but risky
 Funds
 variable but less risky
 Company Bonds
 lower returns
 Government Bonds
 lower returns
 Pension Providers
 Ok but taxed on income
 Foreign banks and foreign
exchange
 don’t know anything about
this
 Spread betting
 too risky at this stage

14.  Shares
 variable but risky
 Funds
 variable but less risky
 Company Bonds
 lower returns
 Government Bonds
 lower returns
 Pension Providers
 Ok but taxed on income
Put under
 ISA
 SIPP
 Stock Portfolio
Dependent on tax
Independent Financial Advice
Stockbrokers
Casenove
Barclays
Hargreaves Lansdowne
All offer services at around 1% - 2%
Over and above the charges for
buying selling shares/funds etc
Regular Updates
No active management
just put in a ‘scheme’
dependent on risk
Savings schemes and optimising tax
14

15. Efficient Asset Allocations
15

16. What are Stocks and Bonds
• Bonds are debt
obligations, and stocks
are equity
• Corporate Bonds and
Government Bonds
• Units Trusts and
Investment trusts
• Index Funds, Exchange
Traded Funds
• Absolute Return Funds
16
Sectors
Technology hardware and equipment
Industrial Engineering
Gas/water/utilities
Software and computer services
Real Estate Investment Services
Personal goods
Media
Life Insurance
Household goods and home construction
Healthcare equipment and services
Oil equipment and services
Investment Trusts
Forestry and Paper
General retailers
Industrial transport
Non life insurance
Real Estate Investment trusts
Construction and Building materials
Travel and Leisure
Auto and Parts
Mining

17. The Global Economy
– The Global economy – factors to watch
– Determining bull and bear markets
– Fundamental and Technical Analysis
17

18. The Global economy – factors to watch
• Comparison of market
capitalizations
– UK listed comps = $1.6trillion
– US = $8.5 trillion
• Comparisons of GDP’s – I guess it
would be important as these
countries will affect the global
economies more
18

19. Want to know more
Consulting rates apply
19