Investment Strategy IAnnouncementsCurrent EventsLecture ContentToday’s Schedule#1 Rule to InvestingSlide 7Investment Analysis OverviewTypes of AnalysisSlide 10Fundamental AnalysisTechnical AnalysisCan They Co-exist?Qualitative AnalysisQualitative Factors The Company: Business ModelQualitative Factors The Company: Competitive AdvantageSlide 17Qualitative Factors The IndustryQualitative Factors Where to Start?Finding Articles on Investors.com on Specific CompaniesSlide 21Slide 22Slide 23Slide 24Value InvestingSlide 26Value Investing Intrinsic ValueValue Investing General Quantitative GuidelinesSlide 29More on Buffett’s Investing PointsBooks on Value InvestingOnline SourcesSlide 33Income InvestingIncome Investing Dividend YieldNext WeekHomework / ReadingInvestment Strategy IInvestment Strategy IFall 2007Fall 2007Economics 98 / 198 DeCalAnnouncementsAnnouncementsNo class on Wednesday before ThanksgivingHomework assignment this week (discuss at end) News presentersCurrent EventsCurrent EventsLecture ContentLecture ContentToday’s ScheduleToday’s Schedule#1 Rule in Stock InvestingIntroduction to Stock AnalysisDifferent typesQualitative vs. Quantitative Technical vs. FundamentalIntroduction to Fundamental AnalysisQualitative FactorsValue InvestingIncome Investing#1 Rule to Investing#1 Rule to Investing“There are no good stocks unless they go up in price. If they go down instead, you have to cut your losses fast... Letting losses run is the most serious mistake made by most investors.”- William O’Neil“Rule No.1: Never lose money. Rule No.2: never forget No.1”- Warren Buffet#1 Rule in Stock Investing #1 Rule in Stock InvestingInvestment Analysis OverviewInvestment Analysis OverviewTypes of AnalysisTypes of AnalysisGeneral categories of analysisQuantitative versus QualitativeFundamental versus TechnicalTypes of AnalysisTypes of AnalysisQuantitativeOn pure side, only look at numbers regardless of underlying business“Numbers provide the only objective data to analyze”Scrutinizes the financial statements and compare data to similar companiesQualitative■ Aspects of the business difficult to quantify■ Judge company based on specific qualities (product growth, industry, management competence, etc.)■ Example. Apple’s brand difficult to measure, but vital key to its recent successFundamental AnalysisFundamental Analysis“buying a part of the business”To gauge stock value, calculate the value of the businessWhy? Strength of the underlying business, operations, and financial position will determine demand of stockQuestions to think aboutIs revenue growing? Is the company making profit?Are there competitive advantages? Etc.Generally, two categoriesGrowth versus valueTechnical AnalysisTechnical AnalysisAnalyzing price and volume to gauge demand / supply of stockDon’t pay attention to underlying business Focus on what other investors (institutions) are doingCharts gauge market psychology surrounding a stock and when it is coming into demandMuch controversy surrounding this rationale, but has picked up more support recently on Wall StreetCan They Co-exist?Can They Co-exist?Fundamental and technical analysis not necessarily mutually exclusive! Success shown through combining the two strategiesFundamentalists can use technical analysis for timing purchaseTechnical trades look for fundamentals to add strength to signalsQualitative AnalysisQualitative AnalysisQualitative Factors Qualitative Factors The Company: Business ModelThe Company: Business ModelQuestion 1: What does the company do and how does it make money?This allows you to better assess the company and understand future growth driversExample. Apple, A&FSidenote: Warren Buffet didn’t invest in tech stocks because too foreign to himQualitative FactorsQualitative FactorsThe Company: Competitive AdvantageThe Company: Competitive AdvantageA company’s long-term success driven largely by ability to develop and keep competitive advantageIt allows for sustainable growth in terms of profits, which ultimately is beneficial for shareholdersPorter’s Five Forces Framework (Google this for more)Unique competitive positionCompetitors Activities tailored to company’s strategyHigh degree of fit across activitiesHigh degree of operational effectivenessManagement important for steering a company towards successBest business models fail if leaders fail to execute the planExamples. Bill Gates, Steve JobsHow to evaluate management?Listen to the quarterly conference calls and analyze the question-and-answer potion of the callRead management discussion section in financial reports (have strategies been implemented? How does it compare to last year’s? Is it the same crap?Look at past performance of these leaders (you can find a lot of stuff about people on the internet)Qualitative Factors Qualitative Factors The Company: ManagementThe Company: ManagementQualitative FactorsQualitative FactorsThe IndustryThe IndustryLearning about the industry gives deeper understanding of a company’s financial healthIndustry Characteristics: Is industry early stage or late stage? Will there be future demand for this industry? Are people dependent on the industry?Industry Growth: How big the industry? How many competitors are there? Will the # of customers grow? Can the company grow its market share within this industry?Example. iPod and digital music playersCompetition: How does the company compare to its competitors? How does it differentiate itself?Qualitative FactorsQualitative FactorsWhere to Start?Where to Start?Internet (financial websites)Read profiles and search news relating to the stockReuters, MarketWatch, Yahoo Finance, Hoovers, Investors.com, Google Finance, Forbes, MSN MoneyLook at company’s annual reports posted on their websitesDevelop business sense by reading / learning business(books, magazines, news, etc.)Business Week, Wall Street Journal, Investor’s Business DailyWhat the CEO Wants You To Know (Ram Charan)Finding Articles on Investors.com on Specific CompaniesFinding Articles on Investors.com on Specific CompaniesClick on IBD Archives SearchType in the symbol of the companyFinding Articles on Investors.com on Specific CompaniesFinding Articles on Investors.com on Specific CompaniesDeveloping Your Business Sense Using “New
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