Welcome to the Undergraduate Stock Trading Society USTS-FIRST MEETING INTRODUCTION TO INVESTING
Agenda History of USTS Introduction to investments Choosing your own stock Future activities
Investment Options Stock – purchasing a small fraction of a company. Options – A right, but not obligation, to buy/sell an
underlying asset at a certain price (strike price) Commodities – Futures contract: obligation to purchase a certain commodity. Bonds – Debt
Investment style Short Term Trading – relies on market’s volatility.
Buy/sell within a few hours to few seconds. Technical Trading (will be discussed in either week 4 or 6) Long Term Investment Value vs. Growth: They are theoretically the same in that the company’s intrinsic value is the main concern (Buffet: “Growth and Value Investing are joined at the hip”). However, there is a slight difference in approach. Buy low, sell high
Long Term Investments Intrinsic Value: summing the future income
generated by the asset, and discounting it to the present value. What does it mean by “discounting”?: Can be simplified as $P = $F / (1+r%)t. What is the present value if you are to get an X amount of return in Y amount of time? Discounted Cash Flow Valuation (week 8)
Long Term Investments – Growth Investing Above average growth Emerging
markets Recovery shares Blue chips Internet and technology stock Smaller companies Special situations
Drivers of Growth New Technology Domination of a niche market
Long Term Investments – Growth Investing Characteristics of a growth stock Sustainable growth rate of 20-25%. Healthy balance sheet with profits P/E ratio at or near the growth rate (ex. P/E=20; earnings growth rate 20%) PEG (estimated P/E)/(estimated Growth rate) Jim Slater – PEG < 0.75; preferably, PEG < 0.66 Competitive Advantage Barrier to entry (high start-up capital, technology intensive, etc.) Competition reduces prices and eats into the profit margin
Long Term Investments Value investing High dividend yield Low P/E ratio, P/B ratio At discounts to book value – sometimes problematic as some assets such as patents are not included in the book value Conservatism Concentrated portfolio Are you comfortable with holding the stock for the next 10 years? Contrarianism – although the market has it right quite often, don’t be swayed by the market.
Recommended Reading News Financial Times The Wall Street Journal The Economist Finance.yahoo.com Books Stocks for the Long Run by Jeremy Siegel The Intelligent Investor by Benjamin Graham Security Analysis by Graham and Dodd
Week Two Financial Statement analysis: Cash Flow, Balance
Sheet, Income Statement, Notes to financial statement Ratio Analysis Industry Analysis Reevaluation of portfolio – Research?