Analyst Program AP Introductory Meeting

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Analyst Program (AP)Introductory Meeting
Wednesday, January 28th
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Agenda

• What the AP does
• Investing Lessons
• Our investment philosophy
• How to research stocks
• Quick DCF run through

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History

• Analyst Program began mid-Spring of 2005 as part
  of the SIAs overall objective of educating its
  members
• Goal Educate members about how to value
  businesses
• Target Audience
• Serious members willing to meet weekly, engage in
  equity research, and other activities
• Structure
• Divide members into groups of 3-4 Associates and
  one Analyst
• Each group screen for stocks and present their
  company to the organization
• Each group will present for 10 minutes with 20
  minutes at the end for QA (2 presentations per
  meeting)

SY
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Who Should Join?

• Desire to gain knowledge of equity markets and
  investing
• Strong desire to learn more about investing and
  company analysis
• Willing to dedicate their time and hard work in
  order help us meet our goals
• Willing to learn and apply classroom knowledge to
  real world situations
• Prior financial experience/knowledge is not
  mandatory

SK
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Benefits

• Learn about business and investing
• How to analyze a business
• What makes a good/bad business
• What makes a good/bad investment
• Gain the experience of managing an investment
  portfolio
• Great for resume/interviews
• Apply knowledge to personal portfolio
• Exposure to public speaking

SK
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Lessons

• A good stock and a good business are not the same
  thing
• They can be the same thing, but usually arent
• A stock is often times different because of the
  way its priced
• Stocks are priced based on expectations, and
  expectations can differ, so stock prices move
  around when business fundamentals may not
• This means that actual stock prices often times
  will differ on what they should actually be worth
  (well talk more about valuation at next weeks
  meeting)

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Lessons

• 2. The Efficient Market Hypothesis that you
  learn in class has shortcomings
• Says that all information is correctly and
  quickly priced into stocks, making it useless to
  conduct analysis on stocks
• The EMH is quite accurate a lot of the time, but
  it misses big points on market fundamentals
• We try to buy stocks based on those market
  fundamentals that the EMH misses

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Lessons

• 3. Value investors dont need to know everything
  about their holdings
• Substantial research should certainly be
  conducted, but buying things at a large discount
  to fair value allows information risk to be
  alleviated
• DO NOT mistake this for simply picking the
  cheapest stocks and doing no researchfind a
  happy medium
• Too much information to sift through, will cause
  you to miss opportunities

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Our Investment Philosophy

• Our philosophy is of the value investing school
  of thought
• We want to buy companies where expectations are
  wildly out of touch with business fundamentals
• We want to buy a dollar for fifty cents

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Presentation Criteria

• Investment recommendation up-front
• 3 reasons you like the company
• What the company does
• Relevant industry information
• Whats the key debate around your stock
• What the market thinks about this issue
• Why the markets wrong about this issue
• Why the company is undervalued
• Catalysts to make your investment thesis come
  true
• Risks to your investment thesis

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Member Expectations and Criteria

• Protect committed analyst program members
• When one person drops out of the program at the
  last minute it jeopardizes the whole groups
  presentation
• Quality vs. Quantity
• Quality means staying committed to the team and
  having the interest to learn about the financial
  markets
• No necessary experience or concentrated major to
  participate in the program
• We welcome all majors and all investing
  experience levels
• If accepted into the program stay committed
• The application is due Sunday, February 1
• E-mail to yusimon_at_msu.edu
• Application can be found on the SIA website
  www.msusia.com

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Analyst Position

• Responsibilities
• Oversee operations within the respective group
• Supervise stock selection, research, and
  presentation development
• Accountable for groups attendance on the
  presentation date
• Ensure the quality of the presentation and
  information to meet SIA AP standards
• How to become an Analyst
• Must have at least one semester of AP experience
• Sign up at tonights meeting
• Or e-mail Simon Yu (Co-President of Operations )
  regarding your interest at yusimon_at_msu.edu

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Screening Criteria for Stocks

• Criteria
• PE Ratio less than 10
• Forward PE Ratio less than 10
• This should guarantee the company is still making
  money throughout this downturn, and is still
  reasonably priced
• Important!
• Consider the companys current PE vs. its 5 year
  historical PE
• This will help to show you how undervalued the
  company may be
• Will also give you a barometer of what the stock
  may actually be worth

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What to look for in a business?

• 3 things
• Barriers to Entry
• Barriers to Entry
• Barriers to Entry
• Good business model to look forBP
• Bad business model to look forMost computer tech
  companies
• Also
• Hopefully very low goodwill
• Low debt/equity (not a necessity, but preferable)
• Great Resources to Use
• Investor Relations part of company website for
  presentations
• SEC 10-K Filing
• Business Description
• Managements Discussion and Analysis

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Quick DCF Run Through

• Finds the cash flows to a business available to
  stockholders in the future discounted into
  todays dollars
• Net Income
• Plus Depreciation
• Less Capital Expenditures
• This is what we use for our DCF model
• Note Earnings are NOT the same as cash flows,
  and often times they will be different!
• Use 3 perpetuity growth rate
• Only change the blue numbers!
• BE CONSERVATIVE!

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Additional Info.

• IF you were in the analyst program in the fall,
  then you DO NOT need to reapply this semester.
• Those of you who were in the program last
  semester should send Simon an email to reiterate
  your interest in participating in the program
  this semester as well. His email is
  yusimon_at_msu.edu
• IF you are NEW, however, then YOU DO need to
  apply this semester.

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Questions?

• Justin Van Vleck (Co-President of Operations)
• vanvlec3_at_msu.edu
• Simon Yu (Co-President of Investments)
• yusimon_at_msu.edu
• Chase Killeen (VP of Investments)
• killeen3_at_msu.edu

For more information, visit www.msusia.com
Questions or Comments E-mail investor_at_msu.edu