fame v conference notes

8/14/2019 FAME V Conference Notes

1/14

Global markets panel Global venture capital Fixed income panel Viewing stocks as bonds Alternative investments

2013 Financial Asset Management Education

V

Conference notes

David J. Moore, Ph.D.

www.efficientminds.com

November 25, 2013


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Outline

1 Global markets panel

2

Global venture capital

3 Fixed income panel

4 Viewing stocks as bonds

5 Alternative investments


3/14


Positives and negatives 1/2

Axel Merk (AM)

(+)Asset prices do not reflect fundamentals due to policy makerintervention. That is okay because it makes things morepredictable.

(+)We are lucky that policies dont work. ?

()Economic growth is slow because of (1) too much debt and (2)imbalances

Stephane Prunet (SP)

(+)More scandals -> more regulation

(+)Government and central banks have avoided the worst(+)Re-shoring of jobs()Shadow banking: we have more hedge funds with morederivatives()Slow regulatory reforms()Income inequality


4/14


Positives and negatives 2/2

Stephen Malinak (SM)

(+)We have more places to invest (hedge funds invest

everywhere)(+)More data to base investment decisions onApparently advocates the Global Market Wealth Portfolio, i.e.,asset allocation should match the allocation of global wealth.

Tanya Beder (TB)

(+)Companies like LinkedIn shorten the distance between buyersand sellers.


5/14


Where is your money?

TB: 13% of assets in cash, 3D printing, liquified natural gas,crowd financing

SP: Long Euro, Long cash, Euro value stocks, Africa

Others: cash seemed to be common

Gl b l k t l Gl b l t it l Fi d i l Vi i t k b d Alt ti i t t


6/14


Miscellaneous comments

SP

Stay away from big indexes because they concentrate risk.The Euro is like marriage: everybody in wants out and everybodyout wants in.

AM

Against policy that causes interest rates and risk to diverge.This increases the wealth gap when high risk low interestconsumers lose their job.The Euro is a political project not an economic project

Investing in international equities increasesnot. Internationalcurrencies are good to have in your portfolio since they areuncorrelated. Keep in mind AM runs a currency mutual fund.Quantitative easing explains the market being at an all time high.Low volatility + rising asset prices = bubble



7/14


Dixon Doll on current VC environment

Managing member of DCM, an early stage venture capital firm.

Invests primary in Golden Triangle firms: firms that operating inthe United States, China, and Japan.

Venture capital (VC) drives innovation and job creation

VC is now global not just Silicon Valley

Small funds do better than large funds

Right time to IPO: positive flow into equity funds, S&P500 strong,and volatility is low.

In other words, when there is a bubble according to the Axel Merkdefinition (low volatility + rising prices = bubble).

China currently does not have an equivalent to NYSE orNASDAQ. Therefore Chinese firms IPO in the U.S.



8/14


Dixon Doll on current investment opportunities

Mobile ecosystem. In-car mobile is going to be big.Smartphones are at critical mass.

Financial services B2B, B2C. VC student loan funds on the orderof $1.2 trillion.

Peer to peer lending

Collaborative consumption such as kick starer and air bnb

Wearable computing

The ability to watch multiple channels in the same room on

multiple devices will bring families together.Really? I dont believe this. The old model of a single televisionsupervised by the parents with the whole family together seemsmore together.



9/14


Bond market landscape

Lisa OConner (LO)

Correlation between risky and risk free assets matter.Aggregate demand is a disinflationary force. We have an agingpopulation that consumes less.

David GermanyLong-term equity outperforms fixed income.One out of three decades fixed income has outperformed equities.Rates will rise eventually but the market has already priced that in.

George Friedlander

Large part of demand in the money market is housing.The slope on the muni curve is steep. Might as well go long.Detroit and Puerto Rico defaults are isolated cases.Foreign investment + current account imbalance = vulnerabilityDodd-Frank removed the role of credit ratings in establishingcapital measures. More risk.



10/14


Yacktman on stocks 1/3

Yacktman Asset Management employs 9 people and manages$13.7billion of assetsfor 100+ clients.

Focuses on left hand side of balance sheet. That is, how well

firms translate assets into earnings for investors.Believes in concentrated positions.

Top 10 holdings represent 80% of assets under management.Why purchase your 50th best stock pick?

Does not believe in bonds. Just equities plus cash.

A portfolio manager should be measured from market peak tomarket peak.

Entry price is important. It will offset a lot of sin.

http://investment-advisors.findthebest.com/l/24646/Yacktman-Asset-Management-Cohttp://investment-advisors.findthebest.com/l/24646/Yacktman-Asset-Management-Co


11/14

p p p g

Yacktman 2/3

Understand the business modelFixed assets: lower is betterMarket leader: yesSensitivity to business cycles: less is better

Understand the manager: what do they do with retained

earnings?

Acquire companies: riskyRepurchase shares: only if done at the right pricePay dividendsRepay debt

Sit on itViews stocks as bonds focusing on market leaders.

Market leader has the most market share and pays dividends.With market share comes economies of scale.In this sense it is more like a high-rated bond: a stable value

investment that distributes cash to investors.



12/14

p p p g

Yacktman 3/3

Low fixed assets + high market share + low cyclicality = high riskadjusted return (more bond like).

Do not bother talking to company manager or investor relations.

Focus on what theydid(historical financial statements) rather thanwhat theysay.

Always votes against stock option packages.

Stock options are heads I win, tails you lose. I (the manager) donot lose.If a manager does well, as measured by ROA, pay them cash.

To view stocks as bonds evaluate forward looking risk-adjustedreturns.

I have incorporated forward looking risk adjusted returns asE[R]intheMosaic of Stock Analysis Part 2 Examples.Some students have extended this to incorporate risk by computingE[R]for different growth rates.

http://efficientminds.wordpress.com/education/learning-modules/the-mosaic-of-stock-analysis/part-2-basic-valuation/http://efficientminds.wordpress.com/education/learning-modules/the-mosaic-of-stock-analysis/part-2-basic-valuation/


13/14

Definition of alternative investment

Traditional investments: Stocks or bonds, long only

Alternative investments: behaves different than traditional

With alternative investments all risk is manager risk as opposedto market risk since that is supposed to be hedged.

Kelly Deponte (KD)

Illiquidity and active management of company owned by the fund.Takes time to play out (3 to 4 years minimum)Hedge funds tend to have a lockup period.



14/14

Real estate & careers

Eli Khouri (EK)

Multifamily housing is a little overdone.Average age in India is 19.

You excel in things you like to do and that fit your personality.Master what you do well enough at now.

EK career approaches

Soul mate approach: wait for your perfect career match. EKdoesnt believe in this.

Good enough approach: find the career you work well with.EK approach: Find the career you work well with and bepassionate about that.

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