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Page 1: STOCKS. Talking about Stocks  3 Stocks I saw on TV 3 Stocks I saw on TV

STOCKS

Page 2: STOCKS. Talking about Stocks  3 Stocks I saw on TV 3 Stocks I saw on TV

Talking about Stocks

3 Stocks I saw on TV

Page 3: STOCKS. Talking about Stocks  3 Stocks I saw on TV 3 Stocks I saw on TV

Industry Overview

Venture Capital Oak, Sequoia, Kleiner Perkins

Equity/Debt (stocks/bonds) Citadel, Cerberus (hedge funds); Fidelity,

Vanguard (mutual funds)

Private Equity KKR, Blackstone, TPG

Page 4: STOCKS. Talking about Stocks  3 Stocks I saw on TV 3 Stocks I saw on TV

Investment Types and Company Lifecycle

VentureCapital

Equity/Debt

PrivateEquity

Launches Goes Public Growth slows

Start-up Public Company Mature Company

Stage in Company Life Cycle

Typical InvestmentType

Page 5: STOCKS. Talking about Stocks  3 Stocks I saw on TV 3 Stocks I saw on TV

Venture Capital

VentureCapital

Equity/Debt

PrivateEquity

Launches Goes Public Growth slows

Start-up Public Company Mature Company

Stage in Company Life Cycle

Typical InvestmentType

Page 6: STOCKS. Talking about Stocks  3 Stocks I saw on TV 3 Stocks I saw on TV

Venture Capital

Typical Entry strategy Acquire stake in young, start-up firm

Value added VCs provide funding, networking, and advice to

the companies they invest in Typical Exit strategy

Take portfolio companies public or sell them to other companies

Example Bessemer Venture Partners invested $1-2

million in Skype, and when Skype was acquired by eBay, Bessemer made a 100-fold return on its investment

Page 8: STOCKS. Talking about Stocks  3 Stocks I saw on TV 3 Stocks I saw on TV

IELTS Card

Describe how a business is financed What are the options How long would it take to finance them What are the risks

What business of yours do you think you want fiannced and how would you do it.

Page 9: STOCKS. Talking about Stocks  3 Stocks I saw on TV 3 Stocks I saw on TV

Debt/Equity Investing

VentureCapital

Equity/Debt

PrivateEquity

Launches Goes Public Growth slows

Start-up Public Company Mature Company

Stage in Company Life Cycle

Typical InvestmentType

Page 10: STOCKS. Talking about Stocks  3 Stocks I saw on TV 3 Stocks I saw on TV

Latin American Bonds

Case for Latin American Bonds

Page 11: STOCKS. Talking about Stocks  3 Stocks I saw on TV 3 Stocks I saw on TV

Debt/Equity Investing

Typical Entry strategy Acquire position in stock or bonds of company

Value added Investors can lobby companies to take measures to raise

stock prices, such as share repurchases or divestitures Typical Exit strategy

Unwind position in stock or bonds of company Example

After doing comprehensive research on AutoZone, ESL, a hedge fund, concludes AutoZone is undervalued and buys shares in the company. In time the market comes to realize that the company is indeed undervalued and ESL sells its AutoZone shares after earning a 30% return.

Page 12: STOCKS. Talking about Stocks  3 Stocks I saw on TV 3 Stocks I saw on TV

Top Debt/Equity Investors

Hedge Funds Cerberus Citadel ESL SAC Capital Silverpoint (debt investing)

Mutual Funds Fidelity Vanguard

Page 13: STOCKS. Talking about Stocks  3 Stocks I saw on TV 3 Stocks I saw on TV

Hedge Fund

Hedge Fund Manager

Page 14: STOCKS. Talking about Stocks  3 Stocks I saw on TV 3 Stocks I saw on TV

Debt/Equity Investing

VentureCapital

Equity/Debt

PrivateEquity

Launches Goes Public Growth slows

Start-up Public Company Mature Company

Stage in Company Life Cycle

Typical InvestmentType

Page 15: STOCKS. Talking about Stocks  3 Stocks I saw on TV 3 Stocks I saw on TV

Private Equity

Typical Entry strategy Borrow money to buy of a public company’s shares and

take it private again, in a Leveraged Buyout (LBO) Value added

Improve company’s operations through restructuring, divestitures, or refinancing

Typical Exit strategy Take company public again or sell to other firm

Example Nelson Peltz buys Snapple from Quaker Oats for $300

million, turns company around within a few years, and sells it for $1.5 billion

Page 16: STOCKS. Talking about Stocks  3 Stocks I saw on TV 3 Stocks I saw on TV

Top Private Equity Firms

Bain Capital Carlyle Group Kohlberg, Kravis, & Roberts (KKR) Texas Pacific Group (TPG) Thomas H Lee Partners Warburg Pincus

Page 17: STOCKS. Talking about Stocks  3 Stocks I saw on TV 3 Stocks I saw on TV

INVESTING BASICSSponsored By Bank of AmericaPresented by WIC & WUFC

Page 18: STOCKS. Talking about Stocks  3 Stocks I saw on TV 3 Stocks I saw on TV

What’s the Investment Universe? Stocks Bonds Derivatives Real Estate Commodities Currency

Page 19: STOCKS. Talking about Stocks  3 Stocks I saw on TV 3 Stocks I saw on TV

Types of Analysis

Fundamental A method of evaluating a security by attempting to measure its intrinsic value by examining related economic, financial and other qualitative and quantitative factors. 

Value of a firm = Discounted value of future cash flows

Technical A method of evaluating securities by analyzing statistics

generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity.

Page 20: STOCKS. Talking about Stocks  3 Stocks I saw on TV 3 Stocks I saw on TV

Where to Begin? Develop a differentiated view

Top Down View on the economy or a sector Drill down into individual stocks, or trade a

basket of companies

Bottom Up Start with a company specific story Investigate the firm’s prospects based upon

micro factors

Page 21: STOCKS. Talking about Stocks  3 Stocks I saw on TV 3 Stocks I saw on TV

How to Evaluate a Business

Sustainable competitive advantages Barriers to entry, Substitutes Buyer and Supplier Leverage Technology, Infrastructure, Human Capital

Cost structure Fixed vs. variable Margin Analysis

Management Opportunities for growth

Page 22: STOCKS. Talking about Stocks  3 Stocks I saw on TV 3 Stocks I saw on TV

Valuation Methodolgy

Discounted Cash Flows Determine cost of firm’s capital Estimate the firm’s future cash flows Add back value of non-operational assets

Multiples P/E = (EPS/(r-g)) EBITDA/EV (EBITDA-Capex)/EV ROA, ROIC Net Debt/EBITDA

Page 23: STOCKS. Talking about Stocks  3 Stocks I saw on TV 3 Stocks I saw on TV

Derivatives

Contract that “Derives” its value from another security

Future - Obligation to exchange cash at some specified date for the underlying

Option - Right but not the obligation to buy/sell (call/put) underlying at specified price

Derivatives often allow for enhanced leverage

Page 24: STOCKS. Talking about Stocks  3 Stocks I saw on TV 3 Stocks I saw on TV

Options Continued

A multitude of strategies Understand Greeks (Delta, Gamma,

Theta, Rho, Vega) Basic idea is that payoff is asymmetric