Using Bloomberg in a Security Analysis and Portfolio Management

Course

Adam Y.C. Lei, Ph.D., CFADillard College of Business Administration

Midwestern State University

June 26, 2015, Bloomberg for Education New York

Disclaimer

A large part of the material is built on

Lei and Li, 2012, “Using Bloomberg Terminals in a Security Analysis and Portfolio Management Course,” Journal of Economics and Finance Education 11 (2), 17-33.

http://www.economics-finance.org/jefe/issues/vol11(2)winter.pdf

Course Background

FINC 4833 Security Analysis and Portfolio Management

Security valuation and selection; theory and practice of portfolio management including asset allocation, diversification, and portfolio performance valuation

Junior standing or above or consent of the chair; FINC 4733 (Investments). Must earn a C or higher in FINC 4733

Course Background (cont.)

In the catalog since 2004 but never offered until 2010

No burden

No guideline as well

Position of this course within the finance curriculum

Course Structure

Grading

30% Midterm Exam

30% Analyst Report (team)

30% Performance Evaluation Report (team)

StockTrak

10% Participation

How Bloomberg terminal fits

Analysis Report

Top Down Economic Analysis

Industry Analysis

Company Analysis Qualitative

Quantitative

Each team chooses its own company “Buy” recommendation only

Analysis Report (cont.)

Key Bloomberg Functions

Economic Analysis

ECOF - Economic Data Finder

Industry Analysis

BI - Bloomberg Industries

Company Analysis

EQS - Equity Screening

DES - Description

Analysis Report (cont.)

Company Valuation

Free Cash Flow to the Firm (FCFF)

The cash flow available to investors, including both debtholders and shareholders, after the company has made all the investments necessary to sustain ongoing operations

Not necessarily the same as the Free Cash Flow to Firm in Bloomberg

Analysis Report (cont.)

Key Bloomberg Functions

Company Valuation

FA - Financial Analysis

BETA - Beta Calculations

WACC - Weighted Average Cost of Capital

DDM - Dividend Discount Model

Analysis Report (cont.)

The most difficult valuation part is probably on the future Growth Rate of the FCFF

Company’s historical average?

Whole industry’s estimate?

Existing research report?

What Bloomberg says?

Last night I had a dream?

Analysis Report (cont.)

Firm Value

From the next period FCFF, its growth rate, andWACC

Common Equity Value

Firm value minus debt and preferred stocks

Share Intrinsic Value

Common equity value / # of shares outstanding

Things to Know

Problems Faced

Inexperience

Right answer

Procrastination

Solutions

Handout

Art vs. Science

Make it clear

Things to Know (cont.)

Distance between price and value

Both too large and too small are bad things

Grading criteria

Tricks

Past reports for future examples

Certain companies to avoid

Does It Work?

The logos belong to the individual companies and are shown here for illustration purposes only.

Does It Work? (cont.)

Fall 2011

75, PG P63.84, V90.57; H70.76, L59.27

75, DAL P8.02, V10.39; H12.10, L8.01

77, TXN P30.05, V36.29; H33.99, L26.43

80, INTC P23.84, V27.68; H27.26, L16.78

80, IBM P186.38, V208.79; H211.00, L179.16

85, TKR P43.69, V47.77; H41.32, L25.21

Does It Work? (cont.)

Fall 2012

80, CAT P81.35, V86.52; H99.49, L80.43

84, AMZN P232.29, V249.43; H404.39, L248.23

87, IBM P193.49, V229.03; H215.80, L172.80

87, LOW P31.98, V47.74; H51.95, L34.76

93, F P10.36, V13.68; H17.76, L12.13

95, AZO P374.38, V463.02; H479.33, L344.99

Does It Work? (cont.)

Fall 2013

83, COL P73.00, V89.03; H86.16, L72.24

83, MSFT P37.58, V51.63; H49.61, L34.98

88, STX P48.22, V64.86; H68.82, L49.03

90, DIS P68.92, V82.48; H95.50, L69.99

90, SYK P73.32, V83.05; H96.61, L74.63

90, URI P68.59, V81.53; H119.02, L74.46

Does It Work? (cont.)

Looks like a learning process not only for my students but for me as well

Q & A

Thank you!