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Our Background. Mike Alfred Jr., Portfolio Manager, USDHS ‘ 99, Stanford ‘ 03
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Our Background Mike Alfred Jr., Portfolio Manager, USDHS ‘99, Stanford ‘03 Mike Jr. serves as a Portfolio Manager and Director of Trading. Prior to joining ACM in 2004, Mr. Alfred spent three years as a Financial Advisor at AXA Advisors, LLC. While at AXA Advisors, Mr. Alfred managed the financial affairs of over 75 families. Mike received his bachelors degree from Stanford University. He currently sits on the Economic Restructuring Committee of the Del Mar Village Association and gives microcredit loans to African entrepreneurs through Kiva.org. Ryan Alfred, Portfolio Manager, USDHS ‘01, Harvard ‘05 Ryan serves as Portfolio Manager and Director of Economic Research. Prior to joining the Alfred Group in 2005, Ryan worked as an investment banking analyst at Merrill Lynch in the Mergers and Acquisitions Group. Ryan received a bachelors degree in Economics from Harvard University. He currently sits on the Economic Restructuring Committee of the Del Mar Village Association and volunteers his time with the San Diego Chapter of Habitat for Humanity.
Stock Exchange History The Buttonwood Agreement 11 Wall Street The origin of the NYSE can be traced to May 17, 1792. On that date an Agreement was signed by twenty-four stock brokers outside of 68 Wall Street in New York under a buttonwood tree. In 1908 the trading floor of the exchange moved to its present home at 11 Wall Street. Over 2,700 stocks are listed on the NYSE. The NYSE is the largest stock exchange in the world by dollar volume.
How the Market Works The way the NYSE has traded stock has gone mostly unchanged for nearly 213 years, though the speed and volume of transactions has picked up considerably since the introduction of computers. In spite of the changes the idea is the same -- a trader places an order with an auctioneer, called a specialist, to buy or sell shares of stock. The specialist matches the buyers with sellers and brokers a deal. This same process takes place billions of times every day in stock exchanges around the world including the NASDAQ, the Nikkei and the LSE. Video
How Do Companies Get Listed on the NYSE? So how does a business go from an idea to a company capable of listing on the New York Stock Exchange? What does it mean to “Go Public” in an initial public offering (IPO)? Let’s watch a video that the New York Stock Exchange put out in 1952 that helps explain what that process is all about.
Case Study: Starting a Business Case Study: In 1996 two graduate students in their mid 20’s came up with an idea for a business. They thought their idea was big, but had trouble convincing other people to agree with them. They also had another problem, they had no money! But, they scrounged up whatever equipment they could find and started the company anyway. After getting the company started they were able to convince a friend that their idea had promise and that friend became their first “angel” investor” writing their business a check for $100,000. At the time they didn’t even have a legal corporation or a company bank account, so they set up the corporation and a few weeks later were able to open the bank account and deposit the check. The check was enough to hire 1 employee and move their business from their dorm room to a garage. It wasn’t pretty, but it was a start. By 1999 the company had created significant buzz and raised an additional $25 million from venture capital firms. In 2004 with revenues of close to $900 million dollars the company “went public” and started trading on the New York Stock Exchange. Since being listed on the exchange the stock price has soared from its listing price of $85 to its price today of $500 (it was $438 when we taught a year ago). What is the name of this company?
Case Study: Google Sergey Brin and Larry Page Google Co-Founders Googleplex 2008 Google’s Garage c. 1998
Investing Investing: The act of committing money or capital to an endeavor (a business, project, real estate etc.) with the expectation of obtaining an additional income or profit. Jim Cramer Peter Lynch Warren Buffett
Investing – What does it mean to be a ‘Shareholder’? What does it mean to invest in a publicly traded company? What rights do you have as a shareholder? Shareholders are granted special privileges (depending on the class of stock) including the right to attend the annual shareholders meeting and vote on matters such as elections to the board of directors, the right to share in distributions of the company's income, the right to purchase new shares issued by the company, and the right to a company's assets during a liquidation of the company. The shareholders elect the boards of directors who select the company managers and they have a fiduciary responsibility to run the company in the interests of its stockholders.
Investing: Risk and Return A big part of investing is understanding the dynamics of risk and return. In order to obtain higher returns investors usually must take more risk. Cash is commonly considered the safest asset class, following by bonds and finally stocks/equities.
Fundamental and Technical Analysis There are two primary ways that stock market analysts use to make investment decisions. The first is technical analysis and the second is fundamental analysis. The technical analysts seeks to look at a stock’s chart to determine the direction of its future price. The fundamental analysts try to determine the company’s intrinsic value by poring over its financial statements and discounting its future cash flows. We’ll review both of these methodologies today.
Technical Analysis Technical analysts attempt to make money in the market through the careful study of stock charts. When listening to a technical analyst look out for the following terms: Volume - The number of shares traded in a security or an entire market during a given period of time. Simple Moving Average- simple, or arithmetic, moving average that is calculated by adding the closing price of the security for a number of time periods and then dividing this total by the number of time periods. Rally - An upward movement in a security's price following a declining trend. Trading Range - The spread between the high and low prices traded during a period of time. Support/Resistance - The price level which, historically, a stock has had difficulty falling below/rising above. Long/Short - The buying/selling of a security such as a stock with the expectation that the asset will rise/fall in value.
Fundamental Analysis Fundamental analysts seek to discover a company’s intrinsic value through the study of a companies “fundamentals.” Look out for the following terms: Quarterly Revenue Growth - An increase of a company's sales when compared to a previous quarter's revenue performance. Profitability Ratio - A metrics used to assess a business’s ability to generate earnings as compared to its expenses and other relevant costs. Financial Statements – A publicly traded company must file a comprehensive financial report called a 10-Q every quarter with the Securities and Exchange Commission. Dilution - A reduction in earnings per share of common stock that occurs through the issuance of additional shares or through other means. Debt Ratio - A ratio of debt to assets for a company. Institutional Ownership – The percentage of a company’s shares that are owned by institutions such as pension funds and life insurance companies.
Investment Management Our Stock Market Game Suggestions • Concentrate your portfolio and heed transaction costs. • 2. Buy Small/High Beta companies rather than large stable companies. Example: Buy China Fire and Security (CSFG) over large multinationals like Coca-Cola (KO) and McDonald’s (MCD). • 3. When investing for a short time horizon pay attention to momentum. • 4. “Selling Short” can be as valuable as “Going Long” • 5. Current Major Themes • Theme #1a: Strong global growth is outpacing domestic growth. • Response: Invest more assets internationally. • Theme #1b: Strong global growth is pushing up commodity prices. • Response: Invest in agriculture, energy, solar etc.
Conclusion “Markets can remain irrational longer than you can remain solvent.” - John Maynard Keynes “In the short term the market is a voting mechanism. In the long run it is a weighing mechanism.” - Benjamin Graham (and Warren Buffett) Places to do research: www.finance.yahoo.com www.finance.google.com www.wsj.com www.thestreet.com www.seekingalpha.com www.etfconnect.com
