General Meeting 810.29.2013

• Announcements• Portfolio Update•Market Update• Lecture: Asset Pricing• Pitch- GY• Important Dates

Meeting Agenda

Announcements

Announcements

Announcements

Announcements

Free Wall Street Journal Subscription for Paid Members

E-mail TREASURER@USITEAM.ORG

Announcements

Register at usiteam.org/events

Fall Portfolio Challenge

$5 entry fee

Announcements

Technical WorkshopsEvery Thursday 7-8

SAC2.120

This Week:Fixed Income

InvestingCANCELED

Portfolio Update

Sector Exposures Dollar Amount % AllocationInformation Technology $2,210.87 28%Energy $0.00 0%Consumer Services $0.00 0%Consumer Goods $0.00 0%Financials $1,591.25 20%Industrials $561.25 7%Health Care $1,248.25 16%Utilities $0.00 0%Telecommunication Services $1,666.50 21%Basic Materials $575.47 7%

Sector Exposures + CashInformation Technology $2,210.9 15%Energy $0.0 0%Consumer Services $0.0 0%Consumer Goods $0.0 0%Financials $1,591.3 11%Industrials $561.3 4%Health Care $1,248.3 9%Utilities $0.0 0%Telecommunication Services $1,666.5 11%Basic Materials $575.5 4%Cash $6,763.6 46%

15% 0% 0%

0%

11%

4%

9%

0% 11%

4%

46%

Information Technology

Energy

Consumer Services

Consumer Goods

Financials

Industrials

Health Care

Utilities

Telecommunication Services

Basic Materials

Cash

Portfolio UpdateHistorical Performance

Invested Capital Cash Exposure AUM Weekly Portfolio Return Cumulative Return Since 8/30/13 Exp-Adj Weekly Return Exp-Adj Cum. Return8/30/2013 $4,396.8 $9,716.0 31.2% $14,112.8 - 0.0% 0.0%9/6/2013 $7,739.3 $6,556.9 54.1% $14,296.2 1.3% 1.3% 2.40% 2.4%9/13/2013 $4,328.6 $9,922.9 30.4% $14,251.5 (0.3%) 1.0% (1.03%) 1.3%9/20/2013 $4,381.9 $9,922.9 30.6% $14,304.8 0.4% 1.4% 1.22% 2.6%9/27/2013 $5,911.2 $8,226.2 41.8% $14,137.4 (1.17%) 0.17% (2.80%) (0.3%)10/4/2013 $5,847.4 $8,226.2 41.5% $14,073.6 (0.45%) (0.28%) (1.09%) (1.4%)10/11/2013 $7,037.0 $7,120.9 49.7% $14,157.8 0.60% 0.32% 1.20% (0.2%)10/18/2013 $7,249.0 $7,120.9 50.4% $14,369.9 1.50% 1.82% 2.97% 2.8%10/25/2013 $7,853.6 $6,763.6 53.7% $14,617.2 1.72% 3.57% 3.20% 6.1%

Ticker Shares Cost Per Share Total Cost Basis Purchase Date PX_LAST Total Market Value Gain/Loss Gain/Loss % Sector Position SizeAAPL US Equity 3 $486.11 $1,458.32 8/13/2013 $525.96 $1,577.87 $119.55 8.2% Information Technology 11.0%ADNC US Equity 50 $10.51 $525.50 8/13/2013 $12.66 $633.00 $107.50 20.5% Information Technology 4.4%CBRX US Equity 125 $6.82 $852.13 8/14/2013 $7.25 $906.25 $54.13 6.4% Health Care 6.3%ENZN US Equity 200 $1.96 $391.00 8/13/2013 $1.71 $342.00 ($49.00) -12.5% Health Care 2.4%IDT US Equity 75 $18.00 $1,349.65 8/14/2013 $22.22 $1,666.50 $316.85 23.5% Telecommunication Services 11.6%SWKH US Equity 400 $1.13 $450.00 8/13/2013 $1.15 $460.00 $10.00 2.2% Financials 3.2%U CN Equity 125 $4.64 $579.68 8/28/2013 $4.60 $575.47 ($4.21) -0.7% Basic Materials 4.0%AGX US Equity 25 $21.67 $541.75 9/26/2013 $22.45 $561.25 $19.50 3.6% Industrials 3.9%AIG US Equity 15 $49.37 $740.55 10/10/2013 $51.85 $777.75 $37.20 5.0% Financials 5.4%ACC US Equity 10 $35.73 $357.30 10/22/2013 $35.35 $353.50 ($3.80) -1.1% Financials 2.5%

Portfolio Update- IDT

Portfolio Update- AAPL

Market Update

Upbeat earnings:-39 of the SP500 reported earnings today:

-Average revenue growth of 3.5%-Average earnings growth of 5.7%

-Positive home sales numbers-Slightly weak industrial production numbers-Everyone waiting to hear from the Fed meeting on Wednesday about more easing

Market Update

BX: +79%

KKR: +61%

Market Update

Market Update

NDAQ: +67%

NYX: +77%

Market Update

Market Update

Asset Pricing

Asset Pricing

2013 2014 2015

∞?

Asset Pricing

Firm Value = Cash Flow Next Year + Cash Flow The Year After +

Cash Flow The Year After + Cash Flow The Year After +

Cash Flow The Year After + Etc.

*EXPECTED*

Expected growth rate of 5% for 2013

Company reports an actual growth rate of 4% at the end of 2013, what happens?

All things held equal, stock price will go down

Why? Because if a company’s stock value is just the sum of its future cash flows, then the future cash flows just became smaller, so stock value goes

down.

Asset Pricing

Expected growth rate of 5% for 2013

Company reports an actual growth rate of:

4%:5%:6%:

Stock price goes down

Stock price stays the same

Stock price goes up

Investing is about finding a stock where your opinion differs from the opinion of all other investors (the EXPECTED performance opinion)

Asset Pricing

So if I have to understand a company better than the experts to find a 6% growth rate when the experts expect 5%, how can I hope to compete as a college student?

There aren’t an infinite number of experts – small companies aren’t as intensely followed

Accounting has major flaws that hide value that not everyone has the time to sift through

You are the expert

Pension accountingTax Accounting

GAAP Accounting

Asset Pricing Sanity Check

1.) The value of a firm, and thus the firm’s stock is determined by EXPECTED future cash flows for the rest of its life

2.) We look for investments where we have an edge on everyone

else to find investments where the reality is going to be better than the expectation

2013 2018

Asset Pricing

Investing is all about having a variant view- thinking differently than everyone else.

Cheating Accounting

I buy land for $100,000 dollars- what gets recorded on my accounting books?

Land account +100,000

If the land goes up in value by 5% every year, what is the value of the land at the end of the year?

100,000 * (1+.05) = 105,000

Cost Basis Accounting

Under GAAP accounting, land is recorded at what you pay for it (cost basis), and is never adjusted to reflect its REAL value.

Most companies don’t hold that much land for a long time or in huge amounts, so this isn’t really a big deal.

50 years from today, land I bought today for $100,000 will still be listed as worth $100,000 in my accounting statements

Land Accounting

So…

Land Value Everyone Believes:

$100,000 (From financial statements, the number one

source of information for analysts)

=Actual Land Value:

$100,000 x (1 + value growth rate) ^ (number of years

held)

Example of a variant view- what you see as the real value differs from what others see

Land Value

Land Value on Books:

$100,000

Actual Land

Value:100,000 x (1 + 5%) ^ (50 years)

$1.14M

• Small enough so that only a few people look at the company and actually realize the land account has value• Land was held for a long time so it has had the

chance to appreciate in value significantly• Company plans on selling the land soon• Small enough that the land sale represents a

significant part of the company’s value

The Company We Like

Application

When does this not work?

Large companies- Land values are generally too small relative to the company value to have an impact and most analysts catch these kinds of mispricings for big companies

Companies that use land for operations- Banana producers use land to host their plantations, so they never really plan to sell the land.

Companies planning to use the land for corporate headquarters- a lot of companies will buy land and hold for a year or two to build corporate headquarters, so it’s never being sold.

PitchGY

Pitch Sign-Ups