presented by: david anderson december 2007 csu – sacramento institutional investment society...
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Presented by: David Anderson
December 2007
CSU – SacramentoCSU – Sacramento
Institutional Investment SocietyInstitutional Investment Society
““Picking Stocks for the Picking Stocks for the CSUS Portfolio Challenge”CSUS Portfolio Challenge”
CSUSInstitutional Investment Society
Tonight’s Discussion
Discuss the upcoming portfolio challenge Discuss “stock picking” vs. portfolio management Provide some ideas for where you might start
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BS, 1985, Accounting, CSU – Sacramento MBA, 1995, U.C. Berkeley Haas School of Business
Introduction: David J. Anderson
Chevron: 1985-1993 Accounting & FinanceWertheim Schroder: 1994 Equity Research
BofA Securities: 1996-1999 Investment Banking, Debt/LBOOffRoad Capital: 1999-2001 Venture Capital – I Banking
Coopers &Lybrand: 1995-1996 Consulting: Mergers
Palo Alto Investors
•Energy Analyst
•Partner
•Portfolio Manager: Energy Fund
•Director of Research
CSUSInstitutional Investment Society
~$1.5 billion hedge fund Specializes in micro and small cap stocks, and
other inefficient areas of the market Fundamental (vs. technical) research Some venture investing Strategy includes some shorting -
opportunistically, not strategically Buy and Hold: Average holding is two years Concentrated portfolio
Palo Alto Investors
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Our Purpose
To make money for our clients by investing for the long-term based on fundamental research
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Energy Team
David Anderson, CFA David Horning, Ph.D., CFA
Michael Enachescu, Ph.D.Peter Hill, Ph.D.Grant Fox
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Picking stocks for the CSUS Portfolio Challenge
Warning: This is not portfolio management Traditional portfolio management vs. what I do vs. CSUS
Challenge Trying to pick a stock for short term Looking for catalysts What you get out of this process
Not just a portfolio win Able to use your analysis as a basis for discussion with others
Your goal: to learn and internalize what it is like to analyze and understand a company
What you need to be able to do…speak to why you like it: Products, markets, competitors, growth, margins, returns
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Picking stocks
Start with something you know or have a passion for Read 10-Q, 10-K, research papers, commentaries Consider creating your own format “1-pager” Understand upside and downside
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Picking stocks – A few resources
Company Websites CSUS Library (Standard & Poors, Hoovers, etc.) Edgar database (www.sec.gov) Financial websites (Yahoo, Google,
Moneycentral.msn, Marketwatch, Bloomberg) Statistical Research (Government and Private) Brokerages (Schwab, AG Edwards, Fidelity, and many
boutiques) Blogs Call the company
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Understand the “Fundamentals”
Revenue Drivers Try to find something you can “break down” Not necessarily just “growth of x%”
Cost structure (operating leverage) Opportunities for growth Cash flow vs. earnings (need for capital) Return on capital Balance sheet Trading multiples Long-term vs. short term perspective
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Revenues Drivers – An Example
Online financial websites only give you the “top line” 10-Q may break down the revenue further Company press releases may give more detail to
understand lines of business Company conference calls give more information Use a spreadsheet to capture what you know Now you have a basis for a forecast
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Look at competitors Look at market
conditions Customer
references Meet with
management team
Understand competitivestrategy in light of 5 competitive forces:1) entry of new competitors2) threat of substitutes3) bargaining power of buyers4) bargaining power of suppliers5) rivalry among existing competitors
Qualitative Research
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Added 350,000 shares
Built initial position 900,000 shares
Discovery and research
Sold 1.1MM shares