t he i nvesting p rocess thomas robb morgan stanley msu student investment association1

MSU Student Investment Association

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THE INVESTING PROCESS

Thomas RobbMorgan Stanley


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OUTLINE

• Investment Strategies– Idea Generations

• Resources• Paper Trading• Real Accounts


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PORTFOLIO MANAGEMENT

• What to buy• When to buy• How much to buy• When to take profits• When to stop losses


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INVESTMENT STRATEGIES

• Value• Growth / Momentum • Trend Following / Technical


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VALUE INVESTING

• Investing in undervalued securities• Screen for low multiples– P/E < 10– P/B < 1

• Distressed/Underperforming industries– Shipping–Housing– Solar


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GROWTH & MOMENTUM

• Investing in companies that are growing earnings and sales

• Momentum – Accelerating growth– Increased institutional ownership

• Can be riskier– Valuation based on growth– Poor earnings can cause price to

plummet


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SCREENS

• No “Perfect” Screen• MagicFormulaInvesting.com• FinViz.com– Multiples– Leverage– Growth

• “Value Traps”– Undervalued does not mean buy– Additional research– Wait for turnaround


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TREND FOLLOWING

• Invest on price action not fundamentals

• Cut losses, let winners run• Buy as prices break higher– 20 Day for Commodities– 20 Week for Equities

• Sell as Trend Ends– 10 Day/Week

• Also works for Shorting


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RESOURCES

• Investors.com– Stock Research Tool– Articles– Screen of the Day

• SeekingAlpha.com–Macro View– Long & Short Ideas


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RESOURCES

• FinViz.com–News > Blogs

• AbnormalReturns.com–Markets– Strategies– Companies– Economy

• StockTwits.com


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RESOURCES

• Charts & Watch Lists– FreeStockCharts.com

• News– FinViz.com– Finance.Google.com

• ETFs– ETFdb.com– ETF.stock-encyclopedia.com


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QUESTIONS?

Next Up: Portfolio Considerations


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POSITION SIZING

• Volatility Adjusted – Average True Range1% of Portfolio

Average True Range Position Size in Shares

• More volatile shares have lower weighting

• Each investment should contribute same value to portfolio


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DIVERSIFICATION

• Equities– Removes security risk– Industries– Trends (global growth / inflation)

• Commodities– Precious Metals– Energy– Agriculture


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MANAGING LOSSES

• The more you lose the more you have to regain% Loss % to Breakeven

8% 8.6%

10% 11.1%

20% 25%

30% 42.8%

50% 100%

• Minimize permanent capital loss• Percentage Stop (8-10%)• Volatility – Multiple of ATR (.5 – 2)


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QUESTIONS?

Next Up: Trading


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PAPER TRADING

• Necessary Step in Investing– Test strategy–Make sure you can make decisions– Practice managing portfolio

• UpDown.com• Is strategy practical for real

account?• DO NOT MOVE ON UNTIL

YOU’RE PROFITABLE


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REAL ACCOUNTS

• Minimize Trading Costs– Discount Brokers• Scottrade.com• Zecco.com• SpeedTrader.com

– Reduce turnover

• Consider taxes– Short-term capital gains– Cannot remove money from IRAs


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REVIEW TRADING

• Are you sticking to your strategy?• Are you making money?– Beating index?

• Where are you making money?• When are you losing money?• Are you missing opportunities?• HOW CAN YOU IMPROVE?


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QUESTIONS?

t he i nvesting p rocess thomas robb morgan stanley msu student investment association1

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