EduClass I

Investing Basics

11th October 2013

Finding Company Information/Basics

Most important thing is getting to grips with your sector o Each sector very different utilise sector managers expertise o Sector reports are your starting point Companies release earnings each quarter o Actual vs Expected o Conference calls, analysts questions o 10k vs Annual Report dull & boring vs glossy marketing Finding Information o Companies own website investor relations o Keep in mind source of information

Methods of Investment
Essentially, 3 types of fundamentals-based equity investing: o Value investing o Growth investing o Income investing Place for all 3 methods in Trinity SMFs portfolio, with each displaying different characteristics and levels of risk/reward By virtue of our invetsment mandate to achieve an absolute return, analysis and pitches will be evaluated fundamentally on whether an investment will contribute to this aim, regardless of investment type Important to bear in mind Trinity SMFs investing time horizon is 2-5 years

Value Investing
Based on the assumption that markets are not efficient Can be identified through looking at various metrics: o Price to Earnings (P/E) Ratio o Price to Book (P/B) Ratio o Dividend Yield o DCF Analysis Very important to realise that value investing is a subjective call on the intrinsic value of a security. In order to ascertain whether something may be a value stock, we must first have a firm knowledge of what exactly the firm does and how that feeds into profit and cash generation

Growth Investing
Basically an investment in a stock that you believe will have above-average earnings growth expect price to go up in sync with this Often seen as a riskier play, especially considering these stocks are more likely to be found in young industries with smaller companies and the fact that you are buying into a forecast Some metrics used to identify these opportunities are: o PEG Ratio o Earnings forecasts (Best to do our own and then compare) Important to note that very often, even if high earnings growth rate occurs, these stocks can be overvalued. We need to understand the nature and sustainability of cash flows, as well as risks to these, before investing In reality, value and growth investing are from the same base

Income Investing
Does what it says on the tin, an investment where the upside is primarily based on the income earned from ownership, usually from dividends More likely to be found in large, established companies. Sectors like FIG and Utilities often hold these stocks The key metric is dividend yield, not the nominal amount A dividend is only as good as the degree of certainty we have about the companys ability to continue paying it into the future. FCF comes into play here, and adequate dividend cover is a must Negative FCF not always bad could mean big investments which could pay off in long run Always have to be aware of big picture - Everything is always an RV decision

Understanding Markets
While we focus on the medium term, it is also very important to understand the short term. This will allow you to understand weekly/monthly movements Main things to keep track of: o Risk On/Risk Off days o Non Farm Payrolls 1st Friday of the month o Central Bank meetings FOMC, ECB, BOE & BOJ o Earnings Season Whats going on right now? o When will the Fed taper? By how much? New Fed chair? o U.S government shutdown o Eurozone crisis over? What does all this mean for the SMF?

Sources/Keeping up to date
Books The Intelligent Investor Benjamin Graham Common stocks & uncommon profits Philip Fisher Newspapers FT & Economist all you ever need Websites Zerohedge.com read with pinch of salt Seekingalpha.com Other Seeking Alpha App alerts for stocks in your sector/watchlist Twitter second by second market news