Investment Analysis, An Ongoing Process
Macroeconomic Analysis
1) What is the current economic environment?
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GDP
inflation
interest rates (Federal Reserve stance?)
level of employment
consumer confidence
level of business capital expenditures
2) What changes in the economy are anticipated
during the coming year? (The focus on where the
economy is headed is more important than where
the economy has been.)
3) What are the significant risks that could hinder
growth in the economy?
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Asset Allocation Decision
1) What percentage of wealth to be invested should
be maintained in:
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Equity securities (Stocks)
Debt securities (Bonds)
Cash (Money market)
Other (Real estate, precious gems & metals,
other collectibles)
2) Observation – Most of the time, most of your
wealth should be invested in equities. Why?
Equities have the best risk-return tradeoff over
time.
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Lasik’s Equities Selection Process
1) Given the asset allocation decision (with the
assumed focus on equities), what industries
within the economy are favored? Why? The S&P
publication, Industry Surveys, available online in
our library, is an excellent source.
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Analysis of Specific Companies
1) Within the selected industry, who are the major
competitors? Who is the leader in terms of
sales? In terms of profitability? Market
capitalization? Develop a peer group of 4 or 5
other companies to analyze prior to taking a
position in any single company.
2) What are the most attractive companies within
the selected industry?
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Identify the financial strengths and weaknesses
for the companies selected. For each
company, analyze the following:
Most important
 Standard & Poors (S&P) stock rating (5 stars
best)
 VL timeliness and safety rankings (timeliness
rank 1 best)
 Annual EPS estimate for the current fiscal
year and the next fiscal year
 PE ratios: current year, and next year
(forward)
 PEG – price earnings to growth analysis
 Earnings estimates changes and momentum
Other factors
 Zack’s rank
 Operating margin percentages
 Net margin percentages
 Debt ratio
 Debt to equity
 Cash position
 Return on equity (3-way preferred)
 Market capitalization
 Beta coefficient
 Dividend record
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Construction of a Diversified Equity Portfolio
1) Portfolio should include a minimum of 15 different
equities. Why 15?
2) No more than 15 percent of the total value should
be invested in a single industry. Why no more
than 15 percent?
3) Appropriate benchmarks should be established
to gauge the performance of the portfolio.