General Meeting 8
10.29.2013
Meeting Agenda
• Announcements
• Portfolio Update
• Market Update
• Lecture: Asset Pricing
• Pitch- GY
• Important Dates
Announcements
Announcements
Announcements
Announcements
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TREASURER@USITEAM.ORG
Announcements
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Challenge
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Announcements
Technical Workshops
Every Thursday 7-8
SAC2.120
This Week:
Fixed Income
Investing
CANCELED
Portfolio Update
Sector Exposures
Information Technology
Energy
Consumer Services
Consumer Goods
Financials
Industrials
Health Care
Utilities
Telecommunication Services
Basic Materials
Dollar Amount
$2,210.87
$0.00
$0.00
$0.00
$1,591.25
$561.25
$1,248.25
$0.00
$1,666.50
$575.47
% Allocation
28%
0%
0%
0%
20%
7%
16%
0%
21%
7%
15%
0%
0%
0%
Energy
Consumer Services
11%
46%
Sector Exposures + Cash
Information Technology
Energy
Consumer Services
Consumer Goods
Financials
Industrials
Health Care
Utilities
Telecommunication Services
Basic Materials
Cash
$2,210.9
$0.0
$0.0
$0.0
$1,591.3
$561.3
$1,248.3
$0.0
$1,666.5
$575.5
$6,763.6
15%
0%
0%
0%
11%
4%
9%
0%
11%
4%
46%
Information Technology
Consumer Goods
Financials
Industrials
4%
Health Care
Utilities
Telecommunication Services
9%
Basic Materials
Cash
11%
4%
0%
Portfolio Update
Historical Performance
Invested Capital
8/30/2013
$4,396.8
9/6/2013
$7,739.3
9/13/2013
$4,328.6
9/20/2013
$4,381.9
9/27/2013
$5,911.2
10/4/2013
$5,847.4
10/11/2013
$7,037.0
10/18/2013
$7,249.0
10/25/2013
$7,853.6
Cash
$9,716.0
$6,556.9
$9,922.9
$9,922.9
$8,226.2
$8,226.2
$7,120.9
$7,120.9
$6,763.6
Ticker
AAPL
ADNC
CBRX
ENZN
IDT
SWKH
U
AGX
AIG
ACC
Cost Per Share Total Cost Basis Purchase Date
$486.11
$1,458.32
8/13/2013
$10.51
$525.50
8/13/2013
$6.82
$852.13
8/14/2013
$1.96
$391.00
8/13/2013
$18.00
$1,349.65
8/14/2013
$1.13
$450.00
8/13/2013
$4.64
$579.68
8/28/2013
$21.67
$541.75
9/26/2013
$49.37
$740.55
10/10/2013
$35.73
$357.30
10/22/2013
Shares
US Equity
US Equity
US Equity
US Equity
US Equity
US Equity
CN Equity
US Equity
US Equity
US Equity
3
50
125
200
75
400
125
25
15
10
Exposure
31.2%
54.1%
30.4%
30.6%
41.8%
41.5%
49.7%
50.4%
53.7%
AUM
$14,112.8
$14,296.2
$14,251.5
$14,304.8
$14,137.4
$14,073.6
$14,157.8
$14,369.9
$14,617.2
Weekly Portfolio Return
1.3%
(0.3%)
0.4%
(1.17%)
(0.45%)
0.60%
1.50%
1.72%
Cumulative Return Since 8/30/13
0.0%
1.3%
1.0%
1.4%
0.17%
(0.28%)
0.32%
1.82%
3.57%
Exp-Adj Weekly Return
Exp-Adj Cum. Return
0.0%
2.40%
2.4%
(1.03%)
1.3%
1.22%
2.6%
(2.80%)
(0.3%)
(1.09%)
(1.4%)
1.20%
(0.2%)
2.97%
2.8%
3.20%
6.1%
PX_LAST Total Market Value Gain/Loss Gain/Loss %
Sector
$525.96
$1,577.87
$119.55
8.2% Information Technology
$12.66
$633.00
$107.50
20.5% Information Technology
$7.25
$906.25
$54.13
6.4% Health Care
$1.71
$342.00
($49.00)
-12.5% Health Care
$22.22
$1,666.50
$316.85
23.5% Telecommunication Services
$1.15
$460.00
$10.00
2.2% Financials
$4.60
$575.47
($4.21)
-0.7% Basic Materials
$22.45
$561.25
$19.50
3.6% Industrials
$51.85
$777.75
$37.20
5.0% Financials
$35.35
$353.50
($3.80)
-1.1% Financials
Position Size
11.0%
4.4%
6.3%
2.4%
11.6%
3.2%
4.0%
3.9%
5.4%
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
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
Why? Because if a company’s stock value is just the sum of its future cash
Investing is about finding a stock where your opinion differs from the
flows, then the future cash flows just became smaller, so stock value goes
opinion of all other investors (the EXPECTED performance opinion)
down.
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?
Pension accounting
Tax Accounting
Accounting has major flaws that hide value that
Accounting
notGAAP
everyone has
the time to sift through
There aren’t an infinite number of experts –
small companies aren’t as intensely followed
You are the expert
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
2013
2018
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
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.
50 years from today, land I bought today
for $100,000 will still be listed as worth
$100,000 in my accounting statements
Most companies don’t hold that much land for a long time or
in huge amounts, so this isn’t really a big deal.
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:
Actual
Land
Value:
100,000 x (1 + 5%) ^ (50 years)
$100,000
$1.14M
The Company We Like
• 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
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.
Pitch
GY
Pitch Sign-Ups