Finance with John Elder

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Resources for CSU's
Summit Investment Fund

Useful Links

Google calendar

Official Summit Fund Page

Morningstar Equity Classification

Introductory Class Notes

Sector Overview

Proposals for a new addition to the fund are made by the sector analysts, in accordance with the top-down strategy employed by the fund. We typically have a sector overview a week or so prior to the buy/sell. The objective of the sector overview is for the analysts to update the class what is happening in the sector, and to generate some ideas about how the fund should modify their holdings in the sector.

Description and overview of the sector.

Current sector holdings, with weights and dollar amounts. Overview of these firms.
Major recent developments and prospects for the sector.
What is the portfolio weight relative to the S&P500? What is target weight for the portfolio?
Do we need to add (buy) or substract (sell) positions from the sector?

Sources:

Morningstar X-ray, map of the market, other?
Morningstar Sector Structure gives a breakdown of the subindustries in each economic sector.

At the end of the sector overview, try to generate some ideas about how to proceed. If we need to add or swap a position, look at the screener in Morningstar and suggest some possibilities for the class to discuss. Do a little serious work to generate some good ideas!

Buy / Sell proposals

The buy or sell proposal is centered on a specific firm. Usually it is a "buy" or a brief "sell" proposal accompanied by recommendation to "buy" another firm. The proposal must be accompanied by a detailed analysis, prepared as a professional presentation, that covers the three areas below:

Company background and Competitive/Industry analysis
- Operations and core businesses (overview, strategy, etc). How does the firm's business model compare to that of its competitors?
- Opportunities and risks.
- Social responsibility - How does the company address whether and how they are good stewards of the public trust? This might be found in the companies annual report.
- Review of recent financial performance - trends in stock price, revenue, profits/losses, etc. What are the firm's prospects for continued growth?
- Sources: Morningstar's analyst report, company's annual report (from investor relations section of company web site), or Edgar.
Relationship to Portfolio
- Does firm meet Summit Fund's screener criteria (in Morningstar), if not, why?
- How does stock fit with rest of portfolio "style", in terms of market cap (large/small) and valuation (value/growth)? That is, how would the firm alter the X-ray?
- How would the stock alter the portfolio's risk profile (beta)?
Valuation
- Absolute/fundamental valuation - use the standard valuation tools developed in this other classes to conduct a fundamental valuation of the company in question. The analysis should be conducted in a spreadsheet. To get started, you might consult with Morningstar's analysis, which has some parameters on expected growth, etc. An example of a very simple two-stage valuation on Apple is here.
- Relative valuation - Include a valuation of the target company relative to its peers, or competitors. Is there any reason why some ratios (like P/Sales or P/FCF might be most relevant?)

Weekly update

The weekly update should give a review of important events over the previous week as it relates to the management of the portfolio. Many of the events will be macroeconomic related -- economic calendars are listed below. You should also be reviewing developments in domestic and international financial markets. We are usually interested in whether and new developments will cause us change the structure (sub-asset allocation) of the portfolio.

Financial data – can be obtained from a variety of sources, include http://finance.google.com and Bloomberg. Bloomberg also has extensive financial news.

Stock indexes

S&P 500, Nasdaq
Russell 1000, 2000, 3000 by value / growth.
Economic sectors

Interest rates (historical rates since 1970)

Federal Funds Rate; 10-year Treasury
FRB Saint Louis also has useful publications with graphs and data (US Financial data)
Corporate bond rates (AAA and BAA) - we are usually interested in the "spread" -- or the excess rate over 10-yr Treasury. For example, we are interested in the 10-yr T-bond rate minues the Corp AAA rate. The spreads must be calculated and graphed in Excel.
Some example charts are below.

Macroeconomic Data - can be obtained from Bloomberg and Saint Louis Federal Reserve Bank's FRED database . Data from either source can be charted or downloaded into Excel and charted. We are particularly interested in some of the data referred to below.

Economic Calendars

Bloomberg - has an economic calendar, the data release and an interpretation.
Briefing.com - has an economic calendar, the data release and an interpretation.
Yahoo Finance
Bloomberg
WSJ
World Bank Global Economic Prospects - for international data and issues
Here are some data that I monitor

Output

GDP (historical growth rates since 1970)
- Usually the outlook for consumption is of special interest, since that drives 2/3 of GDP
- The series is real gdp, 3 decimal, seasonally adjusted (GDPC96);
- GDP = C + I + G + (X - M)
- FRB Saint Louis also has useful publications with graphs and data (National Economic Trends and International Economic Trends)
- Federal reserve has some great sources of inforation.
- Monthly measures of output include: