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2012 Global Asset Management Education II

Conference notes

David J. Moore, Ph.D.

www.efcientminds.com

May 7, 2012

Keynote speakers: economy

Keynote speakers: real estate

Keynote speakers: stock analysis

Breakout sessions

Outline
1

Keynote speakers: economy The broad economy Keynote speakers: real estate Real estate, etc. Keynote speakers: stock analysis China, ETFs, hedge funds Valuation techniques Breakout sessions Equity analysis with Cleveland Research Social media Unconventional income generation Hedge fund value to investors and economy

Keynote speakers: economy The broad economy

Keynote speakers: real estate

Keynote speakers: stock analysis

Breakout sessions

Outline
1

Keynote speakers: economy The broad economy Keynote speakers: real estate Real estate, etc. Keynote speakers: stock analysis China, ETFs, hedge funds Valuation techniques Breakout sessions Equity analysis with Cleveland Research Social media Unconventional income generation Hedge fund value to investors and economy

Keynote speakers: economy The broad economy

Keynote speakers: real estate

Keynote speakers: stock analysis

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Keynote speakers

Manufacturing will not overtake consumption as major GDP contributor (LS).

GDP is a measure of output. Say we produce $100. $60 is consumed and $40 is exported. Therefore we consumer more than we export. Conclusion: still a consumption drive society. But where is the $60 of income coming from when we only bring $40 into the country?

High gas prices are good (L).

For who? Not for those where a tank of gas is a large percentage of their income. Maybe good in the sense of forcing us to be more efcient with our consumption and manufactures to produce more efcient cars.

Keynote speakers: economy The broad economy

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More worried about public debt than private debt. Private industry is doing well with debt service and deleveraging. (LS)
Classic survivorship bias. All the rms that went bankrupt do not exist. All that remain are the strong rms. I would argue all remaining rms beneted directly or indirectly from bailouts.

Government spending in Europe is up. United States government spending is down. (LA)
Put in this perspective the U.S. is not doing so bad.

Austerity during a downturn is the wrong idea. The results of the experiment are in. (SL)
The previous comment appears to contradict this. However, I believe US spending went up rst and is down now. This is also in reference to the Mistake of 1937 when interest rate hikes and austerity were proposed to combat a perceived pending ination spiral. That policy reversal lead to one of the worst recessions on record (Eggerston and Pugsley 2006).

Keynote speakers: economy Real estate, etc.

Keynote speakers: real estate

Keynote speakers: stock analysis

Breakout sessions

Outline
1

Keynote speakers: economy The broad economy Keynote speakers: real estate Real estate, etc. Keynote speakers: stock analysis China, ETFs, hedge funds Valuation techniques Breakout sessions Equity analysis with Cleveland Research Social media Unconventional income generation Hedge fund value to investors and economy

Keynote speakers: economy Real estate, etc.

Keynote speakers: real estate

Keynote speakers: stock analysis

Breakout sessions

Keynote speakers
Financial planning is a growing industry. (LS)
I am not sure why. The already wealthy people already have nancial advisors. The rest of us have seen our wealth drop.

From 2005 to 2007 we had offsetting activities in the real estate market. Stock price declines discouraged building. Banks offering easy lending encouraged building. (LY) 90 % of stated income loans were lies. (LY) We need government backing for mortgages to happen. Otherwise the cost of nancing a home would be too high. (LY) America is an Economic superpower because of Wall Street. But, ATM machines may be the only nancial innovation that beneted society. (LY)
Huh?

Keynote speakers: economy Real estate, etc.

Keynote speakers: real estate

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As Americans remained unemployed their skills atrophy. This could lead to a permanent unemployed class. (SL) When measuring market volatility as the number of days with swings greater than 1%, volatility has increased to 15% from X. US on. China off. (AY) The median low point from 1972-2012 was -4% for the S&P 500 and -6.4% for the MSCI EAFE. (AY) Bearish on gold relative to stocks. (TL) Over the long term gold does not outperform the S&P 500. Gold is overpriced but will lower p . (AY) Uncorrelated assets include natural gas and real estate. (TL) It is a good time to short debt. (PG) Short long-term treasuries. (AY) Invest only the amount you are comfortable with leaving there for a while. Match your emotion with the size of the investment. (AY)

Keynote speakers: economy Real estate, etc.

Keynote speakers: real estate

Keynote speakers: stock analysis

Breakout sessions

Keynote speakers: economy China, ETFs, hedge funds

Keynote speakers: real estate

Keynote speakers: stock analysis

Breakout sessions

Outline
1

Keynote speakers: economy The broad economy Keynote speakers: real estate Real estate, etc. Keynote speakers: stock analysis China, ETFs, hedge funds Valuation techniques Breakout sessions Equity analysis with Cleveland Research Social media Unconventional income generation Hedge fund value to investors and economy

Keynote speakers: economy China, ETFs, hedge funds

Keynote speakers: real estate

Keynote speakers: stock analysis

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Keynote speakers
Beware of China stocks. (AY) A potentially protable strategy would be to get a big mortgage and short treasuries. (PG)
Mortgage rates are low but will go up. Interesting idea.

Triple leveraged ETFs are or can be toxic. Returns tend not to match leverage. (TL)
Another nancial innovation gone awry. See previous comment on ATM machines.

Hedge fund models are under pressure to produce returns. They have too many assets. (TL)
The price impact of trade increases with the size of the trade. Hedge funds may have more dollars than high growth opportunities out there.

Consider fundamental weighting vs. market value weighting vs. equal weighting. Buffet is a franchise investor. (PG)

Keynote speakers: economy Valuation techniques

Keynote speakers: real estate

Keynote speakers: stock analysis

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Outline
1

Keynote speakers: economy The broad economy Keynote speakers: real estate Real estate, etc. Keynote speakers: stock analysis China, ETFs, hedge funds Valuation techniques Breakout sessions Equity analysis with Cleveland Research Social media Unconventional income generation Hedge fund value to investors and economy

Keynote speakers: economy Valuation techniques

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When discounting cash ows use g = 0 with a lower discount rate. MRP = 4.7% and Rf = 2.2%. (TL) When the news says buy you should sell. When the cab driver talks about stocks, sell. (AY)
Joseph Kennedy made the same comment around 1940.

A growing economy without employment gains is a concern. (RP)

So who is beneting from the growing economy?

Ination expectations set actual ination. (RP) Equity wealth is important for household wealth. (RP)
My poor mother doesnt own any stocks. She can not afford them. Food comes rst. So her household wealth is not increasing.

Keynote speakers: economy Valuation techniques

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We use DDM, DCF, P/E, P/S. Short treasury bonds. Valuation trumps timing. (A)
Do DDM, DCF, P/E, P/S. Dont try to time the market, i.e., forget things like doubling down.

More money is to be made on the downturn. Markets move downward faster than upward. (GA)
Sounds good but how do you exploit downturns without timing the market?

Establish who you are. Are you an investor or a trader? Do not ght against who you are (GA)
Student Investment Fund. Therefore we are investors. Do not ght against it.

There is 10X more money in Socially Responsive Investments than 8 years ago. P/E increase with green-ness. (A)

Keynote speakers: economy Valuation techniques

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Application of DCF models in December 2011 revealed the market was overly pessimistic. (A): Earnings growth g = 15%, valuations were attractive, corporate balance sheets looked good.
Dont forget to include P/E and P/S in your pitches!

Decimalization was bad. Markets were better and less volatile when spreads were larger. (L)
But there were academic studies that showed improprieties with 1/8ths and such: larger spreads lead to higher prots for brokers.

Do limit orders only. The ETF model is not a management fee model it is a spread model. (L)
Cant win. Limit orders can be viewed as a free option for the market. Market orders can be executed to the benet of brokers.

Keynote speakers: economy Equity analysis with Cleveland Research

Keynote speakers: real estate

Keynote speakers: stock analysis

Breakout sessions

Outline
1

Keynote speakers: economy The broad economy Keynote speakers: real estate Real estate, etc. Keynote speakers: stock analysis China, ETFs, hedge funds Valuation techniques Breakout sessions Equity analysis with Cleveland Research Social media Unconventional income generation Hedge fund value to investors and economy

Keynote speakers: economy Equity analysis with Cleveland Research

Keynote speakers: real estate

Keynote speakers: stock analysis

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Notes
Financial models are commodities.
But still part of the mosaic of analysis.

The emphasis is on why g = 10%. Is it a good number? What inputs are used to arrive at 10% Why will sales be up 10%?
Expertise and effort needed to see where truth is located in sensitivity analysis matrices.

CR shares their information with companies under analysis.

Can help those companies improve their efciency.

Not so much with valuation analysis (P/E, etc.). More effort on near and long term catalysts. Does management do what they say?
Read: are forecasts met on missed?

They contact the company, suppliers, customers, etc.

Keynote speakers: economy Social media

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Keynote speakers: stock analysis

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Outline
1

Keynote speakers: economy The broad economy Keynote speakers: real estate Real estate, etc. Keynote speakers: stock analysis China, ETFs, hedge funds Valuation techniques Breakout sessions Equity analysis with Cleveland Research Social media Unconventional income generation Hedge fund value to investors and economy

Keynote speakers: economy Social media

Keynote speakers: real estate

Keynote speakers: stock analysis

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Notes
Twitter likely to be bigger than FB News hits twitter rst.
Who does the SIF twitter account follow?

Twitter can be used to draw attention to blogs. Blogs can be used to disseminate information. Blogs let employers know how smart you are.
Near graduation? Start a blog. Put intelligent information there. Put link on your resume!

Morgan Stanley (1) does not allow employees to use Facebook, (2) has a pre-approved library of tweets, and (3) does not allow employees to use ! in communications.
Odd since Morgan Stanley is the lead in the Facebook IPO!!!

Tweets Algorithms Trades. Algorithms can also generate tweets.

Algorithmic trading can be used for evil.

Keynote speakers: economy Unconventional income generation

Keynote speakers: real estate

Keynote speakers: stock analysis

Breakout sessions

Outline
1

Keynote speakers: economy The broad economy Keynote speakers: real estate Real estate, etc. Keynote speakers: stock analysis China, ETFs, hedge funds Valuation techniques Breakout sessions Equity analysis with Cleveland Research Social media Unconventional income generation Hedge fund value to investors and economy

Keynote speakers: economy Unconventional income generation

Keynote speakers: real estate

Keynote speakers: stock analysis

Breakout sessions

Notes
Ination is different for older people due to medical care costs.
Interesting. In the same vain, ination for truck driver may be different than that for a ball player.

Fixed income rates are low (debt also) but wages are steady. Utilities are over-bought.
Someone checkout the stock price of a utility company vs. S&P500 over the last couple of years.

Every sector globally pays more dividends than the U.S. Foreign companies tend to maintain dividends while U.S. companies tend to cut. Companies have been hoarding cash for the past three years. Be mindful of bond risk/return tradeoff vs. equity for a given company.

Keynote speakers: economy Unconventional income generation

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Notes
Unconventional asset classes include REITs, sub-prime mortgages, market neutral, high yield xed income, and foreign dividend yielding equity.
So we should by Greek bonds?

The S&P 500 dividend payout ratio is at a historically low 30%. Emerging market countries have low debt and high growth. Rf = 6.5% for emerging markets and Rf = 0.5% for developed markets. In Germany must be put 40% down to purchase a home. The default rate is low for high yield instruments because of 50 year high in cash reserves.
Sounds like Michael Milken and his junk bond scam.

50/50 portfolios have not had a negative 5 year return in the past 50+ years.

Keynote speakers: economy Hedge fund value to investors and economy

Keynote speakers: real estate

Keynote speakers: stock analysis

Breakout sessions

Outline
1

Keynote speakers: economy The broad economy Keynote speakers: real estate Real estate, etc. Keynote speakers: stock analysis China, ETFs, hedge funds Valuation techniques Breakout sessions Equity analysis with Cleveland Research Social media Unconventional income generation Hedge fund value to investors and economy

Keynote speakers: economy Hedge fund value to investors and economy

Keynote speakers: real estate

Keynote speakers: stock analysis

Breakout sessions

Notes

Hedge funds improve pricing in market particular via shorting of stocks. China does not allow shorting of stocks.
Sounds good in theory. I wonder if it is true in practice.

Hedge funds tend to be uncorrelated to the market.

You think? With all of that shorting of course.

Most hedge funds do not hedge. Look into ADX index. Hedge funds shorted this then the real estate bubble burst.
Compare this to the rst bullet point on this slide.

End result: efcient allocation of capital

Keynote speakers: economy Hedge fund value to investors and economy

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Notes
The hedge fund fee structure is different than that of mutual funds. 2% off the top and 20% of the upside. What hedge funds do best: answer questions like will the new product work? Will the new management help? Hedge funds do not do valuation better than anyone else. Hedge funds talk to company management just like Cleveland Research. Hedge funds tend to make more money on long positions than short.
Contradicts 3. However, markets move upward in the long term.

Successful people are persistent. Make yourself indispensable.

Keynote speakers: economy Hedge fund value to investors and economy

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Notes
Getting balance sheets back in order could take another 5 to 20 years. This applies to personal, corporate, and government debt. Hedge funds are contacted 100 to 200 times a day by liars asking for money. The panelist was very defensive when asked about the cons of hedge funds. The panelist claimed Hedge funds reduce market volatility.
Hedge funds are crowding into more of the same trades these days, amplifying market swings during crises... - Strasburg and Pulliam, January 14, 2011 WSJ

Parting thought from Dr. Moore: Hedge fund managers claim their short positions facilitate efcient pricing of assets.
So, when the stock is no longer over-valued do they close out their short position? If they do not, and drive a price below its intrinsic value, they are not of benet to the market.