Culverhouse Investment Management Group

Training Session – Spring 2015Day 3 – Equity Research Methodologies

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EQUITY RESEARCH METHODOLOGIES

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Question Everything

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Why do research?

1. The market is erratic2. People are emotional3. To render reasons 1&2 obsolete

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What are we trying to avoid

• Risk– Risk is losing permanent capital– Beta• Beta is incorrect

– MOS saves risk• Pay too much for something you introduce risk

(becomes a speculation)• Larger discount, higher return, lower risk

– Taught that higher return needs higher risk

• Emotional fervor

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What are we looking for

• Cheap?• Moat• Management• Money• Unreasonable downturn• Stable capital structure

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Read

• Read• Read• Read• Eat• Read• Sleep • Read

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Starting Points

• Mr. Drunk– Research is key

• Bottom Up vs. Top Down– Screens– News – Financials– Multiples

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Important Websites

• http://mycba.ua.edu/cimg• Google Drive

– Watchlist and Current Holdings• http://seekingalpha.com/• http://library.morningstar.com/• http://www.mergersandinquisitions.com/• http://www.investopedia.com/• http://online.wsj.com/home-page• http://www.sec.gov/edgar/searchedgar/companysearch.html• http://www.finance.yahoo.com/ • Http://www.ibisworld.com/

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Identifying Opportunities

• Value Screens• 52-Week Low Lists• Value Blogs• 13-F Filings– Warren Buffet- Berkshire Hathaway– Seth Klarman- Baupost Group– Mason Hawkins- Longleaf Partners– David Einhorn- Green Light Capital– Mario Gabelli- BAMCO Investors, Inc.

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Evaluating a Company

• Once you have found a company you need to do an initial evaluation

• This includes: – Reading the 10-k to learn more about the industry

and company as a whole– Looking for competitive advantages– Checking financial health

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Industry

• Movement• Exposures• Competition– Size?– Diversification?– Geographic reach?

• Ratios• Advantages

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Company

• What do the numbers tell us?• Growth drivers?– Organic?– Synergies? – Commodity exposure?

• Highly levered?– Why?

• What is the market missing?

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3 M’s

• Moat• Management• Money