Generating Investment Ideas Presented by Ryan Rechkemmer
September 12, 2012
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Sage Advice It's far better to buy a wonderful company at a
fair price than a fair company at a wonderful price. I try to buy
stock in businesses that are so wonderful that an idiot can run
them. Because sooner or later, one will. Never invest in a business
you cant understand. -Warren Buffett
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Thesis Points Key arguments justifying the pitch Specific to
companys unique situation and investment time horizon Builds on
Value-Added Research (VAR) to reveal informational edge and explain
variant perception Complements valuation analysis Considers
relevant risks
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Example: Apple, Inc. New Entrants: Low -Established brand name
-Intellectual property Suppliers: Low -Economies of scale -Retains
pricing power Buyers: Moderate -Significant switching costs
-Carrier subsidies Substitutes: Moderate -Indispensible gadgets
-Incremental tech change Rivalry: High -Oligopolistic competition
-Mimicry and knock-offs Threat of New Entrants Rivalry Among
Existing Competitors Bargaining Power of Suppliers Threat of
Substitute Products or Services Porters Five Forces Analysis
Bargaining Power of Buyers
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Superb management Competitive moat Limited downside risk
Underappreciated growth potential Under-reaction to positive news
Hidden assets / overstated liabilities Actionable catalysts for
outperformance Poor management Few barriers to entry Bond downgrade
Overly optimistic projections Under-reaction to negative news
Acquisition hungry Accounting irregularities Actionable catalysts
for underperformance LongShort Long vs. Short
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What to Look for Small-cap stocks (market capitalization <
$1 B) Overlooked by most analysts Untouched by large investors
Likely to be inefficiently valued Foreign companies Same as above,
plus offers international diversification (but check with me to
make sure that MII can trade it) Special situations Includes IPOs,
spin-offs, distressed / post-bankruptcy companies, takeover /
buyout targets, etc. Potentially wide disparity between price and
value Inherent catalysts to resolve temporary inefficiency
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Easily accessible Expert opinions Current events Pros News
(including online portals like CNBC, Forbes, Bloomberg, etc.)
Widely read Potential biases Too broad Cons
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Timely commentary Individual perspective Very specific focus
Detailed analysis Pros Investing Websites Highly opinionated
Questionable veracity Possible hidden conflicts of interest
Cons
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Stock Screeners (also applies to industry browsers) Instantly
compares stocks by relative valuation, past performance, etc. Pros
Purely quantitative Anchoring bias Myopic snapshot Cons
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Informational asymmetry Discover emerging trends before
professional investors Foundational to VAR Pros Personal Experience
Potential biases Limited scope Cons
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Other Resources Professional stock reports (Standard &
Poors, Thomson Reuters, etc.) Yahoo! Finance stock screeners
(http://screener.finance.yahoo.com/newscreener.html)http://screener.finance.yahoo.com/newscreener.html
Yahoo! Finance industry browser
(http://biz.yahoo.com/p/)http://biz.yahoo.com/p/ Individual
companys annual and quarterly SEC filings
(http://www.sec.gov/edgar.shtml)http://www.sec.gov/edgar.shtml
Mutual fund and hedge fund holdings (Blue Ridge Capital, Fidelity
Contrafund, etc.)
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How to Learn More These slides will be made available on MIIs
website under the Research Presentations tab, and more information
can be found in the Fundamentals section.