The Most Importanat Question In Investments

We Build and Preserve WealthElmwoodWealth Management

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The Most Important Valuation Question In Investments

Bob Gillooly, CFA



Are things getting better, or worse?



All things equal, every asset has an equilibrium or fair market value, but more often than not these assets trade above or below their calculated fair market value.



Question:

If your own financial situation is getting better, will you spend more money?

Answer:

Most people will begin to spend more as their finances improve, and the same is true for investors. Investors will pay more or assign a higher valuation for either an improving situation or one with consistency and visibility.



If All Things Were Equal…

a) Investors will pay a higher valuation for investments with greater profitability

b) Investors will pay a higher valuation for investments with greater consistency.

High Profitability

High Profitability

High Degree of Consistency

Low Profitability

Low Degree of Consistency


Hig

h P

rofi

tabi

lity




Question:

How do you decide if something should be above or below fair value?

Answer:

Look for accelerations and decelerations

•How are margins and profitability improving?•How are earnings and revenue improving?•How are results relative to its’ own history?•How are results relative to its’ peers or the market?



Question:

What kind of company are you analyzing?

Answer:

The answer to this question will determine the appropriate type of valuation metric to use.

•Cyclical?•Growth•Mature growth?•Cash flow?

•Price/Earnings ratio•Price/Book ratio•Price/Cash flow ratio•Dividend discount model•Discounted cash flow model



Summary:

Valuation shouldn’t be considered in a vacuum, or on a static basis. Recognize what has transpired in the past, and it will improve your valuation of the future.



Appendix:

1. Chart of Autodesk2. Chart of Red Hat Software3. Chart of Dow Chemical4. Chart of Apple5. World Earnings Revisions6. Emerging Market Profitability7. Global Equity Valuations – Developed Markets8. Global Equity Valuations – Emerging Markets



















Shannon Lemon, CFP

Shannon’s primary responsibilities include working directly with our clients on assessing their

financial situation and putting a plan in place to meet their financial goals. Prior to co-founding

Elmwood Wealth Management, Shannon worked for Osborne Partners Capital Management for

18 years and was their Chief Compliance Officer and a principal of the firm. Shannon holds the

CFP designation and received a B.A. from the University of Colorado at Boulder.

Our Team:

Robert C. Gillooly, CFA

Bob is a portfolio manager and member of the Elmwood Investment Committee. His primary

responsibilities include U.S. domestic stock and bond research, as well as working with our

financial planners on setting asset allocation for client portfolios. Prior to co-founding Elmwood

Wealth, Bob worked for Osborne Partners Capital Management for 18 years and was their Vice

President, Chief Operating Officer and a principal of the firm. He was a voting member of the

four person investment committee responsible for choosing individual securities and setting

asset allocations for over $1 billion of client funds. Bob also had sole responsibility for setting

strategy for their approximately $300 million bond portfolio. Bob holds the Chartered Financial

Analyst designation and received a B.A. from the University of Michigan.

Steve Caltagirone

Steve is a portfolio manager and financial planner with Elmwood. Steve works directly with our

clients to assess financial goals and objectives throughout each stage of the financial life cycle.

Prior to joining Elmwood, Steve worked for Osborne Partners Capital Management where he

advised clients across a wide range of portfolio and financial planning matters. Previously, he

served as a portfolio manager with Bingham, Osborn and Scarborough. Steve received an MBA

from Vanderbilt University and a B.S. from St. Mary’s College of California.



Bob Gillooly, CFA Shannon Lemon, CFP Steve Caltagirone

510-858-2721 510-858-2722 510-903-5928

[email protected] [email protected] [email protected]

Elmwood Wealth Management

2027 Fourth St., Suite 203

Berkeley, CA 94710

(510) 858-2723

www.ElmwoodWealth.com

mailto:[email protected]



http://www.elmwoodwealth.com/



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The information in this presentation is intended for U.S. Residents only and is not intended for distribution in any jurisdiction

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determination that a particular product or service is suitable for any individual. This information should not be relied upon in

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are the sole responsibility of the visitor or recipient.

This information is not intended to be used as a general guide to investing, or as a source of any specific investment

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The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk. Past

performance is not indicative of future results, which may vary. The value of investments and the income derived from

investments can go down as well as up. Future returns are not guaranteed, and a loss of principal may occur.

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The Most Importanat Question In Investments