UD Osher – OLLI

Investing for Successful Retirement

UD Osher – OLLIFall 2021

Rajeev A. VaidyaRon Materniak Jane Roe-Fox

19 October 2021Rajeev Vaidya -

https://knowhowtoinvest.com 1

Disclaimer in plain language

Opinions are like noses, everyone has one !

You are going to see mine in this course !!

We are simply sharing our perspective.

This is not investment advice or recommendation.

Ron, Jane and I are not a financial advisors.

This course is for educational purposes only.

Form your own opinion, make your own investment decisions.

Disclaimer – in plain language:



Current State of the market – 20 minutes

Investing in individual EquitiesWhy?Styles – Value, Growth, MomentumHow? – The 5 Basic Steps

This week – Oct 20th



Atlanta FED GDP Nowcast

https://www.atlantafed.org/cqer/research/gdpnow

3.7% on 9/212.3% on 10/11.3% on 10/51.3% on 10/81.2% on 10/150.5% on 10/19



https://www.atlantafed.org/cqer/research/gdpnow

JPM High speed – Credit card data

https://markets.jpmorgan.com/research/open/latest/publication/9002054



Risks• Path of the pandemic• Unemployment• Supply Chain Issues

https://markets.jpmorgan.com/research/open/latest/publication/9002054

S&P 500 Earnings – Factset 10/15/’21https://www.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_101521.pdf

• 8% reported – 80% positive EPS surprise.

• Q321 EPS growth 30.0% vs. Q320 was 27.6% last week.

• Likely result will be ~ 34%

• Fwd. looking P/E ratio = 20.3 (was 20.5 last week)

• Bottom-up S&P 500 Year end estimate is now at 5053.43, was 5051.70 last week

Estimates for the next three quarters are 12.1%, 12.5% and 12.8%



https://www.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_091021.pdf

Corporate Earnings - CFRAhttp://www.sectorspdr.com/sectorspdr/features/sector-research-center - CFRA sector valuation report

Forward 12 month earnings implied P/E

is 21.75Earnings bottom ? Up vs. the fcst. last

week.

CFRA EPS fcst. 2021 20228/27/2021 $200.01 $217.93

9/3/2021 $200.06 $217.77

9/10/2021 $200.08 $217.97

9/17/2021 $200.11 $217.82

9/24/2021 $199.74 $217.39

10/1/2021 $199.78 $217.05

10/8/2021 $199.95 $217.74

10/15/2021 $201.14 $218.00

Quarter Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022S&P 500 Earnings 38.77$ 41.47$ 42.23$ 41.57$ 34.16$ 27.72$ 38.84$ 41.80$ 48.72$ 52.26$ 49.33$ 50.83$ 51.29$ 54.13$ 55.38$ 57.21$

164.04$ 142.52$ 201.14$ 203.71$ 205.58$ 218.01$

S&P 500 earnings - CFRA 10/015/2021



http://www.sectorspdr.com/sectorspdr/features/sector-research-center

https://knowhowtoinvest.com/ - Issue # 9 July 2020

4200

40003500



https://knowhowtoinvest.com/

Close on 10/4 was a 5.2 % correction from the high on 9/2/21. 21 trading days to low. 11 since low.




Investing in individual EquitiesWhy?Styles – Value, Growth, MomentumHow? – The 5 Basic Steps

This week – Oct 20th



Types of Risk

Systematic Risk – macroeconomic and other “system” events that influence the value of financial assets in general.

Unsystematic Risk Risk in the Stockmarket

How stocks will perform in the current financial environment. Measured by volatility in the asset class Correlation of the asset class to the economy and other asset classes.

Risks to specific sectors / industries within the stock market. How the industry will perform in the current economy Measured by volatility in a specific sector

Risk in a specific company within the sector/industry How the company performs in the sector/industry What happens to that company Measured by Beta for that company within the market.

Why are you taking risk?

Vola

tility

incr

ease

s

Effo

rt in

crea

ses



https://www.morningstar.com/articles/1035348/how-many-stocks-beat-the-indexesJohn Rekenthaler – MorningStar - 4/26/2021

Your odds as a buy and hold investor



https://www.morningstar.com/articles/1035348/how-many-stocks-beat-the-indexes

Dividend & Treasury Yields

http://indexarb.com/dividendYieldSorteddj.html – 12mon fwd. looking dividend yields for the Dow 3019 of the 30 DJIA stocks have an expected yield > 2.0% as of Oct 16th 2021

Sure Dividend Newsletter – website data - 373 Russell 2000 Stocks have a Dividend yield > 2.0%

https://www.yardeni.com/pub/dividends.pdf



http://indexarb.com/dividendYieldSorteddj.html

https://www.yardeni.com/pub/dividends.pdf

Investment Styles

Momentum Investing – we covered this in detail last semester Follow the big boys Today’s winners will beat today’s losers tomorrow

Value Investing Good companies with growth prospects Selling at a discount vs. market / peers and current / future valuation

Growth Investing Companies with high growth and more potential to grow Good growth – strong underlying demand trend, sustainable competitive

advantage Investing for Income – we covered this in class 5 on Oct 6th

High quality growing companies with high and growing dividends As bond substitutes with adequate protection of principal



Momentum Investing

October 21 18Rajeev Vaidya -

https://knowhowtoinvest.com

https://www.investopedia.com/terms/m/momentum_investing.asp

Buy companies that have grown the most in price. Today’s winners will do better tomorrow than today’s losers. More technical than fundamental analysis Follow the trend Buy High .. Sell Higher

Buy with holds to minimize losses Ride winners

Hold periods can vary, buy and sell on technical signals. Companies tend to have high P/Es (if meaningful) and higher Betas

https://www.investopedia.com/terms/m/momentum_investing.asp

Winners keep winning



Momentum – the “N”, “K” strategy• Buy stocks in the top decile of performance over the last “N” weeks

• N is 13 to 52 weeks … 26 to 52 best.• Hold them for “K” weeks

• K is 13 to 52 weeks• K is typically shorter than N … higher K’s reduce profits.

• Rotating portfolio … updated monthly for the last 12 months• Impractical for the average investor.

• Persistence in winners• Challenges the Efficient Market Theoryhttps://anderson-review.ucla.edu/momentum/

Jegadeesh and Titman – Journal of Finance 1990, 1993 and 2001 … in the UD on-line library.

https://anderson-review.ucla.edu/momentum/

Momentum Investing:Rules of the party



Don’t be the first one at the party Established trend

Don’t be the last one to leave Never wrong making a profit This is not a buy and hold investment.

Don’t waste time examining the fundamentals Crowd appeal and the “story” matter.

https://knowhowtoinvest.com/ - Issue # 14 Dec 2020

https://knowhowtoinvest.com/

Investment strategy / style - Growth

Buy Good companies that will grow sales and earnings faster than the market / their peers. Find companies with demonstrated high growth, that have the potential

to continue growing fast. More fundamental analysis than technical analysis Buy High .. Sell Higher

Buy with holds to minimize losses Ride winners

Hold periods can vary, but can be long with good leading companies with long growth runways.

Companies tend to have higher P/Es and higher Betas.

GARP – Growth at reasonable price. Growth and Value PEG is commonly used metric.



Investment strategy / style - Value

Buy Good quality companies when the market price is below potential value. Sell when the shares rise and become overvalued. Find high quality growing companies More fundamental analysis than technical analysis Wait for good buying opportunities

Buy when you see a catalyst for the market to see the value Buy Low Sell High

Typical hold periods are long. Must have a catalyst and liquidity in the up move



This is a good investment because …….

This is a good price / entry point to buy because …….

Investment thesis:ValuationEntry Point:

If I am right, I will make gains by selling the stock @ …….

If I am wrong, I will limit losses by exiting the position @….

Exit Rules:

I can buy XXX shares for my portfolio

Position Size:

Buying an Individual StockDisciplined buying

70% 30%



Indicators of Quality

A bad stock is not worth owning at any price!!

First Investment Decision: QualityIs this a good company to own?

Demonstrated sales growth in a growth market Demonstrated earnings growth Good Profit Margins High return on Invested Capital and Equity Good Management Team

Typically we are looking for leaders in an industry group. It is very important to understand a company relative to its peers in an

industry Comparison of financial measures across industry groups can lead to

misleading conclusions.



The 9 Buffet questions

Consumer monopoly in a growth market? Strong earnings with an upward trend? Conservatively financed? Consistent high return on equity? Are earnings retained? Small expenditures to maintain operations? Management track record in investing retained earnings Can company adjust prices with inflation? Do retained earnings increase market value?



Investment thesis

The industry leader XYZ is a good investment because: Reason 1 Reason 2 Reason 3

Risks to this investment are Risk 1 Risk 2

Come back to re-examine this thesis frequently



p/e ratio dividend yields book value p/cash flow ratio p/sales ratio

Fundamental AnalysisValue: Is this a good price to buy at?

Measures of value Benchmarks of value

vs. history vs. industry peers vs. market

Sources of information• Value Line sheet• CFRA report• Ford Equity Report

What is the right range for these valuation ratiosFor the company in question?

How does the current value for these ratios compare to this range?

What is the future potential value for the company?



The easy way

Minimum calculations

Analyst reports Value Line CFRA Ford Equity Report The Street Quant Report

What are the forecasted target prices?



Support Levels

Term from technical analysis:Definition: A price range where the market has repeatedly reversed a

downward trend. Support levels can be read from the stock chart

Support levels Offer downside protection Offer a place where prices will slow down in a decline If penetrated by a downtrend can signify further downside.

Support levels are a good marker for Rethinking a buy decision Stop orders



Position Exits

What will I do to limit losses if my bullish view is wrong?

Position exits Just Below a support level or a moving average A fixed % or amount of loss

Maximum projected loss per share Buy price – planned exit price.



Price

Planned Exit Price(support levels in the chart)

Estimated High Price(from the valuation work)

Current Price

Upside = Projected Hi - Current

Downside = Current - Exit

U/D Ratio =UpsideDownside

Buy with Good Upside Downside Ratio



Buy with good projected returns

Price

Estimated Low Price

Estimated High Price

Current Price

% gain = Hi price

Current priceX 100 - 100

Investments can generate returns in two ways: Dividends Capital gains - Stock price appreciation

Time is a factor – Capital gains per year (CAGR) Total return per year = CAP Gains CAGR +

dividend yield 15% per year – doubles money in 5 years Total return should be more than projected

market average – source Value Line



This is a good investment because …….

This is a good price / entry point to buy because …….

Investment thesis:ValuationEntry Point:

If I am right, I will make gains by selling the stock @ …….

If I am wrong, I will limit losses by exiting the position @….

Exit Rules:

I can buy XXX shares for my portfolio

Position Size:

Buying an Individual StockDisciplined buying

70% 30%



1. Set these parameters for your portfolio.A. Max position size for any one investment in the portfolio – 1-5%B. Max loss tolerated in any single investment

i. As a % of the total portfolio – 1%ii. As a % of the single investment – 5-10%

2. Calculate maximum number of units of any investment based on:1. Limiting max. position size in portfolio = Formula 12. Limiting max loss per investment in portfolio = Formula 2

3. Pick the lesser of the two numbers as your max position size.

Position sizing rule:




Sources of information for StocksYour brokerUD Library – Value Line, OthersOthers

Next week – Oct 27th



Monthly Newsletter

All proceeds donated in INR to charitable foundation operational for the last 9 years.

Helped over 30,000 children with learning disabilities

Helping Children with Learning Disabilities achieve their potential shantavaidyafoundation.org

Inve$t-edthe investment education newsletterhttps://knowhowtoinvest.com/



Thanks !!

Happy Investing !!

My [email protected]

Class websitehttp://udel.edu/~diyinvst



UD Osher – OLLI

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