october 29 th 2012. common cents investment group october, 2012 agenda t-shirt pre-orders today in...
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Common Cents Investment GroupOctober, 2012
Agenda
T-Shirt Pre-orders Today in the Market Arbitrage Basics Stock Pitches Investopedia
Common Cents Investment GroupOctober, 2012
Today in the Market
Windows 8 may have a big impact on the market
Released last Friday Watch the technology industry
Microsoft Samsung Intel Toshiba Lenova HP Acer
Common Cents Investment GroupOctober, 2012
Today in the Market
Dell Inc. (DELL) Almost nearing their 52wk low Looking at Stochastic - %K(15) 12.80 MACD – 0.27 RSI – 33.91
Falls into the “Oversold” category
Common Cents Investment GroupOctober, 2012
Today in the Market
Fundamental Analysis Next earnings date – Nov 15th
Comfortable in the consumer electronics?
Dell has a clean balance sheet Record-breaking cash flows last year
Dell’s future growth will probably not come from PCs at all
Common Cents Investment GroupOctober, 2012
Today in the Market
Price of DELL may fall in the near future as cash flow is invested in new enterprises for Dell Inc. May be undervalued due to a theory that
“PCs are dead” Emerging tablet market is strong and is
paralleled by the smartphone market PCs are still the “trusty steed” of computing
Overall, my thought is that DELL is undervalued
Common Cents Investment GroupOctober, 2012
Today in the Market
Really good article summarizes my similar thoughts http://seekingalpha.com/article/957091-
dell-a-growth-story-in-deep-value-territory
Common Cents Investment GroupOctober, 2012
Today in the Market
Hurricane Sandy has a big impact on the market Gasoline prices shoot up Stocks fall NYSE/NASDAQ shuts down for the Monday
& Tuesday First time it’s been shut down due to weather
for 2 days since 1885
Common Cents Investment GroupOctober, 2012
Useful Definitions
Mutual Fund: An investment fund made up of a pool of funds collected from many investors for the purpose of investing in securities. Mutual funds are operated by money managers,
while each shareholder participates proportionately in the gain or loss
Hedge Funds: A mutual fund for rich people. Usually, very aggressively managed using
advanced strategies by accredited investors
Common Cents Investment GroupOctober, 2012
Arbitrage
Arbitrage: The simultaneous purchase of an asset in order to profit from a difference in price. Can be seen in two forms
Pure Arbitrage: Also known as “Riskless Profit” Share Class Arbitrage Risk Arbitrage
Common Cents Investment GroupOctober, 2012
Pure Arbitrage
A trade that profits by exploiting price differences of identical or similar financial instruments, on different markets or in different forms. Exists as a result of market inefficiencies Ex: One stock trades on the NYSE and its
corresponding futures contract trades on the Chicago Exchange…if one becomes cheaper than the other…a trader could short sell the expensive one and buy the cheaper one.
Common Cents Investment GroupOctober, 2012
Pure Arbitrage
Ex: One stock trades on the NYSE and its corresponding futures contract trades on the Chicago Exchange If one becomes cheaper than the other
A trader could short sell the expensive one And buy the cheaper one. Make a profit off both transactions
Common Cents Investment GroupOctober, 2012
Pure Arbitrage
Almost impossible to notice for average retail investors
Market makers use computer programs to spot opportunities and capture profit instantaneously
Opportunity generally exists for a few seconds or minutes
Common Cents Investment GroupOctober, 2012
Share Class Arbitrage
*Old Example* Chipotle had two share classes
CMG traded around $49 CMG.B traded around $43 A $6 arbitrage profit spread if shares
converge B shares have 10 times the voting rights of A
share, but B shares are less liquid and have no options
Historically, share prices do converge
Common Cents Investment GroupOctober, 2012
Share Class Arbitrage
Greif, Inc. GEF - $42.57 per share GEF.B - $45.89 per share
B shares are attributed 150% of the earnings and dividends of A shares
Management and family own a large proportion of B shares
Common Cents Investment GroupOctober, 2012
Risk Arbitrage
Buying/Selling securities based off of knowledge that a companies financial structure is changing
May include: Merger Arbitrage Liquidation Arbitrage Pairs Trading
Hedge fund trades
Common Cents Investment GroupOctober, 2012
Risk Arbitrage
Merger arbitrage (in the case of an equity exchange) usually involves buying shares of one company and shorting shares of another company Similarly, buyout arbitrage involves
“betting” that a buyout will indeed occur In the buyout setting, the stock must be
currently trading at a discount of the buyout price
Common Cents Investment GroupOctober, 2012
Risk Arbitrage
Ex: DOW offers to acquire Rohm and Haas Co. (ROH) for $78 per share ROH shareholders approve, and financing
is secured ROH traded around $73-$74 per share
prior to buyout Potential gain of 5%-6%
Common Cents Investment GroupOctober, 2012
Risk Arbitrage
Meadow Valley Corp. (MVCO) Phoenix & Las Vegas area construction company
Private equity buyout at $11.25 per share Prior to buyout, stock traded around$7-$8 per
share Indications of higher risk:
Construction slowed down considerably Private equity struggles to secure financing It’s hard to understand what circumstances the
buying party can cancel the deal
Common Cents Investment GroupOctober, 2012
Risk Arbitrage
Where to find out more about buyouts within companies SEC Filings Contact the company’s investor relations
department
Common Cents Investment GroupOctober, 2012
Membership
Cost is only $20 for the whole year! Benefits:
Member of a very beneficial and informative club that will inevitably be valuable in your future
A network of friends who share a similar interest in investing and personal finance
A virtual portfolio challenge that will strengthen your confidence in investing
Common Cents Investment GroupOctober, 2012
Membership
Make sure to check out our website for the presentations Monday night | ccig.osu.edu
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