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Global markets panel

Global venture capital

Fixed income panel

Viewing stocks as bonds

Alternative investments

2013 Financial Asset Management Education V
Conference notes

David J. Moore, Ph.D.
www.efficientminds.com

November 25, 2013

Global markets panel

Global venture capital

Fixed income panel

Viewing stocks as bonds

Alternative investments

Outline

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Global markets panel Global venture capital Fixed income panel Viewing stocks as bonds Alternative investments

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Global markets panel

Global venture capital

Fixed income panel

Viewing stocks as bonds

Alternative investments

Positives and negatives 1/2
Axel Merk (AM)
(+) Asset prices do not reflect fundamentals due to policy maker intervention. That is okay because it makes things more predictable. (+) We are lucky that policies don’t work. ? (−) Economic growth is slow because of (1) too much debt and (2) imbalances

Stephane Prunet (SP)
(+) More scandals -> more regulation (+) Government and central banks have avoided the worst (+) Re-shoring of jobs (−) Shadow banking: we have more hedge funds with more derivatives (−) Slow regulatory reforms (−) Income inequality

Global markets panel

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Fixed income panel

Viewing stocks as bonds

Alternative investments

Positives and negatives 2/2

Stephen Malinak (SM)
(+) We have more places to invest (hedge funds invest everywhere) (+) More data to base investment decisions on Apparently advocates the “Global Market Wealth Portfolio,” i.e., asset allocation should match the allocation of global wealth.

Tanya Beder (TB)
(+) Companies like LinkedIn shorten the distance between buyers and sellers.

Global markets panel

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Alternative investments

Where is your money?

TB: 13% of assets in cash, 3D printing, liquified natural gas, crowd financing SP: Long Euro, Long cash, Euro value stocks, Africa Others: cash seemed to be common

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Miscellaneous comments
SP
Stay away from big indexes because they concentrate risk. The Euro is like marriage: everybody in wants out and everybody out wants in.

AM
Against policy that causes interest rates and risk to diverge. This increases the wealth gap when high risk low interest consumers lose their job. The Euro is a political project not an economic project Investing in international equities increases β not α . International currencies are good to have in your portfolio since they are uncorrelated. Keep in mind AM runs a currency mutual fund. Quantitative easing explains the market being at an all time high. Low volatility + rising asset prices = bubble

Global markets panel

Global venture capital

Fixed income panel

Viewing stocks as bonds

Alternative investments

Dixon Doll on current VC environment
Managing member of DCM, an early stage venture capital firm. Invests primary in Golden Triangle firms: firms that operating in the United States, China, and Japan. Venture capital (VC) drives innovation and job creation VC is now global not just Silicon Valley Small funds do better than large funds Right time to IPO: positive flow into equity funds, S&P500 strong, and volatility is low.
In other words, when there is a bubble according to the Axel Merk definition (low volatility + rising prices = bubble).

China currently does not have an equivalent to NYSE or NASDAQ. Therefore Chinese firms IPO in the U.S.

Global markets panel

Global venture capital

Fixed income panel

Viewing stocks as bonds

Alternative investments

Dixon Doll on current investment opportunities

Mobile ecosystem. In-car mobile is going to be big. Smartphones are at critical mass. Financial services B2B, B2C. VC student loan funds on the order of $1.2 trillion. Peer to peer lending Collaborative consumption such as kick starer and air bnb Wearable computing The ability to watch multiple channels in the same room on multiple devices will bring families together.
Really? I don’t believe this. The old model of a single television supervised by the parents with the whole family together seems more “together.”

Global markets panel

Global venture capital

Fixed income panel

Viewing stocks as bonds

Alternative investments

Bond market landscape
Lisa O’Conner (LO)
Correlation between risky and risk free assets matter. Aggregate demand is a disinflationary force. We have an aging population that consumes less.

David Germany
Long-term equity outperforms fixed income. One out of three decades fixed income has outperformed equities. Rates will rise eventually but the market has already priced that in.

George Friedlander
Large part of demand in the money market is housing. The slope on the muni curve is steep. Might as well go long. Detroit and Puerto Rico defaults are isolated cases. Foreign investment + current account imbalance = vulnerability Dodd-Frank removed the role of credit ratings in establishing capital measures. More risk.

Global markets panel

Global venture capital

Fixed income panel

Viewing stocks as bonds

Alternative investments

Yacktman on stocks 1/3

Yacktman Asset Management employs 9 people and manages $13.7 billion of assets for 100+ clients. Focuses on left hand side of balance sheet. That is, how well firms translate assets into earnings for investors. Believes in concentrated positions.
Top 10 holdings represent 80% of assets under management. Why purchase your 50th best stock pick?

Does not believe in bonds. Just equities plus cash. A portfolio manager should be measured from market peak to market peak. Entry price is important. It will offset a lot of sin.

Global markets panel

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Fixed income panel

Viewing stocks as bonds

Alternative investments

Yacktman 2/3
Understand the business model
Fixed assets: lower is better Market leader: yes Sensitivity to business cycles: less is better

Understand the manager: what do they do with retained earnings?
Acquire companies: risky Repurchase shares: only if done at the right price Pay dividends Repay debt Sit on it

Views stocks as bonds focusing on market leaders.
Market leader has the most market share and pays dividends. With market share comes economies of scale. In this sense it is more like a high-rated bond: a stable value investment that distributes cash to investors.

Global markets panel

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Alternative investments

Yacktman 3/3
Low fixed assets + high market share + low cyclicality = high risk adjusted return (more bond like). Do not bother talking to company manager or investor relations.
Focus on what they did (historical financial statements) rather than what they say.

Always votes against stock option packages.
Stock options are “heads I win, tails you lose.” I (the manager) do not lose. If a manager does well, as measured by ROA, pay them cash.

To view stocks as bonds evaluate forward looking risk-adjusted returns.
I have incorporated forward looking risk adjusted returns as E [R ] in the Mosaic of Stock Analysis Part 2 Examples. Some students have extended this to incorporate risk by computing E [R ] for different growth rates.

Global markets panel

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Fixed income panel

Viewing stocks as bonds

Alternative investments

Definition of alternative investment

Traditional investments: Stocks or bonds, long only Alternative investments: behaves different than traditional With alternative investments all risk is manager risk as opposed to market risk since that is supposed to be hedged. Kelly Deponte (KD)
Illiquidity and active management of company owned by the fund. Takes time to play out (3 to 4 years minimum) Hedge funds tend to have a lockup period.

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Real estate & careers

Eli Khouri (EK)
Multifamily housing is a little overdone. Average age in India is 19. You excel in things you like to do and that fit your personality. Master what you do well enough at now.

EK career approaches
Soul mate approach: wait for your perfect career match. EK doesn’t believe in this. Good enough approach: find the career you work well with. EK approach: Find the career you work well with and be passionate about that.