OwenBloggers: Alex - MSF '08

"Man, you're young!"

As many of you know, I'm a buy-side analyst working for a mutual fund out in San Francisco.  Besides reading reports and speaking (and often arguing) with sell-side analysts and modeling, I get a chance to travel.  I'm currently covering a company (I can't say exactly) that is based in Chicago, IL and had the chance to fly out to meet the CEO and CFO.

The plane ride was uneventful and it seems that my luck for sitting next to a) a baby or b) a woman that wears too much perfume was still there.  I sat next to the latter (yikes!). After checking into my hotel, I ordered some room service and went over my questions I had prepared for management.

*Here's a tip for all of you up-and-coming analysts out there:
1) CEO's and CFO's are all briefed to keep a tight lip.  Answer the question and no more is how they're trained to handle analysts.  Thus, your job is to ask open ended questions that get them talking.
2) Let the CEO or CFO tell their story.  I've read many transcripts of earnings calls and many sell-side analysts have their own story for which they want management to confirm.  They were not interested at all in what management thinks about the business but wanted instead some justification that their model is right.  Clearly, this is not the way to do things. (Questions like these ones usually generate 'yes', 'no' responses and makes the conversation short and one-sided)

The next day I went up to the corporate office of this company and was greeted by two people from Investor Relations.  They showed me to a small meeting room where I sat down and pulled out my notepad.  A few minutes later, the CEO and CFO walk and we shake hands.  After the formalities, the CEO looks at me and says 'man, you're young!'.  Indeed, I am the ripe old age of 22 years old but thankfully they didn't do an ID check.  At first I was a little confused. Should I say 'Man, you're old..what would you rather be?' . Thankfully, I didn't say this but  I thought his comment had very little relevance to anything, but I guess I look extremely young.  All in all it was a very successful meeting. I took 50 minutes and left with some important answers.  I'm currently writing my report on the company and have to present my findings to 2 Portfolio managers next week.  Until then, it's going to be a long, long weekend. I will keep you informed of my progress. Until then, GO RAIDERS!

Sorry for the little wait on this next post

Sorry for the little wait on this next post...in the last week the following events happened with barely any space in between for thought and reflection: I had a Japanese Final (very hard), I graduated from Brown, My brother defended his Ph.D Thesis, and I started my internship. Things were so hectic that I didn't even go to my own graduation, a family tradition apparently.

That said, I'd like to use this post to talk about my summer internship with a mutual fund based in San Francisco, CA. Basically, the fund started with about $330,000 and now manages $1.5 billion. While that is nothing compared to the 'big boys' like T.Rowe Price and others like that, that's pretty significant nonetheless. What makes the fund interesting is that they only invest in socially responsible companies (no 'sin' stocks). As for what kind of investors they are, I would say 'Contrarian-Value Investors' puts it accurately.

So what's my job you say? I'm responsible for writing 2 research reports on 2 public companies for my PM's to consider. To do this, I've been working using programs like Bloomberg, Thomson Financial programs and Holt Valuation to screen securities using various metrics. They're great programs that have a plethora of information such as earnings estimates, SEC filings and sell-side reports. Once I've found two companies that the PM's want to know more about, I have to fly out to these companies and meet upper management and evaluate their business practices. If that's all kosher then our PM's (not for sure how much) will take a sizeable position (probably about 2% from what I'm hearing).

The people I'm working with are incredibly intelligent and I'm humbled by the chance to learn from them. I do not think there is one person in the equity research side of the firm that didn't get an MBA from Penn, Harvard or Haas (Hopefully we can get an Owen student in there!). I'm very excited to be apart of that atmosphere and figuring out how they evaluate various industries.

In case you're interested or still find yourself reading this post for some reason, I'm going to tell you I screened the 'universe of securities'. Again, these are a bunch of contrarian-value investors. Companies whose prices have already made a sizeable run have very little margin of safety and are not attractive to the fund. Here we go:

1) Companies who have had negative stock price change in the last 12 months.
2) Of those companies, screen for ones that in the last 3 months have had positive price growth
(this kind of takes care of the out-of-flavor aspect)
3) ROE constraint of greater than 20%
4) ROA/ROIC above 15%
5) Future Earnings estimates going 3 quarters forward are positive
6) Future Earnings estimates going  6 quarters forward are postive
(shows other analysts are optimistic about future earnings)
7) Profit Margin above 15%
8) Forward P/E less than 15 (this kind of screens for 'value')
9) EV/EBITDA less than P/E value (EV/EBITDA is thought 'by some' to be a better indicator of value

Alright, I need to get back to reading some earnings call transcripts. Basically, I work 11 hour days including Saturday's. Translation = No surfing time. For those of you that get Saturday's off (I'm guessing a LARGE majority of you) enjoy them on my behalf! Raiders training camp is a couple of weeks away and I'll be sure to have my predictions on who stays and who go's later. My thoughts and prayers go to the New England Patriots now that they have Randy 'Mandy' Moss; good luck with his 'I only play when I'm interested' attitude. Currently Reading: Competitive Strategy, Michael Porter.