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Investing 101 Making investing more accessible for everyone

Investing 101 - A beginners guide to investing and investment concepts

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Everything (important) you need to know about investing and investment related concepts. We'll walk you through the basics of everything from a financial plan to different types of investment accounts and different types of investment assets. This is the internal presentation we give to all new employees of Wealthminder. They thought we should share it with everyone.

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Page 1: Investing 101 - A beginners guide to investing and investment concepts

Investing 101

Making investing more accessible for everyone

Page 2: Investing 101 - A beginners guide to investing and investment concepts

What we will cover

• Section 1: Overview• Section 2: Types of Investment Accounts• Section 3: Types of Investment Assets• Section 4: Asset Classes• Section 5: Key things to consider when

investing• Section 6: Other resources

Page 3: Investing 101 - A beginners guide to investing and investment concepts

Section 1: Overview

Page 4: Investing 101 - A beginners guide to investing and investment concepts

Key Things to Understand• Having a plan is a necessary starting point for success• Key Component of the Plan is Asset Allocation

– Investing is about maximizing return for a given level of risk– Diversification among non-correlated asset classes actually allows

you to increase returns and reduce risk in some cases • Most investors would be best served to invest in index funds

– They are very unlikely to beat the markets themselves– Fees make it very hard for active funds to best passive ones.

• Start Early, Time/compounding is your friend

Page 5: Investing 101 - A beginners guide to investing and investment concepts

Biggest Mistakes People Make• Not having a plan

– Most people don’t have a plan• Not spending enough time on an appropriate asset allocation

– 90% of long-term investment performance is driven by a user’s asset allocation, but most people spend 0% of their time thinking about this and 100% of their time picking individual assets

• Overestimating tolerance for risk– This causes many investors to sell at exactly the wrong time (when the market is

most of the way to a bottom) and then only buy back in once the market is most of the way back to a top

• Lack of diversification• Excessive trading

– Increases costs and taxes which decreases ultimate actual returns• Not starting early enough. Compounding is a powerful advantage

Page 6: Investing 101 - A beginners guide to investing and investment concepts

Section 2: Types of Investment Accounts

Page 7: Investing 101 - A beginners guide to investing and investment concepts

Types of Accounts

• Taxable Accounts– These are your typical brokerage accounts where you

pay normal taxes when you buy and sell asstes• Tax Deferred – Money you put in is typical pre-tax (although it doesn’t

have to be)– Earnings grow tax deferred until you withdraw them– Money you withdraw is taxed at normal income rates– There are usually age restrictions on when you can start

withdrawing the money without penalty

Page 8: Investing 101 - A beginners guide to investing and investment concepts

Types of Accounts cont• Tax Deferred

– For-profit company plans• 401K

– Limits change periodically, but for 2013 it’s 17.5K or 23K if you are over 50– Employers can optionally match some or all of your contributions– Sometimes the match requires vesting. Vesting means that you have to stay a certain

period of time at the company to get some or all of your match – Money is typically withdrawn directly from you paycheck and it pre-tax money– Companies have someone administer their plan and there are usually a pre-determined

set of mutual funds you can pick from– A small number of companies have a self-directed 401k which lets you basically invest in

whatever you want– Company stock is sometimes an investment option– Withdrawals made before 59 ½ are subject to a 10% penalty in most cases– Loans are allowed in certain 401K plans, but they a) must be repaid and b) are often

required to be immediately repaid if you leave the company (including if you are laid off) – Required Minimum Distributions start at 70 ½

Page 9: Investing 101 - A beginners guide to investing and investment concepts

Types of Accounts cont• Self employment plans

– SEP• Stands for Simplified Employee Pension• Can put up to 25% of earnings with a cap of 51K per year (this number is indexed)• Can also be used an alternative to a 401K plan for small employers• Money can only be put in by the employer• There is a variation called a SARSEP that allows employees to also contribute up to limits like

a 401K• Employer has the flexibility to contribute or not in a given year• Distribution and taxation rules are the same as for a traditional IRA

– SIMPLE• Another plan for small employers or sole proprietors. • Funded primarily through employee contributions, but requires an employer match• Limits are less than for 401Ks, 12K in 2013 or 14.5K if over 50• Employers can either match up to 3% or can make a 2% contribution regardless of employee

participation• Other than the things listed above, these vehicles work like a traditional IRA

Page 10: Investing 101 - A beginners guide to investing and investment concepts

Types of Accounts cont• Self-employment

– Individual 401(k)• Works just like a traditional 401(k) except it is only for sole proprietors• One other major difference is contribution limits. Like a SEP, you can contribute up to 51K (indexed) this year

or 56.5K if over 50• Has likely higher fees than SEP. Allows loans and has a higher contribution limit if over 50 or for a given level

of income– Keogh – Older plan. Largely replaced by the SEP IRA

• Non-Profits– 403(b)

• Basically the same as a 401(k) plan but for certain types of non-profits like schools, hospitals and religious groups

• Federal Gov’t– TSP

• Pretty much the same as a 401(k) plan except it is for federal government employees as well as members of the military

• State and Local Gov’t– 457

• Pretty much the same as a 401(k) plan except it is for state and local government employees

Page 11: Investing 101 - A beginners guide to investing and investment concepts

Types of Accounts cont• Traditional IRA

– Come in 2 flavors, deductible and non-deductible– The difference is whether the money you put in is tax deductible– Driven off your income level and whether you have access to a

401K– Contributions are limited to 5K (or 6K if over 50)– Withdrawals incur a 10% penalty before 59 ½– Required distributions start occurring at 70 ½– Withdrawals are taxed at your income rate– Typically held at a brokerage and can be invested in whatever

you want

Page 12: Investing 101 - A beginners guide to investing and investment concepts

Types of Accounts cont• Tax Free

– 2 main difference between tax deferred and tax free accounts• Contributions are with after tax dollars (like a non-deductible IRA)• Withdrawals are tax free• Contributions can actually be withdrawn without penalty before 59 ½, but not earnings• There are no required minimum distributions at 70 ½• There are income limits on whether you can participate in a Roth

– 2 Types• Roth IRA• Roth 401K• As you’d expect, the 401K is offered through an employer while the IRA is an individual

plan• If your employer offers both Roth and regular 401(k) options, you can participate in

both, but the total contribution limit is still 17.5K this year• One advantage of the Roth 401(k) is that it doesn’t have the income limits for eligibility

that the IRA does

Page 13: Investing 101 - A beginners guide to investing and investment concepts

Section 3: Types of Investment Assets

Page 14: Investing 101 - A beginners guide to investing and investment concepts

Primary Asset Types

• Stocks • Bonds• Mutual Funds• ETFs• Options

Page 15: Investing 101 - A beginners guide to investing and investment concepts

Stocks• Stocks represent actually ownership in a company• Stocks generate returns through capital appreciation (stock price goes

up) and income (dividends)• 2 types of stock, common and preferred.

– Most people buy common stock and never really hear about preferred stock.

– Preferred stock is kind of a hybrid between a stock and a bond. It typically pays a much higher dividend and trades more in line with the bond market.

– Preferred stocks can be perpetual or they can have call features (like a bond). A call feature means that after a certain date the company can choose to eliminate the shares by paying shareholders the amount equal to the original price of the issue ($25 per share is typical). They are not forced to do this, but they have the right to. This typically limits the capital appreciation potential of preferred stock

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Stocks cont• Typically broken into segments

– Geography: US, Developed Foreign Markets (France, Japan), Emerging Foreign Markets (India, China, Brazil)

– Size: Large Cap ($10B+), Mid-Cap ($2B-$10B), Small-Cap (< $2B)– Style: Growth vs Value.

• Value tends to be slower growing companies where investors look for certain key metrics that suggest the company is trading for less than its intrinsic value. Benjamin Graham is the father of value investing and his books, Security Analysis and The Intelligent Investor are considered the bibles of this discipline

• Growth tends to focus on companies that are rapidly growing their earnings and revenue. Investors tend to pay more of a premium for this growth and so the trick is to find companies whose actual growth will continue to exceed expectations.

– Industries/Sectors: Technology, Healthcare, Financials, Industrials, etc

Page 17: Investing 101 - A beginners guide to investing and investment concepts

Stocks cont• 2 primary exchanges in the US are NYSE and NASDAQ. • US investors can also invest in many large foreign companies on

US exchanges through ADRs• Very small companies trade on the OTC (over the counter)

market. We will not focus on this as most investors shouldn’t be speculating in penny stocks

• US investors are also increasingly able to trade directly on foreign exchanges through major discount brokerages. Once again, this will not be a focus for us as the difficulty of researching foreign companies and a lack of foreign accounting standards make doing this unsuitable for most investors

Page 18: Investing 101 - A beginners guide to investing and investment concepts

Common Measures Used to Value Stocks

• Price/Earnings• Price/Book• Price/Sales• Price/Earnings Growth• Earnings Yield

Page 19: Investing 101 - A beginners guide to investing and investment concepts

Buying Stocks• Stocks are typically bought through a brokerage, although some large companies will let

you buy direct• Priced using a bid and ask system

– If you want to buy, you pay the ask– If you want to sell, you get the bid– The difference is pocketed by the people making the transaction happen.

• Example: – IBM Bid: 102.40 Ask: 102.42 Last: 102.41– If you sell 100 shares at market price, you would get 100*102.40 – any commission – If you bought 100 shares at market price, you would pay 100*102.42 + any commission

• In the example, we used a market order. Limit orders are the other most common order type. They work the way you would expect. You say I will buy/sell X shares at Y price. Your order only gets executed if someone is willing to buy/sell to you at that price. Market orders always get executed at whatever price the market dictates when your order arrives.

• The positive side of a limit order is you know the price you will get if your order goes off. The potential downside is that your order may not go off.

Page 20: Investing 101 - A beginners guide to investing and investment concepts

Stocks Misc• Trade Settlement

– When you buy or sell a stock, there is something called a settlement period. This is typically 3 business days. The current owner remains the owner of record until the trade is settled. This is really only important for dividends.

• Dividends– Some corporations choose to pay their investors a dividend– Dividends don’t have to be regular or at fixed intervals, but quarterly is the

most common– The 2 common dates associated with a dividend payment are the ex-date

and the payable date. • Because of the time it takes to settle a trade, you must buy a stock the day before the

ex-date in order to be the official owner by the record date and get paid the dividend. This also means you can sell on the ex-date and still get that quarter’s dividend.

• The payable date is when you actually receive the dividend

Page 21: Investing 101 - A beginners guide to investing and investment concepts

Stocks Misc cont• Splits

– A stock split (or a reverse split) has no impact on how much your shares are worth.

– When a stock splits, the number of shares are increased by the split amount and the price per share is decreased by a corresponding amount

– Reverse splits do exactly the opposite, they decrease the number of shares and increase the price

– Companies often do a stock split to keep the price per share at an affordable point for the main stream consumer

– Companies typically do a reverse split to stay above the minimum price point required to be listed on an exchange

– Example: Investor owns 100 shares of Oracle at $30 and Oracle does a 3:2 split. Before the split, my shares are worth $3,000. After the split, I will own 150 shares at $20 (also worth $3,000)

Page 22: Investing 101 - A beginners guide to investing and investment concepts

Bonds• Loans to a company or government where the investor is paid a certain rate

of interest per year (usually in 2 six month installments). There is a maturity date when the investor’s original principal is returned and there is optionally a call date where the issuing entity has the right to retire the bond earlier than the maturity date and return the investor’s principal

• Bond pricing is somewhat different than stocks. Par value for a bond is 100, but that actually represents $1,000 and bonds are usually sold in increments of $1,000 at par.– Example: I own 10 bonds priced at 98.2. I really own $9,820 of the bond,

• Bonds come in a taxable and non-taxable flavors• Non-taxable category

– US Govt bonds are free of state taxes but still require you to pay federal taxes.– Municipal Bonds are free from federal taxes and are also free from state taxes for

owners who live in the state where they were issued

Page 23: Investing 101 - A beginners guide to investing and investment concepts

Bonds Cont

• Taxable Category is mostly corporate bonds• Interest rates for bonds are driven by 2 primary factors,

the rating for the bond and the duration of the bond– Bonds are rated by several outside ratings agencies (S&P and

Moody’s) based on the credit worthiness of the underlying entity. These ratings affect how much interest an investor demands as compensation for the risk he is taking.

– US Govt bonds are typically considered the safest of all of the bonds as they are backed by our country.

– The longer the duration of the bond, the more interest rate risk is involved and therefore the rates are typically higher

Page 24: Investing 101 - A beginners guide to investing and investment concepts

Bonds Types• US Government - Treasuries

– T-Bills are short term instruments and are often considered a proxy for the rate of return for cash

– Treasury Notes are intermediate term bonds – Treasury Bonds are long-term bonds issued by the US Gov’t

• US Governement – TIPs– Similar to treasuries except the interest rate varies depending on the

level of inflation• US Government – Agency Bonds

– Issued by agencies of the US Govt rather than the Us Treasury. – Have basically the same characteristics as treasuries.– Common issuers are Freddie Mac, Fannie Mae, Ginnie Mae, and TVA

Page 25: Investing 101 - A beginners guide to investing and investment concepts

Bond Types Cont• Municipal Bonds

– Issued by a state, county, city, etc– Used to finance projects within a state such as schools, highways, hospitals,

infrastructure, etc• Corporate Bonds

– Issued by a company– Typically broken into high quality and junk categories based on the bond’s rating

• MBS and CMOs– Not likely to be bought by individual investors, but might be bought through a

fund. – The basic idea is to package a whole lot of loans of a certain type (mortgages,

car loans, student loans, etc) and turn them into a single security that someone can buy.

– The collateral is the underlying assets behind the individual loans

Page 26: Investing 101 - A beginners guide to investing and investment concepts

Primary Bond Risks

• Inflation risk• Interest rate risk• Call risk• Credit risk• Liquidity risk• Market risk

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Mutual Funds• Mutual Funds are a vehicle that was created to allow investors to gain

diversification by pooling money from multiple investors and allowing a manager to invest the funds on their behalf according to an investment policy statement

• Investors are charged an ongoing management fee for this service• Mutual funds also charge a variety of other types of fees

– No load vs load Funds• Load is a one-time fee paid when you buy(front-end load) or when you sell (back-end load)

– 12b-1 fees- a marketing fee passed along to the consumer– Administrative Fees– Other Operating Expenses – This is where funds that use leverage or hold short positions

include their interest costs for the money they borrow– Trading Costs – These are typically not disclosed anywhere, but the investor does pay

the costs associated with any trade, so the higher the funds turnover rate, the higher this cost will be

Page 28: Investing 101 - A beginners guide to investing and investment concepts

Mutual Funds cont• Mutual funds cover a huge variety of asset types and investing

strategies• 2 core approaches are passive and active funds

– Passive funds pick an index they wish to mimic and simply invest according to the index– Active funds invest according to the manager’s beliefs and usually have a stated goal of

outperforming the index that is most closely correlated to their investment charter– Studies show that the average active fund underperforms the passive fund by the amount of

the management fee– This is particularly true in markets that have strong liquidity and information flow (like large

cap US stocks). Active managers have had more success in markets where there is less public information (like micro cap stocks or emerging markets)

• How is a closed end fund (CEF) different?– CEFs have a fixed amount of shares– They trade like stocks or ETFs throughout the day– Because they have a fixed number of shares, they can actually trade at a premium or a

discount to the value of their underlying assets

Page 29: Investing 101 - A beginners guide to investing and investment concepts

ETFs• ETFs are a relatively new type of investment.• They are very similar to mutual funds in concept except they are

traded throughout the day like stocks. Mutual fund only trade once per day and you buy/sell based on the day’s closing price

• ETFs have historically been mostly passive in nature and had lower fees than corresponding mutual funds

• Part of the theory for why you don’t see more active ETFs is that mutual funds only have to disclose their holdings once every 6 months whereas ETFs are disclosed every day.

• Since this is a nascent investment vehicle, time will tell if more managers choose to offer an ETF version of their product. Recent trends indicate this may happen

Page 30: Investing 101 - A beginners guide to investing and investment concepts

Options• There are many types of options, but for our purposes, we will focus on options written

against stocks and indices.• An option is the right to buy/sell the underlying asset at a fixed price by a specified timeframe• 2 types of options, put and calls• Each put/call typically represents 100 shares of the underlying asset• Buying puts gives the write to sell the asset at a certain price.

– It can be used as an alternative to shorting an asset– It can also be used to hedge an asset against a potential move to the downside

• Selling a put can be used to generate income in an asset you believe will appreciate. It is also often used to try to enter a position at a lower price point than the current market value .

• Buying calls gives the right to buy an asset at a certain price– It is often used as a leveraged way to make bigger gains on an asset you think will appreciate in the

short term• Selling calls is often used in conjunction with owning the underlying asset (called a covered

call) in an attempt to generate more income on a position the investor believes will stay relatively flat in the short-term

Page 31: Investing 101 - A beginners guide to investing and investment concepts

Section 4: Asset Classes

Page 32: Investing 101 - A beginners guide to investing and investment concepts

Asset Classes

• Investors also categorize investments into classes

• These classes can be very coarse, equities and fixed income, or very granular, small cap US value stocks and sovereign emerging market debt.

• Asset classes are used be investors to create a strategic plan called asset allocation

Page 33: Investing 101 - A beginners guide to investing and investment concepts

Catalog of Asset Classes• Equities

– Geography: US/Developed Int’l/Emerging Markets– Market Cap: Small, Mid, Large– Style: Value vs Growth

• Fixed Income– TIPs– Treasuries– Munis– Corporates– High-Yield– Foreign Bonds– Preferred

• Alternatives– Real Estate– Commodities– Forex– Long-Short– Private Equity– Hedge Funds

Page 34: Investing 101 - A beginners guide to investing and investment concepts

Section 5: Key things to consider when investing

Page 35: Investing 101 - A beginners guide to investing and investment concepts

Asset Allocation• Studies show Asset Allocation drives almost 90% of the variance in long-term

returns– There is some debate on this point, but it is clear that the primary driver of long-term performance is

what classes of assets you are in over time, much more than the selection of individual assets

• Asset Allocation is about lowering risks for a given level of return or maximizing returns for a given level of risk

• Done by diversifying among different classes of assets that don’t all move the same way at the same time

• Modern Portfolio Theory (MPT) is the dominate current philosophy– Foundations are Harry Markowitz’s “Portfolio Selection” work, William Sharpe’s (CAPM) and Eugene

Fama’s Efficient Market Hypothesis– The idea is that you can fix either the risk level or the return that you want and then find the Efficient

Frontier (mix of asset classes that optimizes the variable you didn’t fix)– Tool often used to do this is called a mean variance optimizer

Page 36: Investing 101 - A beginners guide to investing and investment concepts

Asset Allocation cont• Critics of MPT point out several flaws

– MPT assumes a normal distribution curve for returns. The real world suggests that the tails of the curves are fatter

– In the times where you most want diversification to work for you, like 2008, the correlation of most asset classes moved to 1.

– A lot of the critics talk about Black Swan events and worrying more about downside risk (semi-variance) as opposed to worrying about “upside risk” too like a normal distribution curve does

• A couple of phenomena that critics also point out include – Value Tilt. Over long periods, value stocks have outperformed growth ones– Small Cap Premium, same thing holds true for small cap stocks– Momentum – In all of these cases, there is evidence of outperformance that MPT can’t explain

• For the critics of MPT, it isn’t clear to me that there is an alternate proposal that has much traction

• One of the key debates in asset allocation is how many asset classes to include and which ones are actually useful diversifiers

Page 37: Investing 101 - A beginners guide to investing and investment concepts

Risk vs Reward• General principal is that more risk is compensated by greater reward over long periods of time

– Stocks earn ~10% in the long run while long term treasuries earn ~5.5% for example• Risk is most often associated with volatility in the investing world• Beta is a concept that measures whether an asset is more of less volatile than the overall market with a

value of 1 equaling the market.– An S&P 500 index fund would probably have a beta of 1. A utility company might have a beta of .5 and a high

growth tech stick might have a beta of 1.5. – What this means is that for every dollar the market goes up or down, you would expect the utility to go up or

down $0.50 while the tech stock would move by $1.50• Alpha is a concept to measure whether you are outperforming your target benchmark. Index funds

would expect to have an alpha of 0. Alpha is measured as a percentage. So if my large cap stock portfolio is generating alpha of 2% over the S&P 500, this means I am earning say 12%/yr versus 10%/yr

• Sharpe Ratio is intended to take risk into account when measuring the effectiveness of an investment. So, a higher sharpe ratio equals a better risk adjusted return for 2 investments that use the same benchmark.

• Some other ratios with similar purposes to the Sharpe Ratio you might encounter are:– Soretino Ratio– Traynor ratio– Jensen’s Alpha

Page 38: Investing 101 - A beginners guide to investing and investment concepts

Performance Methods

• 2 primary mechanisms people use for measuring performance– Time Weighted Returns• Measure performance over time independent of the

amount invested or withdrawn– Money Weighted Returns• Measures financial performance based on series of

cash flows such as money deposited, varying investment returns and money withdrawn over a defined period of time

Page 39: Investing 101 - A beginners guide to investing and investment concepts

Performance Methods cont• Time Weighted is what is mainly used by investment managers

because you are trying to understand how their investments actually performed. When investors chose to give or take money from them could heavily influence the money weighted return and isn’t really under the control of the manager

• Because money weighted returns do take contributions and withdrawals into account, the timing of these events can greatly influence the result and makes it harder to understand how you really performed from an investment selection perspective

• Most investor statements use money weighted returns

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Performance and the Industry• Most investors couldn’t answer the question about what the performance

of their total portfolio is• The next logical question once you have a performance number is “Is this

good or bad?”• Most sites allow you to compare your performance against a single index.• Unless your asset allocation matches that index (unlikely), this is a

meaningless comparison.• To appropriately determine if you are performing well or poorly, you should

compare yourself to a benchmark that matches your target asset allocation.– For example, a 60/40 investor should compare their performance to a weighted

average of 60% of the total stock market and 40% of the total bond market. – Only if they want to drill down into the performance of a subset of their portfolio,

say large cap US Stocks, should they compare themselves against a benchmark like the S&P 500

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Taxes and Investing• Taxes can have a significant impact on an investor’s returns• Only recently has the industry started to address this

– Mutual funds now have to report after tax performance– This is very important as funds with high turnover rates can actually perform significantly worse once

taxes are taken in to account• Tax Treatment

– Different types of assets and different types of gains get different treatment under the tax law– Asset sales are typically categorized into short-term (less than 12 months from purchase) and long-

term (more than 12 months from purchase)• Short-term gains are typically taxed as regular income• Long-term gains usually receive better tax treatment (0-20% depending on your income tax rate)

– Interest income is typically taxed as regular income– Dividend income comes in 2 flavors, qualified and not. The latter is taxed as regular income while the

former receives tax treatment similar to long-term capital gains– There are more esoteric types of gains that have different tax treatments, but they are less common

and we won’t cover them here. The one exception is MLPs.• MLPs are a special type of investment vehicle where most of the income you receive is tax deferred until you sell

the MLP. At that point you pay regular income rates on the cumulative gains. The biggest downside of these vehicles if you buy them directly is that you have to fill out some extra tax forms

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Taxes cont• Asset Placement

– 2 schools of thoughts on how to place assets for maximizing after tax returns• School 1 says to place income producing assets like taxable bonds and REITs in tax

deferred accounts while putting capital gains producing ones in taxable accounts (since cap gains tax rates are lower)

• Schools 2 says exactly the opposite. Their argument is that you want to maximized the tax deferred gains of your riskiest asset classes that likely have the highest returns for the longest period

• School 1 seems to have more traction

• Turnover– Turnover is a potential return killer because you have to pay taxes in the year

of the sale– Short-term sales are even worse because you pay income tax rates instead of

cap gains rates– High turnover funds can lose several percentage points per year in taxes

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Minimizing Costs

• All else being equal, costs can have a significant impact on your portfolio over time.

• For example: – You buy $100,000 of a mutual fund instead of an

ETF and pay an extra 1% management fee– Both funds perform exactly the same for the next

30 years and earn 8% before fees– At the end of the period, you would have $1M in

the ETF and only $750K in the mutual fund

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Inflation and Investing

• People don’t often truly understand the impact of inflation on a retirement plan

• Historically, inflation has averaged about 2.7% per year.

• This means that every 26 years or so, you will need to have twice as much money accumulated to have the same spending power as you do today

• Inflation is the biggest enemy of the conservative investor

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Section 6: Resources

Page 46: Investing 101 - A beginners guide to investing and investment concepts

Resources• money.cnn.com’s Ultimate Guide to Retirement• Morningstar’s Learning Center• Books

– William Bernstein – The Intelligent Asset Allocator– David Swensen – Unconventional Success– John Bogle – The Little Book of Common Sense Investing– Burton Mankiel – Random Walk Down Wall Street

• Papers– Brinson, Beebower and Singer explaining that 91.5% of the

quarterly variation in portfolio returns is due to asset allocation- Fama and French 3 Factor Model