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Using Bloomberg in a Security Analysis and Portfolio Management
Course
Adam Y.C. Lei, Ph.D., CFADillard College of Business Administration
Midwestern State University
June 26, 2015, Bloomberg for Education New York
Disclaimer
A large part of the material is built on
Lei and Li, 2012, “Using Bloomberg Terminals in a Security Analysis and Portfolio Management Course,” Journal of Economics and Finance Education 11 (2), 17-33.
http://www.economics-finance.org/jefe/issues/vol11(2)winter.pdf
Course Background
FINC 4833 Security Analysis and Portfolio Management
Security valuation and selection; theory and practice of portfolio management including asset allocation, diversification, and portfolio performance valuation
Junior standing or above or consent of the chair; FINC 4733 (Investments). Must earn a C or higher in FINC 4733
Course Background (cont.)
In the catalog since 2004 but never offered until 2010
No burden
No guideline as well
Position of this course within the finance curriculum
Course Structure
Grading
30% Midterm Exam
30% Analyst Report (team)
30% Performance Evaluation Report (team)
StockTrak
10% Participation
How Bloomberg terminal fits
Analysis Report
Top Down Economic Analysis
Industry Analysis
Company Analysis Qualitative
Quantitative
Each team chooses its own company “Buy” recommendation only
Analysis Report (cont.)
Key Bloomberg Functions
Economic Analysis
ECOF - Economic Data Finder
Industry Analysis
BI - Bloomberg Industries
Company Analysis
EQS - Equity Screening
DES - Description
Analysis Report (cont.)
Company Valuation
Free Cash Flow to the Firm (FCFF)
The cash flow available to investors, including both debtholders and shareholders, after the company has made all the investments necessary to sustain ongoing operations
Not necessarily the same as the Free Cash Flow to Firm in Bloomberg
Analysis Report (cont.)
Key Bloomberg Functions
Company Valuation
FA - Financial Analysis
BETA - Beta Calculations
WACC - Weighted Average Cost of Capital
DDM - Dividend Discount Model
Analysis Report (cont.)
The most difficult valuation part is probably on the future Growth Rate of the FCFF
Company’s historical average?
Whole industry’s estimate?
Existing research report?
What Bloomberg says?
Last night I had a dream?
Analysis Report (cont.)
Firm Value
From the next period FCFF, its growth rate, andWACC
Common Equity Value
Firm value minus debt and preferred stocks
Share Intrinsic Value
Common equity value / # of shares outstanding
Things to Know
Problems Faced
Inexperience
Right answer
Procrastination
Solutions
Handout
Art vs. Science
Make it clear
Things to Know (cont.)
Distance between price and value
Both too large and too small are bad things
Grading criteria
Tricks
Past reports for future examples
Certain companies to avoid
Does It Work?
The logos belong to the individual companies and are shown here for illustration purposes only.
Does It Work? (cont.)
Fall 2011
75, PG P63.84, V90.57; H70.76, L59.27
75, DAL P8.02, V10.39; H12.10, L8.01
77, TXN P30.05, V36.29; H33.99, L26.43
80, INTC P23.84, V27.68; H27.26, L16.78
80, IBM P186.38, V208.79; H211.00, L179.16
85, TKR P43.69, V47.77; H41.32, L25.21
Does It Work? (cont.)
Fall 2012
80, CAT P81.35, V86.52; H99.49, L80.43
84, AMZN P232.29, V249.43; H404.39, L248.23
87, IBM P193.49, V229.03; H215.80, L172.80
87, LOW P31.98, V47.74; H51.95, L34.76
93, F P10.36, V13.68; H17.76, L12.13
95, AZO P374.38, V463.02; H479.33, L344.99
Does It Work? (cont.)
Fall 2013
83, COL P73.00, V89.03; H86.16, L72.24
83, MSFT P37.58, V51.63; H49.61, L34.98
88, STX P48.22, V64.86; H68.82, L49.03
90, DIS P68.92, V82.48; H95.50, L69.99
90, SYK P73.32, V83.05; H96.61, L74.63
90, URI P68.59, V81.53; H119.02, L74.46
Does It Work? (cont.)
Looks like a learning process not only for my students but for me as well
Q & A
Thank you!