J-term Investment Club Meeting 1 (Jan 10 th 2007) Some important things we should all know…. Conceptual Understanding of… 1.MACD 2.P/E ratio 3.PEG ratio

Before we start The purpose of me doing this is to inform you, and also to remind myself, that the best (despite the relativity, uncertainty, and ambiguity of that term) strategy is a balanced strategy. In other words, not only technical, not only fundamental, but rather a harmony of the two will make a well-balanced relatively risk-free stock picking strategy. Through out the weeks of J-term, I plan to introduce several core indicators of both fundamental and technical analysis that will help us all in picking the right stock.

1. MACD Moving average (in this case EMA) The average close prices of the past n number of days plotted as a line chart. EMA - Exponential Moving Average gives more weight to recent data MACD (Moving Average Conv. Div.) Two lines 1) Divergence/Convergence of the EMAs 2) 9 day EMA of the MACD (signal line) Histogram Positive- 26 day EMA trades above 12 day Negative- Reverse of above 8/14 MACD positively sloping towards 0.0 line Divergence of 12 day and 24 day EMA is decreasing (in other words the two lines are converging) When this intersects with the trigger line, it means that recent rate of convergence/divergence exceeds that of the relatively long-term trend (9 day average) Greater recent upward momentum in price

2. P/E ratio A valuation ratio of a company's current share price compared to its per-share earnings. Stock price / EPS High P/E: Generally indicates Stock Price > EPS Therefore, high expected future earnings growth Sufficient investment already done by the market Common interpretation: Overvalued Low P/E: Reverse of above Intended Usage: Cross comparison within industry It is not so powerful to use this number in itself since it is merely a ratio, which is subject to accounting fraud and manipulation. The intended usage of this ratio is cross comparison between other firms in the same industry. Inter-industry comparison is also not as powerful, since growth prospect of firms differ depending on the industry (ex. High tech vs. banking)

3. PEG Ratio Usually considered as a better alternative than P/E ratio, since it takes into account the earnings growth. P/E ratio / Annual EPS Growth Everything else is basically the same with P/E ratio. Keep in mind of the time span of the EPS growth.