October 29 th 2012

Common Cents Investment Group October, 2012 Agenda  T-Shirt Pre-orders  Today in the Market  Arbitrage Basics  Stock Pitches  Investopedia

Common Cents Investment Group October, 2012 Today in the Market  Windows 8 may have a big impact on the market Released last Friday Watch the technology industry Microsoft Samsung Intel Toshiba Lenova HP Acer

Dell Inc. (DELL) by Jake Larkin

Common Cents Investment Group October, 2012 Today in the Market

Common Cents Investment Group October, 2012 Today in the Market  Dell Inc. (DELL)  Almost nearing their 52wk low  Looking at Stochastic - %K(15)  MACD – 0.27  RSI –  Falls into the “Oversold” category

Common Cents Investment Group October, 2012 Today in the Market  Fundamental Analysis  Next earnings date – Nov 15 th  Comfortable in the consumer electronics?  Dell has a clean balance sheet  Record-breaking cash flows last year  Dell’s future growth will probably not come from PCs at all

Common Cents Investment Group October, 2012 Today in the Market  Price of DELL may fall in the near future as cash flow is invested in new enterprises for Dell Inc.  May be undervalued due to a theory that “PCs are dead”  Emerging tablet market is strong and is paralleled by the smartphone market PCs are still the “trusty steed” of computing  Overall, my thought is that DELL is undervalued

Common Cents Investment Group October, 2012 Today in the Market  Really good article summarizes my similar thoughts  growth-story-in-deep-value-territory

Common Cents Investment Group October, 2012 Today in the Market  Hurricane Sandy has a big impact on the market  Gasoline prices shoot up  Stocks fall  NYSE/NASDAQ shuts down for the Monday & Tuesday First time it’s been shut down due to weather for 2 days since 1885

Common Cents Investment Group October, 2012 Useful Definitions  Mutual Fund: An investment fund made up of a pool of funds collected from many investors for the purpose of investing in securities.  Mutual funds are operated by money managers, while each shareholder participates proportionately in the gain or loss  Hedge Funds: A mutual fund for rich people.  Usually, very aggressively managed using advanced strategies by accredited investors

Common Cents Investment Group October, 2012 Arbitrage  Arbitrage: The simultaneous purchase of an asset in order to profit from a difference in price.  Can be seen in two forms Pure Arbitrage: Also known as “Riskless Profit” Share Class Arbitrage Risk Arbitrage

Common Cents Investment Group October, 2012 Pure Arbitrage  A trade that profits by exploiting price differences of identical or similar financial instruments, on different markets or in different forms.  Exists as a result of market inefficiencies  Ex: One stock trades on the NYSE and its corresponding futures contract trades on the Chicago Exchange…if one becomes cheaper than the other…a trader could short sell the expensive one and buy the cheaper one.

Common Cents Investment Group October, 2012 Pure Arbitrage  Ex: One stock trades on the NYSE and its corresponding futures contract trades on the Chicago Exchange  If one becomes cheaper than the other  A trader could short sell the expensive one  And buy the cheaper one.  Make a profit off both transactions

Common Cents Investment Group October, 2012 Pure Arbitrage  Almost impossible to notice for average retail investors  Market makers use computer programs to spot opportunities and capture profit instantaneously  Opportunity generally exists for a few seconds or minutes

Common Cents Investment Group October, 2012 Share Class Arbitrage  *Old Example*  Chipotle had two share classes  CMG traded around $49  CMG.B traded around $43  A $6 arbitrage profit spread if shares converge B shares have 10 times the voting rights of A share, but B shares are less liquid and have no options Historically, share prices do converge

Common Cents Investment Group October, 2012 Share Class Arbitrage  Greif, Inc.  GEF - $42.57 per share  GEF.B - $45.89 per share  B shares are attributed 150% of the earnings and dividends of A shares  Management and family own a large proportion of B shares

Common Cents Investment Group October, 2012 Risk Arbitrage  Buying/Selling securities based off of knowledge that a companies financial structure is changing  May include:  Merger Arbitrage  Liquidation Arbitrage  Pairs Trading  Hedge fund trades

Common Cents Investment Group October, 2012 Risk Arbitrage  Merger arbitrage (in the case of an equity exchange) usually involves buying shares of one company and shorting shares of another company  Similarly, buyout arbitrage involves “betting” that a buyout will indeed occur  In the buyout setting, the stock must be currently trading at a discount of the buyout price

Common Cents Investment Group October, 2012 Risk Arbitrage  Ex: DOW offers to acquire Rohm and Haas Co. (ROH) for $78 per share  ROH shareholders approve, and financing is secured  ROH traded around $73-$74 per share prior to buyout  Potential gain of 5%-6%

Common Cents Investment Group October, 2012 Risk Arbitrage  Meadow Valley Corp. (MVCO)  Phoenix & Las Vegas area construction company  Private equity buyout at $11.25 per share  Prior to buyout, stock traded around$7-$8 per share  Indications of higher risk:  Construction slowed down considerably  Private equity struggles to secure financing  It’s hard to understand what circumstances the buying party can cancel the deal

Common Cents Investment Group October, 2012 Risk Arbitrage  Where to find out more about buyouts within companies  SEC Filings  Contact the company’s investor relations department

Stock Pitches

Investopedia

Common Cents Investment Group October, 2012 Membership  Cost is only $20 for the whole year!  Benefits:  Member of a very beneficial and informative club that will inevitably be valuable in your future  A network of friends who share a similar interest in investing and personal finance  A virtual portfolio challenge that will strengthen your confidence in investing

Common Cents Investment Group October, 2012 Membership  Make sure to check out our website for the presentations Monday night | ccig.osu.edu  Get on our Facebook page and like us!

Common Cents Investment Group October, 2012 Questions?  Questions, comments or concerns?