Introduction to Investing AGGIE INVESTMENT CLUB

INVESTING: WHAT’S IT ALL ABOUT?  Returns! Investing money in different vehicles like stocks, bonds, mutual funds and index funds will grow your money over time  Different time horizons will employ different strategies:  Stocks: Riskier over the short term, proven higher results long term  Bonds: Typically lower yields, but coupons (payouts) are “guaranteed” by the credit of the lender  Speculative Options: Take advantage of Leverage to make outsized bets, or use options to Hedge your positions

WHAT ARE WE LOOKING AT HERE??

 Retail investors (You and I)  We typically lack the tools required to execute sophisticated transactions such as creating new securities or conducting transactions in illiquid securities  Arbitrage; Retail Investor Capital Constraints  Individual investors generally lack the patience and conviction of the pros. We are more susceptible to headlines and sentiment, and will change our minds quickly  Behavioral Finance: Herding Effect (Tech Bubble & Oil Markets)  Accredited investors (Wealth management firms, hedge funds, pension funds, trade shops, investment banks, individuals that make over $200,000 a year & >= $1MM Net Worth)  Big players can literally create new markets and securities: Several funds managed to profit on the 2007 housing collapse in the US by purchasing something called Credit Default Swaps from large US banks and insurers  Institutions manage ~70% of the market cap of all US public equities THE MARKET: WHO IS IN THE CROWD?

WE FOCUS ON STOCKS: WHY?

HOW TO PICK MY STOCKS  There are many ways of picking a stock, but the two main methods are:  Bottom Up Approach: Fundamental Analysis  Fundamental Analysis is the analysis of a company’s financial statements and health, its management and competitive advantages, and its competitors and markets  FIND VALUE  Estimate stock’s intrinsic value and buy undervalued stocks  Top Down Approach  Focus on industries as a whole; the individual companies don’t matter if you can spot the macro tide (ex crude oil collapse)  Technical Analysis  Technical Analysis is the analysis of past market data, primarily price and volume, to find previous patterns that repeat themselves, and use that information to forecast how a stock’s price is likely to behave in the future  ACT AT THE RIGHT TIME

SO WHICH SHOULD I USE?  While the merits of Fundamental Analysis are generally widely accepted, it often involves a major time commitment in terms of research. Idea is to wait for the market to catch up to your valuation  Intrinsic value: Qualitative vs. Quantitative  Top Down approach is difficult for its timing aspects. One must comprehend global trends and track opaque metrics like inventories, supply and demand trends, and fiscal and monetary policies. However, when you’re right, it pays off  Ex: Migrant & Refugee Crisis  Technical Analysis is not as widely accepted, but it is gaining more and more acceptance. It is difficult to remain completely unbiased when looking at a chart, and often the “patterns” that are used have many caveats to them  EMH beliefs

FUNDAMENTAL ANALYSIS P/E Ratio: MV Stock Price per share/ EPS Ex: Intrinsic value of P/E: $20. What to do if fundamental analyst w/ P/E of $22 or $18

TECHNICAL ANALYSIS

TOP DOWN APPROACH

HOW DO I BUY A STOCK  One of the most popular ways to invest in stocks is through an online brokerage account (TDAmeritrade, Scottrade, E-Trade, etc.)  Stocks are listed and traded on an exchange  Exchanges have specific rules and securities which can be traded, but otherwise are similar in some ways to a fancier version of EBay, Craigslist, or even a flea market. They are simply a medium for people to exchange a certain product: stocks  Individuals use brokers to interact with exchanges and place their orders for them. Brokers collect a fee on transactions

HOW DO I BUY A STOCK  Popular Brokers include:  E-Trade  Fidelity  Scottrade  TD Ameritrade  Charles Schwab

STOCK EXCHANGES

 Think of a stock as a certificate that entitles you to a piece of the underlying physical asset (a piece of the company for example)  In a similar sense, an option provides the owner a piece of ownership of the underlying stock. It provides another layer of securitization  Ex. Call Option  I purchase a call option for a straight fee. It expires Dec 18 th, It provides me the Right to purchase the underlying stock at an agreed upon price whenever I want to until Dec 18th. Why is this useful?? OPTIONS, DERIVATIVES

OTHER COOL STUFF

HOW SHOULD I INVEST??

INVEST IN YOURSELF

   Fundamental Analysis:  “The Intelligent Investor” by Ben Graham  “Securities Analysis” by Ben Graham  “Margin of Safety” by Seth Klarman  Technical Analysis:  “Getting Started in Technical Analysis” by Jack Shwager  “Chart School” section  Quantstart.com “Quantitative Finance & Algorithmic Trading” FURTHER RESOURCES

 Code in Finance Program  Partners: Morgan Stanley, Two Sigma, Galatea Associates  Will work on and receive insight into:  Data Science  Quantitative Strategy  Software Engineering  Will also receive insight into  Algorithmic Trading  Financial Engineering  Risk Management OPPORTUNITIES

 Texas A&M Seeking Alpha Stock Pitch Competition  First Place: 6 months free access to SA PRO ($1,200 value) Invitation to Seeking Alpha’s Ultimate Competition in NYC (flight covered by AIC) Inclusion in Seeking Alpha’s Leader Board of competition winners Payment for competition entry, ranging from $ , depending on the type of idea Publicity: We will get you and your pitch out there! Past winners have: Been featured on Seeking Alpha’s stock pitch competition winner board Had articles written about them on Seeking Alpha or had their articles shared on Seeking Alpha’s social media Been interviewed by Hedgeye TV, written up by local media or invited to exclusive investment conferences Been directly introduced to buy-side firms for potential internships and jobs  OPPORTUNITIES CONT.

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Recruiting OPPORTUNITIES CONT.

QUESTIONS / DISCUSSION