T HE I NVESTING P ROCESS Thomas Robb Morgan Stanley MSU Student Investment Association1

O UTLINE Investment Strategies – Idea Generations Resources Paper Trading Real Accounts MSU Student Investment Association2

P ORTFOLIO M ANAGEMENT What to buy When to buy How much to buy When to take profits When to stop losses MSU Student Investment Association3

I NVESTMENT S TRATEGIES Value Growth / Momentum Trend Following / Technical MSU Student Investment Association4

V ALUE I NVESTING Investing in undervalued securities Screen for low multiples – P/E < 10 – P/B < 1 Distressed/Underperforming industries – Shipping – Housing – Solar MSU Student Investment Association5

G ROWTH & M OMENTUM Investing in companies that are growing earnings and sales Momentum – Accelerating growth – Increased institutional ownership Can be riskier – Valuation based on growth – Poor earnings can cause price to plummet MSU Student Investment Association6

S CREENS No “Perfect” Screen MagicFormulaInvesting.com FinViz.com – Multiples – Leverage – Growth “Value Traps” – Undervalued does not mean buy – Additional research – Wait for turnaround MSU Student Investment Association7

T REND F OLLOWING Invest on price action not fundamentals Cut losses, let winners run Buy as prices break higher – 20 Day for Commodities – 20 Week for Equities Sell as Trend Ends – 10 Day/Week Also works for Shorting MSU Student Investment Association8

R ESOURCES Investors.com – Stock Research Tool – Articles – Screen of the Day SeekingAlpha.com – Macro View – Long & Short Ideas MSU Student Investment Association9

R ESOURCES FinViz.com – News > Blogs AbnormalReturns.com – Markets – Strategies – Companies – Economy StockTwits.com MSU Student Investment Association10

R ESOURCES Charts & Watch Lists – FreeStockCharts.com News – FinViz.com – Finance.Google.com ETFs – ETFdb.com – ETF.stock-encyclopedia.com MSU Student Investment Association11

Q UESTIONS ? Next Up: Portfolio Considerations MSU Student Investment Association12

P OSITION S IZING Volatility Adjusted – Average True Range MSU Student Investment Association13 1% of Portfolio Average True Range Position Size in Shares More volatile shares have lower weighting Each investment should contribute same value to portfolio

D IVERSIFICATION Equities – Removes security risk – Industries – Trends (global growth / inflation) Commodities – Precious Metals – Energy – Agriculture MSU Student Investment Association14

M ANAGING L OSSES The more you lose the more you have to regain MSU Student Investment Association15 % Loss% to Breakeven 8%8.6% 10%11.1% 20%25% 30%42.8% 50%100% Minimize permanent capital loss Percentage Stop (8-10%) Volatility – Multiple of ATR (.5 – 2)

Q UESTIONS ? Next Up: Trading MSU Student Investment Association16

P APER T RADING Necessary Step in Investing – Test strategy – Make sure you can make decisions – Practice managing portfolio UpDown.com Is strategy practical for real account? DO NOT MOVE ON UNTIL YOU’RE PROFITABLE MSU Student Investment Association17

R EAL A CCOUNTS Minimize Trading Costs – Discount Brokers Scottrade.com Zecco.com SpeedTrader.com – Reduce turnover Consider taxes – Short-term capital gains – Cannot remove money from IRAs MSU Student Investment Association18

R EVIEW T RADING Are you sticking to your strategy? Are you making money? – Beating index? Where are you making money? When are you losing money? Are you missing opportunities? HOW CAN YOU IMPROVE? MSU Student Investment Association19

Q UESTIONS ? MSU Student Investment Association20