1. Results of First Assignment
2018
Results of First Assignment
Peter Lynch, One Up on Wall Street, Revised Edition, 2000
Net Present Value

2. Net Present Value (Discounted Cash Flow)
The Basic Concept
Net Present Value (Discounted Cash Flow)
A Future Dollar is Worth Less than a Present Dollar
There is a Discount Factor — What is the Right Value?

3. What is the Discount Factor?
The Basic Concept
Inflation
Business Risk
What is the Discount Factor?
Inflation, Time Value of Money Combined into a Risk-Free Rate Component –
Typically, the Treasury Rate
Business Risk = “Risk Premium”
Time Value of Money

4. Net Present Value (Discounted Cash Flow)
Risk-Free Component
Net Present Value (Discounted Cash Flow)
Typically the Treasury Short-Term Rate

5. Business Risk Component
Net Present Value (Discounted Cash Flow)
This is a Binding Contract
The Only Business Risk Question is: Risk of Default

6. The Risk Premium
The risk premium is the minimum amount of money by which the expected return on a risky asset must exceed the known return on a risk-free asset in order to induce an individual to hold the risky asset rather than the risk-free asset.
Risk Premium
Risk Free Rate

7. Not Relevant Taxes Reinvestment Prospects
Ford’s Business Fortunes (short of default)

8. Not Applicable Your “profit” Price has to satisfy both parties
Equilibrium Concept applies

10. Looking for “Ten-baggers”
2018
Looking for
“Ten-baggers”
Peter Lynch, One Up on Wall Street, Revised Edition, 2000
Alpha Strategies

11. The Impact of Ten-Baggers
2018
The Impact of Ten-Baggers
Peter Lynch, One Up on Wall Street, Revised Edition, 2000

12. The Impact of Ten-Baggers
2018
The Impact of Ten-Baggers
Peter Lynch, One Up on Wall Street, Revised Edition, 2000

13. 2018
The Ten-Bagger Impact
Peter Lynch, One Up on Wall Street, Revised Edition, 2000

14. 2017
Market Skew
Lewis Braham, “Why Market Skew Favors the Few,” Barron’s, October 21, 2017
Alpha

15. Lewis Braham, “Why Market Skew Favors the Few,” Barron’s, October 21, 2017

16. Ten-Bagger Assignment
2018
Ten-Bagger Assignment
Explore the “Alpha Space” – the effects of Skewed Returns
How important is the “Big Winner” in Driving Portfolio Returns
Some dimensions to consider…
Peter Lynch, One Up on Wall Street, Revised Edition, 2000

17. Value in Peter Lynch’s Example (if applicable)
2017
Dimensions
Dimension
Value in Peter Lynch’s Example (if applicable)
Length of time to calculate the returns
A little less than three years
Number of “bags” for the multi-bagger 10
Number of multi-baggers 1
Number of non-multi-baggers (size of portfolio)
Weighting of portfolio
Equal weighting

18. Value in Peter Lynch’s Example (if applicable)
2017
Dimensions
Dimension
Value in Peter Lynch’s Example (if applicable)
How long it takes the multi-bagger to go to X (number of bags set as target)
A little less than three years
Number of Bags (i.e., more or less than 10)
N/A
Dividends counted (i.e., effect of dividends on the calculation)