stock trading
Here's a question that was posed to us: "in my financial markets class, we have a mock trading competition going on, and whomever wins at the end of the semester (70 or so days) will get a 10% increase in total points for the semester, which could potentially boost the grade up a letter. i, obviousl... Here's a question that was posed to us: "in my financial markets class, we have a mock trading competition going on, and whomever wins at the end of the semester (70 or so days) will get a 10% increase in total points for the semester, which could potentially boost the grade up a letter. i, obviously, really want to win; how do you suggest i go about this / what should i be looking at research-wise?"

our short answer:

If you aren't following the mkt each day, this is tough if not impossible to teach since your actions and selections now will affect the end portfolio value. In short, Identify the sectors that you think will outperform the market. Your goal isn't to maximize your profits but to beat the rest of the class. So considering what's going on now in the mkt, read up on interent, WSJ etc on what industries will do the best in this craphole of an economy. Then, within that sector, pick the best companies. The way to win is to totally pick specific stocks and not diversify. However the risks are obvious. If you don't pick the right stocks you really lose.

For instance, things to think about:
- traditionally in good times, small cap stocks do well as they usually play into niche areas. In bad times, small caps don't do well because no one is buying and they have less room for buffer since they don't have as much economies of scale
- clearly the banking sector is hurt right now. No one is immune but if you think there are a couple outliers, then pick them
- oil & gas: as oil prices go up, integrated oils like exxonmobil do well, refineries like valero don't. As oil goes up, airlines suufer. Opposite is true. So take a stance on oil prices. Read up on full implications and make a decision
- retailers - discounters like wmt do well now, as does costco. But then costco got hurt more than wmt since costco had less room to quickly raise prices whereas wmt is able to control prices more but costco has a lot of private label (kirkland) so when costs up, they couldn't pass along as quickly
- since you are now literally living thru history, and the bailout hasn't passed yet, ask, who will benefit most when it does pass? Make the bet
- think global economics and the balance of payments and interest rate parity. As the US needs to issue more debt in future for bailout and other reasons, the $ will likely continue to depreciate. So pick companies with lots of international exposure. However, its relative to europe and asia - if they suffer more than US, then dollar will appreciate, if not, then reverse
- you probably can't short else you can do lots of stuff. Pick the opposite and short them to magnify returns

Final assessment: research all the different trends and relationships. Identify what you believe will happen and go from there. This is what portfolio mgrs do and takes yrs to perfect. Welcome to finance. Read More

RE: Change in Net Working Capital
The rationale is quite simple - since you are trying to calculate the amount of cash, don't include it in working capital calculation, otherwise you are double counting. The whole point of FCFF in the DCF is to estimate the amount of cash the firm generates.

Corporate Valuation: capital lease
Hi About the capital lease, the instructor mentioned in the lecture, his view of capital lease is not very positive, it shows more debt, less efficient for the asset turnover ratios, however, capitalized also means future depreciation, you can get the tax deduction for the capital lease, perhaps ... Hi

About the capital lease, the instructor mentioned in the lecture, his view of capital lease is not very positive, it shows more debt, less efficient for the asset turnover ratios, however, capitalized also means future depreciation, you can get the tax deduction for the capital lease, perhaps certain companies just want to take advantages of the tax shield. Read More

RE: Corporate Valuation: capital lease
Hi, in the valuation methodologies video it is mentioned that capital leases should not be added to debt because they could be considered operating leases. In the previous reply, however, it is mentioned that "rating agnecies always add back leases, both operating and capital". What is the correc... Hi,

in the valuation methodologies video it is mentioned that capital leases should not be added to debt because they could be considered operating leases. In the previous reply, however, it is mentioned that "rating agnecies always add back leases, both operating and capital". What is the correct methodology to accurately represent debt calculate TEV? add or nor add capital leases to debt?



Thanks Read More

10 Unanswered complex LBO questions
Hi, I have several quick qualitative questions: 1. In the debt sweep, I would imagine that if we get new debt, that new debt would become labeled as next year's existing debt. But we seem to be treating new debt and existing debt as different tranches. Why is this? What's the point of calling ... Hi,

I have several quick qualitative questions:

1. In the debt sweep, I would imagine that if we get new debt, that new debt would become labeled as next year's existing debt. But we seem to be treating new debt and existing debt as different tranches. Why is this? What's the point of calling this "new debt", instead of simply "Term Loan"?

2. I know we don't include capital leases for enterprise value's debt figure, but I think the prof mentioned before that credit agencies do look at capital leases in their credit ratios because the interest (and debt) are very real. Would this be correct, and if so, why haven't we done this in the video?

3. Silly question: We have "total debt + preferred" but I thought preferreds acted like debt. Are they not "interest bearing negotiated securities"? Or are the payments like dividends in that they are not mandatory, but rather discretionary?

4. Would I be correct in saying that we are using the book value of equity in calculation of the credit ratio page's capitalization because the primary issue is liquidation? I do not exactly understand how using book value versus market value of equity would help banks with credit analysis.

5. Where would the "term loan discretionary repayment" be linked to, in terms of other cells?

6. Why do we have "total debt less current portion"? What significance does it carry, and to whom?

7. On the share repurchase, where did Hamilton get his "implied PE ratio" assumption of 17.0x?

8. In the dividends estimate, we are using basic shares outstanding to calculate total dividends paid. But in using the trailing EPS, we are using the EPS for diluted s/out. Why do we basic in the first case and diluted in the second? Can we mix and match or should we keep this structure? Does it matter at all?

9. We normalize the IS. But wouldn't this also affect the BS? Why don't we adjust for these?

10. I am a bit confused on the "estimate" year. In some of the video lessons, the IS numbers were provided on the K but in this video lesson, we had to project it out. What is this about?


That's a lot of questions. So thanks for taking your time on this one.
-Evan Read More