October 29 th 2012. Common Cents Investment Group October, 2012 Agenda T-Shirt Pre-orders Today in...

October 29th 2012

Common Cents Investment GroupOctober, 2012

Agenda

T-Shirt Pre-orders Today in the Market Arbitrage Basics Stock Pitches Investopedia


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


Today in the Market


Today in the Market

Dell Inc. (DELL) Almost nearing their 52wk low Looking at Stochastic - %K(15) 12.80 MACD – 0.27 RSI – 33.91

Falls into the “Oversold” category


Today in the Market

Fundamental Analysis Next earnings date – Nov 15th

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


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


Today in the Market

Really good article summarizes my similar thoughts http://seekingalpha.com/article/957091-

dell-a-growth-story-in-deep-value-territory


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


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


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


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.


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


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


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


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


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


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


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%


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


Risk Arbitrage

Where to find out more about buyouts within companies SEC Filings Contact the company’s investor relations

department

Stock Pitches

Investopedia


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


Membership

Make sure to check out our website for the presentations Monday night | ccig.osu.edu

Get on our Facebook page and like us!www.facebook.com/ccigosu


Questions?

Questions, comments or concerns?

October 29 th 2012. Common Cents Investment Group October, 2012 Agenda T-Shirt Pre-orders Today in...

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