Academics

USC Student Investment Fund: Annual Performance

This past week we held the USC Student Investment Fund (SIF) annual meeting.  The annual meeting is an event that draws approximately 60 SIF alumni, during which each of the five student-run mutual funds presents its annual performance to the crowd.  Based on last year’s interrogation of the students by the audience, which featured some tough questions about Netflix (among others), my classmates and I (pictured left) were a bit nervous leading up to the event.  However, we did a great job – we effectively presented our performance, investment rationale and fiduciary duty.

Over the last twelve months I, along with my classmates Kai Wang and Abhinav Anand, managed the California Small Cap Fund (CSF), an approximately $1mm mutual fund which invests primarily in California-based small cap companies.  Kai, Abhinav and I put a lot of work into managing the fund and the SIF coursework; however, it was work that paid off.  We learned (more…)

Quote: Warren Buffett on Ignoring Stock Market Chatter

“We don’t buy and sell stocks based upon what other people think the stock market is going to do, (I never have an opinion) but rather upon what we think the company is going to do.  The course of the stock market will determine to a great degree, when we will be right, but the accuracy of our analysis of the company will largely determine whether we will be right. Who would think of buying or selling a private business because of someone’s guess on the stock market?”  -Warren Buffett

My dad recently sent me this quote.  I like it because it helps keep short-term commentary from affecting long-term analysis and opinion, the true focus of investing (in my opinion).  Through the SIF, I have had the chance to hear similar thoughts on investing from people such as Dave Iben at Tradewinds; he doesn’t want to hear anything unless it will be meaningful in five years.  It’s nice to hear that others try to ignore CNBC and the like, too.

Entrepreneurship: Picking A Co-Founder

I’m sitting in my entrepreneurship class, Cases in New Ventures, taught by Professor Steven Mednick.  The first half of each class is a series of student presentations, which are little boring to be honest, but the second half of class is great.  During the second-half of each class, an entrepreneur speaks to us about their entrepreneurial journey.  Last week we heard from an entrepreneur that had a $160mm deal fall apart during the 2008 financial crisis.  This week, we heard from an entrepreneur whose partner cratered a $100mm deal.  My big takeaway this week was one key item: Pick your co-founder carefully.  Below is the advice that the entrepreneur gave us. (more…)

Update: Stock Pitch Template for the MBA Crowd

Last year while applying to USC’s Student Investment Fund, I put my stock pitch on my site to be used as a template by others.  Admittedly, that model was a bit of a hackjob given my time constraint.  But thankfully it was good enough to help me get into the Student Investment Fund (I now co-manage the California Small Cap Fund).

I recently created an updated stock pitch template for my SIF classmates at the request of Professor Ku based on my valuation background.  Here is the new Excel valuation template.  This model is much simpler, and it does a better job with sensitivity analyses.  If you are going to use this model for a pitch, I would recommend creating a revenue build sheet to build up to forecasted sales.  This will show your interviewer that you know the business’s revenue model. (more…)

Software Industry Analysis, August 2011: My USC Student Investment Fund Summer Project

As a part of my involvement in the USC Student Investment Fund, I had to write an analysis of the software industry.  This report was due during my second week of school, so I had to quickly crank this out after my internship.  Given my time constraint and the high-level scope of this report, it likely isn’t too insightful to anyone who is already familiar with the software industry.  However, if you are unacquainted with the inner workings of software, this report provides a good starting point.  I realize the Industry Overview and Industry Size sections are a little dry, but hopefully you find the rest interesting.  Enjoy. (more…)

A Stock Pitch Template for the MBA Crowd

Update 4/19/11:  I got accepted to the Student Investment Fund and have an updated stock pitch template here.

Update 10/24/11: Oracle has announced its acquisition of RightNow.

The interview process at most equity focused buyside shops (e.g. mutual funds or hedge funds) require a “stock pitch”.  In my case, the need for a stock pitch was heightened by my application to the USC Student Investment Fund (the “SIF”), which is an academic program that gives portfolio management and stock picking responsibilities to current MBA students.  Student managers oversee approximately $4 million of the USC endowment.  Whether for the SIF or a buyside interview, the line of questioning goes the same way, interviewers will say, “Tell me about a stock you have been following and why it’s a buy?”.

Answering this question is as much a sales job as it is an analysis of a company’s market and financial performance.  Below is my pitch.  And here is the Word document and Excel file. If you would like, feel free to use these as a template for your own interview prep with a few caveats: 1) the revenue build is pretty weak in this model; you may want to do a better job a building a revenue sheet that shows average selling price * volume, 2) the working capital and depreciation figures could be more precise; this is more of a banker “swag” than equity analyst build using A/R and A/P turns, 3) beware of the deferred revenue adjustment in the working capital calculation; it’s a complex issue and this model only captures part of the issue correctly (hey, give me a break, I was in a rush when I built this!!); and 4) the write-up is nearly 2 pages; I think it’s best if you can fit all of the topics onto one page. (more…)

Why Hiring Lags Profits: Humans

Today was another interesting day in my entrepreneurial finance class with Duke Bristow.  I love the format of this class. We begin every session with a ~20 minute discussion of the Wall Street Journal before diving into lecture material.  The professor enjoys provoking feedback, opinions and insight on currents event from students, and then he provides his own commentary on the topic (which usually has a small government and economist spin).

Today we discussed an article in the WSJ titled No Rush to Hire Even as Profits Soar.  The Wall Street Journal offers a graph (see right) of quarterly U.S. employment and profits in support of its point that while profits have rebounded sharply since Q4 ’08, job creation has been meager.  Logically, one might think, “Hey, profits are back, so why the hell aren’t these greedy corporations hiring anyone?!!”  The professor encouraged a little logic test to tease out why job creation may be slow.  I know, logic to news is a terrible habit; you might not believe everything you read, a disaster :). (more…)

Analyzing the Statement of Cash Flows

I’m sitting in my Financial Analysis and Valuation class taught by Julia Plotts.  I’ll admit, I took the class because I needed a “gimme” to lighten my workload as a I seek both a school-year and summer internship.   A lot of the accounting and valuation topics are review, however, today I really appreciated the Professor’s points as we analyzed Blockbuster’s financial statements.  When analyzing a statement of cash flows, she suggests the following:

  • Scan the Big Picture
  • Pinpoint Good and Bad News
  • Analyze the Major Sources and Uses of Cash
  • Determine whether CFO covers CapEx (i.e. do they have to raise debt or equity to grow the business)? In other words, do a “sources” and “uses” of cash analysis.
  • What does the Statement of Cash Flow tell us about the company’s positioning?

(Sidenote: For anyone considering taking this class, I highly recommend both the subject matter and the Professor!)

Houses as a Better Hedge Against Inflation Than Gold

I’m sitting in my entrepreneurial finance class taught by Duke Bristow.  We have been discussing the “gold bug” that everyone has caught over the past few years.  When asked whether inflation is better hedged with houses or gold, my professor, a Financial Economics PhD, argues the case of homes on the following points:

  1. With inflation, house prices go up;
  2. By owning a home, one can either rent it for cash flow, or live in it for avoided rent;
  3. There is a tax benefit to owning a home; and
  4. By financing the home loan with a fixed-rate loan, you (as the borrower) can put the inflation risk on the lender (i.e. the bank).

I’ve never been sold on the case for gold, particularly because it doesn’t throw off any cash. These four points are the nail in the coffin for me (for the time being).

If you want to read more about the merits of gold as a store of value, I suggest reading this memo by Howard Marks at Oaktree Capital.

Operations: The Bullwhip Effect

Ever wonder why the semiconductor industry is cyclical?  I did.  Apparently the answer lies in a concept called the “Bullwhip Effect”, which is the notion that the standard deviation of demand is amplified up the supply chain.  In other words, if consumer demand has a standard deviation of 10, wholesaler demand standard deviation may be ~20, and manufacturer demand standard deviation may be ~30.  Below is a brief summary of the causes of the Bullwhip Effect and a few solutions to mitigate it.

Causes:

  • Order Synchronization – if many customers sync their ordering timing, volatility of supply chain increases (more…)