equity portfolio management

Question 1

investment procedure

Answer 1

1. find investment opportunities
   2.analyse businesses
2. stock weight management
   4.continued monitoring and analysis
   4.partial and total sales
   5.extracting lessons learned

Question 2

searching for investment opportunities

Answer 2

-no golden rule
-depends on combi of factors like experiences, books read, vision on current economic context, philosophy etc
-formal constraints
-turn as many stones as possible to find potential ideas
-sources
▪ Unpopular sectors andstocks.Where nobodyelse wants is willingtolookat.
▪ Books andexpert reports
▪ Financial andeconomicpress: Barrons,FT, WSJ,…
▪ Dailyobservation. RememberPetry Lynchandhis wife’s examples!
▪ Tracingothervalue investorsportfolios

when ideas filter
-quick and dirty analysis (quant. and qual.)
-select promising ones and invest fair amount of time
-from 30 you get 5 to analyse and 1 to invest

Question 3

magic formula

Answer 3

-buying those companies which ahve a higher quality and are cheaper
-quality measured with ROCE and cheapness with FCF yield

➢Creating a matrix with the ROCE and FCF Yield for each,then classifying from
highest to lowest.
➢Calibrating weights, assigning higher weights to those that rank higher ,Dynamic process.
➢When considering new investments , compare how it would rank within the magic formula.
➢Calculate the portfolio’s weighted average ROCE and FCF Yield and compare with new potential investments. If a Co has
lower ROCE andFCF Yield, adding it to the portfolio can marginally reduce its overall quality and potential.

Question 4

buy and sell decisions

Answer 4

-try to support trading decisions with margic formula
-cosnider risk and uncertainy
-everything bought should marginally icnrease the quality and cheapness and reduce risk and uncertainty

periods:
1 montiroing and pre analysis
-waiting for signal and setting target price and margin of safety
2 holding period
-ongoing analysis, trading according to valuation
3 sell discipline
-target price is achieved
-better opportunties

Question 5

buy decisions

Answer 5

-finishe analysis and want to include it
-determine the initial weight in portfolio
-depends on available liqquidty and internal rules
-either start with small and increase weight if they made error sell without major issue
-or lot of work before and invest mimimum amount (2,5%)

Question 6

sell decisions

Answer 6

reasons
-better alternatives
-company overvalued
-investment mistake
-business fundamentals deteriorated
-unexpected events

Question 7

stocks weight management

Answer 7

-weight management important for risk and uncertainty
-too high weight on a stock fails to protect portfolio from unexpected events
-low weight (excessive diversification) impairs potential returns and increases chance for analytical error
-15-30 is reasonable
-exessive trading will increase costs and requires to much attention from portfolio manager

Question 8

compliance and regulation

Answer 8

-important to incorporate all relevant regulations
-different fiscal rules for funds
-changes in fiscal rules for SICAVs in spain

Question 9

commercial issues