BASIC FUNDAMENTAL ANALYSIS

Transcription

1 BASIC FUNDAMENTAL ANALYSIS

2 FUNDAMENTAL ANALYSIS ONLINE TRAINING - YOU WILL UNDERSTAND VALUATION (FIND GOOD DEALS AND BUY SMART) - YOU WILL ANALYZE CURRENT S AND PRACTICE - YOU WILL YOU USE YOUR COMPUTER TO SEARCH FOR STRONG COMPANIES - YOU WILL LEARN FUNDAMENTAL VOCABULARY ESSENTIALS -YOU WILL DISCOVER HOW FUNDAMENTALS RELATE TO DEBT, CURRENCY, AND INFLATION - YOU WILL FIND OUT HOW TO SET FUNDAMENTAL ANALYSIS CRITERIA

3 IMPORTANT DISCLAIMER INFORMATION TANNER TRAINING LLC IS PROVIDING THIS TRAINING AND ANY RELATED MATERIALS (INCLUDING NEWSLETTERS, BLOG POSTS AND OTHER COMMUNICATIONS) FOR EDUCATIONAL PURPOSES ONLY. WE ARE NOT PROVIDING LEGAL, ACCOUNTING, OR FINANCIAL ADVISORY SERVICES, AND THIS IS NOT A SOLICITATION OR RECOMMENDATION TO BUY OR SELL ANY S, OPTIONS, OR OTHER FINANCIAL INSTRUMENTS OR INVESTMENTS. EXAMPLES THAT ADDRESS SPECIFIC ASSETS, S, OPTIONS OR TRANSACTIONS ARE FOR ILLUSTRATIVE PURPOSES ONLY AND MAY NOT REPRESENT SPECIFIC TRADES OR TRANSACTIONS THAT WE HAVE CONDUCTED. IN FACT, WE MAY USE EXAMPLES THAT ARE DIFFERENT OR THE OPPOSITE OF TRANSACTIONS WE HAVE CONDUCTED OR POSITIONS WE HOLD. THIS TRAINING IS ALSO NOT INTENDED AS A SOLICITATION FOR ANY FUTURE RELATIONSHIP, BUSINESS OR OTHERWISE, BETWEEN THE STUDENTS OR PARTICIPANTS AND THE TRAINER. NO EXPRESS OR IMPLIED WARRANTIES ARE BEING MADE WITH RESPECT TO THESE SERVICES AND PRODUCTS. ALL INVESTING AND TRADING IN THE SECURITIES MARKETS INVOLVES RISK. ANY DECISION TO PLACE TRADES IN THE FINANCIAL MARKETS, INCLUDING TRADING IN OR OPTIONS, IS A PERSONAL DECISION THAT SHOULD ONLY BE MADE AFTER THOROUGH RESEARCH, INCLUDING A PERSONAL RISK AND FINANCIAL ASSESSMENT, AND THE ENGAGEMENT OF PROFESSIONAL ASSISTANCE TO THE EXTENT YOU BELIEVE NECESSARY.

4 ANDY S EDUCATION CONTINUUMTM IGNORANCE AWARENESS COMPETENCE PROFICIENCY LITTLE OR NO FINANCIAL EDUCATION BASIC CLASSES ADVANCED CLASSES SELECT YOUR STYLE MENTOR MARKET LABS 401 K MUTUAL FUNDS HANDS OFF STRATEGIES VOCABULARY CONTEXT CLASSES SPECIFIC RULES DETAILS SELECT YOUR STYLE EXPERIENCE PRACTICE INCOME! MARKET LABS PHASE 0 PHASE 1 PHASE 2 PHASE 3

5 FOUR PILLARS OF INVESTING FUNDAMENTAL ANALYSIS TECHNICAL ANALYSIS CASH FLOW RISK MANAGEMENT STRENGTH OF AN ENTITY STRENGTH OF A MARKET EARN UP, DOWN, SIDEWAYS EXPECT THE UNEXPECTED

6 FINANCIAL STATEMENT INCOME STATEMENT BALANCE SHEET INCOME EXPENSES ASSETS LIABILITIES CASH FLOW EQUITY THE HEART OF FUNDAMENTAL ANALYSIS IS THE FINANCIAL STATEMENT.

7 THREE BASIC FINANCIAL STATEMENTS: PERSONAL CORPORATE SOVEREIGN

8 WHAT IS LIKELY? THE VELOCITY OF A BODY REMAINS CONSTANT UNLESS THE BODY IS ACTED UPON BY AN EXTERNAL FORCE. WHERE ARE THINGS HEADED NOW? EXTERNAL FORCE = POLICY

9 FISCAL POLICY MONETARY POLICY CONGRESS FEDERAL RESERVE 1. TAXES 2. SPENDING IMPACTS INCOME, EXPENSES THE DEFICIT AND THE DEBT 1. INTEREST RATE 2. BUY TREASURIES IMPACTS THE MONEY SUPPLY AND THE GDP

10 SOVEREIGN FINANCIAL STATEMENT: UNITED STATES $1.6 TRILLION DEFICIT I E TAXES SOCIAL SECURITY, MEDICARE DEBT SERVICE, DEFENSE A L GDP $14 TRILLION $100+ TRILLION (RECESSION) ON BALANCE SHEET PROMISE OFF BALANCE SHEET PROMISE

11 WHERE ARE THINGS HEADED NOW? THE BANKRUPTCY PATTERN OPERATES AT A DEFICIT AND MUST USE RESERVES OR DEBT INSOLVENCY DEFAULT PROGRAM FAILS TO PAY OBLIGATIONS DEATH OR RESTRUCTURING OF THE ENTITY BANKRUPTCY

12 SOVEREIGN FINANCIAL STATEMENT: UNITED STATES $1.6 TRILLION DEFICIT I E TAXES SOCIAL SECURITY, MEDICARE DEBT SERVICE, DEFENSE A L QUANTITATIVE EASING GDP $14 TRILLION $100+ TRILLION (RECESSION) ON BALANCE SHEET PROMISE OFF BALANCE SHEET PROMISE

13 PRINTING MONEY THE UNITED STATES CAN PAY ANY DEBT IT HAS BECAUSE WE CAN ALWAYS PRINT MONEY TO DO THAT - ALAN GREENSPAN

14 NOTES AND CERTIFICATES REPRESENT VALUE CERTIFIES THAT YOU OWN A CAR IN THE VALET GARAGE CERTIFIES THAT YOU OWN SILVER IN THE TREASURY CERTIFICATE ONE CERTIFIES THAT YOU OWN A OF THE COMPANY

15 WHAT WOULD HAPPEN IF I PRINTED MORE TICKETS? CERTIFIES THAT YOU OWN A CAR IN THE VALET GARAGE

16 NOTES AND CERTIFICATES REPRESENT VALUE

17 WHAT WOULD HAPPEN IF I PRINTED MORE CERTIFICATES? CERTIFIES THAT YOU OWN SILVER IN THE TREASURY

18 WHAT WOULD HAPPEN IF I PRINTED MORE CURRENCY? CERTIFIES THAT YOU OWN SILVER IN THE TREASURY IT WOULD BE FRAUD - BECAUSE IT WOULD NOT PRODUCE MORE SILVER...

19 FIAT CURRENCY

20 WHAT WOULD HAPPEN IF I PRINTED MORE CURRENCY? BACKED BY THE FULL FAITH A CREDIT OF THE UNITED STATES IT WOULD NOT BE FRAUD - BECAUSE IT JUST MAKING ANOTHER PROMISE

21 EARNINGS: $10,000 $10 EARNINGS: / FULL FAITH AND CREDIT PRINTING MORE CERTIFICATES

22 INFLATION - REDUCING THE VALUE OF THE DOLLAR Remarks by Governor Ben S. Bernanke Before the National Economists Club, Washington, D.C. November 21, 2002 What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. $1/GALLON $5/GALLON IN THIS CASE PRODUCTS DO NOT GAIN VALUE, THE DOLLAR LOSES VALUE $10/GALLON

23 HOW DOES THE FED CREATE CURRENCY? TREASURY NEEDS MONEY TO COVER THE DEFICIT, SO IT BORROWS MONEY BY SELLING TREASURY BONDS.

24 HOW DOES THE FED CREATE CURRENCY? THE MARKET GETS MORE CURRENCY ASSETS LIABILITIES NOW THE GOVERNMENT CAN PAY ITS BILLS FOR A SHORT TIME... CODE FOR PRINTING MONEY: EXPAND THE BALANCE SHEET MONETIZING THE DEBT QUANTITATIVE EASING

25 SUPPLY AND DEMAND NOW THERE IS AN INCREASE OF US CURRENCY IN THE WORLD......BUT THERE IS NOT AN INCREASE IN THE AMOUNT OF GOODS THUS WHILE THE FED HAS INCREASED THE CURRENCY SUPPLY, THE DEMAND FOR GOODS REMAINS THE SAME, SO THE CURRENCY S VALUE DECREASES. SINCE A DOLLAR IS NOW NOT AS VALUABLE, WE HAVE TO EXCHANGE MORE DOLLARS FOR THE GOODS.

26 LESSONS FROM HISTORY NOT WORTH A CONTINENTAL

27 LESSONS FROM HISTORY SOAP: $50 SUIT: $2700

28 LESSONS FROM HISTORY 400,000,000,000,000,000,000,000,000,000 (FOUR HUNDRED OCTILLION) PENGŐ BECAME 1 FORINT.

29 LESSONS FROM HISTORY IN 1980, ZIMBABWE ISSUED A NEW DOLLAR CURRENCY IN WHICH 1 ZWD WAS WORTH $1.47 UNITED STATES.

30 LESSONS FROM HISTORY IN FEBRUARY 2009 THE ZIMBABWE DOLLAR WAS RE-DENOMINATED FOR THE LAST TIME IN $100,000,000,000,000 BILLS

31 ZIMBABWE

32 PRINTING CURRENCY: COUNTRIES THAT SUFFERED HYPERINFLATION ANGOLA 1995 GERMANY 1923 POLAND 1923, 1992 ARGENTINA 1991 GREECE 1944 REPUBLIKA SRPSKA 1993 AUSTRIA 1922 HUNGARY 1924, 1946 ROMANIA 2005 BELARUS 2002 ISRAEL 1984 SOVIET UNION 1993 BOLIVIA 1984 KRAJINA 1993 TAIWAN 1949 BOSNIA 1993 MEXICO 1982 UKRAINE 1995 BRAZIL 1994 NORTH KOREA 2009 UNITED STATES 1779, BULGARIA 1996 NICARAGUA 1990 YUGOSLAVIA 1993, 1865 CHINA 1272, 1948 PERU 1990 ZAIRE 1996 DANZIG 1923 PHILIPPINES 1944 ZIMBABWE 2008

33 SAVERS LOSE - DEBT WINS $1/GALLON $10/GALLON $100,000 $1,000,000 MORTGAGE $100K MORTGAGE $100K

34 INFLATION CAN BENEFIT A FIXED DEBT WHAT IF YOU COULD PAY OFF YOUR MORTGAGE WITH THE SAME AMOUNT OF MONEY IT COSTS TO BUY A BANANA!

35 SO AGAIN, WHY DO WE DO THIS? TREASURY NEEDS MONEY TO COVER THE DEFICIT, SO IT BORROWS MONEY BY SELLING TREASURY BONDS.

36 TWO MARKETS DEBT MARKET EQUITIES MARKET BONDS = LOAN CORPORATE MUNICIPAL TREASURY S = OWNERSHIP COMMON PREFERRED PRIVATE OR PUBLIC BOTH IMPACT ON SOVEREIGNS FUNDAMENTALS

37 FOREIGN DEBT THE US HAS A TRADE DEFICIT

38 SOVEREIGN FUNDAMENTALS IMPACT SYSTEMIC RISK FINANCIAL STATEMENT TRADE DEFICIT FOREIGN DEBT PRINTING CURRENCY

39 DEBT TO GDP RATIO DOES THIS COUNTRY HAVE A STRONG ENOUGH GDP TO COLLECT ENOUGH TAXES THAT IT CAN PAY ITS BILLS?

40 DEBT TO GDP RATIO EXAMPLE: JAPAN JAPAN DOES THIS COUNTRY HAVE A STRONG ENOUGH GDP TO COLLECT ENOUGH TAXES THAT IT CAN PAY ITS BILLS? DEBT TO GDP = 234%

41 LONG TERM RESULTS OF JAPANESE QE POLICY

42 COMPARISON DEBT AS % OF GDP* % 139% 99% *SOURCE=IMF JAPAN GREECE UNITED STATES

43 GREECE FISCAL POLICY MONETARY POLICY GREECE EUROPEAN UNION CENTRAL BANK

44 IN THE SHADOW OF SOVEREIGN FUNDAMENTALS CORPORATE PERSONAL INCOME EXPENSES INCOME EXPENSES ASSETS LIABILITIES ASSETS LIABILITIES

45 CORPORATE FINANCIAL STATEMENTS: Q APPLE COMPUTER BLOCKBUSTER VIDEO $6 B I E $26 B $21 B -$53M I E $736M $789M A L $54B A L -$400M $86 B $32 B $1.12B $1.16B TRADING AT $300+ TRADING AT.06

46 VALUATION HOW DO WE PRICE A COMPANY? HOW DO WE VALUE A COMPANY? PRICE = WHAT YOU PAY VALUE = WHAT YOU GET FOR YOUR $$ SUPPLY & DEMAND EARNINGS TECHNICAL ANALYSIS FUNDAMENTAL ANALYSIS

47 EARNINGS COSTS: LEMONS, SUGAR, WATER, TAXES = $20 REVENUE: SALES, TIPS = $50 REVENUE - COSTS = EARNINGS $50 - $20 = $30 EARNINGS = $30

48 S OWNER 1 OWNER S 50 S 50 S

49 EARNINGS PER EARNINGS = $30 S = $100 EARNINGS / S = EARNINGS PER $30 / 100 =.30 EARNINGS PER =.30

50 PRICE EARNINGS RATIO EARNINGS PER =.30 HOW MUCH ARE INVESTORS WILLING TO PAY EACH DOLLAR THE BUSINESS IS EARNING? PRICE / EPS = PRICE EARNINGS RATIO $3 /.30 = 10 PRICE EARNINGS RATIO = 10

51 MARKET CAPITALIZATION WHAT IS TO TOTAL COMPANY WORTH? PRICE = $3 TOTAL NUMBER OF S = 100 PRICE X TOTAL S = MARKET CAP $3 X 100 = $300 MARKET CAPITALIZATION = $300 (NANO CAP)

52 LARGE CAP, MID CAP, SMALL CAP WALL STREET JOURNAL Apple Once Again Bigger Than Exxon Mobil For Good? By Mark Gongloff We re all looking up to it now.once more, this time with feeling, Apple is the biggest public company in America, topping Exxon Mobil. As of last check, everybody s favorite tech company had a market cap of $342.8 billion, compared with $339.7 billion for the oil behemoth. SMALL CAP: $300M-$10B MID CAP: $2-$10 BILLION LARGE CAP: >$10 BILLION

53 LARGE CAP, MID CAP, SMALL CAP SMALL CAP: $300M-$10B (GROWTH POTENTIAL) MID CAP: $2-$10 BILLION RISK LARGE CAP: > $10 BILLION (SUPPOSEDLY WELL ESTABLISHED) POTENTIAL GROWTH

54 EARNINGS GROWTH COMPANY XYZ $0 $0 COMPANY ABC

55 PRICE, EARNINGS, AND GROWTH (PEG) PRICE EARNING RATIO = 10 % GROWTH = 10 PRICE EARNINGS RATIO/ % GROWTH = PEG 10/10 = 1 PRICE EARNINGS GROWTH = 1

56 PEG TRIES TO GIVE A METRIC ON VALUE 20 P/E GROWTH OF 10% PEG = 2 OVER VALUED 10 P/E GROWTH OF 10% PEG = 1 AVERAGE VALUE 10 P/E GROWTH OF 20% PEG =.5 UNDER VALUED LESS THAN.5 COULD MEAN TGTBT

57 PRICE EARNINGS AND GROWTH HISTORICAL PERFORMANCE OF THE COMPANY (5 YRS) COMPARED TO OTHERS IN THE SAME SECTOR OR GROUP CONSIDER BOTH CURRENT & FUTURE EARNINGS POTENTIAL

58 EACH ASSET CLASS HAS A VOCABULARY BUSINESS REAL ESTATE S COMMODITIES WHAT IS THE DIFFERENCE BETWEEN AN S-CORP,LP LLC? WHAT FITS BEST? WHAT IS A 1031 EXCHANGE? HOW MUCH WOULD IT HELP MY ME ON MY TAXES THIS YEAR? WHAT DOES A PEG, P/E MARKET CAP MEAN & HOW DOES IT RELATE TO VALUE? HOW DOES A DOW TO GOLD RATIO RELATE TO INFLATION? WHAT IS A FIAT CURRENCY?

59 WEALTH BUILDING ACTIVITY PRACTICE COMPARING THE VALUE SEVERAL S MARKET CAP: TOTAL DOLLAR VALUE OF YOUR COMPANY ENTERPRISE VALUE: VALUE OF COMPANY INCLUDING CASH & DEBT TRAILING P/E: HOW MUCH YOU ARE PAYING FOR EARNINGS Income Expenses FORWARD P/E: PEG RATIO: WHAT WILL YOU LIKELY PAY FOR EARNINGS PRICE/EARNINGS AND GROWTH. Assets Liabilities PRICE/SALES: HOW MUCH YOU ARE PAYING FOR REVENUE PRICE/BOOK: HOW MUCH YOU ARE PAYING FOR THE ASSETS

60 COMPARISON PROCTER & GAMBLE CO. (PG) APPLE INC. (AAPL) DIVIDEND OR INCOME (CASH FLOW) GROWTH (CAPITAL GAIN)

61 BEFORE YOU INVEST WHAT ARE YOU GOALS? CAPITAL GAIN (FLIP THE HOUSE FOR PROFIT) CASH FLOW (RENT THE HOUSE FOR INCOME) HEDGE (BUY INSURANCE FOR PROTECTION)

62 NET WORTH I E NET WORTH A L CAPITAL GAIN (FLIP THE HOUSE FOR PROFIT)

63 CASH FLOW RENT CASH FLOW CASH FLOW (RENT THE HOUSE FOR INCOME)

64 PROTECT ASSETS INSURANCE HEDGE (BUY INSURANCE FOR PROTECTION)

65 NET WORTH AMCE CO. 100 S NET WORTH CAPITAL GAIN (BUY LOW SELL HIGH)

66 CASH FLOW DIVIDEND AMCE CO. 100 S CASH FLOW CASH FLOW COLLECT A DIVIDEND FOR INCOME

67 PROTECT ASSETS I AMCE CO. PUT OPTION E INSURANCE 100 S A L HEDGE (BUY A OPTION TO HEDGE RISK)

68 USING TECHNOLOGY

69 USE SOFTWARE TO SEARCH

70 ORGANIZE AND SORT

71 FILTERS AND SCANS

72 DEBT CRITICAL TO FUNDAMENTALS PERSONAL CORPORATE SOVEREIGN EXPERIAN, TRANSUNION STANDARD AND POOR S MOODY S

73 DEBT AND CREDIT DEBT IS AN OBLIGATION CREDIT IS POWER POWER IS REDUCED BY ABUSE

74 ABUSING CREDIT POWER

75 WISE USE OF CREDIT TO PROSPER

76 TO APPROACHES TO CONTROLLING POWER REMOVE THE POWER FROM THE PEOPLE TO PREVENT IMPROPER USE INCREASE THE POWER AND EDUCATE PEOPLE ON ITS PROPER USE

77 ORGANIZE YOUR PERSONAL FINANCIAL STATEMENT JOB I - ACTIVE INCOME I E PAYMENTS - PASSIVE INCOME E = = DEFICIT A - L = - NET WORTH SURPLUS A - L = + NET WORTH MORTGAGE LOANS TAXES S COMMODITIES REAL ESTATE BUSINESS BAD CREDIT / NO CREDIT EXCELLENT CREDIT / HIGH LIMITS

78 IMPROVING PERSONAL FUNDAMENTALS JOB I - E = ACTIVE INCOME PAYMENTS SCHOOL # 1 : GET A JOB DEFICIT A - L = MORTGAGE LOANS - NET WORTH GET A BETTER JOB OR GET A SECOND JOB TAXES BAD CREDIT / NO CREDIT

79 IMPROVING PERSONAL FUNDAMENTALS JOB I - E = ACTIVE INCOME PAYMENTS SCHOOL # 2 : ACT YOUR WAGE DEFICIT A - L = MORTGAGE LOANS - NET WORTH CUT EXPENSES LOWER YOU LIFESTYLE TAXES BAD CREDIT / NO CREDIT

80 IMPROVING PERSONAL FUNDAMENTALS I PASSIVE INCOME - E = SURPLUS A - L = + NET WORTH SCHOOL # 3 : INCREASE EDUCATION, CREDIT & ASSETS GET EDUCATED S COMMODITIES REAL ESTATE BUSINESS BUILD BUYING POWER & USE IT TO BUY ASSETS EXCELLENT CREDIT / HIGH LIMITS

81 CONGRATULATIONS! YOU HAVE JUST COMPLETED BASIC FUNDAMENTAL ANALYSIS