Women in Finance: Intro to the Markets!

Transcription

1 Women in Finance: Intro to the Markets! An evening dedicated to women curious about the finance industry February 27, 2018

2 What is Finance? The management, creation and study of money, banking, credit, investments, assets and liabilities that make up financial systems Source: Investopedia.com 2

3 What is Capital? Financial assets as well as tangible assets used to generate wealth through investment Examples include: Cash Property Plants Equipment Source: Investopedia.com 3

4 What are Markets? A market is a medium that allows buyers and sellers of a specific good or service to interact in order to facilitate an exchange May be physical or virtual in nature Source: Investopedia.com 4

5 What are Capital Markets? Have ideas and no money Entrepreneurs TRUST Capitalists Have money and no ideas Capital markets facilitate the efficient allocation of capital to productive ideas Source: Randall Morck FIN 434 Lecture Material 5

6 Who are the Users of Capital Markets? Those who need access to capital Entrepreneurs Corporations Governments Those with excess capital Individual investors Pension funds Corporations 6

7 Sources of Funding for Companies Debt Equity Contractual obligation to repay in the future with interest Claims to set cash flows at specified times in the future Ex. Mortgage Shares sold to raise capital Represents ownership in the company Grant claims to residual cash flows Ex. Shares of Apple Inc. 7

8 Public vs. Private Companies Public Private Shares traded in an active market on an exchange Broad ownership Regulated public disclosure (ex. audited financial statements) Ex. Apple Inc. (NASDAQ: AAPL) Shares may be bought and sold directly Narrowly held Limited regulatory oversight Ex. Deloitte Ltd. 8

9 Public Exchanges Across the Globe Canada TSX, TSX Venture, Montreal Exchange US NYSE, NASDAQ, AMEX, NYMEX, CME, CBOE Europe LSE, LME, Frankfurt Stock Exchange Asia Shanghai Stock Exchange, HKEx, Tokyo Stock Exchange 9

10 Market Capitalization Total shares outstanding multiplied by price per share Ex. Apple Inc. (NASDAQ: AAPL) 1 share is worth $180 today 5.07 billion shares outstanding $912.6 billion market cap 5.07 billion shares $180/share $912.6 billion market cap Market Cap = Total Market Value of Equity of a Company This is different from the book value of equity which is used in the A=L+E equation from Accounting 311 (Assets = Liabilities + Equity) Source: Yahoo! Finance 10

11 Stock Analysis $200 AAPL Share Price Share Price ($/sh) $180 $160 $140 $120 $100 $80 Feb 2016 Aug 2016 Feb 2017 Aug 2017 Feb 2018 How can we tell what the true price of AAPL should be? Source: Bloomberg 11

12 Stock Valuation The current price reflects market expectations of future earnings potential for that company The job of an investor is to find stocks that they perceive to have a different value than the market value Successful investors profit from this discrepancy $160/sh -11% return If we think the true price of AAPL is... $180/sh 0% return $200/sh +11% return Sell Hold Buy 12

13 Market Efficiency Promise return to investors Entrepreneurs TRUST Capitalists Expect a certain return, based on the risk of their investment Trust accelerates the activity in a market, enabling markets to more efficiently reflect the perceived value of firms Source: Randall Morck FIN 434 Lecture Material 13

14 Valuation Methodologies Discounted Cash Flow (DCF) Uses future free cash flow projections and discounts them to arrive at a present value (comparable to Net Present Value), used indirectly to calculate an implied share price Comparable Analysis Based on the belief that an equity s value should bear some resemblance to other equities in a similar class or those rivals that operate similar businesses, and therefore, a similar value Precedent Transactions Based on the belief that the price paid for similar companies in the past is considered an indicator of a company s value Source: Investopedia.com 14

15 Risk and Reward Rational investors require a higher expected return to invest in investments with greater risk Ex. Mortgage interest rate vs. government bonds Reward: Return (%) Risk: Variance (%) 15

16 Cost of Capital Reflects the return necessary to compensate investors for the risk they are taking Ex. Mortgage interest rate vs. government bonds Reward: Return (%) The Opportunity Cost of Capital Risk: Variance (%) 16

17 Investment Strategies Value Investing Growth Investing Income Investing Small Cap Investing Socially Responsible Investing Many more Source: Investopedia.com 17

18 Careers in Finance Portfolio Management Investment Banking Corporate Banking Hedge Funds Private Equity and Venture Capital Equity Research Consulting Wealth Management Financial Planning Insurance Many more 18

19 Program for Research and Investment Management Excellence (PRIME) Student-run investment management program investing in Canadian equity markets Manage a portion of the U of A Endowment Fund, valued over C$2,100,000 Growth At A Reasonable Price (GARP) mandate (investment strategy) PRIME has beat the returns of the S&P/TSX for 10/17 years since inception of the fund 50% 40% 42% 35% PRIME Annual Return S&P/TSX Annual Return 30% 20% 10% 18% 18% 8% 7% 13% 13% 10% 11% 18% 21% 7% 9% 0% -10% -20% -4% -10% -9% -8%

20 PRIME Student Responsibilities Two year program: 1)First year as Analyst Monitor companies, weekly news reporting, learn 2)Second year as Manager Manage stocks in sector portfolio, PRIME annual/quarterly reporting The Program Director, Keith Walton, has extensive experience in the investment industry, and facilitates the program each year 20

21 Benefits of PRIME Receive credit for FIN 436 Gain real-world investing experience in an institutional setting Access to industry mentors and extensive alumni network Meet with top investment banks, private equity firms, trading floors, consulting firms, investment managers and corporate development teams Any questions about the process can be directed to 21

22 PRIME 2018/19 Recruiting Applications due March 2 nd at 3:30pm Must have completed or currently be taking FIN 301 Application form download and instructions: Admission to the program is based on a four stage recruiting process: two-part application form interview conducted by the PRIME student managers multiple choice test company analysis on a company chosen by the Program Director 22

23 Additional Resources Investopedia Founded by C. Wagner & C. Janssen in 1999, U of A Business Alumni Vault Guide to Finance Interviews Accessible through UAlberta library: Vault Career Insider database Search the Vault website for "Vault Guide to Finance Interviews, 9th Edition" to access it online or download the e-book Recommended Books: The Intelligent Investor, by Benjamin Graham A Random Walk Down Wall Street, by Burton Malkiel Fooling Some of the People All of the Time, by David Einhorn Manias, Panics, and Crashes: A History of Financial Crises, by Charles Kindleberger Extraordinary Popular Delusions and the Madness of Crowds, by Charles Mackay 23

24 Women in Finance Speaker Panel Saima Asif Senior Manager, Collateral Management Alberta Investment Management Corporation (AIMCo) Jane Alm Senior Investment Advisor Angus Watt Advisory Group National Bank Financial Wealth Management Yulia Ilina Fixed Income Analyst Alberta Teachers' Retirement Fund (ATRF) 24

25 Women in Finance: Intro to the Markets! An evening dedicated to women curious about the finance industry Thank you for joining us!