HIDALGO GROUP LTD' - PowerPoint PPT Presentation

Loading...

PPT – HIDALGO GROUP LTD' PowerPoint presentation | free to view - id: 131b6a-ZjQ3Y



Loading


The Adobe Flash plugin is needed to view this content

Get the plugin now

View by Category
About This Presentation
Title:

HIDALGO GROUP LTD'

Description:

Want to own part of a business without having to show up at its office every day? ... Stock is the vehicle of choice for those who do. ... – PowerPoint PPT presentation

Number of Views:79
Avg rating:3.0/5.0
Slides: 46
Provided by: Gues330
Category:
Tags: group | hidalgo | ltd | aboutus | adage

less

Write a Comment
User Comments (0)
Transcript and Presenter's Notes

Title: HIDALGO GROUP LTD'


1
HIDALGO GROUP LTD.
  • PORTFOLIO MANAGEMENT MARKET ANALSIS- FINANCIAL
    MAGAZINE.

2
INTRODUCTION TO SHARES.
  • Want to own part of a business without having to
    show up at its office every day? Or ever? Stock
    is the vehicle of choice for those who do. Dating
    back to the Dutch mutual stock corporations of
    the 16th century, the modern stock market exists
    as a way for entrepreneurs to finance businesses
    using money collected from investors. In return
    for ponying up the dough to finance the company,
    the investor becomes a part owner of the company.
    That ownership is represented by stock --
    specialized financial "securities," or financial
    instruments -- that are "secured" by a claim on
    the assets and profits of a company.

3
TYPES OF STOCKS…
  • Common Stock. Common stock is aptly named, as it
    is the most common form of stock an investor will
    encounter. It is an ideal investment vehicle for
    individuals because anyone can own it there are
    absolutely no restrictions on who can purchase
    it. Young, old, savvy, reckless -- heck, even
    professional mimes are allowed to own stock.
    Common stock is more than just a piece of paper
    it represents a proportional share of ownership
    in a company -- a stake in a real, living,
    breathing business. By owning stock -- the most
    amazing wealth-creation vehicle ever conceived
    (except for inheriting money from a relative
    you've never heard of) -- you are a part owner of
    a business.
  • Shareholders "own" a part of the assets of the
    company and part of the stream of cash those
    assets generate. As the company acquires more
    assets and the stream of cash it generates gets
    larger, the value of the business increases. This
    increase in the value of the business is what
    drives up the value of the stock in that business.

4
HOW STOCKS TRADE…
  • To be able to trade in stocks at the stock
    exchange, the first thing that is crucial is
    that, the investor needs to have a CDSC account
    through one of the brokers, to enable the ease of
    purchase and sale of the securities. The account
    operates similar to the one of the bank, with the
    only difference being that a CDS account accepts
    the deposits of shares and not cash.
  • Probably one of the most confusing aspects of
    investing is understanding how stocks actually
    trade. Words such as "bid," "ask," "volume," and
    "spread" can be quite confusing.
  • The Nairobi Stock Exchange, the Ugandan one and
    the Tanzanian one are "listed" exchanges,
    meaning that brokerage firms contribute
    individuals known as dealers" who are
    responsible for all of the trading in a specific
    stock. Volume, or the number of shares that trade
    on a given day, is counted by the dealer and
    reported to the exchange along with information
    on the price and size of each trade.
  • There is the element of bid, ask and spread. This
    is essentially controlled by the dynamics of the
    market- the demand and supply ratios. The
    crucial underlying element to all these is what
    we call the aspect of settlement, once the shares
    are reflecting in your CDS account after a
    settlement period of 4-6 days, then the shares
    will be balance free, meaning, they will
    available for any action from the investor or the
    portfolio manager.
  • Trading of stocks various a lot with the
    different types of investor, with underlying
    issues of whether one is short term or long term,
    whether one has a portfolio manager or not,
    whether one is privy to the happenings at the
    market or not, which essentially behaves like the
    one for the sukuma wiki or the normal market day…

5
DIFFERENT CLASSES OF STOCKS…
  • Occasionally, companies find it necessary for
    various reasons to concentrate the voting power
    of a company into a specific class of stock where
    the majority is owned by a certain set of people.
    For instance, if a family business needs to raise
    money by selling equity, sometimes they will
    create a second class of stock that they control
    that has 10 votes per share of stock and sell a
    class of stock that only has one vote per share
    to others. Does this sound like a bad deal? Many
    investors believe it is and routinely avoid
    companies where there are multiple classes of
    voting stock. This kind of structure is most
    common in media companies and has been around
    only since 1987.
  • When there is more than one kind of stock, they
    are often designated as Class A or Class B
    shares. For example, we would have Standard group
    A and Standard group B, they would trade as STD A
    and STD B simultenously.

6
STOCKS DERIVATES-Options Futures
  • Arguably the most volatile and risky investments
    possible, options and futures are "derivative"
    securities, meaning their value is "derived" from
    that of another security or commodity. Options
    and futures are both very volatile because they
    often carry an incredible amount of leverage. For
    instance, each option contract on an individual
    stock controls 100 shares of that stock for a
    fraction of the stock's current value. Since
    option traders have only invested a small
    percentage of the stock's price, any move in the
    price represents a big percentage change for
    their investment. Say they paid 5 per share for
    an option on a stock that sells for around 50 a
    share. If the price of the stock goes up 5,
    that's a 10 move in the price of the stock, but
    it's 100 of the option trader's investment. So a
    relatively small upward movement in the stock can
    be a huge upward movement for the option.
  • This potential for gain is offset by the fact
    that the entire purchase price of an option is at
    risk. If an investor holds an option and the
    underlying stock does not exceed the target price
    within the given time period, the option expires
    worthless and the entire purchase price is lost.
    (Most options end up worthless on their
    expiration date.) Traders also have to cover the
    price of the option. That five-dollar increase in
    the value of the stock wouldn't actually make the
    trader any money if the option expires at that
    point. It would just have covered the cost of the
    option. And if you think this is getting
    complicated, we've barely scratched the surface!
  • Hidalgo does not consider options and futures to
    be worthwhile investments, especially in an
    emerging economy like ours. Some people make a
    living trading derivatives -- they make their
    living trading against people like you. The
    chance of losing money with derivatives is much
    too high for options to be considered a useful
    part of any completely nutritious investment
    strategy.

7
BUYING STOCKS…
  • Use a Brokerage. The most common way to buy
    stocks is to use a brokerage. In Kenya, we have
    the basic stock broker and then the investment
    banks that do offer brokerage services, like
    Faida Investment Bank. Both have varied services
    that they do offer to their clientele. Besides
    these, we do have stock agents who act on behalf
    of the principal stock broker and they do have
    added services that the broker might not be able
    to offer due to various reasons.
  • Given the number of people investing in the
    equities, brokers are having it rough wit the
    aspect of human capital and resource. Thats why
    a company like Hidalgo has been formed with such
    an issue in mind to help the budding investor,
    focus on their primary job as Hidalgo does invest
    and circulate their capital in the equity market
    on a weekly basis. Basically this is the
    principal work of the portfolio manager. Based on
    market research and trends, key fundamental
    aspects of various companies, the investors
    funds are circulated every settlement cycle in
    various stocks, in the process, making money for
    the investor, as they are bought at a low price
    and sold at a high price, of even 0.50
    appreciation, as long the even breaking point is
    reached and surpassed. All these is done in the
    clients account so that the client is able to
    follow up on the progress of his funds to the
    last coin. Plus its easier for accountability
    issues.

8
DIVIDEND REINVEST PLAN
  • Dividend Reinvestment Plans (DRPs) and Direct
    Investment Plans (DIPs). Known lovingly by many
    investors as Drips, these are plans sponsored by
    individual companies that allow shareholders to
    purchase stock directly from a company with only
    minimal costs or commissions. These plans are
    great for those who have small amounts of money
    but who are willing to invest it at regular
    intervals.

9
SHORTING STOCKS…
  • If you buy a security with the expectation that
    the price will rise, you are "long" the stock.
    But you can profit from stocks that go down, too.
    This is an advanced investing technique called
    "short selling. Basically, at the end of the
    day, the investor has feelings, be it a
    corporate, whose fund manager is human, just like
    the retail investor like you and me, thus, the
    aspect of fear and greed do control us and a very
    interesting trend has been developing, when
    retail investors are off loading their holdings
    for various reasons, principally because its a
    crowd reaction, corporate and high net investors
    will be buying for accumulation at low prices
    from the panicking retail investor, only to sell
    to them again, two weeks later at premium prices,
    thus the retail investor loosing out, just
    because they didnt pat attention or hold the
    panic out. This is what we want to prevent and
    help our clients to make some good money.
  • Properly done, shorting can work as a hedge
    against a falling market. Improperly done, you
    can lose even more money on a short than you
    would lose if you invested in a company that went
    bankrupt. Imagine that you buy a company for 50
    per share and it goes belly up. You've lost 50.
    (You should have shorted it!) But imagine
    shorting a stock for 50 that subsequently
    triples. When you close that short position, it
    will cost you 150 a share to buy back the shares
    you sold for 50. Many a short seller has been
    caught in this trap because brokers won't let you
    hold on to a short position unless you have money
    or other assets to cover the short at all times.

10
INVESTING PROCESS…
  • What is investing? Any time you invest, you are
    putting something of yours into something else in
    order to achieve something greater. You can
    invest your weekends in a good cause, you can
    invest your intelligence in your job, or you can
    invest your time in a relationship. Just as you
    do each of these with the expectation that
    something good will come of it, when you invest
    your savings in a stock, bond, or mutual fund,
    you do so because you think its value will
    appreciate over time.
  • Investing money is putting that money into some
    form of "security" - a fancy word for anything
    that is "secured" by some assets. Stocks, bonds,
    mutual funds, certificates of deposit - all of
    these are types of securities. As with anything
    else, there are many different approaches to
    investing. Some of these you've probably seen on
    late-night TV. A well-dressed, wildly positive
    (though somewhat whiny) young man sits lazily
    waving palm fronds and shakes his head over how
    incredibly easy it is to amass vast wealth - in
    no time at all! BUT you need to spend to be able
    to get..

11
Planning Setting Goals…
  • Investing is like a long car trip. There's a lot
    of planning that goes into it.
  • How long is the trip? (What is your investing
    "time horizon"?)
  • What should you pack? (What type of investments
    will you make?)
  • How much gas will you need? (How much money will
    you need to reach your goals?)
  • Will you need to stop along the way? (Do you have
    short-term financial needs?)
  • How long do you plan on staying? (Will you need
    to live off the investment in later years?)
  • Running out of gas, stopping frequently to visit
    restrooms, and driving without sleep (this is the
    last of the travel analogy, we promise) can ruin
    your trip. So can saving too little money,
    investing erratically, or doing nothing at all.
  • You must answer the following questions before
    you can successfully set about your
    savings/investing journey
  • What are your goals? Is this money for
    retirement? A down payment on a house? Your
    child's education? A second home? Income to live
    on in the proverbial Golden Years?
  • How much money can you devote to a regular
    investing plan?
  • Don't let yourself get away with fuzzy answers,
    either. In the end, investing is a lot of
    numbers. You need to get used to that, and
    quickly. As a matter of fact, it can be quite
    liberating. You can see exactly what you need to
    get to your destination, and can be accountable
    to yourself along the way. Ask yourself some more
    pointed questions
  • How much will college cost when my child needs to
    go?
  • How much yearly income is reasonable for
    retirement?

12
TIME IS ON YOUR SIDE…American Example…
  • To help put this into context, let's look at how
    various types of investments have performed
    historically. Bonds and stocks are the two major
    asset classes that have been used by investors
    over the past century. Knowing the total returns
    on each of these, and their associated
    volatility, is crucial to deciding where you
    should put your money.
  • Putting your money into cash reserves - U.S.
    Treasury bills, or more recently, money market
    funds - has yielded roughly 4.2 per year during
    this century, according to Global Financial Data.
    While this may not seem like a lot today, it is
    important to remember that for most of this
    century, inflation was nonexistent, making a 4.2
    average annual return attractive until the 1960s.
    Though it is interesting that cash reserves have
    outperformed bonds this century, if one expands
    the time frame back to 1802, cash returns trail
    the return of bonds, and during the 1980s and
    1990s, cash reserves have consistently trailed
    bond returns.
  • Long-term government bonds have returned around
    4.0 per year since 1900 surprisingly, they're
    not that superior to short-term bonds. The best
    decade for bonds in the past century was the
    1980s, when bonds returned 13.81 annually. The
    worst was the 1950s, when bonds lost -3.75. Had
    you invested 1 in long-term bonds in 1900, you
    would have about 50 today.
  • Stocks have also been very good to investors.
    Overall, stocks have returned an average of 9.8
    per year since 1900 - quite a bit higher than
    bonds. Surprisingly, the range of the returns for
    stocks is not that much larger than the range for
    bonds over the same period. According to Global
    Financial Data, the worst return in one decade
    was the 1930s, when stocks declined 0.17 per
    year, including dividends. The best decades have
    been the 1950s, when stocks increased by 18.23
    annually the 1980s, when stocks increased by
    16.64 annually and the 1990s, during which
    stocks have increased by 17.3 annually. Had you
    put 1 into stocks in 1900, you would have over
    10,000 today.

13
Determining your Investment Style…
  • What kind of investor are you? Are you a
    swing-for-the-fences type, or are you content
    hitting singles and doubles, racking up slow and
    steady gains? Or do you prefer to sit in the
    stands, chatting with your companions and
    occasionally cheering your home team on?
  • Before you start investing, you should determine
    your investment style. There are three major
    variables in figuring out your investment style -
    your risk tolerance, the amount of time you can
    dedicate to investing and if you will be willing
    to pay for a portfolio manager to see your
    investment grow
  • Risk. How comfortable will you be if you invest
    in something in which the price changes every day
    - sometimes not the way you want it to change?
    There are various degrees of risk across the
    investment spectrum, from government bonds, which
    are considered risk-free as they are guaranteed
    by the government, to commodities and options,
    where you can and often do lose all of your
    money.
  • You need to consider how comfortable you will be
    seeing your investment decrease in the near term
    while you wait for it to increase over the long
    term. Although stocks have historically increased
    in price over the past two centuries, there have
    been some pretty bad periods. Without counting
    dividends, your equity investments could have
    lost almost 80 of their value had you bought
    stocks at the high in 1929 before the crash. You
    could have lost 40 had you bought at the high in
    1972. Heck, in October of 1987 the Dow decreased
    25 - in just one day! The important thing to
    remember about stocks, though, is that you don't
    lose anything until you sell them. For example,
    if you didn't panic and sell your stocks in
    October of 1987, you did quite nicely as the
    market rebounded in subsequent years. That's why,
    when you're investing in the stock market, you
    need to think long-term. Don't invest any money
    in stocks that you'll need in the short term.
  • Government bonds provide guaranteed returns, and
    bank savings accounts are insured by the Central
    Depository Protection Fund DPF . For stock
    investing, there is no similar guarantee or
    insurance that the ride will be smooth or that
    every investment will make you money, but if you
    buy good businesses and hold for the long term
    AND OR circulate the funds with precision in
    various stocks, with the help of a portfolio
    manager, the odds are in your favor. Just
    remember that the safest road isn't always the
    best one. At Hidalgo Group, we believe that the
    biggest risk is not taking enough risk, meaning
    not investing enough in stocks.
  • It should also be said that you can learn to
    increase your risk tolerance for investing in
    stocks. Once you see the kind of returns you can
    generate over time, you'll come to realize that
    it really doesn't matter if your stock drops or
    rises over the course of a few hours or days or
    weeks or even months. It may be fun to check your
    stock prices (and it's so easy on the Internet!)
    but it doesn't mean much over the long term.

14
Investment Style contd
  • Time. Speaking of the long term, time is another
    important element of your investing profile. How
    much time do you want to spend on investing? How
    active do you want to be in the management of
    your money? Do you want to spend 15 minutes a
    year on it? Then maybe you should consider hiring
    the services of the portfolio manager, who will
    watch over your investment like a hen watches
    over her eggs till they hatch well. We at Hidalgo
    believe we are ready to invest your capital in
    the equity market and watch it grow.

15
Analyzing Stocks…
  • Introduction
  • Investing, like most other things, requires that
    you have a general philosophy about how to do
    things in order to avoid careless errors. Would
    you make a soufflé without a recipe? Would you
    play cello in the London Philharmonic Orchestra
    without sheet music? Would you aim a shuffleboard
    disk without figuring out whether you're trying
    to knock off your own color or your opponent's?
    We hope not. And while investing is not nearly as
    difficult as these other challenges (especially
    the soufflé), you certainly need a considered
    plan before investing your hard-earned savings.
  • Fundamental Analysis - Buying a Business (Value,
    Growth, Income, GARP, Quality)
  • Many people rightly believe that when you buy a
    share of stock you are buying a proportional
    share in a business. As a consequence, to figure
    out how much the stock is worth, you should
    determine how much the business is worth.
    Investors generally do this by assessing the
    company's financials in terms of per-share values
    in order to calculate how much the proportional
    share of the business is worth. This is known as
    "fundamental" analysis by some, and most who use
    it view it as the only kind of rational stock
    analysis.
  • Although analyzing a business might seem like a
    straightforward activity, there are many flavors
    of fundamental analysis. Investors often create
    oppositions and subcategories in order to better
    understand their specific investing philosophy.
    In the end, most investors come up with an
    approach that is a blend of a number of different
    approaches. Many of the distinctions are more
    academic inventions than actual practical
    differences. For instance, value and growth have
    been codified by economists who study the stock
    market even though market practitioners do not
    find these labels to be quite as useful. In the
    following descriptions, we will focus on what
    most investors mean when they use these labels,
    although you always have to be careful to
    double-check what someone using them really
    means.
  • Value. A cynic, as the saying goes, is someone
    who knows the price of everything and the value
    of nothing. An investor's purpose, though, should
    be to know both the price and the value of a
    company's stock. The goal of the value investor
    is to purchase companies at a large discount to
    their intrinsic value - what the business would
    be worth if it were sold tomorrow. In a sense,
    all investors are "value" investors - they want
    to buy a stock that is worth more than what they
    paid. Typically those who describe themselves as
    value investors are focused on the liquidation
    value of a company, or what it might be worth if
    all of its assets were sold tomorrow. However,
    value can be a very confusing label as the idea
    of intrinsic value is not specifically limited to
    the notion of liquidation value. Novices should
    understand that although most value investors
    believe in certain things, not all who use the
    word "value" mean the same thing.

16
Analyzing Stocks contd
  • The person viewed as providing the foundation for
    modern value investing is Benjamin Graham, whose
    1934 book Security Analysis (co-written with
    David Dodd) is still widely used today. Other
    investors viewed as serious practitioners of the
    value approach include Sir John Templeton and
    Michael Price. These value investors tend to have
    very strict, absolute rules governing how they
    purchase a company's stock. These rules are
    usually based on relationships between the
    current market price of the company and certain
    business fundamentals. Some examples include
  • Price/earnings ratios (P/E) below a certain
    absolute limit
  • Dividend yields above a certain absolute limit
  • Book value per share at a certain level relative
    to the share price
  • Total sales at a certain level relative to the
    company's market capitalization, or market value
  • Growth. Growth investing is the idea that you
    should buy stock in companies whose potential for
    growth in sales and earnings is excellent. Growth
    investors tend to focus more on the company's
    value as an ongoing concern. Many plan to hold
    these stocks for long periods of time, although
    this is not always the case. At a certain point,
    "growth" as a label is as dysfunctional as
    "value," given that very few people want to buy
    companies that are not growing. The concept of
    growth investing crystallized in the 1940s and
    the 1950s with the work of T. Rowe Price, who
    founded the mutual fund company of the same name,
    and Phil Fisher, who wrote one of the most
    significant investment books ever written, Common
    Stocks and Uncommon Profits.
  • Growth investors look at the underlying quality
    of the business and the rate at which it is
    growing in order to analyze whether to buy it.
    Excited by new companies, new industries, and new
    markets, growth investors normally buy companies
    that they believe are capable of increasing
    sales, earnings, and other important business
    metrics by a minimum amount each year. Growth is
    often discussed in opposition to value, but
    sometimes the lines between the two approaches
    become quite fuzzy in practice.
  • Income. Although today common stocks are widely
    purchased by people who expect the shares to
    increase in value, there are still many people
    who buy stocks primarily because of the stream of
    dividends they generate. Called income investors,
    these individuals often entirely forego companies
    whose shares have the possibility of capital
    appreciation for high-yielding dividend-paying
    companies in slow-growth industries. These
    investors focus on companies that pay high
    dividends like utilities and real estate
    investment trusts (REITs), although many times
    they may invest in companies undergoing
    significant business problems whose share prices
    have sunk so low that the dividend yield is
    consequently very high.

17
GARP…
  • GARP. GARP, aside from being the name of the
    title character to John Irving's The World
    According to Garp, is an acronym for growth at a
    reasonable price. The world according to GARP
    investors combines the value and growth
    approaches and adds a numerical slant.
    Practitioners look for companies with solid
    growth prospects and current share prices that do
    not reflect the intrinsic value of the business,
    getting a "double play" as earnings increase and
    the price/earnings (P/E) ratios at which those
    earnings are valued increase as well. Peter
    Lynch, who may be familiar to you through his
    starring role in Fidelity Investments commercials
    with Lily Tomlin and Don Rickles, is GARP's most
    famous practitioner.
  • One of the most common GARP approaches is to buy
    stocks when the P/E ratio is lower than the rate
    at which earnings per share can grow in the
    future. As the company's earnings per share grow,
    the P/E of the company will fall if the share
    price remains constant. Since fast-growing
    companies normally can sustain high P/Es, the
    GARP investor is buying a company that will be
    cheap tomorrow if the growth occurs as expected.
    If the growth does not come, however, the GARP
    investor's perceived bargain can disappear very
    quickly.
  • Because GARP presents so many opportunities to
    focus just on numbers instead of looking at the
    business, many GARP approaches, like the nearly
    ubiquitous PEG ratio and Jim O'Shaughnessy's work
    in What Works on Wall Street are really hybrids
    of fundamental analysis and another type of
    analysis -- quantitative analysis.

18
Quality…
  • Quality. Most investors today use a hybrid of
    value, growth, and GARP approaches. These
    investors are looking for high-quality businesses
    selling for "reasonable" prices. Although they do
    not have any shorthand rules for what kind of
    numerical relationships there should be between
    the share price and business fundamentals, they
    do share a similar philosophy of looking at the
    company's valuation and at the inherent quality
    of the company as measured both quantitatively by
    concepts like Return on Equity (ROE) and
    qualitatively by the competence of management.
    Many of them describe themselves as value
    investors, although they concentrate much more on
    the value of the company as an ongoing concern
    rather than on liquidation value.
  • Warren Buffett of Berkshire Hathaway is probably
    the most famous practitioner of this approach. He
    studied under Benjamin Graham at Columbia
    Business School but was eventually swayed by his
    partner, Charlie Munger, to also pay attention to
    Phil Fisher's message of growth and quality.
  • Arguments Against Fundamental Analysis. Those who
    do not use fundamental analysis have two major
    arguments against it. The first is that they
    believe that this type of investing is based on
    exactly the kind of information that all major
    participants in publicly traded markets already
    know, so therefore it can provide no real
    advantage. If you cannot get a leg up by doing
    all of this fundamental work understanding the
    business, why bother? The second is that much of
    the fundamental information is "fuzzy" or
    "squishy," meaning that it is often up to the
    person looking at it to interpret its
    significance. Although gifted individuals can
    succeed, this group reasons, the average person
    would be better served by not paying attention to
    this kind of information.

19
Quantitative Analysis
  • Quantitative Analysis - Buying the Numbers
  • Pure quantitative analysts look only at numbers
    with almost no regard for the underlying
    business. The more you find yourself talking
    about numbers, the more likely you are to be
    using a purely quantitative approach. Although
    even fundamental analysis requires some numerical
    inputs, the primary concern is always the
    underlying business, focusing on things like
    management's expertise, the competitive
    environment, the market potential for new
    products, and the like. Quantitative analysts
    view these things as subjective judgments, and
    instead focus on the incontrovertible objective
    data that can be analyzed.
  • One of the principal minds behind fundamental
    analysis, Benjamin Graham, was also one of the
    original proponents of this trend. While running
    the Graham-Newman partnership, Graham exhorted
    his analysts to never talk to management when
    analyzing a company and focus completely on the
    numbers, as management could always lead one
    astray.
  • In recent years as computers have been used to do
    a lot of number crunching, many "quants," as they
    like to call themselves, have gone completely
    native and will only buy and sell companies on a
    purely quantitative basis, without regard for the
    actual business or the current valuation - a
    radical departure from fundamental analysis.
    "Quants" will often mix in ideas like a stock's
    relative strength, a measure of how well the
    stock has performed relative to the market as a
    whole. Many investors believe that if they just
    find the right kinds of numbers, they can always
    find winning investments. D. E. Shaw is widely
    viewed as the current King of the Quants, using
    sophisticated mathematical algorithms to find
    minute price discrepancies in the markets. His
    partnership sometimes accounts for as much as 50
    of the trading volume on the New York Stock
    Exchange in a single day.

20
Company size…
  • Company Size. Some investors purposefully narrow
    their range of investments to only companies of a
    certain size, measured either by market
    capitalization or by revenues. The most common
    way to do this is to break up companies by market
    capitalization and call them micro-caps,
    small-caps, mid-caps, and large-caps, with "cap"
    being short for "capitalization." Different-size
    companies have shown different returns over time,
    with the returns being higher the smaller the
    company. Others believe that because a company's
    market capitalization is as much a factor of the
    market's excitement about the company as it is
    the size, revenues are a much better way to break
    up the company universe. Although there is no set
    breakdown used by all investors, most
    distinctions look something like this
  • MICRO - 100 million or less SMALL - 100 million
    to 500 million MID - 500 million to 5
    billion LARGE - 5 billion or more
  • The majority of publicly traded companies fall in
    the micro or small categories. Some statisticians
    believe that the perceived outperformance of
    these smaller companies may have more to do with
    "survivor" bias than actual superiority, as many
    of the databases used to do this performance
    testing routinely expunged bankrupt companies
    until pretty recently. Since smaller companies
    have higher rates of bankruptcy, excluding this
    factor helps "juice" up their historical returns
    as a result. However, this factor is still being
    debated.

21
Screen-Based Investing…
  • Screen-Based Investing. Many quantitative
    analysts use "screens" to select their
    investments, meaning that they use a number of
    quantitative criteria and examine only the
    companies that meet these criteria. As the use of
    computers has become widespread, this approach
    has increased in popularity because it is easy to
    do. Screens can look at any number of factors
    about a company's business or its stock over many
    time periods.
  • While some investors use screens to generate
    ideas and then apply fundamental analysis to
    assess those specific ideas, others view screens
    as "mechanical models" and buy and sell purely
    based on what comes up on the screen. These
    investors claim that using the screen removes
    emotions from the investing process. (Those who
    do not use screens would counter that using a
    screen mechanically also removes most of the
    intelligence from the process.) One of the
    proponents of using screens as a starting point
    is Eric Ryback, and one of the most famous
    advocates of screens as a mechanical system is
    James O'Shaughnessy.

22
Momentum…
  • Momentum. Momentum investors look for companies
    that are not just doing well, but that are flying
    high enough to get nose bleeds. "Well" is defined
    as either relative to what investors were
    expecting or relative to all public companies as
    a whole. Momentum companies often routinely beat
    analyst estimates for earnings per share or
    revenues or have high quarterly and annual
    earnings and sales growth relative to all other
    companies, particularly when the rate of this
    growth is increasing every quarter. This kind of
    growth is viewed as a sign that things are
    really, really good for the company. High
    relative strength is often a category in momentum
    screens, as these investors want to buy stocks
    that have outperformed all other stocks over the
    past few months.

23
Arguments against…
  • Arguments Against Quantitative Analysis. Because
    quantitative analysis hinges on screens that
    anyone can use, as computing horsepower becomes
    cheaper and cheaper many of the pricing
    inefficiencies quantitative analysis finds are
    wiped out soon after they are discovered. If a
    particular screen has generated 40 returns per
    year and becomes widely known, and if lots of
    money flows into the companies that the screen
    identifies, the returns will start to suffer.
  • As "fuzzy" as fundamental analysis might be,
    there are often times that knowing even a little
    about the company you are buying can help a lot.
    For instance, if you are using a
    high-relative-strength screen, you should always
    check and see if the companies you find have
    risen in price because of a merger or an
    acquisition. If this is the case, then the price
    will probably stay right where it is, even if the
    "screen" you used to pick this company has
    generated high annual returns in the past.

24
Technical Analysis…
  • Technical Analysis - Buying the Chart
  • What would you do if you truly believed that all
    information about publicly traded companies was
    efficiently distributed and that nobody could get
    an edge on anyone else by either understanding
    the business or analyzing the numbers? You might
    consider simply giving up on beating the market's
    returns by buying an index fund. Some investors
    have taken an alternate route, attempting to
    create a set of tools that might tell them what
    other investors thought about a stock at any
    given time, particularly looking for the
    footprints of large institutional investors that
    tend to cause the most extreme price changes.
    Investors who focus on this kind of psychological
    information call themselves technical analysts
    and believe that charts can sometimes provide
    insight into the psychology surrounding a stock.
    Although there are plenty of pure chartists, some
    investors just use charts to time investments
    after looking at them from a fundamental or
    quantitative perspective.

25
Arguments Against…
  • Arguments Against Technical Analysis. Technical
    analysis assumes that certain chart formations
    can indicate market psychology about either an
    individual stock or the market as a whole at key
    points. However, most of the statistical work
    done by academics to determine whether the chart
    patterns are actually predictive has been
    inconclusive at best, as detailed in Burton
    Malkiel's A Random Walk Down Wall Street. Much of
    the faith in technical analysis hinges on
    anecdotal experience, not any kind of long-term
    statistical evidence, unlike certain quantitative
    and fundamental methodologies that have been
    shown in many instances to be pretty predictive.
    Critics of technical analysis feel that it is
    basically as useful as reading tea leaves.

26
Trading - Doing What Works…
  • Trading - Doing What Works
  • As trading commissions have fallen and more and
    more people have gained access to instantaneous
    data about stock prices, trading has become more
    and more popular, and very likely much too
    popular, somewhat like Madonna or Beanie Babies.
    Traders normally use a hodgepodge of fundamental,
    quantitative, and technical techniques with a
    short-term orientation. Trading tends to be a
    highly charged experience where one looks to make
    a few points from each trade. Although
    widespread, trading is far from a systematized,
    philosophical body of knowledge that is easily
    explained in a few paragraphs.
  • Many novice investors, lulled by the apparently
    easy casino-like gains possible in trading, tend
    to lose a lot of money before they realize that
    when there are thousands of other traders out
    there looking for the same things, it is often
    those who are fastest, have the most experience,
    and own the best equipment that make money -
    normally not the people just starting out. All
    traders emphasize that successful trading
    requires careful attention, discipline, and a lot
    of work, so anyone who thinks that he can use a
    Quotrek in between meetings to make a fortune
    might want to reconsider.

27
Aspect of Trading…
  • Arguments Against Trading. Trading is clearly a
    time-consuming adventure. Although there are a
    number of very famous and successful traders,
    many individuals ignore the fact that these
    traders are well equipped to trade and have all
    day to do so. Given the time and effort most
    successful traders put into their trading, the
    potential for amateurs to reap the same rewards
    with less effort and fewer resources is very low.
    With so much money competing in the one-day to
    one-year investment time-frame, an individual
    with a minimal amount of time will probably be
    more successful finding businesses to own for the
    long term and not trying to engage in
    high-octane, almost gambling-like behavior

28
The Hidalgos Glossary…
  • Book Value. The current value of an asset on a
    company's balance sheet according to its
    accounting conventions. The shareholders' equity
    on a company's balance sheet is the book value
    for that entire company. Many times when
    investors refer to book value, they actually mean
    book value per share, which is the shareholder's
    equity (or book value) divided by the number of
    shares outstanding. As the book value is
    theoretically what a company could be sold for
    (liquidation value), this book value number is
    sometimes used as a rough guide as to whether or
    not the shares are undervalued.
  • Capital Appreciation. One of the two components
    of total return, capital appreciation is how much
    the underlying value of a security has increased.
    If you bought a stock at 10 and it has risen to
    13, you have enjoyed a 30 return from the
    appreciation of the original capital you
    invested. Dividend yield is the other component
    of total return.
  • Dividend Yield. A ratio of a company's annual
    cash dividends divided by its current stock price
    expressed in the form of aage. To get the
    expected annual cash dividend payment, take the
    next expected quarterly dividend payment and
    multiply that by four. For instance, if a 10
    stock is expected to pay a 25 cent quarterly
    dividend next quarter, you just multiple 25 cents
    by 4 to get 1 and then divide this by 10 to get
    a dividend yield of 10.
  • Dividend Yield Ann. Div. P rice 0.25 4 10
    0.10 10
  • Many newspapers and online quote services will
    include dividend yield as one of the variables.
    If you are uncertain whether the current quoted
    dividend yield reflects a recent increase in the
    dividend a company may have made, you can call
    the company and ask them what the dividend per
    share they expect to pay next quarter will be.

29
EPS…
  • Earnings Per Share (EPS). Earnings, also known as
    net income or net profit, is the money that is
    left over after a company pays all of its bills.
    For many investors, earnings are the most
    important factor in analyzing a company. To allow
    for apples-to-apples comparisons, those who look
    at earnings use earnings per share (EPS).
  • You calculate the earnings per share by dividing
    the dollar amount of the earnings a company
    reports over the past 12 months by the number of
    shares it currently has outstanding. Thus, if XYZ
    Corp. has 1 million shares outstanding and has
    earned 1 million in the past 12 months, it has
    an EPS of 1.00.
  • 1,000,000, 1,000,000 shares 1.00 in earnings
    per share (EPS)

30
Market Cap…
  • Market Capitalization. The current market value
    of all of a company's shares outstanding. To
    calculate market value, you take the number of
    shares outstanding and multiply them by the
    current price of each share. You can find
    information about shares outstanding from the
    company's last quarterly report or any online
    quote service.
  • For instance, if a company has 10 million shares
    outstanding and trades at 13 per share, the
    market capitalization is 130 million.
  • Market Cap. Shares Outstanding Share Price 10
    million 13 130 million

31
P/E…
  • Price/Earnings Ratio (P/E). Earnings per share
    alone mean absolutely nothing. In order to get a
    sense of how expensive or cheap a stock is, you
    have to look at those earnings relative to the
    stock price. To do this, most investors employ
    the price/earnings (P/E) ratio. The P/E ratio
    takes the stock price and divides it by the last
    four quarters' worth of earnings. If XYZ Corp. is
    currently trading at 15 a share with 1.00 of
    earnings per share (EPS), it would have a P/E of
    15.
  • 15 share price 1.00 in trailing EPS 15 P/E

32
Relative Strength…
  • Relative strength, also known as relative price
    strength, rates the performance of a stock versus
    the performance of the market as a whole over a
    given time period. The rating system gives a
    numerical grade to the performance of a stock
    over a given period, normally the past 12 months.
    Thus, relative strength is a momentum indicator.
  • The most popular form of relative strength
    ratings are those published in Investor's
    Business Daily, which go from 1 to 99. A relative
    strength of 95, for example, indicates a
    wonderful stock, one that has outperformed 95 of
    all other Kenyan stocks over the past year.i.e
    BBK, Equity. However, given that relative
    strength is only a mathematical relationship
    between the stock's performance and an index's
    performance, many others have created their own
    relative strength measures.

33
Gloss…contd…
  • Revenues. Also known as sales, revenues are how
    much the company has sold over a given period.
    Annual revenues would be the sales for a given
    year, whereas quarterly revenues would be the
    sales for a given quarter.
  • Sales. Also known as revenues, sales are
    literally how much the company has sold over a
    given period. Annual sales would be the sales for
    a given year, whereas quarterly sales would be
    the sales for a given quarter.
  • Utilities. A business that provides a service
    essential to almost everyone is called a utility.
    These businesses are almost always under some
    form of regulation by the government and normally
    have a monopoly position in a certain region.
    Electric companies, natural gas providers, and
    local phone companies are often referred to as
    utilities.
  • Volume. The number of shares traded on a given
    day is known as the volume. Many investors look
    at volume over a month or a year to come up with
    average daily volume. Market watchers will say a
    company has traded at a certain number of times
    the average daily volume, giving the investor a
    sense of how active the stock was on a certain
    day relative to previous days. When major news is
    announced, a stock can trade as much as 20 or 30
    times its average daily volume, particularly if
    the average daily volume is very low.
  • The average number of shares traded gives an
    investor an idea of a company's liquidity - how
    easy it is to buy and sell a particular stock.
    Highly liquid stocks trade easily in large
    batches with low transaction costs. Illiquid
    stocks trade infrequently and large sales often
    cause the price to rise or fall dramatically.
    Illiquid stocks on the NSE also tend to carry the
    largest spreads, the difference between the
    buying price and the selling price.

34
Trust your Portfolio Manager…in times of the bear
market…
  • HGC.

 
35
HIDALGOS ADAGE…
  • …"Buy at the time of maximum pessimism and Sell
    at the time of maximum optimism" …The scenario of
    the big man and the small fellow.

36
Why INVEST with HIDALGO…
  • A company dedicated to excellence and the
    decoding of the Kenyan Financial and Equity
    markets,
  • Has a team of professionals in the fields of law,
    finance, strategic planning and media.
  • Hidalgo believes in telling you as it is, cutting
    through all the information overload and telling
    you the basic factor- the odds are with you or
    not.
  • We at Hidalgo believe that our Portfolio
    management strategies, research and data analysis
    techniques are different from the every day data
    analysis management that you do receive from
    other companies.

37
How Hidalgo Works…
  • Earning from your investment in the equity market
    is three fold-
  • The dividend aspect every once a year…
  • The aspect of speculation on every settlement
    day…
  • The aspect of the Initial Public Offers IPOs…

38
Dividend Aspect…
  • The dividend is such an important factor in the
    success of many stocks that you could hardly go
    wrong by making an entire portfolio of companies
    that have raised their dividends for 10 or 20
    years in a row. Companies that don't pay
    dividends have a sorry history of blowing the
    money on a string of stupid diversifications."
  • You can get a reliable source of income from
    dividends around the year. How? By buying only a
    handful of stocks with different payment time
    slots, you can space your payments so you get
    extra income every month throughout the year.
  • We at Hidalgo believe that more attention will be
    paid to dividends and current earnings and less
    to growth. By and large, companies that are
    paying dividends have to have earnings. They
    can't do that with smoke and mirrors." Jeremy
    Siegel, professor of finance at Wharton and
    author of the best-seller Stocks For the Long
    Run.
  • Earnings are very difficult to estimate cash
    dividends are not. Fifty years ago, people bought
    stocks for dividends they did not buy them for
    earnings. And one of the problems we did not have
    back then is earnings manipulations they were
    not very important because nobody cared."
  • You can't always trust earnings. We saw how
    companies like Uchumi, Sasanet group, Enron,
    WorldCom and Global Crossing cooked the books.
    Investors were destroyed. But did you know that
    old stalwarts like Lucent Technologies and Xerox
    acted inappropriately, too? Lucent claimed an
    extra 600 million in revenues that it hadn't
    earned. Xerox announced revenues 3 billion
    higher than it actually generated from 1997
    through 2000. Unlike a company's earnings,
    dividends can't be manipulated.
  • When the tax on capital gains was slashed from
    50 to 20 in 1981, it set the stage for an
    expanding economy and roaring bull market. With
    the tax reduction on dividends put in place by
    the Bush administration, the same surging cycle
    of prosperity could be set in motion again.
    Investors could demand MORE companies pay
    dividends once they see how much extra money
    they'll keep in their pockets. In the Kenya
    scenario, tax on capital gains from the equity
    market are not levied, thus the stage is ready
    and waiting for the savvy investor to take the
    advantage for his benefit.
  • Earnings from dividends is pretty straight
    forward and has no manipulations at all. Get the
    right information from your portfolio manager and
    organise your capital for the investment at the
    right time.
  • Thus, talk to us at Hidalgo.

39
The Speculation Aspect…
  • Speculation basically means taking advantage of
    the current situations to your economic gain.
  • To be a successful speculator-
  • You will need a minimum of Kshs. 50,000, to be
    able to break even and make some profits every
    settlement day,
  • Your dosage of risk tolerance will need to be
    pretty high, because a lot of money is made and
    lost when the market is really volatile. A good
    example is when the Kenyan market went on a
    meltdown when the news of Embakasis MP
    assassination reached the newsrooms and the stock
    market prices began going down that the trading
    process was stopped for 15 minutes. During this
    period, there was a lot of supply of shares on
    most counters and no demand. The supply glut was
    occasioned by the panic or fear of the retail
    investors need to sell and save his investment
    whilst the greed or the smartness of the
    corporate investor, told him to buy large and
    off-set the same the next day to the same
    retailer but at premium prices. If the retail
    investor had the services of the portfolio
    manager, then he would have made some good
    profits, based on sound advice he would have been
    given.
  • As an investor in the money and equity markets,
    you will need the services of a portfolio
    manager.

40
THE IPO ASPECT…
  • Initial Public Offers essentially signify the
    transition of a particular private or family or
    state owned company going public through the
    issuance of its shares to the public at a
    discounted price as compared to its true market
    value.
  • One can greatly benefit twofold-
  • By the purchase of the shares in the secondary
    market the already listed shares at lower
    prices because everyone else will be offloading
    their holdings to be able to purchase the IPO
    thus there will be a supply glut and no matching
    demand in the market thus, shares prices will
    drop. Purchase of these stocks is very lucrative
    because the price will simultaneously rise with
    the with the commencement of the IPO trading on
    the market because the demand will suddenly match
    the initial supply and outstrip it thus raising
    the price of the stocks. Precedence of previous
    IPOs like Kengen, Eveready, Access Kenya have
    indicated and shown the price declines of various
    stocks prior to the offering and the immediate
    surge in the same once the IPO stock starts
    trading at the bourse. So, if one is well
    prepared, then you can benefit from the
    fluctuation in the secondary market due to the
    IPO and also benefit from the IPO itself once it
    starts trading and it attains its true market
    value as clearly shown by the KENGEN offering.

41
SERVICES OFFERD BY HIDALGO GROUP OF COMPANIES.
  • SERVICES OFFERED THROUGH HIDALGOS PORTFOLIO
    MANAGEMENT-
  • GOLD
  • SILVER
  • BRONZE
  • GOLD SERVICE-
  • Requirements-
  • Minimum Investment Capital of Kshs. 500,000
  • Benefits-
  • Weekly circulation of your funds in the equity
    market in stock counters with maximum returns to
    maximise on your returns at the behest of
    Hidalgos portfolio manager.
  • Free Stock Market alerts,
  • Free fortnight statements,
  • Free quarterly Hidalgo Finance Magazine,
  • Hidalgo Staff visit you at your office for
    consultations.
  • Charges-
  • The charges levied will be for office
    facilitation of Kshs. 5,000 per month.

42
Services Offered contd.
  • SILVER SERVICE-
  • Requirements-
  • Minimum Investment Capital of Kshs. 200,000
  • Benefits-
  • Free Stock Market alerts,
  • Free fortnight statements,
  • Free quarterly Hidalgo Finance Magazine,
  • Weekly circulation of your funds in the equity
    market in stock counters with maximum returns to
    maximise on your returns, at the behest of the
    Hidalgos portfolio manager.
  • Charges-
  • The charges levied will be for office
    facilitation of Kshs. 2,000 per month.

43
Services Offered contd…
  • BRONZE SERVICE-
  • Requirements-
  • Minimum Investment Capital of Kshs. 50,000.
  • Benefits-
  • Free Stock Market alerts,
  • Free fortnight statements,
  • Free quarterly Hidalgo Finance Magazine,
  • Adequate circulation of your funds in the equity
    market in stock counters with maximum returns to
    maximise on your returns, at the behest of
    Hidalgos portfolio manager.
  • Charges-
  • The charges levied will be for office
    facilitation of Kshs. 1,000 per month.

44
White Service…
  • WHITE SERVICE
  • This kind of service will be available to all
    others below Kshs. 50,000, in terms of capital
    strength, as compared to the aforementioned
    services. This kind of service will not attract
    any benefit other than constant and productive
    circulation of your funds, as this will more or
    less be a long term kind of investment and it
    will attract no charges.

45
CONCLUSION…
  • Invest wisely,
  • Strategise well,
  • Dont listen to hearsay from people who have not
    tried out what they are preventing you from
    doing,
  • Use the little you have to grow your asset base,
    to be able to handle your liabilities and
    expenses.
  • Spend what you have to make more.
  • Dont let your liability and expense column be
    larger than your asset base.
  • Yours truly,
  • Steve Biko,
  • C.E.O.
  • HIDALGO GROUP OF COMPANIES.
About PowerShow.com