CMCnotes

Betsi Hill, corporate bond expert and Co-Director of the Hawk Center for Investment Analysis, recently held an online tutorial on understanding bond covenants and documentation. Understanding the importance of covenants in analyzing corporate bonds will be a significant differentiator for you relative to other undergraduates not only if you pursue a career in corporate credit research, but also if you are interviewing for an equity research role. A solid understanding of the capital structure will make you a better analyst.

I hope you are all doing ok. Obviously, there is a lot going on with the coronavirus and it may seem insensitive to talk about investing during a global pandemic, but you should understand that if you choose a career investing, you will be required to make decisions in times of great uncertainty. Having an investment process is essential to making good decisions and especially so in times like these.

We added three new readings to supplement the company analysis training session - found on the For Members>Resource Guide page of the webiste at the LINK TO TRAINING SESSION READINGS.

• Analyzing a Company – The Basics (Ch. 6) discusses evaluating the growth prospects, profitability, financial health, and risk of companies.
• The Five Competitive Forces that Shape Strategy reviews how analyzing the structure of an industry can help you understand what’s influencing company profitability and identifying trends in the competitive forces can help you anticipate changes in profitability.
• What Makes a Moat describes the concept of economic moats (structural barriers that protect companies from competition) and reviews Morningstar’s classification of moat sources: intangible assets, cost advantages, switching costs, network effects, and efficient scale.

Finally, UW-ASAP alum Andrew Lane, a Morningstar strategist recently met with the 1^st year ASAP students to discuss the Morningstar Moat framework for analyzing companies. A video of Andrew’s talk is here.

Enterprising Investor, a CFA Institute publication had a nice summary of James Valetine’s CFA Institute 2017 Conference presentation: Equity Research and Valuation. Valentine is a former transportation analyst with Morgan Stanley who now runs AnalystSolutions, an equity analyst evaluation and training firm. He is also the author of Best Practices for Equity Research Analysts, an excellent how-to book for aspiring analysts. We assign numerous readings from the book in the Applied Equity Markets Research (AEMR) class and highly recommend it. The author describes Valentine’s 11 rules of thumb when determining equity valuations and setting price targets.

Summer break is a great time to work on an idea to pitch when classes resume in the Fall. There are many good reasons to spend the time including: 1) practicing what you learned about company analysis and accounting is an excellent way to prepare for your Fall semester classes, 2) developing a narrative around your stock analysis gives you awesome talking points for next summer’s internship or full-time job interviews (they’ll be starting soon and there is no better demonstration of your technical competence and passion for investing than describing a company you’ve analyzed), 3) pitching can be a differentiator if you plan to interview for AEMR or ASAP, UW’s two competitive and limited enrollment applied investments classes, 4) pitching is also the only way you can earn the coveted PA vest and impress all your friends, and, of course, 5) it’s fun!

Finding an idea can seem daunting when you are just starting out, so we want to provide some guidance to help get you going (you can also review the Identifying and idea slides in the Training sessions folder on the CMC OneDrive – access is through the Resource Guide under FOR MEMBERS on the website).