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Cougar Investment Fund Fall 2012 Investment Meeting Guidelines

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<strong>Cougar</strong> <strong>Investment</strong> <strong>Fund</strong><br />

<strong>Fall</strong> <strong>2012</strong><br />

<strong>Investment</strong> <strong>Meeting</strong> <strong>Guidelines</strong><br />

Please make note of another round of TA change (as of September 24, <strong>2012</strong>).<br />

The new TA is Sangyong Han (sangyong.han@wsu.edu)<br />

Please email your reports to the TA and the supporting spreadsheet to the<br />

Professor (glenda.kao@wsu.edu )<br />

Plagiarism<br />

Plagiarism is cheating. The APA Manual (Publication Manual of the American<br />

Psychological Association. Washington DC: American Psychological Association,<br />

1995 p. 292-95) suggests the following principle to avoid plagiarism:<br />

Quotation marks should be used to indicate the exact words of another.<br />

Summarizing a passage or rearranging the order of a sentence and<br />

changing some of the words is paraphrasing. Each time a source is<br />

paraphrased, a credit for the source needs to be included in the text.<br />

Anyone engaging in plagiarism will receive a “F” in the course. Make sure you<br />

understand the following:<br />

• If you use the exact words from another source (e.g., web site), you must<br />

enclose it in quotation marks and provide a citation. If you have more<br />

than three or four words from a sentence, those words should also be in<br />

quotation marks. For example, if I re-wrote the first sentence, using “the<br />

exact words from another source” means…<br />

• If you paraphrase (see definition above) you still must provide a citation<br />

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(A) Presentation Schedule<br />

We will have a total of 15 <strong>Investment</strong> <strong>Meeting</strong>s this semester. Please refer to the “CIF<br />

<strong>Investment</strong> <strong>Meeting</strong> Presentation Schedule” handout (also available on the CIF website in the<br />

“CIF Instructions” link) for your respective presentation dates.<br />

(B) <strong>Meeting</strong> Structure<br />

Three students from this class have been designated as Portfolio Managers (PMs). They will<br />

take turn to chair the <strong>Investment</strong> <strong>Meeting</strong>s. With the exception of the first three meetings<br />

(#1~3), the structure of each meeting is as follows:<br />

(B-1) Market Color and Portfolio Review —by the Portfolio Manager on duty (5 minutes)<br />

The PM on duty will provide:<br />

• A brief market color including<br />

o Recent stock market performance and why<br />

o Any noteworthy headline news<br />

o Any noteworthy upcoming events<br />

• A brief portfolio performance review including<br />

o Portfolio performance relative to the SP500 benchmark (over-/ under-performance)<br />

o Brief performance attribution<br />

o Biggest winner and loser in the portfolio<br />

o Biggest sector over-weight and under-weight (relative to SP500 sector weight)<br />

The portfolio holding spreadsheet (“CIF Portfolio Holding”) will be available on the CIF website<br />

in the “CIF Portfolio” link)<br />

(B-2) Sector Recommendations and Stock Re-evaluations - by Sector Analysts (5 minutes<br />

each)<br />

Please read carefully the “Pre-<strong>Investment</strong> <strong>Meeting</strong> <strong>Guidelines</strong>” as well as the “Sector Review<br />

<strong>Guidelines</strong>” handouts as you begin your work on sector recommendation and stock reevaluations.<br />

Both handouts are also available on the CIF website (in the “CIF Instructions” link).<br />

You must follow the guidelines and use the provided templates to complete your reports.<br />

Each Sector Analyst will provide:<br />

• A brief sector performance review including<br />

o Sector performance relative to the broad market (SP500) and why<br />

o Any noteworthy headline news from the sector (company-, industry-, or sector-specific<br />

news)<br />

o Sector outlook (including noteworthy upcoming events)<br />

• A brief holding (from the sector) update including<br />

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o A brief update on each of stocks we currently own in the sector (please refer to the “CIF<br />

portfolio holding” spreadsheet on the CIF website in the “CIF Portfolio” link)<br />

o Any noteworthy headline news on the stocks (e.g., earnings, changes in analyst<br />

recommendation or estimate revisions, and any other significant headline news) in the<br />

sector<br />

o Highlighting the biggest % mover, both up- and down- movers from the sector and<br />

explain why such big moves<br />

o Highlighting the largest two holding from the sector<br />

• A brief recommendation for the sector and re-evaluation of the current holdings from the<br />

sector<br />

o Sell any or all of the stocks the portfolio owns in your sector<br />

o Adjust any of the target prices<br />

o Adjust any of the stop loss prices<br />

o Your recommendation should be consistent with your other comments as described<br />

above<br />

• Be mindful that definitions of sectors and industries vary. The resources you reference to<br />

may not use GICS (which is what Standard & Poor’s uses) to classify sectors. You need to<br />

mention it If when there is a discrepancy<br />

• You have only five minutes. Please keep your comments and slides brief and up to the<br />

point. The class can access your submitted Stock Report on the CIF website (in “CIF<br />

Reports” link) for details<br />

(B-3) Stock Recommendations – by Stock Analysts (8 minutes each including 5 minutes of<br />

presentation and 3 minutes of Q/A)<br />

Each Stock Analyst scheduled to present at the <strong>Investment</strong> <strong>Meeting</strong> will have 5 minutes to<br />

present to the class their research and make recommendation on whether to “buy” the stock.<br />

The Portfolio Manager on duty will select out of the submitted questions a small set (time<br />

permitting) for the Stock Analyst to address<br />

Please read carefully the “Pre-<strong>Investment</strong> <strong>Meeting</strong> <strong>Guidelines</strong>” as well as the “Stock<br />

Recommendation <strong>Guidelines</strong>” handouts as you begin your work on stock recommendation.<br />

Both handouts are also available on the CIF website (in the “CIF Instructions” link). You must<br />

follow the instructions and use the provided templates to complete your reports.<br />

Each Stock Analyst will provide:<br />

• A brief summary of the company, their competition and strategy (please keep it brief)<br />

• Your investment thesis, i.e., what and why you make the recommendation you do. Please<br />

keep in mind you only have five minutes so do not spend too much time going over<br />

details of your analyses. The class can access your submitted Stock Report on the CIF<br />

website (in “CIF Reports” link) for details<br />

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• Whether or not you recommend to “buy” the stock. If you recommend a “buy”, you will<br />

also need to provide a “target price” (the price at which CIF will sell the stock for a profit)<br />

and a “stop-loss price” (the price at which CIF will sell the stock to mitigate further loss).<br />

Please refer to the “Stock Recommendation <strong>Guidelines</strong>” handout (also available on CIF<br />

website in the “CIF Instructions” link) for suggestions on target and stop-loss prices<br />

Please keep in mind<br />

• Refrain from an automatic “buy” recommendation. Your recommendation should be<br />

consistent with findings from your analyses<br />

• <strong>Investment</strong> is built on expectations and forecasts. A past winner may be a future loser and<br />

a past loser may be a future winner. Your recommendation should be based on what you<br />

think the stock will do in the future<br />

• A good company may not be a good stock while a lousy company may be a good stock<br />

• Many of the most celebrated calls from Wall Street analysts were bearish<br />

recommendations (“sell”, “underperform”, etc.)<br />

• Find out when the company will be making their next quarterly earnings announcement.<br />

Big up- (down-) moves on the stock tend to follow positive (negative) earnings surprises.<br />

It pays to wait till the dust is settled<br />

• Some stocks might be cheap (based on valuations) for a reason. They are often referred to<br />

as “value trap” and are stocks to stay away<br />

(B-4) Update on stock recommendations voted previously as “Further Research” – Stock<br />

Analyst (1 minute each)<br />

Please refer to (C-2) for when Stock Analyst must return a week after his/her original<br />

<strong>Investment</strong> <strong>Meeting</strong> to provide additional information or clarifications previously requested by<br />

the class. This follow-up presentation should focus specifically on what was requested by the<br />

class<br />

(B-5) <strong>Investment</strong> <strong>Meeting</strong>s #1-3<br />

The structure of <strong>Investment</strong> <strong>Meeting</strong>s #1-3 is same as described above except no presentations<br />

from Sector Analysts are scheduled.<br />

(C) Class Vote<br />

Buy recommendations from the Stock Analysts are put to a class vote. So are adjustments of<br />

target or stop-loss price as well as sell recommendations from the Sector Analysts.<br />

(C-1) Voting Ballot<br />

Voting ballot will be distributed at the beginning of each <strong>Investment</strong> meeting. Students are<br />

encouraged to cast their vote at the end of each presentation. The Portfolio Manager on duty<br />

will collect the ballot at the end of the class and tally the vote on the same day. Voting results<br />

and the trades, if any, will be announced at the next <strong>Investment</strong> <strong>Meeting</strong>. Portfolio Manager on<br />

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duty and the Analyst who recommended the stock will generate the trade tickets before the<br />

end of the day. The trade ticket needs to be reviewed and signed by the Professor and the<br />

Portfolio Manager. The Portfolio Manager will deliver the ticket to the Senior <strong>Investment</strong><br />

Officer who will execute the trades.<br />

(C-2) Buy Recommendations<br />

The class will vote on each stock that Stock Analyst recommends to “Buy”. Cast your vote for<br />

one of the following three:<br />

• “Yes” if you agree to the “Buy” recommendation<br />

• “No” if you disagree<br />

• “Further Research” if you need additional information or clarifications from the Analyst to<br />

reach a decision. Please state briefly next to your vote the requested information or<br />

clarifications if your vote is “Further Research”<br />

A minimum of 75% of “Yes” votes from the class is required to approve a “Buy”<br />

recommendation<br />

“Further Research”<br />

If the most vote a stock recommendation received is “Further Research”, the Stock Analyst has<br />

one week to address the issues. The Stock Analyst must return a week after his/her original<br />

<strong>Investment</strong> <strong>Meeting</strong> to provide additional information or clarifications previously requested<br />

by the class. The stock will be on the ballot for another round of voting. The choices are either<br />

a “Yes” or a “No”. A minimum of 75% of “Yes” votes from the class is required to approve a<br />

“Buy” recommendation. This second voting round is the last chance the Analyst has to gain<br />

support of the class<br />

(C-3) Sell Recommendation<br />

The class will vote on each stock that Sector Analyst recommends to “Sell”. Cast your vote for<br />

one of the following choices<br />

• “Yes” if you agree to the “Sell” recommendation<br />

• ”No” if you disagree (which means you think CIF should continue to hold the stock)<br />

A minimum of 51% of “Yes” votes from the class is required to approve a “Sell”<br />

recommendation<br />

(C-4) “Target Price” or “Stop-Loss Price” Adjustment Recommendation<br />

The class will vote on each stock that Sector Analyst recommends to “Adjust Target Price”<br />

and/or “Adjust Stop Loss Price”. Cast your vote for one of the following two choices<br />

• “Yes” if you agree to the respective “Adjustment” recommendation<br />

• “No” if you disagree (which means you would like to maintain the current respective price)<br />

You will vote on the two “Adjustment” recommendations separately<br />

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A minimum of 51% of “Yes” votes from the class is required to approve an “Adjustment”<br />

recommendation<br />

(D) Trades and portfolio holding<br />

(D-1) Trades<br />

For the “buy” recommendations that receive a minimum of 75% votes, a pair of trades will<br />

need to take place: a “Buy Order” to purchase share of the stock and a “Sell Order” to sell<br />

enough of the sector ETF to raise cash for the stock purchase. The dollar amount of the stock<br />

we purchase is determined based on its total market capitalization and relative weight in the<br />

SP500 index.<br />

Total Market Capitalization $ Buy Order<br />

$5-10B Approximately $10,000<br />

$10-15B Approximately $15,000<br />

$15-25B Approximately $20,000<br />

$25-35B Approximately $28,000<br />

$35-50B Approximately $35,000<br />

$50-100B Approximately $40,000<br />

$100-150B Approximately $45,000<br />

$150-200B Approximately $50,000<br />

>$200B Approximately $55,000<br />

For the “sell” recommendations that receive a minimum of 51% votes, a pair of trades will need<br />

to take place: a “Sell Order” to liquate CIF’s holding in this stock and a “Buy Order” for sector<br />

ETF from the raised proceeds.<br />

The Portfolio Manager on duty and the Analyst recommended the “buy” or the “sell” will<br />

generate the trade tickets before the end of the day. The trade ticket needs to be reviewed and<br />

approved by the professor, and signed by the Professor and the Portfolio Manager. The<br />

Portfolio Manager will deliver the ticket to the Senior <strong>Investment</strong> Officer who will execute the<br />

trades.<br />

(D-2) Portfolio Holding<br />

Holding Constraints<br />

As one of the managers of the University’s Contributed <strong>Fund</strong>s Quasi Endowment <strong>Fund</strong>, students<br />

in the CIF class operate under a numbers of constraints including:<br />

• <strong>Investment</strong>s limited to NYSE, and NASDAQ securities<br />

• $5 Billion minimum equity market capitalization<br />

• 5% maximum position in any one security (except ETFs)<br />

• University’s Senior <strong>Investment</strong> Manager may veto any investment recommendations<br />

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• University’s Senior <strong>Investment</strong> Manager has the option to liquidate any position<br />

• Excess funds invested in sector ETFs<br />

• No margin trading, short positions, or derivatives<br />

• Holding in each sector is within +/-5% of the SP500 index sector weights<br />

Monitoring<br />

The Professor along with the Portfolio Managers monitor the portfolio holding to ensure it<br />

complies with the mandate and constraints. If necessary, we will generate trade tickets to align<br />

the portfolio with the holding constraints.<br />

The “CIF Portfolio Holding” spreadsheet is available on the CIF website in the “CIF Portfolio”<br />

link.<br />

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