Each analyst will be assigned a coverage area by the Portfolio Manager, at the beginning of the first meeting after the Portfolio Manager is appointed by the Chapter President. An analyst's coverage area will likely be composed of one or more Sectors as defined by the Global Industry Classification System or "GICS". In chapters with more than twelve members, an analyst's coverage area might be composed of one or more industry groups within a large sector.
The following example is for an analyst assigned to the Consumer Discretionary Sector as their coverage area
Substitute your coverage area for Consumer Discretionary
First log in to Bloomberg
Type in GICS and hit enter
Set SOURCE to Index and NAME to SPX
Click on Consumer Discretionary
Click on #2 “Members” to view members of the selected Sector
Change “Members” dropdown list from “Ticker” to “Name” to see names of companies in this Sector
In the upper right hand corner it indicates that the list of companies is split into 5 pages
To scroll through the pages click "Page 1/5" or use the page forward key
To begin with an Analyst should focus on the largest companies in their coverage area
Change “Market Cap” dropdown list from “None” to “Descending” to sort largest to smallest
This allows us to see the largest companies in the sector at the top of the list
Click on the gray “Download to Excel” button and Save As file to desktop so you have list of all companies in this Sector and their Tickers, sorted from largest to smallest
Change “Members” from “Name” back to “Ticker
Each analyst is responsible for making at least one new trade recommendation a week. To make a trade recommendation the analyst must know at a minimum what the company does, if the company is undervalued relative to its peers using a fundamental metric and if a technical indicator is indicating that now is a good time to buy the stock.
*The following steps walk through the process of making a trade recommendation using Amazon (AMZN) as an example
Click on the company at the top of the list (the largest company) and hold down the left click on your mouse will cause a small menu of options to pop up. Select DES from that menu to pop open a "Description" page on that company in another Bloomberg window.
The DES screen is the first place an analyst should look when researching a company.
The DES screen contains a 10 page overview of the company, including a brief description of what the company does, what different products a company sells and where the company sells those products
Page forward to page 6; this page shows us what types of products the company sells - this is commonly referred to in the industry as a company's "product segmentation".
*Amazon has only 1 product segment "Retail Websites"
Page forward to page 7, this page shows us where the company sells its products
*Amazon generates its revenue in North America and Internationally
If you scroll back to the front page you can generate a DES report about the Company by clicking "Generate Report" or by typing 98 <GO>
Enter RPT to open the report
Verify that the report status is "Completed" then click on the report to open it
Click the save button in the upper left hand corner to save the report to your desktop, choose the file format you prefer from the drop down menu at the top, the report can be created as a PDF or Excel File
Once downloaded you can email the report to yourself and will have all of the data contained on the DES screen
available to you anytime
Verify that the name of the company you are researching appears in the gold bar at the top of the Bloomberg window you are using.
If the name of the company you a re researching isn't in the gold bar at the top of the page, type the company's
name in the search bar, but don't press enter
Select the company's ticker from the drop down menu that appears, be sure that the ticker is followed by "US
Equity". This will take you to the company's main equity menu.
Enter CF and press enter. This will take you to the Company Filing page. Every publicly traded company in the US is required to file a series of documents with the US Securities and Exchange Commission (SEC), and these documents are an excellent source of information.
Change "Form Type" to "10-K" and hit enter. This will filter the list to show only the company's 10-K filings. The
10-K is a yearly filing every company must file that gives background information about the company and a summary of how the company performed the previous year.
Select the most recent filing, which by default should be the first document in the list. Clicking on the document
will open the document within the Bloomberg window. Choose only Document Type "10-K" files
Click options in the upper left hand corner and select "Download Aggregate Filing". The 10-K should then open
up in a new window, it might take 1-2 minutes for the document to open depending on the length of the 10-K
After the PDF file window opens, click on “File” then “Save As” to name your file and save it to the desktop.
Page forward until you reach the 10-K's table of contents
The 10-K is a legal document, which means that it is, at times, difficult to read. The most important sections of the
10-K to read are the "Business" section and the "Management's Discussion and Analysis of Financial Conditions and Results of Operations" section.
From the table of contents click the "Business" to be taken to the Business section of the 10-K. The Business
section gives an overview of the company's business and the different product and geographical segments the business is divided into. The Business section is required reading for the analyst recommending a trade in the company.
Go back to the table of contents and click the "Management's Discussion and Analysis of Financial Conditions and Results of Operations" (MD&A) link to take you to the MD&A section of the 10-K. The MD&A section gives managements own explanation of how the company is performing and what they believe will happen in the future.
Optional: For additional information on the company, search for "Company Name" Annual Report on Google, where "Company Name" is the name of the company you are researching. The Annual report is an easier to read annual filing that is part financial report part marketing material. Do not only read the annual report, the 10-K has more detailed and less biased information and is thus a better source of information
- Fundamental Analysis - Every trade recommendation must be supported by at least one Fundamental metric that indicating that the company is undervalued. The first Fundamental Metric that every analyst will begin using is Price to Earnings Ratio or "P/E Ratio". Each week the Finance Training section of the Weekly Webcast will explain a new fundamental metric that can be used to determine if a stock is over or under valued, any fundamental metric can be used in the same manner that P/E is used in the steps below.
Verify that the name of the company you are researching appears in the gold bar at the top of the Bloomberg window you are using.
If the name of the company you are researching isn't in the gold bar at the top of the page, type the company's
name in the search bar, but don't press enter
Select the company's ticker from the drop down menu that appears, be sure that the ticker is followed by "US
Equity". This will take you to the company's main equity menu.
Type RVR in the search bar and press enter. This will take you to the Relative Value Ranking function in Bloomberg. From this screen you can easily compare a company against itself historically and against its peers to determine if the company is under, over or fairly valued.
You must change the "Peers" dropdown box to "GICS - Sub Industry" by selecting the appropriate "Sub Industry" (option 5) from the "Peers" drop down menu. In the next drop down menu change the geographic area of comparison from "Global" to "Home Country of the Company" and check that is is looking at the "Closest" "50" companies By "Mkt Cap". After making these changes press enter. This ensures you are comparing your company to the most similar companies possible, which will be the other companies competing in the same GICS Sub-Industry that your target company is listed.
Because we are using P/E to evaluate the company we look at the "Price/T12M EPS" row. Price/T12M EPS stands for "Price to Trailing 12 month Earnings-per-Share" which is a companies P/E ratio. P/E is calculated as the company's current price divided by the company's earning per share over the last 12 months.
Example: A company's stock has a price of $20 and the company earned $100 over the last 12 months and has 20 shares outstanding. What is the company's P/E?
First we need to calculate the Company's EPS. EPS is equal to Earnings divided by Number of Shares Outstanding. In this example the company has EPS of $5 ($100 Earnings / 20 Shares Outstanding).
Now that we have Stock Price ($20) and EPS ($5) we can calculate P/E by dividing price by EPS. The Company has a P/E ratio of 4 ($20 stock price / $5 EPS)
The first column in the row "2) Price/T12 EPS" shows the company's current P/E ratio. In the screenshot above, Amazon has a "Current" P/E of 89.30. To determine if a company is over or undervalued we need to compare the company's current P/E against its historical average P/E and against the average P/E of its peers (competitors in its sub-industry).
First we compare the company's current P/E against its 5 year average P/E, to do this we compare the value in the Current column against the value in the 5Y Avg column.
If the company's Current P/E is higher than the 5Y Avg we say that "The company is "Overvalued" relative to its historical average"
If the company's Current P/E is lower than the 5Y Avg we say that "The company is "Undervalued" relative to its historical average"
Amazon's Current P/E of 89.3 is higher than its 5Y Avg of 72.41 so Amazon is overvalued relative to its historic average"
Next we compare the company's "Current" P/E against the "Current" average P/E ratio of its Peer Group. The Current peer group average is found under the "Current" column sub-header directly below the "Peer Group" header.
If the company's Current P/E is higher than the Peer Group average Current P/E we say that "The company is Overvalued relative to its peers"
If the company's Current P/E is lower than the Peer Group average Current P/E we say that "The company is Undervalued relative to its peers"
Amazon's Current P/E of 89.3 is lower than the peer group average of 45.89 so "Amazon is overvalued relative to its peer group"
If a company is undervalued relative to both 1) its own historical average and 2) its peer group, the company may be a good "Buy" trade recommendation candidate.
If a company is overvalued relative to both 1) its own historical average and 2) its peer group the company is not a good Buy trade recommendation candidate and if the portfolio currently owns the stock, it might be a good time to sell some or all of these shares.
If the company is overvalued relative to is historical average or its peer group and undervalued relative to the other it is still possible that the company is a good Buy trade candidate but it is also possible that the company should be sold, it is up to the analyst to dig deeper to determine which is true. When the two comparisons give opposite readings it is often best to move on to a different company because it is most likely that within your coverage area there are better trade options.
Amazon is overvalue relative to its historical average and relative to its peer group so it is not a good Buy trade candidate. If the portfolio currently has a position in Amazon the analyst should be recommending to sell some or all of the position because P/E shows the company to be overvalued.
- Technical Analysis - Technical analysis attempts to identify turning points in the direction of a stocks price. Analysts use technical analysis to purchase a stock before it increases in value, and sell the stock before it decreases in value.
Technical analysis should only be used after an analyst has found an undervalued stock based upon Fundamental Analysis. The first technical analysis technique all analysts will use is a method called Moving Average Pairs. Each weekly webcast will introduce a new technical analysis technique that can be applied in a similar manner as the Moving Average Pair example below.
Verify that the name of the company you are researching appears in the gold bar at the top of the Bloomberg window you are using.
If the name of the company you a re researching isn't in the gold bar at the top of the page, type the company's
name in the search bar, but don't press enter
Select the company's ticker from the drop down menu that appears, be sure that the ticker is followed by "US
Equity". This will take you to the company's main equity menu.
Type GP2 into the search bar and press enter. This will take you to the Moving Average function in Bloomberg. This function assists the Analyst with discovering the combination of moving averages also known as the "Moving Average Pair", that if followed over some time interval in the past, would have produced a high return on investment.
A moving average is the average stock price over the past X number of days where X corresponds to the type of moving average. For example a 5 day moving average is an average of the past 5 days stock price, each day a new price is used in the average and the oldest days price is no longer used. A moving average results in a smoother chart of the stocks price movement, with shorter moving averages responding faster to changes in price than longer moving averages.
A moving average pair generates BUY signal when a shorter term moving average crosses over (up through) a longer term moving average (e.g. when a 5 day moving average crosses up through a 10 day moving average).
A moving average pair generates SELL signal when a shorter term moving average crosses down through a longer term moving average (e.g. when a 5 day moving average crosses down through a 10 day moving average).
The GP2 function consists of two pages.
The first or home page shows three sections.
The top section contains all the settings.
The mid section contains a chart showing a white, blue and red line which depicts the stock price, short-term moving average, and long-term moving average, respectively.
The bottom section shows the profit and buy "B" and sell "S" points during the date range selected.
The "Moving Average Periods" is defaulted to 1, 5, and 15 which sets the white, red and blue lines on the chart.
- The first box sets the WHITE line and is always equal to "1" as it displays the stocks closing price at each day during the range.
- The second box sets the BLUE line which is the short-term moving average
- The third box sets the RED line which is the long-term moving average
The analyst only needs to set three settings in the top section of this screen:
1. The date range is defaulted to one year in the past, but the analyst can change this
2. The "Optimal P&L Range 1" - enter a range for the short-term moving average in these two boxes
3. The "Optimal P&L Range 2" - enter a range for the long-term moving average in these two boxes
After entering a date range and the Optimal P&L Range 1 and 2 and then hitting enter, the computer will compare all of the possible combinations of short-term and long-term pairs within the ranges entered into the Optimal P&L Range 1 and Optimal P&L Range 2, and select the short-term and long-term moving average pair that would have produced the highest profit if you purchased a share on the date at the start of the date range and bought and/or sold every time a BUY or SELL signal was generated during time between the starting and ending date range.
Notice that every time the short (BLUE) term moving average line crosses UP through the long (RED) term moving average line on the stock price chart in the mid-section of the screen, there is a green "B" or red "S" directly below the crossing, which indicates a BUY or SELL signal in the bottom section of the screen. The lower section also indicates how much profit would have been generated per share as well as the number of buy and sell signals generated during the selected date range.
Go to page 2 using the "Page Down" key on the keyboard or by clicking "Page 1/2" in the upper right corner of the screen.
This page shows a ranked list of the different moving average pairs that were tested given the ranges input on the previous screen. The "Profit/Loss" column shows how much a position in the company would have performed over the entered time frame (by default over the past year) if an analyst had followed all of the buy and sell signals generated by the moving average pair. The return is given in dollar terms.
The #1 pair on the list, is the most profitable and is the same pair that is graphed on page 1.
In the example, the best performing moving average pair was a 5 day and a 20 day moving average, which would have resulted in a profit of $12.15 per share if followed over the past year.
- Completing New Trade Recommendation Form - After you have researched companies in your coverage area and have found an undervalued company that is currently a BUY from a technical standpoint, you are ready to fill out the New Trade Recommendation form.
The New Trade Recommendation form is also used to make recommendations for reducing or eliminating current position in the portfolio. Positions should be reduced or eliminated based upon performance, fundamental or technical factors.
Performance - Despite being undervalued based on fundamental metrics and showing a buy signal based on technical metrics a position might still result in a negative return. When a position has a negative return the analyst should reevaluate the position and determine if they missed anything about the stock. In many cases if a position continues to perform poorly it is best to eliminate the position and find a more profitable stock.
Fundamental - The analyst should continue to monitor the fundamental metric used to recommend a trade. The company's current fundamental metric will continually change and the position can become fairly or overvalued over time, in which case it is best to take profits and exit the position as the company is no longer undervalued.
Technical - The analyst should continue to monitor the technical metric used to enter the trade, watching for buy and sell signals. When signals occur, the analyst should alert the Portfolio Manager as soon as possible, to take advantage of the buy and sell signals, hopefully maximize the return of the position.
The New Trade Recommendation form, requires that you fill in all of the information you previously looked up on Bloomberg, for the company that you are recommending to the Portfolio Manager that week. At a minimum each analyst must make one new trade recommendation each week.
The first page of the New Trade Recommendation form, includes all of the information required of all trade recommendations, including company ticker, recommended trade size, fundamental metric used and technical metric used.
The second page of the New Trade Recommendation form, includes fields for optional information. The information on this page is not required but filling it in will give the Portfolio Manager more information, make your trade recommendation stronger and increase the likelihood of your Portfolio Manager approving the trade.
The third and final page page of the New Trade Recommendation form should be left blank. The final page is used by the Portfolio Manager to approve or deny your trade recommendation.
Make sure that you check the box at the bottom of the page to "Send me a copy of my responses" before submitting the trade.
After you fill out the New Trade Recommendation form a copy will be emailed to your AFA-HS email address and to the portfolio manager.
The emailed copy of your trade recommendation will serve as your script for presenting your trade recommendation at the weekly portfolio meeting.
At the top of the email showing your responses there is a link allowing you to go back and edit your responses, if something changed between when you make the recommendation and the portfolio meeting or if you made a mistake when filling out the form.
3. Monitoring Positions
- BBAT Reports - Each week the portfolio manager will distribute the BBAT reports for the portfolio. These reports will show the portfolio's current allocation across the different coverage areas and the performance of the portfolio broken down by coverage area.
The Portfolio Manager will send out three BBAT reports, one with Year-to-Date (YTD) numbers, one with Month-to-Date (MTD) numbers and one with Week-to-Date (WTD) numbers. You will need to look at all three reports to complete the Coverage Area Summary and Current Position Summary forms
- Complete Coverage Area Summary Form - Before each weekly portfolio meeting, each analyst must complete and submit the Coverage Area Summary form which can be found in the Trade Recommendations section of this site.
The Coverage Area Summary form gives a summary of the number of positions an analyst has in his or her coverage area and how much of the total portfolio these positions account for.
The following steps will walk through completing the Coverage Area Summary form, from the viewpoint of an analyst covering the Industrials sector. The steps will be the same regardless of coverage area.
1. Open the WTD BBAT report distributed by your Portfolio Manager
2. Open the Coverage Area Summary form (in the Trade Recommendation section of the site)
3. On the BBAT Report count the number of companies in your coverage area that are currently in the portfolio
Companies are listed in non-bold text and also have an accompanying Ticker. An easy way to count the number of companies is to count the number of ticker symbols under your designated coverage area.In this portfolio there are currently three positions in Industrials (JEC US, EMR US, JOYG US).
4. Enter the number of positions in your coverage area in the first text box on the Coverage Area Summary form
5. Enter the name of your coverage area in the second box in the Coverage Area Summary form
6. On the BBAT Report, in the "% Port" column look for the amount next to your coverage area in this case Industrials, this is the percent of the portfolio currently invested in positions in your coverage area
As seen in the screenshot, for this portfolio, 19.79% of the portfolio is invested in the Industrials Sector
7. Enter the percent of the portfolio invested in your coverage area in the third text box of the Coverage Area Summary form
8. Make sure that the check box next to "Send me a copy of my responses" is checked and then click submit
- Complete Current Position Summary Form - Before each weekly portfolio meeting, each analyst must complete and submit the Current Position Summary form which can be found in the Trade Recommendations section of this site.
The Current Position Summary form gives a summary of how each of the positions in your coverage area have performed over the past week, month and since the beginning of the competition year
The following steps will walk through completing the Current Position Summary form, from the viewpoint of an analyst covering the Industrials sector. The steps will be the same regardless of coverage area.
Each analyst needs to fill out the Current Position Summary form one time for each position they currently have in the portfolio. For example, if an analyst has four positions in the portfolio they would fill out the Current Position Summary form four times, once for each position.
1. Open the Current Position Summary form (in the Trade Recommendation section of the site)
2. Open the YTD, MTD and WTD BBAT Reports that were sent out by your Portfolio Manager
3. In the first text box on the Current Position Summary form enter the name of the position in your coverage area
4. On the WTD BBAT report look at the "% Port" column for the company you entered in step 3
In the example, Emerson Electric accounts for 5.23% of the portfolio
5. Enter the amount of the portfolio invested in the positions (as found in step 4) into the second text box on the Current Position Summary form
6. On the WTD BBAT report, in the company's row look in the "Ret(p)" Column this is the amount in percent that the position has returned over the past week
In the example, Emerson Electric has returned -6.95% over the past week
7. In the next box on the Current Position Summary form, enter how much the position has returned over the past week (as found in step 6)
8. On the MTD BBAT report, in the company's row look in the "Ret(p)" Column this is the amount in percent that the position has returned for the month
In the example, Emerson Electric has returned -13.96% over the past month
9. In the next box on the Current Position Summary form, enter how much the position has returned for the month (as found in step 6)
10. On the YTD BBAT report, in the company's row look in the "Ret(p)" Column this is the amount in percent that the position has returned since the beginning of the competition
In the example, Emerson Electric has returned -25.24% since the beginning of the competition
11. In the next box on the Current Position Summary form, enter how much the position has returned
since the beginning of the competition (as found in step 6)
The next three questions on the Current Position Summary form, ask for a positions contribution on a Week-to-Date (WTD), Month-to-Date (MTD) and Year-to-Date (YTD) basis. A positions contribution refers to how the position contributed to the performance of the portfolio overall. If a portfolio returned 5% and a position contributed 1% to the portfolio's performance, that means that the portfolio accounted for 1% of the portfolio's 5% return or in other words that if the portfolio didn't have this position it would have had a return of 4% instead of 5%.
12. On the WTD BBAT report in the company's row, look in the "CTR(P)" column to find the positions contribution to the portfolio over the past week.
In the example, Emerson Electric has contributed -0.36% to the portfolio over the past week
13. In the next box on the Current Position Summary form, enter the positions contribution to the portfolio over the past week (as found in step 12)
14. On the MTD BBAT report in the company's row, look in the "CTR(P)" column to find the positions contribution to the portfolio for the month.
In the example, Emerson Electric has contributed -0.75% to the portfolio during the month
15. In the next box on the Current Position Summary form, enter the positions contribution to the portfolio for the month (as found in step 14)
16. On the YTD BBAT report in the company's row, look in the "CTR(P)" column to find the positions contribution to the portfolio for the year.
In the example, Emerson Electric has contributed -1.55% to the portfolio since the beginning of the competition
17. In the next box on the Current Position Summary form, enter the positions contribution to the portfolio for the year (as found in step 16)
18. in the next text box, enter a summary of all news that was released about the company since your last portfolio meeting. When summarizing the news about the company include how you believe that news will affect your company.
For example, if news came that your company will be releasing a new product, you might write that you expect the news of the new product to increase the company's stock price because the new product is expected to be very profitable.
19. Select from the drop down menu what action you recommend the Portfolio Manager takes regarding the position. The Portfolio Manager can "Increase the position", "Reduce the positions" or "Make no changes to the position"
20. Enter the name of the fundamental metric used to establish the positions, for example P/E
21. Enter whether according to the fundamental metric used in 20, the company is overvalued, undervalued or correctly valued
22. Enter the name of the technical metric used to establish the positions , for example Moving Average Pairs
23. Select from the drop down list if according to the technical metric used (see step 22), "A buy signal is still valid", "A sell signal is still valid", "A buy signal has just formed" or "A sell signal has just formed"
A signal has just formed, if the signal has occurred since the last portfolio meeting, if a new signal has not been generated since the last meeting then select between the "still valid" options
24. In the last box on the page, enter any other information relevant to the position (this is an optional field)
25. Click continue at the bottom of the page
26. Do not fill anything in on the second page, these fields are for the Portfolio Manager only
27. Check that the box next to "Send me a copy of my responses" is selected and then click Submit
