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  The Investment Market  
 

Fundamental Behavior

 
 
  State of the Economy and Stock Market  
  Noted investment guru Abby Joseph Cohen gave NIRI conference attendees a comprehensive lesson on the drivers of the U.S. economy and equity market. While conservative, her Goldman, Sachs firm is basically optimistic in predicting slower but sustainable economic growth, moderate inflation and a steadily-performing, rising stock market.  
  (Published 06-Sep-2006)  
 
 
  Is the Stock Market Efficient? The Debate Continues  
  Does an all-knowing market price stocks correctly? And what does it mean for a stock to be fairly priced? Surely, investors seeking to create the perfect predictive model believe there are opportunities to exploit market inefficiency. Multifactor models abound today. Still, a study by McKinsey suggests that in general stock prices reflect a company's economic fundamentals. But the McKinsey authors also point out significant market deviations and their root causes. Then, they suggest how companies can take advantage of the temporary inefficiencies in their stock valuations.  
  (Published 28-Apr-2005)  
 
 
  Are Earnings a Less Reliable and Relevant Measure of Performance?  
  Investors and executives continue to use earnings as the relevant measure in evaluating performance as the basis to buy, hold and sell stocks. Cash flows and balance sheet analysis are being seen as more reliable by a growing group of investors, while the quality of reported earnings declines in reliability and relevancy. Wharton School professor Catherine Schrand recently reviewed reasons for the decline at a seminar of investment professionals.  
  (Published 18-Oct-2004)  
 
 
  Getting Along with Hedge Funds  
  Hedge funds constitute a $1 trillion industry, taking long and short positions in thousands of companies. A force to be reckoned with, clearly companies need to deal with hedge funds. How best to do that? Fund experts offer advice: be a source of information, build relationships to get an inside track on what's going on with your stock, ask the right questions to find out their intentions toward your company. And be careful.  
  (Published 21-Jul-2004)  
 
 
  The Case for Hedge Funds: Seizing the Moment  
  Managing close to a $1 trillion, hedge funds in the U.S. have become major market players. That reality alone is enough reason for companies and their investor relations officers to learn all they can about the hedge fund industry. The environment was right for the industry to take off, fueled by high net worth executives with money to invest and institutions looking for alternate investing strategies to boost their returns. We get the details from three hedge fund specialists.  
  (Published 21-Jul-2004)  
 
 
  Age of the Quants  
  The influence of quantitative investing continues to grow in the investment market. Investors place more trust in the reliability of their quant models to pick stocks and manage portfolios. Even active, fundamentals managers use data-rich screens to identify potential investments. All this can mean less time spent talking to companies.  
  (Published 15-Jun-2004)  
 
 
  A Generation of Investors  
  Natalia Davis and Russell Redenbaugh build the case for letting the emerging Generation X population invest their "social security" retirement money themselves, rather than having the government do it. Indeed, Gen-Xers are a different generation, by most counts, more on their own by virtue of their upbringing, and well qualified to build up fatter retirement accounts than the government can. Politicians take note. Here's an issue that can win votes in November.  
  (Published 15-Jun-2004)  
 
 
  Warren Buffett Cries Wolf Over the Trade Deficit for the Second Time  
  Our authors take on Warren Buffett's concerns about the growing trade deficit of the U.S. In the process, they give us valuable insights into economic realities involving exports, imports and the flow of goods, services and precious capital. As they point out, trade flows and capital flows are different sides of the exact same coin. Capital is flowing into the U.S. because in the aggregate foreigners wish to acquire dollar assets so they can invest in U.S. stocks, bonds, factories, and real estate.  
  (Published 20-Jan-2004)  
 
 
  Market Sense  
  Is the stock market getting past the short-term push for higher earnings that result in active trading and greater price volatility for many companies? The investment managers we heard from certainly hope so. A return to analyzing intrinsic worth and seeking to manage portfolios for the long haul would be applauded by these market pros.  
  (Published 28-Oct-2003)  
 
 
  How to Create Shareholder Value  
  The market speaks with a loud voice when it comes to valuing a company. Stock price matters for lots of reasons. Main influences of stock price include macro and industry factors in addition to corporate performance. Corporate performance? Investors reveal the financial drivers that matter most. We report on them here.  
  (Published 11-Jul-2003)  
 
 
  Foundation Valuation Method is Discounted Cash Flow  
  Here's a primer on the fundamental investment methodology used by investors - discounted cash flow and its variations. We also include a brief look at the most popular alternative - the comparables method relying on earnings as the basic measure.  
  (Published 19-Jun-2003)  
 
 
  How Much of Your Company Will a Fund Purchase?  
  We provide a quantitative tool that enables companies to calculate the amount of shares an institution may buy based on its portfolio size, style and weightings formula.  
  (Published 18-Apr-2003)  
 
 
  On Factor Models  
  Factor models function as complex, highly-valued methods of investing by a significant number of money managers. Here, the approach is laid out by a leading factor model builder.  
  (Published 15-Apr-2003)  
 
 

Investment Framework

 
 
  Making a Strong Case for Indexing  
  Professional investors have good reasons to depend on indexing for managing a portion of their equity assets. Indexing returns stack up well against the results of active investment managers. When the higher costs of active investing are added, indexed returns win out most times. Pension sponsors and other investors typically use index funds as the core component of their investment program. Risk levels match the market. Active investors add higher risk as they seek to best the benchmark.  
  (Published 18-Oct-2004)  
 
 
  Management Value Indicator Succeeds Shareholder Value Indicator  
  We have changed the name of the SVI to the Management Value Indicator to more accurately reflect what it measures, namely management's contribution to a company's market value. Shareholder value suggests language much broader. The MVI is a precise measure, based on a specific method of calculation.  
  (Published 23-Aug-2004)  
 
 
  Managements Delivering Value in Global Telecom Sector  
  Our June 30 reading of the Shareholder Value Indicator 100 shows the strong performance of executive teams at diversified telecommunications companies. The SVI ranks the ability of management to sustain value for shareholders at some 8,000 companies.  
  (Published 21-Jul-2004)  
 
 
  The SVI 100: Best Value-Creating Management Teams  
  Here's our latest ranking of the top management teams in creating value for shareholders. Rankings are based on five years of performance, indicating consistency in exceptional management. Quality of management is seen by investors as a leading measure of a company's ability to deliver value to investors.  
  (Published 13-May-2004)  
 
 
  Microsoft Still on Top of the SVI 100  
  The Shareholder Value 100 is an exclusive ranking of the best 100 management teams in the world as measured by their contribution to their companies' total market value. Rankings are on the basis of performance over five years to get a true sense of management ability to create and sustain value. Some 7,000 companies worldwide are ranked in the SVI.  
  (Published 25-Mar-2004)  
 
 
  Microsoft Management Team Heads SVI 100 at End of 2003  
  Our end of year ranking of the best-performing managements continues to lead with Microsoft, although the company hasn't fared as well during the past year. Managements with the best record of contributing value cut a wide swath across industries and include teams from over 25 non-U.S. companies.  
  (Published 10-Feb-2004)  
 
 
  The SVI 100: Top Management Teams in Creating Value  
  The SVI 100 at the end of November '03 is replete with non-U.S. companies providing ADRs in the states. It also includes many global companies with major U.S. operations as a result of recent mergers. Interesting. There are many powerful management teams operating around the world. Tech, pharmaceutical, big retailers, telecom and a host of familiar industrial names also are being run by smart executives.  
  (Published 17-Dec-2003)  
 
 
  The Shareholder Value 100  
  The SVI 100 is now available as an integral part of Valuation Issues. Each month, we will publish the current list of the top 100 managements. This unique indicator focuses on management's contribution to their company's market value for the last five years - a longer term indicator. We also show their ranking over the last 12 months, as part of a database covering some 8,000 companies.  
  (Published 28-Oct-2003)  
 
 
  Risk for Investor Relations Professionals  
  It is vital CFOs and IR officers calculate the risk involved in each stock investement. Here we take IROs through the risk analysis process.  
  (Published 15-Apr-2003)  
 
 
  Using Earnings Momentum Techniques  
  In this archived piece, author Tom Putich postulates that companies can use short-term financial factors to manage their access to capital over the long term.  
  (Published 15-Apr-2003)  
 
 

Sell Side

 
 
  State of the Sell Side 2005  
  We look in on the annual Securities Industry Association conference to find out what is exciting and bothering the analysts and chiefs of the investment banks and brokerages. Clearly, the buzz is mainly about the current state and future of sell-side research. Analysts are mad about the way corporations are retaliating when they see research they don't like. The SEC needs to step in and stop retaliation in its tracks, says the SIA. Funding for research is shrinking and its quite worrisome to brokers. A trend likely to grow: more "made-to-order" research commissioned by the big institutional investors.  
  (Published 12-Jan-2006)  
 
 
  Key Trends in Stock Research  
  Here is our latest report on the triangle known as research from the sell side, provided to the buy side, and gathered in part from companies. An important trend: Institutions continue to start in-house research capabilities or expand them or make them better. Further, institutions are increasing fees to investor clients to pay for their built-in research and they're upgrading the value of their analytical staffs. The investment pros also are cutting back on soft-dollar commissions made to the traditional bulge-bracket brokers while increasing payments to independent research houses. Institutions still seem more than willing to make soft dollar payments to sell-side firms able to provide access to corporate managements; the institutions are simply too busy to do it on their own.  
  (Published 02-Nov-2005)  
 
 
  The Future of Financial Intermediaries  
  Are financial intermediaries a threatened species? Most people consider them to be "ethically challenged." Noted market observer Peter Fisher captured the fundamental changes taking place in the financial intermediary segment of the capital markets over the last quarter-century at the 2005 CFA Institute conference. Borrowers have fared better than investors. Fisher said the banks, brokers and investment professionals must focus on the needs of their clients, operate their businesses to economic scale and earn their right to function as fiduciaries if they are to survive and prosper in the years ahead.  
  (Published 02-Nov-2005)  
 
 
  Institutions Buying Into Independent Research  
  Good research remains a vital component of the research process. Independent research firms have their best opportunity now to make important contributions to the equity research process. The field is dotted with veteran firms such as S&P, Bernstein, Reuters and Morningstar as well as hundreds of relative newcomers seeking to make their mark. Large institutions seem willing to pay fees and shift soft dollar trading commission payments to independents delivering quality research. Individuals are stepping up to buy subscriptions. Companies now can commission research, using intermediaries to avoid the stigma of a conflict of interest.  
  (Published 02-Nov-2005)  
 
 
  New Model for Paid Research?  
  The National Research Exchange and Independent Research Network have been established separately to function as intermediaries in enabling companies to commission research that provides independent, objective information and insights to investors. The goal of each organization is to overcome the stigma of company-sponsored research by establishing codes of conduct and ground rules that eliminate conflicts of interest. Reuters and The Nasdaq Stock Market are behind the IRN. Hopefully, this new model will help small and mid-sized companies with little or no coverage gain visibility. Companies must make multi-year commitments to have the research done, accept the results and pay sizable fees. Institutions and investment banks also are expected to commission research as a way to add information on under covered companies.  
  (Published 02-Nov-2005)  
 
 
  State of the Practice in Research  
  While undergoing a sea change, sell-side research is still a vital component of the investment process, agreed panelists at the 2005 CFA Institute conference. Prominent investors in the session predicted that research practices will consolidate around a group of "elite" analysts doing excellent work. They also reaffirmed the role of research in the investment process, suggesting that depending too much on companies for information is risky. The industry will continue to separate research from trading, especially as transaction costs decline. Larger institutions can afford to pay fees for research, enabling independent firms offering value to survive and prosper.  
  (Published 02-Nov-2005)  
 
 
  SIA: Stop Retaliating Against Analysts  
  The Securities Industry Association - trade group of the brokerage industry - has asked the SEC to take action to stop companies from retaliating against sell-side analysts who write negative research. The SIA wants new rules prohibiting retaliation. Among complaints by brokers: Not giving access to management, not letting an analyst ask a question during a conference call, threatening to end a business relationship and threatening to file "defamation litigation."  
  (Published 20-Jun-2005)  
 
 
  Research: Focus on the Notes  
  Research still matters big time to investors. Independent research specialists at Soleil Securities argue that the Notes to financial statements are vital in truly understanding a company's performance. Soleil dissects the Notes of 3,000 companies in identifying those viewed as "most attractive" and "most dangerous." Key Notes that can change reported earnings results include employee stock options, pension funded status, restructuring charges, goodwill pooling and amortization, off-balance sheet financial, LIFO reserve and capitalized expenses. Soleil research focuses on economic earnings as the true measure of corporate performance.  
  (Published 30-Mar-2005)  
 
 
  Independent Research Is On the Way UP  
  Independent research firms continue to grow their capabilities and gain business from institutional investors. Analysts at independent firms are carving reputations for quality work. A survey by Institutional Investor identifies the best firms and analysts among the independents.  
  (Published 25-Jan-2005)  
 
 
  Laying Down the Law for Analysts  
  The Securities Industry Association has spelled out what analysts and investment banks can and can't do under the new regulations agreed upon as part of the conflict-of-interest settlement. We detail them here so companies can be crystal clear as they go about building relationships with the sell side.  
  (Published 04-Jan-2005)  
 
 
  Institutions Are Buying Independent Research  
  Institutional investors continue to search for reliable independent research capabilities to compliment their in-house effort and supplement or replace traditional Wall Street input. Institutions indicate a willingness to pay hard dollar fees for good research as well as make soft dollar arrangements. A survey by Thomson Financial shows which independents are building relationships with investors and confirms institutions' desire for specialized research.  
  (Published 30-Nov-2004)  
 
 
  What's Ahead for Research and the Sell Side?  
  We looked in on the recent SIA conference to get a first-hand sense of how research directors, analysts, regulators and lawyers are forging ahead to make sure sell-side Research remains a viable part of the investment process and see how the industry's leaders are dealing with conflicts of interest, content of reports, the global settlement, compensation and other issues.  
  (Published 30-Nov-2004)  
 
 
  Will Research Become Too Costly for Small Institutions?  
  Greenwich Associates reports that low trading costs and proposed unbundling regulations in Europe are causing brokerages to rethink the economic viability of providing research. The trend could readily spread across the world, including the U.S. and Canada. Big institutions are considering adding analysts internally, at sizable cost and risk to their performance returns. Small institutions could be left in the lurch.  
  (Published 18-Oct-2004)  
 
 
  Sell Side Still Matters  
  Even though it has been impacted by major criticism over the last two years, sell side influence remains a big factor in determining a company's value and stock price. Analyst research drives investment decisions, especially among portfolio managers. Changes in analysts' earnings forecasts have an immediate effect on stock price. The lesson: Don't neglect the sell side in your zeal to court investors.  
  (Published 18-Nov-2003)  
 
 
  The Quest for Liquidity  
  Achieving strong liquidity levels is actually a goal of the investor relations process. John Lewis defines liquidity and its importance, shows how to measure it and work on improving it.  
  (Published 15-Apr-2003)  
 
 
  How Broker-Dealers Create Liquidity  
  The public company officer is always seeking liquidity for his shares i.e., depth, breadth and price resiliency.1 The brokerage community can help you achieve this goal. Corporate chief financial officers and investor relations officers work hard to influence investment bankers and brokerage analysts, as they should.  
  (Published 15-Apr-2003)  
 
 

Investment Styles and Models

 
 
  John Neff Describes His Investment Style  
  Investment legend John Neff talked about his "deep value" style at the CFA Institute conference. In managing the Windsor Fund for 31 years and achieving returns better than 3% above the S&P 500, Neff looked for stocks "beaten up" by investors as indicated by low P/E multiples. To put those companies in the Windsor portfolio, Neff sought such positive fundamentals as a 7-10% growth rate, decent dividend yield, solid ROE, good management and participation in a growing industry.  
  (Published 31-Aug-2005)  
 
 
  Modeling Social Issues  
  Investors are advancing their techniques to quantify the effect of social and governance issues in selecting companies for their portfolios. The net effect is greater consideration of companies' social responsibility, ethical, environmental and governance practices in making portfolio decisions. Meanwhile, assets invested in socially-responsible investment funds continue to rise, and portfolio returns are at or above popular market benchmarks. As mainstream investors get more comfortable in using a valuation framework to quantify social and environmental issues, more money is likely to move into SRI funds. As a result, good governance and social practices are becoming mandates for companies.  
  (Published 25-Jul-2005)  
 
 
  The Factors That Drive Investment Decisions  
  Factor models continue to grow more sophisticated as investors fine tune them to enhance their predictive capabilities. Whether a model has five or 50 factors, the ultimate goal is to predict a company's future growth rate and discount rate, says Bob Marchesi, chairman of DeMarche Associates. Research by his firm has identified the factors most often used by growth and value investors.  
  (Published 25-Feb-2004)  
 
 
  Quant Input Vital for Putnam's Large Cap Growth Managers  
  There are as many stock investment models as there are investment managers. No two methodologies are alike, as investors build and tweak models with a goal to outperform the market and their benchmark in achieving returns that satisfy clients. We take a look at the investment model used by large cap stock growth managers at Putnam Investments.  
  (Published 10-Feb-2004)  
 
 
  Neglect Models  
  The quest for the next undiscovered ?star? is not confined to Hollywood and Vine. It is alive and well as an investment discipline on Wall Street. More technology, capital and human resources are employed in the search for the next Xerox, IBM or Microsoft than for the next Gable, Bogart or Hepburn. And success is considerably more profitable. We are speaking here of an extreme form of the neglect model. Less extreme versions of this theory involve the belief that less well-known stocks, once better known, will command higher prices.  
  (Published 15-Apr-2003)  
 
 
  Dividend Discount Models  
  Investors use dividend discount models chiefly to understand a company?s intrinsic value. Cash flow becomes the main measure, with a focus on company fundamentals. Here is a detailed explanation of how the model works.  
  (Published 15-Apr-2003)  
 
 
  Earnings Momentum Model - Investors That Companies Love to Hate  
  There?s a lot of misunderstanding about earnings momentum investors. John Lewis dissects the model from A to Z.  
  (Published 15-Apr-2003)  
 
 
  Contrarians ? God Bless Them  
  Communications efforts can turn up investors using contrarian methods to find companies. What do contrarian investors look for in a company? Read all about it here.  
  (Published 15-Apr-2003)  
 
 
  Is Cash Plowback Really Planting Seeds for Future Growth?  
  Institutions using cash plowback models are likely trying to identify companies investing in future growth opportunities. Growing companies please growth style investors.  
  (Published 15-Apr-2003)  
 
 
  The Estimate Revision Model  
  Analysts' revisions of earnings estimates provide strong clues on whether a company is growing or faltering. Money managers embed revisions in their investment models.  
  (Published 15-Apr-2003)  
 
 
  Relative Strength Models and Their Relative Strengths  
  Just what is a relative strength model? It?s easily misunderstood. Investors using it believe a company?s past performance indicates the future. But there?s much more to it than that.  
  (Published 15-Apr-2003)  
 
 
  Tilted Index Funds  
  Companies can still influence institutions working ?tilted? index funds. They?re trying to outperform the index by making some ?active? management decisions.  
  (Published 15-Apr-2003)  
 
 
  The Ins and Outs of Reversal Models  
  The good news: many investors use reversal models to time the buying of a stock. The bad news: they also use it to time a stock sale. Reversal to the mean is at work here.  
  (Published 15-Apr-2003)  
 
 

Buy Side

 
 

Trading

 
 
  SEC Extends Trade-Through Rule to Nasdaq  
  By a 3-2 vote, the SEC has included The Nasdaq Stock Market in following the trade-through rule that has long applied to equities on the New York Stock Exchange. The rule requires traders to use the market offering the best price that can be achieved immediately in executing transactions. Often presenting the best price, the NYSE is working to create a "hybrid" market that combines its traditional floor processing with faster electronic execution as it competes with electronic venues promoting their advantage in preserving price by getting trades completed in the shortest time span.  
  (Published 28-Apr-2005)  
 
 
  A New Regulatory Framework for Stock Trading  
  As more stock trades are processed electronically, the battle between the exchanges, Nasdaq and ECNs to control the bulk of the transaction business continues to heat up. Enter Reg NMS, a proposal from the SEC to modernize the entire securities transaction structure.  
  (Published 23-Aug-2004)  
 
 

Market Overview

 
 
  Briefs: The Nasdaq War with the NYSE for Listings, and an Inside Look at Activism by Traditional Investment Management Firms  
  We offer two items in our Briefs section this time. One, The Nasdaq Stock Market's acquisition of Shareholder.com signals another major move in the battle of the exchanges to build a competitive advantage in providing services to corporations in winning their listings. A trend may be emerging, namely that of the stock exchanges taking on a bigger role in providing investor relations services. Also, IR providers are gaining financial support in growing their services, witness the acquisition of Business Wire by Berkshire Hathaway. Two, investment management firms, mutual and hedge funds are joining the shareholder activism landscape by pushing for governance changes at selective companies. We look at three examples of shareholder activism.  
  (Published 31-Jan-2006)  
 
 
  The Case for Passive Management  
  Investment guru Kenneth French built the case for favoring passive management approaches at the CFAI conference. French said the stock market is not entirely efficient but there is enough efficiency to make it impossible for active managers to outperform the market consistently. He said active investors who are convinced they can beat the market over time are just kidding themselves. They are just churning portfolios and charging fees to do so. French prefers a structured passive approach that includes a buy and hold strategy.  
  (Published 31-Aug-2005)  
 
 
  Clients Come First  
  Charles Ellis opened the CFA Institute conference with a strong message to investment professionals to return to their fundamental purpose of helping individuals meet their longer-term financial needs. The focus on short-term performance, growing assets to manage and gaining self-wealth have moved the profession in the wrong direction. Truly serving clients is what matters.  
  (Published 31-Aug-2005)  
 
 
  Favorable Climate for International Investing  
  In their search for the highest returns, professional investors have good reasons to look at the opportunities in Europe and Asia. Many of the biggest companies are non-U.S.-based. Growing economies among nations with large populations offer substantial opportunity. Deregulation and disclosure are attracting investors.  
  (Published 14-Mar-2005)  
 
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