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Applied Equity Analysis and Portfolio Management: Tools to Analyze and Manage Your Stock Portfolio, + Online Video Course

Applied Equity Analysis and Portfolio Management: Tools to Analyze and Manage Your Stock Portfolio, + Online Video Course

Robert A. Weigand

ISBN: 978-1-118-81920-3

Jan 2014

336 pages



A "hands-on" guide to applied equity analysis and portfolio management

From asset allocation to modeling the intrinsic value of a stock, Applied Equity Analysis and Portfolio Management + Online Video Course offers readers a solid foundation in the practice of fundamental analysis using the same tools and techniques as professional investors. Filled with real-world illustrations and hands-on applications, Professor Weigand's learning system takes a rigorous, empirical approach to topics such as analyzing the macro-finance environment, sector rotation, financial analysis and valuation, assessing a company's competitive position, and reporting the performance of a stock portfolio.

Unlike typical books on this subject—which feature chapters to read and exercises to complete—this resource allows readers to actively participate in the learning experience by completing writing exercises and manipulating interactive spreadsheets that illustrate the principles being taught. The learning system also features instructional videos that demonstrate how to use the spreadsheet models and excerpts from the author's blog, which are used to depict additional examples of the analysis process. Along the way, it skillfully outlines an effective approach to creating and interpreting outputs typically associated with a top-down money management shop — including a macroeconomic forecasting newsletter, detailed stock research reports, and a portfolio performance attribution analysis.

  • Covers topics including active and passive money management, fundamental analysis and portfolio attribution analysis
  • Companion streaming videos show how to use free online data to create yourown analyses of key economic indicators, individual stocks, and stock portfolios
  • A valuable resource for universities who have applied equity analysis and portfolio management courses

Practical and up-to-date, the book is an excellent resource for those with a need for practical investment expertise.

Related Resources

Preface ix

Acknowledgments xv

Chapter 1 Perspectives on Active and Passive Money Management 1

Terminology: Investors, Investment Vehicles, Risk, and Return 1

The Top-Down Fundamental Analysis Process 3

The Record of Professional Money Managers 8

Market Efficiency, Behavioral Finance, and Adaptive Expectations 10

Additional Perspectives on Investing 18

Professional Investment Policy Statements 26

Summary 30

Questions 30

Answers to Selected Questions 32

References 33

Notes 34

Chapter 2 Analyzing the Macro-Finance Environment 35

Economic Analysis: The First Step of a Top-Down Fundamental Process 35

Data Considerations: Nominal and Real-Time Series 41

National Income, Corporate Profits, and Job Creation 41

Leading Economic Indicators 43

Coincident Economic Indicators 54

Lagging Economic Indicators 58

Supplemental Economic Indicators 64

Summary 67

Questions 67

References 69

Notes 69

Chapter 3 Valuation, Expected Returns, and the Dividend Discount Model 71

Finance Principle 1: Valuation 71

Finance Principle 2: Value and Expected Returns 77

Summary 88

Questions and Problems 88

Answers to Selected Questions and Problems 93

Reference 96

Note 96

Chapter 4 Historical Performance Analysis 97

Getting Started 98

Historical Stock Returns 100

Growth in Revenues, Profits, and Dividends 101

Gross, Operating, and Net Profit Margins 108

Relative Valuation 111

Liquidity and Debt 115

Profitability: ROA and ROE 118

NOPAT, Total Invested Capital, Free Cash Flow, and ROIC 122

Value Creation: Cost of Capital, EVA, MVA, and Intrinsic Value 127

Using Diffusion Indexes to Summarize Performance Analysis 134

Summary: Historical Performance Analysis 136

Appendix: United Technologies’ Financial Statement Highlights, 2009–2012 136

Questions 138

Answers to Selected Questions 139

References 142

Notes 142

Chapter 5 Financial Statement Forecasting, Financial Analysis, and Valuation 143

The Income Statement Forecast Worksheet 144

The Percent-of-Sales Forecasting Method 144

Forecasting MCD’s Income Statement 145

Forecasting MCD’s Balance Sheet 153

Pro Forma Analysis: MCD 159

Intrinsic Value Modeling 164

Financial Fitness and Probability of Bankruptcy Scorecards 170

Summary 171

Case Study 5.1: Two Perspectives on Valuation Analysis: The Curious

Case of Amazon, Inc. 172

Questions 175

References 208

Notes 208

Chapter 6 Analyzing Company Strategy and Identifying Catalysts 209

Sources of Information 212

Unique Capabilities Lead to Sustainable Competitive Advantage 212

Getting Started: Analyzing Strategy and Competitive Advantage 216

Porter’s Five Forces Model 223

SWOT Analysis 229

Catalysts 232

Summary 232

Questions 233

Answers to Selected Questions 233

References 234

Chapter 7 Portfolio Risk and Performance Attribution 235

Foundations: Risk and Expected Return 236

Statistical Representations of Macroeconomic and Firm-Specific Risk 240

Extending the Mean-Variance Framework: Beta 249

Performance Attribution: Sector Weights, Dividend Yield, Beta, and Style 255

Multifactor Models 262

Summary 266

Questions and Problems 267

Answers to Selected Questions and Problems 271

References 279

Notes 279


The Time Value of Money and the Basics of Valuation 281

Basic Terminology 282

The Basic Future Value Tool 282

The Basic Present Value Tool 285

Perpetuities 292

Calculating Average Annual Compound Rates of Return 293

Integrated Problems Featuring Multiple TVM Tools 293

Solving for the Number of Periods 294

More on the EAR-to-APR Conversion 295

Arithmetic versus Geometric Averages 296

Questions and Problems 298

Answers to Selected Questions and Problems 302

About the Online Video Course 309

About the Author 311

Index 313