The Stockmarket

No other fields of endeavour offer such huge rewards so easily

The requirements are great effort combined with ability and enriched by both judgement

and vision

Philip A Fisher – Common Stocks and Uncommon Profits

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Looking after your Financial Future (Parts 1, 2 and 3)

Part 1 – 1 hour • Why do my targets go up every year

– The link between revenue and company value

• How much is a company worth?

• Factors that affect a companies value

• How much do I need to earn to do something else

– That much?!

• How can I make my; savings, pension, ISA, work harder

– The rule of 72 and compound interest

– Saving schemes and optimising tax

• Efficient Asset Allocations

• What are Stocks and Bonds

– The Global economy – factors to watch

– Determining bull and bear markets

– Fundamental Analysis

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Part 2 – 1 hour • Portfolio Mix

– Are you a speculator or an investor

– Are you an Aggressive or Defensive Investor

– Back to Company Valuations

– General Rules 1 – The Portfolio Construction

– General Rules 2 – Buying and Selling Individual Stocks

– General Rules 3– Buying and Selling Individual Stocks

– Task 1 – evaluate one company

– Competitive Positioning

Part 3 – 1 hour • Portfolio Mix

– Which Index Fund

– Which Bond Fund

– Which Unit Trust or Investment Trust

– Creation of a ‘watch list’

• An Introduction to Portfolio and Technical Analysis

At the end of this Part 1, you will know

• Why you need to over achieve your targets – Why it is good for the company

– Why it is good for you

• How much money you will need when you no longer want to work for the company, or, when the company no longer wants you

• The best tax wrapper for you, and how much to invest in each type, to achieve your goals

• What macro economic factors to watch for to alter your investment profile

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It will allow you to speak with a financial advisors with more

knowledge or stimulate your interest to learn more to invest

yourself

At the end of Part 2, you will know

• Whether you are a speculator or an investor

• If you are an investor, whether you are aggressive or defensive

• The basics of company valuations

• How to construct a portfolio between major investment types such as stocks, bonds, cash.

• The important figures to check for any company you consider investing in.

• Carry out an analysis of one company using data from the web to determine whether it is good value

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At the end of Part 3, you will know

• The differences between index, bond, and equity funds

• The differences between unit trusts and investment trusts

• Creating a ‘watch list’

• An introduction on how to select the best of the above for your portfolio

• How to construct your portfolio with the right level of bonds, stocks, funds

• How to analyse your portfolio to ensure it satisfies your needs

• How to use technical analysis to determine the right time to buy

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Some people risk half their fortune in the stock market. If they spent as much time in selecting shares/bonds/funds as they do in selecting a car,

they would be much better off.

The city has high ethical standards of doing business, c/w prostitution, gambling, journalism and political lobbying

Most stock exchange houses are in business to make commissions and

they do that by giving customers what they want, suggestions and speculative advice which is geared to day by day trading. So they try

hard to help customers make money in a field where they are condemned by mathematical law to lose in the end.

In order to get the best return on your pensions and savings, you

need to understand what people are doing with your money and to

ensure that their decisions are made for your best interests (not

theirs), and you need to do what is right, backed by evidence,

which may not be what you are told to do.

• Company valuations 2 financial approaches

– Ratio based • How much profit does it make

• What will it cost me to buy it

• Has it got loads of debt

• Is it paying a lot of interest on that debt

• If I invest in it, how much interest is it going to pay me

• Does it have competitive advantage

• What are its prospects like for the next few years

– Intrinsic value • A stocks worth is equal to the present value of all its estimated future cash flows

– We need to use the present free cash flow, and estimate the companies future sales growth and profit margins by looking at industry trends, economic data, competitive advantage

– The cash flow we are interested in is the free cash flow – that is the money that is left over, after spending the money necessary to keep it growing at the current rate. We need to calculate this for now and for the future and then ‘net’ it back to the present day, and compare the resultant value with the current market valuation to determine if the company is ‘cheap’ or expensive’

Why do my targets go up every year

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– Company valuation is dependent on – General long term prospects for growth

– Profitability

– Competitive advantage

– Quality of management

– Financial strength and capital structure

– Dividend record

– Current dividend rate

How much do I need to earn to do something else

• Standard pension £100 per week

• Inflation – Currently at 3-4%, rising to 5-6%, longer term around

3-4%

• Bank 3% per year, taxed

• Pension offers from Government – 40% extra (tax relief up to £30K), this means if you put

£700 in pension, gov puts in £280 (40%) – giving a total of £980.

– Company Pension providers offers a choice of some funds

– All funds perform differently

• ISA’s no tax • Capital allowances

– £10,600 per person on share gain

• No longer any salary based schemes

• Retirement age? – 40/50/60/70

• You will probably want to do something else – 40/50/60/70

• Long time to live – 70/80/90/100

• Illness in old age – Let’s hope not

• Earnings after 48 reduce – Less money to save

• How much will you need to live on? – Per annum after tax

• Will you be supporting your wife? – Divorce rate is 60%

• Children at private school – £18000 pa after tax each

• Taxable Pension Income – First 25% tax free after you are 55 years old

– Cost of annuity - 5%

In order to beat inflation we have to achieve around 4%

after tax on any savings 8

How can I make my savings work harder

Rule of 72

• A 7.2% interest compound, doubles your money in 10 years (72/7.2 = 10)

• Double your money in 5 years, (72/5 = 14.5), 14.5%

• Double your software in 3 years, (72/3 = 24), 24%

Compound Interest

• Future Value = Present Value (1 + interest rate)ⁿ

• FV = PV (1+r) ⁿ, where n = number of years

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White Board Analysis

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Payment per month (£)

Interest Rate

Number of Years Fund

Amount Pension Amount

-1000 4% 20 £367,997 £515,196

Simple Tax Wrappers - Pensions, ISAs, Funds

Pensions • 40% tax relief for high earners • Put in £1000 a month, Government puts in £400 • Remember the £1000 is after you’ve paid your tax • You can take your pension at 55, 25% tax free (optional) as a lump sum, you then buy a regular income

with the rest (annuity, 5%). That monthly income is taxed at normal income rates. • Or you can use flexible drawdown – you leave it invested and take an income from it, only if you have

an alternative £20k secured pension income, and have finished paying into your pensions Secured pension income means: – A company pension being paid to you either from the UK or from Overseas; or – An annuity being paid to you (from a personal pension or company pension) either from the UK or from

Overseas; or – A state pension being paid to you either from the UK or from Overseas. – Our understanding is that secured pension income is taken as the gross annual amount of pension (i.e. before

any income tax is deducted). The requirement to have a secure pension income of £20,000 might change in future to increase the level of income required.

ISAs • You can put in £11,280 a year, another £11,280 for your wife, no tax on interest, income or capital gain.

General Savings • Banks very low interest, even long term • Capital Gains allowance of £10,280 • Share Income taxed at normal income tax rates (i.e. Added onto your salary)

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Bank Deposit Account

0 – 3% and taxed at normal income rates

Bank Deposit – Longer Term

3% - 4.5% and taxed as above

Shares

variable but risky

Funds

variable but less risky

Company Bonds

lower returns

Government Bonds

lower returns

Premium Bonds

Return is too low (1.5%) but no tax

Property

mortgage rates are too high

Pension Providers

Ok but taxed on income

Foreign banks and foreign exchange

don’t know anything about this

Spread betting

too risky at this stage

Shares

variable but risky

Funds

variable but less risky

Company Bonds

lower returns

Government Bonds

lower returns

Pension Providers

Ok but taxed on income

Foreign banks and foreign exchange

don’t know anything about this

Spread betting

too risky at this stage

Savings schemes and optimising tax

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Remove

the red

ones

Shares

variable but risky

Funds

variable but less risky

Company Bonds

lower returns

Government Bonds

lower returns

Pension Providers

Ok but taxed on income

Savings schemes and optimising tax

13

Remove

the red

ones

Shares

variable but risky

Funds

variable but less risky

Company Bonds

lower returns

Government Bonds

lower returns

Pension Providers

Ok but taxed on income

Foreign banks and foreign exchange

don’t know anything about this

Spread betting

too risky at this stage

Shares

variable but risky

Funds

variable but less risky

Company Bonds

lower returns

Government Bonds

lower returns

Pension Providers

Ok but taxed on income

Foreign banks and foreign exchange

don’t know anything about this

Spread betting

too risky at this stage

Shares

variable but risky

Funds

variable but less risky

Company Bonds

lower returns

Government Bonds

lower returns

Pension Providers

Ok but taxed on income

Put under

ISA

SIPP

Stock Portfolio

Dependent on tax

Independent Financial Advice Stockbrokers

Casenove Barclays Hargreaves Lansdowne

All offer services at around 1% - 2% Over and above the charges for buying selling shares/funds etc Regular Updates No active management just put in a ‘scheme’ dependent on risk

Savings schemes and optimising tax

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Efficient Asset Allocations

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What are Stocks and Bonds

• Bonds are debt obligations, and stocks are equity

• Corporate Bonds and Government Bonds

• Units Trusts and Investment trusts

• Index Funds, Exchange Traded Funds

• Absolute Return Funds 16

Sectors Technology hardware and equipment

Industrial Engineering

Gas/water/utilities

Software and computer services

Real Estate Investment Services

Personal goods

Media

Life Insurance

Household goods and home construction

Healthcare equipment and services

Oil equipment and services

Investment Trusts

Forestry and Paper

General retailers

Industrial transport

Non life insurance

Real Estate Investment trusts

Construction and Building materials

Travel and Leisure

Auto and Parts

Mining

The Global Economy

– The Global economy – factors to watch

– Determining bull and bear markets

– Fundamental and Technical Analysis

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The Global economy – factors to watch

• Comparison of market capitalizations – UK listed comps = $1.6trillion

– US = $8.5 trillion

• Comparisons of GDP’s – I guess it would be important as these countries will affect the global economies more

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Want to know more

Consulting rates apply

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