 Well, good afternoon, everyone. For those of you I have not met, I'd like to introduce myself first of all. My name is Susan McTiernan, and I have the pleasure of serving as Dean of the Gabelli School of Business. This is the fall presentation of the Student Managed Investment Fund, and if you haven't been here before, or even if you have, you are in for a real treat, and you're in for an afternoon of seeing some of the best talent that we have at the Gabelli School of Business, talk with you about investment strategies. And this is always a really fun event for the students and for parents, and I want to extend a special welcome to all of the parents who are here, to the alumni who come back semester after semester, especially to those who have contributed to the campaign for CAFE, which just this year has had over 120 donors to help support the CAFE's activities principally there international travel every semester. And I also like to take the time, even though they're not here, to thank Mario Gabelli, whose name is on the door of our business school, and also Hans Christensen, who is a good friend of the CAFE program, and a very generous supporter to the program as well as as Mario has been. So welcome to all of you, I don't want to take a lot more time. I hope I have a chance to talk with all of you with the reception after that, and I think I also get to make the closing remarks. I'm going to let the students introduce themselves, and I also want to extend, before we get started, a special thanks to Dr. Michael Melton, who formulated the idea for the CAFE program many years ago, and has been the very abled and diligent steward of this program over 15 years now, is it? How many? 15 years, 15 years. It's hard to believe you're old enough for that. But it's a great program, it's a great example of the commitment that the university and the Gabelli School have to experiential learning, actually putting people into situations where they have to make real life decisions and practice what they're learning in the classroom. So I will say now, without further ado, I'm going to introduce you to this outstanding, extraordinary group of students, and good luck guys. Thank you so much, I appreciate it. So my name is Patrick Omoj, I am one of the associate directors in the Center for Advanced Financial Education. My name is Jay Cogren, I am the other associate director. We'd like to start off by welcoming you all to this semester's Center for Advanced Financial Education Portfolio Management final presentation. Before we begin today, I'd like to thank all of you in attendance, specifically our advisory board, Dean McTairnan, CAFE alumni, friends, family, and last but certainly not least, our executive director, Dr. Michael Melton. We would now like to recognize all the portfolio managers and student fund managers. I'm Bob McGinnis, I was the portfolio manager for the growth fund. I'm Julie Mueller, and I was an analyst for industrials, materials, energy, and communications. I'm Gair Kamili, I was the analyst for technology, communications, and reads. I'm Natalie Techelo, and I was an analyst for health care, utilities, consumer discretionary, and consumer tables. I'm Matt Poladora, and I was an analyst for financials and consumer discretionary. I'm Matt Ungrabflaski, and I was an analyst for technology, communications and real estate. I'm Devlin Perill, I was an analyst for health care, utilities and consumer cycles. I'm Matthew Fulurate, an analyst for health care, industrials, and financials. we can't forget, our value PM, Michael Copaldo. Well, the cafe is all about experiential learning. In order to better prepare our analysts for industry and leave them primed for success. From the setup of the room to replicate a top tier Wall Street training pod to the in-depth financial reporting, the Center for Advanced Education. From a professional dress to long hours, this program really mimics industry in every single way possible. Ultimately what this program is, is training prior to employment for all of us upon graduation. As Pat mentioned, this program mirrors industry in every way possible and the corporate structure of the room follows suit. Our executive director, Dr. Michael Melton, oversees the entirety of the program and gets final approval of all trades. Now Jake and I as the ADs act as a liaison between the executive director and not only the portfolio managers but the student fund managers as well. So we're responsible for holding weekly meetings. We regularly sit down with the portfolio managers to discuss the performance and of course we review any fact sheets that come forth from the student fund managers. Lastly the student fund managers are analysts, analyzing both domestic and foreign markets and bringing forth any relevant fund news and bringing companies set a line with our objectives. Now under other undergraduate investment programs act more in a classroom like setting as they conduct their business. As you can see on the left, that is SMU's trading room. Now the cafe program conducts business in what we like to call a collaborative analyst pod. So this allows for an immediate free flow of information and instant decision making which is imperative given the nature of our program where we make trades and decisions in real time if we do not report to a board or need approval from a board to execute our trades. This immediate flow of information allows for our funds to follow an active management strategy. And this strategy forces our analysts to be in the rooms at all parts of the day as well as night to analyze not only domestic but international markets. Now SMU boasts that their analysts spend an hour and a half in the room all week just to stay on top of the market. To me an hour and a half is a time I'm in the room before it even opens on Monday morning and that's just me getting ready for the week ahead. Now it wouldn't be possible for us to be successful in this active management strategy if it wasn't for the 21 reports our student fund managers submit on a weekly basis. They're tasked with completing a 4 a.m., a 10 a.m., a midday and a closure report every single day. So this helps us to monitor the market, track our funds performance, stay up to date with relevant news and of course for them to form their analysts opinions. On Tuesdays, stock holds a three hour lecture to further our analysts knowledgeable of behavioral and fundamental analysis. And on Wednesdays we hold an in-depth discussion of our overall fund performance. We're looking at not only holding specifics but also behavioral and technical news. And while this information is brought to Pat and I every day this group round table allows us to come to a consensus over holdings and where we want to take the fund in the week ahead. And we're really proud to say that the CAFE program incorporates all schools of thoughts and all disciplines. Of course we obviously have our finance majors, we have our economics majors, we have our mathematics majors and sometimes we even have psychology minors. And in the CAFE we look for the analysts who are willing to be the first one in and the last one out. Working harder than anyone else day in and day out. We call this the CAFE way. Now the CAFE way utilize the top down approach in order to prepare us for the market and the industry as a whole. As Pat just mentioned, the top down approach is something that differentiates the CAFE from other portfolio management programs. We understand that our performance is a function of macro and micro economics. This is why we delve into a global economic analysis before reweighting either of our two portfolios. The world economy is ever complicated in constantly changing environment due to fiscal, political, monetary and behavioral factors driving the markets every day. Only looking at U.S. equities is like looking at an elephant through a microscope. To get a handle on everything, you need to widen the lens. Here in CAFE, we look at the entire financial system before narrowing it down to our two fonts. The point of this presentation is to exemplify how we use economic analysis in order to analyze assets. Every analyst takes part in an all nighter where they analyze the global economic conditions. From there, they look at the strength of the U.S. economy in order to conclude their global evaluation. This top down approach gives us the ability to identify profitable business segments on our nations, sectors and industries. The interconnectivity of the global economy has spurred massive growth over the last century. Today's American cars are produced with Mexican labor, Canadian steel and Russian oil. No one country is doing it all themselves. Throw in increased geopolitics and trade tensions, economics has never been a more relevant subject. When first looking at the Asia Pacific, we've seen many nations over there restructuring. Then turning to the eurozone, we've seen a weakening manufacturing numbers that leaked into North America. Combine that with global trade tensions and we have seen slow growth. All of these factors are intertwined and affect every nation in many ways possible. Now we have to put these economic conditions into a quantitative measure. Look at commodities, fixed income and the foreign exchange market in order to identify leading and lagging sectors. Fixed income and equity markets have long offered each other hints about market outlook. Recently we've seen negative yielding rates which have propped riskier asset classes. Now this has led to increased access to capital and lower interest rates but negative yield curves have persisted. Central banks were forced to step in. Now understanding how these markets work is essential to properly weighting the financials and real estate sectors who generate revenue from net interest margins. But first looking at commodities, the first two things that pop in your mind are gold and oil. Gold is a typically safe investment and surges in times of uncertainty and is often used as a barometer for investor confidence. Oil on the other hand is a completely different beast as almost every company derives some form of cost from the energy sector. The commodities markets affect the industrials, materials and energy sectors the most. Now fixed income in the commodity market may be vast in size but they don't compare to the size of the foreign exchange market. For understanding currencies we're able to analyze capital flows which have a direct impact on foreign investment and consumption. For understanding foreign investment and consumption we're able to properly weight sectors such as consumer finance and information technology. Understanding these themes and markets is essential to properly weighting our portfolios. We understand that larger markets have a large impact on how we weight our portfolios as well as how they perform. In mid-September we forecasted a large drop in key economic indicators. Pair that with an inverted yield curve, dovish federal reserve and in weakening consumer confidence we anticipated a correction. In the presence of bearish signals the market neglected macroeconomics. The economy was slowing but the financial markets were flourishing. Now when October rolled around the real economy caught a cold and the United States barely sneezed. United States economy gained traction despite a weakening global economy and they beat the economy's predictions but more importantly they beat our predictions. Our bearish predictions were opposed by bullish results in short our economic prediction was wrong. But our ability to adapt far supersedes that of our competitors. We worked day and night to reweight our portfolio and show the new strength we saw in domestic markets. This led us to underweight more cyclical sectors like information technology and overweight safer sectors like consumer staples. This top-down analysis allows us to determine which sectors to overweight and which sectors to underweight in comparison to our benchmark the S&P 500. As Garrett, Natalie and myself have been in the program since the summer semester we've seen our economic and market outlook change and our active management approach has allowed us to alter these weights as we see fit. And by changing our weights we are able to overweight sectors with favorable outlooks while underweighting sectors where we see political, behavioral and economic risks. Ultimately we're looking for catalysts that will help drive these sectors moving forward. As you can see on the screen behind me is the technology sector's performance and our weight in both funds relative to the benchmark. Initially we were bearish on the sector due to high evaluations in the ongoing trade war. However, as we transitioned into the fall we saw positive behavioral news coming out about technology and we had to adjust our weights accordingly. While doing this we kept in mind that one misstep in this trade deal will lead tech to feel a full effect. Our decision to increase weight in tech was crucial to our funds performance in the fall. We believe with our current weights and holdings we're well positioned to capture gains moving forward. Another sector where we needed to shift weights was financials. As long as I have been in the cafe program I have seen three interest rates cuts. One in July, one in September and one in October. Traditionally these rate cuts adversely affect financials because they tighten margins. Expecting this negative price reaction we decided to cut weight substantially in this sector and our value fund at the beginning of the semester. However in October we had to add weight. Despite a third rate cut financials remained unaffected amid strong consumer spending. The industrial sector is a sector we were bullish on towards the end of the summer. However when we revisited our economic evaluation at the start of the fall semester we saw industrial production was decreasing forcing us to underweight the sector. And in October manufacturing and production data came out and while decreasing it was better than anticipated which caused industrials to run for a bit. And looking to the future we still see an unfavorable outlook for industrials amid a global economic slowdown. As recently as Monday when we saw tariffs enabled in Latin America we saw the small run that we missed out on erased. Moving forward changes and leading in lagging sectors and behavioral volatility have not defined the clear leader in the market. By moving towards market weight we put more of an emphasis on our individual holdings to maximize return and minimize risk. And the next time our weights will change within the funds is at the beginning of 2020 upon a new economic analysis but done by the next group to enter cafe. Now although we will not be presenting all of our holdings we are really excited to present a few that are great examples of the different analysis techniques we use every day in cafe. We use both qualitative and quantitative analysis and techniques in order to prepare ourselves for the ever evolving market. And due to our active management strategy we currently hold 54 companies throughout both of our funds and due to a changing of our weights we have held over 150 different companies this semester. We would now like to present to you nine of these holdings however a full list is available on the fact sheet in your folders. The first sector we would like to present to you today is the consumer staples sector. This sector is comprised of companies that consumer shop at for everyday products and services. The consumer staples sector is defensive and our decision to overweight it reflects our bearish outlook. One of our holding Cisco is unique in the sense that it offers growth in the consumer staples sector. It's like saying jumbo shrimp. Behind me you can see a typical process of a student fund manager when choosing companies to invest in. All the weights that are left are three screenshots of our Bloomberg terminal which we get to look at the company's description of the profitability metrics, their short interest ratio and much more. We then take a look at their value line data and construct a fact sheet from there. Fact sheets are a huge part of the data routine of cafe. In your folders now is a fact sheet for Cisco where you can see us analyzing the company against its direct competitor and industry leader by market cap. Then we can see what fundamentals are in line or better than its industry. Fact sheets also allow us to look at earnings growth year over year and quarter over quarter. We also take a look at technical analysis numbers such as relative strength index to get a better understanding of when the right time to buy this company would be. Fact sheets offer a clear and concise way for us to compare our company to the rest of its industry. And these numbers pull from various sources such as Bloomberg, Value Line, Money.net and much more. I've been a consumer staples analyst since this summer and we have been actively trying to find growth in such a run up sector. Behind me is a screen showing, blowing up that fact sheet in front of you. As you can see, Cisco offers some favorable fundamentals. An emphasis for our growth fund is G Prime and this is calculated by dividing PE trailing by its PE forward. The lower the PE forward, the better because this signifies earnings growth over the next 12 months. As you can see, Cisco's G Prime towers over the industry average. That along with it being well off its target price, we felt this signified a strong growth opportunity. We then look to their operating cash flows. On the left is their annual operating cash flows with a compounded annual growth rate known as a Kager of 8.25% over the past 10 years. On the right side of the screen, you'll see quarter three and quarter four cash flows for Cisco. This was during our holding period. As you can see in quarter three of 2018, we saw a decline in cash flow. Although after analyzing their cash flow statement, we chopped this up to an increase of short term debt. Other than that, Cisco offered strong cash flow growth which is emphasized in the cafe program. As Doc likes to say, cash is king. Lastly, we would like to show you Cisco's performance against their direct competitor Costco in the pink. The consumer staples sector in the blue and the food and staples retailing industry in the purple. As you can see from the time we've bought in until now, Cisco has outperformed all free. This holding highlights our faith in our fundamental analysis and turning those fact sheets into returns. Next up is the technology sector. Between our funds, we hold nine companies with Visa in both. Now when we think of technology, almost automatically we think of growth. Today we have a holding for our value fund to illustrate other ways we look at companies. This holding is Hitachi, a Japanese multinational conglomerate. We found this company when we were looking for a tech holding that was less exposed to the recent trade talks. And we love Hitachi because of their successful business model. They achieve their innovation goals through co-creation or partnering with occupational experts. As we do with any company, we look for catalysts that we believe are gonna define the future value of the company. And as you can see here, Hitachi has an extensive list of catalysts, including developing the next generation of AI. When looking at Hitachi, there were three catalysts that we focused on that we thought were gonna be key drivers moving forward for this company. A perfect example of one of these catalysts is their partnership with the Mayo Clinic. Through this partnership, they are going to bring a new form of cancer treatment to the US that can be used in infants and around the brain. The next is CLV, a French cancer center. Through this partnership, they're better able to diagnose cancer patients as well as use data to predict the response to the patient's treatments. Finally, we'd like to talk about their role in developing Japanese 5G. Through their partnership with Nokia, they're going to enable industrial and government customers to use autonomous vehicles and factories, airports, and ports. In all of these instances, Hitachi exhibits its co-creation strategy. Again, we'd like to reiterate the importance of cash flows. On your right, we have a visualization of Hitachi's over the last two years. When you look at this chart, you want to see the Navy bars increasing over time. This shows that cash inflows are becoming larger than cash outflows. Through this analysis of their cash flows, we're able to derive the true value of Hitachi. Now, when we're looking for a company with a valid mindset, we put a heavy emphasis on financial modeling. Here on your left, you can see a discounted cash flow model summary. In this model, you can see that Hitachi is trading at a significant discount. Although, if we're looking for a growth play, we look for short-term catalysts and drivers that were going to drive the stock price quickly. Instead, we saw this company's value as we're able to show that it's trading at significant discount. We also want to back up our model with modest valuation measures and a favorable price from historical PEs. All in all, through these fundamental measures and models, we're able to determine how Hitachi is valued, growth potential, but at a discount price. Now, in the CAFE program, we don't only crunch numbers. We also use things like technical analysis. If you've ever looked at a price chart and tried to buy a stock on a dip or sell at a high, then you've been using technical analysis without even knowing it. We use technical analysis to determine the price patterns and trends. An example of when we use this analysis is with WNS. In the CAFE, we take it one step further. We look for specific price patterns and the technical indicators that trigger them. If you look at the price chart for WNS, we use indicators such as the RSI and the MACD to find the best buying as well as selling opportunities. When we were looking to buy WNS off of our buy list, we first came across a sell signal in red, a developing head and shoulders, a MACD crossover, and an RSI signaling that was overbought. From here, we continued to monitor the company to find the best buying opportunity. That's where we came across the buy signal in green. Here, we first saw a dead cat bounce. This is a false buy indicator. But then as WNS came off of its second floor, we saw the MACD and RSI signal buy. And although we use technical analysis to get a quick gain on this company, we still believe in its fundamentals and its growth moving forward, which is why we continue to hold to this day. As we move forward into the healthcare sector, the healthcare sector is unique and that its biggest threat is political. With politicians pushing for Medicare for All, drug pricing cuts, and opioid lawsuits, we actively searched for industries that were not dependent on the political landscape. We then looked at the medical equipment industry, which has not only outbursts to form the pharmaceutical industry with the healthcare sector as a whole. We then searched for catalysts within the industry that best represented our growth objective. We found intuitive surgical, with their Da Vinci system being their catalyst. This is an AI surgical robot that tackles some high-risk surgeries. Now, from a fundamental standpoint, intuitive surgical is strong. It has operating profit margin of 30%, and revenue growth year to date of 20%. We believe that this will trigger substantial growth in the near term. Also, with recurring revenue of 71%, sustainable growth has never been more exemplified. The Da Vinci system has conquered the world, now selling over 5,400 systems worldwide. On top of surgery demand increasing and hospitals being at the early adoption phase, we still see plenty of room for growth. Now, from a behavioral standpoint, we have to have intuitive surgical. Healthcare sector has been notoriously behind when it comes to technological innovation that of other sectors. And intuitive surgical's Da Vinci was gonna change that. As you can see on the chart behind me, the Da Vinci's revenue chart shows a compounded annual growth rate over 20%. We believe that this growth and revenue will trigger impressive growth when it comes to stock price. Diving deeper into the fundamentals of intuitive surgical, we still saw tremendous growth opportunity. With an upside downside over 99, a G-prime over 21%, and it being well-off at starter price, we still felt confident this meant our growth objective. Now, throughout this presentation, and you'll probably continue to hear, Peer and Cafe, Cash is King. And with operating cash flows with a keger of 9.75%, intuitive surgical is an asset we need to have in our fund. Next, we move on to the financial sector, which we're well-diversified among banks, consumer finance, and diversified financial services. One of the companies we're most excited to talk about is Discover Financial in the consumer finance industry. Now, many ask us, why Discover Financial over industry leader, American Express? And for the common investor, they associate value with simply the size of the company. And American Express is a lot larger than Discover, but we derive value on a fundamental basis. And from the chart behind me, not only is Discover fundamentally strong, but it also crushes that of American Express. Discover Financial has quickly become a leader in the credit card industry. It's established a competitive advantage for itself through its unique marketing initiatives, its cost leadership approach, as well as its consumer oriented approach. Through this, it's been able to, one of the millennial market, through its $0 annual fee credit cards, it's rotating cashback program, as well as its first year cashback match. Not only is there credit cards that have been growing, but they also have been able to capitalize on the annual growth and cost of college. They've become a leader through search engine optimization, great grade rewards, and competitive interest rates. After seeing that both their fundamental and behaviorals met our value objective, we decided to create a model to see what the true value of Discover was. On the chart behind me, you'll see that Discover was undervalued by 17%. We derived this using historical price to sales, price to cash flow, and price to earnings. The institutional tariff price for Discover is $92.43. However, our model suggests the true value of Discover Financial is $97.08, slightly above analyst average. The next sector we would like to present is the consumer discretionary sector. This sector is comprised of companies that consumer shop at based on their level of disposable income. In our growth and we chose to overweight this sector because of our positive outlook for fourth quarter spending. The pie chart in the middle shows the four main industries that comprise the sector. Currently, we're diversified across five sub-industries within those four main ones. We would now like to talk to you about one of our most well-performing companies, Louis Vuitton, Moet, Hennessy. When looking for consumer discretionary company, we wanted a company with diversified revenue streams, large global exposure, inelastic goods, and products that are going to be very relevant coming into the fourth quarter. Here behind me, you can see some of Louis Vuitton's brands. They start up high-end products like Dior and Louis Vuitton and move all the way down to everyday shopping like Sephora. We also saw the recent announcement to acquire Tiffany for $16.2 billion, and this represents an 8% premium on the company, but it's still considered a discount. Tiffany is expected to add immense value to the LVMH brand. For reference, when LVMH bought Bouldery back in 2011, it only had an operating profit margin of 8%. Currently, Bouldery operates with a 25% operating margin to testing to LVMH's economies of scale and its ability to drive business. We feel that they will be able to do the same once they acquire Tiffany. What we found interesting was that on the day Louis Vuitton put in their bid for Tiffany, and on the day the bid was accepted, their stock price rose alongside Tiffany's, which is very unusual for the stock market. Next, we would like to show you their revenue breakdown by segment on the left and country on the right. Around 40% of their revenue comes from fashion and leather goods, and around 30% of their revenue comes from Asia. We really like that most of their revenue came from outside the United States because this meant that we were not only able to see returns from American spending, but as well as the new influx of wealth in China and other parts of Asia. What we saw was that their true and elastic nature was shown when they reported their nine-month sales. They said that despite slowing economic growth around the world, they still had a 16% organic growth revenue from October 2018 to October 2019. It's also worth mentioning that the fourth quarter is one of their strongest quarters, with an annual growth rate around 8% compared to their direct competitor, the caring group, which only has a growth rate of 6%. Next, we take a look at their operating cash flows to make sure that Louis Vuitton is holding on to their money they're bringing in. On the left, you can see the semi-annual cash flows. Being a French company, they use a different reporting system. The first half of the year is where they see that large growth in cash with an annual growth rate of around 28%. The second half of the year is where they see that consistent growth coming in from their holiday spending with a growth rate of around 7%. In light, Louis projected up this year as cash flows using that 7% growth rate. Lastly, we take a look at their inventory turnover and accounts receivable turnover to make sure that it's increasing alongside its operating profit market. As you can see here, it is. And this attests to the fact that Louis Vuitton is not only increasing products, prices to widen margins, but they're selling more products. Through its increasing revenues, its strong cash flows and its ability to sell more products to widen margins, we see nowhere to go but up for LVMH. Using their G Prime of around 7%, we've given the company a target price of $94.30. After this semester, my partner and I had a serious debate on whether or not to hold a reed considering they've been so run up on the year. As you could see, we do not hold one in our growth fund as we determined that it was not favorable for our short-term outlook. However, within a value setting, we saw significant future growth in equity lifestyle properties, the owner and operator of vacation properties throughout the United States. And we would like to pose you some unique risks that come with investing in real estate, such as new zoning laws, high levels of debt, and even political risks. Real estate investments are also highly illiquid. So if these reeds aren't leasing out their properties, they are not making return on their invested capital, as exhibited by Tanger Outlets. Tanger Outlets is one of the many companies affected by the online retailers that decrease the demand for brick-and-mortar stores, which you can see through their stock price behind me. However, if real estate is for you, then ELS is the pick. ELS is three main revenue segments being manufactured home communities, RV resorts, and campgrounds. They've also put a real emphasis on being in warm coastal areas, as their average age of clientele is about 59 years old. Looking to the future, we are excited about their ability to add additional segments to their core operations. Recently, they've been acquiring marinas, which is no coincidence considering their location. As you can see behind me, ELS has a far superior financial structure than direct competitor of sunlight communities. With a lower whack or weighted average cost of capital, it makes it easier for ELS to acquire those prime real estate areas that really boost their value. And when we think of value, we think of dividend income. Reads are required to pay out 90% of their taxable income in the form of a dividend, and this is exhibited through their double-digit, steady dividend growth. Behind me, you can see the debt ratios and debt composition for ELS. It is important to look at a company's overall debt structure, especially in such a highly leveraged sector like real estate. When you look at this, you see that ELS is twice as levered as their direct competitor. However, we remain confident in their ability to manage this debt because of their strong coverage ratios. It is also important to see how efficient they are using that debt and generating that into cash flows. And the one metric for use for that is ROIC, or return on invested capital. As you can see behind me, ELS's ROIC is more than double, almost even triple of their direct competitor of some life. Now, when we look at a company's earnings, usually we look at EPS. However, with real estate, we have to look at FFO, or funds from operations. And over the last 10 years, ELS has grown theirs by over 200%. This is a similar calculation to that of EPS. You start with that income, you add back depreciation and amortization, and you take out the gain on sale property. This is because when you make a real estate investment, you want it to appreciate and value over time. However, if you were to depreciate it, you'd be taking that value away. Also, although good for a company, the gain on sale property is only a one-time income stream. One of the things we like to boast about here in CAFE is using models to project out a company's future cash stock price. Behind me, using a dividend discount model and historical FFO model, we could see that at ELS's current stock price about $74, it is about 25 to 30% under value. Now let's move on to the industrial sector. Within this sector, there are three primary industries, capital goods, commercial and professional services, and transportation. In our growth fund, we hold Tel-Dyn, Technologies Incorporate, and Lockheed Martin. In our valley fund, we hold Xylem, Raytheon, and Ingersoll RAND. Today, we're going to be talking to you about Lockheed Martin, a leader in aerospace and defense. This industry we thought would help mitigate our global exposure risk. In the bottom right corner, you can see some key financial ratios compared to competitors, general dynamic, and Boeing. These ratios help us determine not only the demand of the product, but also how the company operates. When most triples competitors, inventory turnover shows how Lockheed Martin is able to generate more product sales while accounts receivable turnover shows how they're able to collect short term payments at a faster rate than their competitors. Total asset turnover tells us how Lockheed Martin has an ability to create economies of scale and is also directly reflected in return on asset which is also above competitors, demonstrating the quality investment that Lockheed Martin is. Aeronautics, their largest segment, accounting for almost half of their revenues, has been continuously increasing over the past 10 years, which was a strong catalyst for holding the stock. Within this segment is Lockheed Martin's most distinguished product, the F-35 fighter jet, one of the most demanded items in the industry. Country over country is trying to get their hands on this jet in order to bolster their national defense. The jet is seen as the most advanced jet in the market today and is almost indestructible in combat. Lockheed Martin expects production and demand of the F-35 to jump from 91 jets delivered in 2018 to projected 170 in 2022. The F-35 jet also serves as a backbone of Allied air power for over 13 nations. In the presence of 50 countries and 1,000 suppliers around the globe, Lockheed generates revenue from the United States, Middle East, Europe, and also Asia Pacific. They're also devoted to strengthening their global partnerships by advancing global security and improving local economies. Through their continued expansion and to U.S. Allied forces, they're able to remain the leader in global defense contracts. The communication sector is made up about 80% media and entertainment and 20% telecommunications. Within our funds, we hold Disney and Comcast in each of them with AT&T in value and Google in growth. Disney is one of our holdings that spans across both funds and this is because it has both growth and value characteristics. Now, Disney is a company that's been around longer than anyone in this room and through that time, they've been able to grow both domestically and internationally. Behind us, you can see a breakdown of their four main sources of income, studio entertainment, direct to consumer and international, parks, experiences and products, and media networks. Now, many of these segments can be broken out into smaller sections such as parks, products and experiences which can be broken out into Disneyland, Disney World, Disney Paris, as well as all the resorts and cruises. Now, when deciding whether or not to hold Disney in both our funds, we had a very long debate discussing the pros and cons. The pros ended up outweighing the cons especially on a behavioral basis. This ultimately led to the decision to put Disney in both of our funds. At the top of this pros list is Disney's continued dominance in the movie industry. As of this year, they hold four of the five top grossing movies with Avengers Endgame at the top grossing 3.6 billion worldwide, replacing Avatar as the number one grossing movie of all time. Frozen 2, their most recent release, has already generated over 740 million worldwide, having the largest global animated debut of all time. Star Wars, their next release on December 20th, is expected to perform just as well with an anticipated 200 million worldwide during opening weekend. These movies make up about 17% of the revenue of Disney, but it also helps boost the revenue of their parks products and experiences, which makes up another 33%. And we can already see how these movies help generate product sales. As Frozen 2 Monopoly and Star Wars themed Legos were among the top selling toys on Amazon between Black Friday and Cyber Monday. After acquiring 21st Century Fox in March 2019, including their stake in Hulu, Disney decided to release their own movie streaming platform, the popular Disney Plus. We saw this platform catering to a wide audience with the children and families watching the new movies that Disney was coming out with, as well as the young adults who were going to enjoy the movies we all grew up watching. Getting 10 million subscribers on the first day, we expect to see this impact reflected in Disney's next earnings report. As of November 26th, Disney increased its subscribers by roughly 60%. We see this growth continuing into the future and Disney Plus becoming a serious rival of Netflix. And buying into the company a little over a month before the launch of Disney Plus, we were able to capture gains as a stock rose over 7% the day after the release. Now, not only do we use a buy and hold and active management strategy, we're also one of the few undergraduate institutions that has a unique opportunity to play a company's earnings. A process that our student fund managers are very excited to tell you about. We believe you aren't a true fund manager until you've lived through an earnings season. To prepare ourselves for this period of time in the market where there's a lot of volatility, we take into consideration six factors for each of our holdings. A few of these factors include the company's fundamentals, how it's been trading 10 days prior to its announcement, as well as if any analysts have updated their buy, hold, or sell recommendations. A few more of these indicators are how the direct competitor has performed, their past EPS performance, and who from the company will be on the earnings announcement. Behind me, you can see one of the models we used this semester dedicated to tracking earnings. This model lists when our companies, their direct competitors, and industry leaders reported, whether they hit or miss their EPS and what happened to their stock price on that day. In the bottom right-hand corner, you can see how our funds compared to the S&P 500. Over the third quarter, roughly 80% of the companies in the S&P 500 reported positive EPS. When compared to our funds, we held 37 companies through this earnings season, up of which about 85% of our companies beat their EPS estimates. At the end of this, we came out about positive 2% in growth and net neutral value. We faced many challenges this earnings season. We saw stable companies that hit revenues and hit EPS fall due to reduction in guidance. Another trend that we saw was the fact that many companies were either reaching new all-time highs or 52 weak highs. Thus, investors started taking profits. We had three examples of that in our fund being Cisco, Zoetis, and Walmart. So just like the market, we had some winners and we had some losers. Here you can see our top five winners and bottom five losers from this earnings season. The numbers at the end of the blue lines represent how much that company either rose or fell on that day. And although we lost pretty big on Cisco, if you look at it compared to its competitors, there was one company that beat its EPS as well as raised guidance and went up about 3% on the day. While another company which had much higher valuations beat its EPS, but lowered its guidance, causing the company to fall over 24% at the end of the day. Here, you can see the four scenarios that we encountered during this earnings season. When looking at earnings, there are three ingredients that go into a company's performance on its announcement that is EPS, its revenue, and its guidance. In a perfect world, every company hits all three of these boxes. However, we don't live in a perfect world. The biggest trend that we saw drive stock prices earnings season was guidance. We believe investors put a lot of pressure on this due to the uncertain outlook of a U.S. and China trade deal. We'd like to show you three of these scenarios as best exemplified through HCA Healthcare, Cisco, and Air Products and Chemicals. HCA Healthcare is a perfect example of when all three of these boxes are met. They beat their EPS, their revenues, as well as increased guidance for the rest of 2019, causing the company to increase in price on the day. Before we bought into HCA, we took a look at their value line data, which you could see in the table behind me. With both price growth persistence and earnings predictability numbers above 80, we saw HCA as a true value hold. The chart on your right, you could see HCA's year-over-year revenues, and as you could see the consistent growth, we believe this would be a fundamentally sound company to hold through its earnings. The chart behind me shows HCA stock price from October 15th to November 15th. As you could see, it was trading up 10 days prior to their announcement, and in turn, they beat EPS by about 4.5%, and their stock jumped by about 6.5% on that day. With holding just under 5% weight in our value fund, we were looking towards HCA to give us a boost. We currently have a holding period deal of almost 9%, and you can see here that even after they reported earnings, they've continued to trend upwards. Now moving on to our biggest loser, Cisco. On the day that Cisco announced the company sank over 7%, they had hit their EPS, but missed on guidance. This came to surprise to us because we weren't expecting the company to decrease their bottom line by 2%, as there was positive trade talk leading up to their earnings announcement, which gave us confidence in their future outlook. We also thought that they had priced us in and accounted for this into their quarter two earnings. So this is when we saw a surprise to the downside. While no one likes losing, there is one consolation though, as almost every investor lost out as well, as there was a short interest ratio of below 2%. We had one instance this earnings season where we had a company that missed EPS and still went up, and that was Air Proxon Chemicals. The APD missed its earnings as well as its revenue, but increased its guidance for the rest of 2019, causing the stock price to go up about 4% of the day. You know, sometimes you go to bed and I think you're gonna get a piece of coal on Christmas, and you wake up to a brand new bike. This increase in guidance led us to believe that APD will continue to be a fundamentally sound company and a hold in our fund, and we've already made over 5% since that earnings call. Now that our student fund managers have brought you through our investment process from the top-down economic approach to our thorough earnings analysis, we'd like to talk about how we garner our returns through the summation of this entire process. We're really excited to continue this conversation for what you've all been waiting for, our performance. Now, our job goes much farther than just identifying perspective holdings. We have to take these perspective holdings and construct them into a well-diversified portfolio. This is where we put on the hat of portfolio manager. To preserve wealth, we need to ensure that our funds are diversified across sectors, industries, and business models. Behind me, you'll see our value fund, something well-diversified by our goals and that of Markwood's portfolio theory. But holding just a certain number of sectors, industries, and assets isn't enough to mitigate risk completely. One model we like to use is a correlation matrix which shows an individual company's movement as compared to the rest of the fund. The idea behind it is to prevent as many companies as possible from moving together, which, considering the bull market we've been in, has been a pretty tough task. Also, in these matrices, you can see there are three different colors, all representing a different level of asset correlation. Red represents assets with high correlation, while green represents assets with negative correlation. In reality, when we look at our portfolio, we see lots of yellow boxes signifying moderate correlation. But risk mitigation doesn't end there. We also model out the performance of our assets and our portfolios. We look at this in the terms of risk. We want to create a minimum variance portfolio. We also use total risk that shows standard deviation in the bell curve behind it. Understanding that a stock's future price is a function of its future cash flows, we've project out financial statements to determine the intrinsic value of a certain holding. Using these models, we not only mitigate our risks, but also sustain our client's wealth. Here we have our fund's raw performance against the S&P 500. However, while you look at this, you have to take into consideration that we also have risk. Portfolio managers have multiple ways of looking at performance. It isn't as simple as which fund return more on a raw basis. A matter of fact, all risk measures should be used when looking at performance. This is why we delve into deeper metrics like beta, standard deviation, and alpha we'll be talking about in a second. And to do these calculations, you have to give our PM some credit. Keeping track of all of the data with our active style management is not easy. Industry has multiple ways to quantify these risks, but the predominant two being beta and standard deviation. Beta measures the company's risk against a market or its systematic risk and is calculated within the trainer ratio. And standard deviation attempts to quantify an asset's total risk. We use standard deviation in the sharp ratio to look at returns versus the total risk. Our risk metrics are shown behind us and you'll see we hold significantly less systematic and unsystematic risk than the market. This is shown by a beta of 0.7 in growth and 0.6 in value. We also have standard deviations that are annualized of 11% in growth and just 9% in value. You may have noticed that we carry more risk in our growth funds than we do in our value fund and that's because of our shorter term time horizon as opposed to our value which will long term safer investments. Now I'd like to direct your attention to our risk adjusted performance starting with the cafe growth fund. As you can see here, we outperform the market on an alpha and trainer basis with a lesser sharp. This again is a product of our short investment time horizon looking for quick capital appreciation. Our value fund outperforms the market on all risk adjusted measures with a positive alpha and higher trainer and sharp ratios than that of the market. When we construct our value fund, we look for safety. We wanna mitigate risk with lower price multiples that gets the asset closer to its intrinsic value. Alpha is the industry's way to calculate that risk adjusted performance taking all the risk characteristics that we just mentioned into play. With a positive alpha of 1% in growth and 4% in value, we have successfully outperform the market on a risk adjusted basis. But just like any other portfolio, we wanna compare ourselves to other mutual funds. And that's what's shown here. We know that our performance is a function of micro and macro economics. And when we call it wrong, we can't garner as much raw return as the competition. But portfolio managers and analysts alike know that risk adjusted performance is what really matters. We are very proud of our ability to mitigate such risks as shown in our performance. Throughout the semester, we have all grown not only as students, but as professionals. Through the semester, we've reflected on ourselves and not only recognize the things we've done right, but what we've done wrong and how that's gonna help us moving forward. Here's some of the lessons we've learned throughout the semester. Cafe is a real world experience where real dollars are on the line and full attention must be given at all times. Through our reports, meetings, and phone calls with doc, we're able to get the real industry experience of managing deadlines, defending our holdings and being able to give a brief rundown of not only our funds, but the market at any given time. From personal experience, I can tell you that not being prepared with the answers to questions in cafe is simply unacceptable. One day, doc called and I didn't have all the answers he was looking for and he hung up on me. The same thing happened to me. This experience while uncomfortable taught us that if we were gonna succeed not only in cafe, but in industry, we need to be better prepared at all times. Perfection was another aspect we had to master in the cafe program. We got some practice with this throughout our technical analysis class over the summer. Formatting was emphasized in this class and as though we got better towards the end of the class, we're still no way, shape, or form prepared for the perfection that the cafe program demanded. Personally, I've always considered myself somewhat of a perfectionist and to some extent I still stand by that, but after one week in cafe, I realized that this program was on a whole other level. I remember when I was first tasked with finalizing and submitting our first B sheet, which is an Excel file containing information for all of our holdings, I end up having to resubmit this report five times after management kept sending it back to fix little details. Through this assignment, I learned how necessary it is, even if it's just to avoid resending something five times to be complete and thorough in every assignment. Like perfection, deadlines are also very important in cafe. When we're given a time for something to be due, it means it has to be submitted exactly at that minute, not one minute before or not one minute after. During our first overnight, we were tasked with completing our first pre-market report, which is due at precisely 4 a.m. Now alongside this, we were tasked with a bunch of other assignments to be due within the same timeframe. And apparently not managing our time well enough, we ended up submitting the report at 4 a.m. The first email we got back from management was this was due at 4 a.m., not 4 a.m. This email helps set the tone for the rest of the semester and made us all realize that if we wanted to succeed, we needed to be better time managers. When thinking back to the beginning of the semester and advocating for convictions, one thing comes to mind and that's pitching companies. Pitching companies requires a certain amount of confidence and without it, we would never get any holding in either of our funds. Initially, when bringing companies to the dock or the ADs, we would often be suppressed with questions meant to spark a debate. However, we would often shy away and go stash these companies in a folder. Personally, I have never heard docs say yes to me without having to drive home an argument. We later learned to approach these questions as room for debate and provide catalysts or drivers to why the company was not only gonna do well in the short term, but the long term as well. Speaking for the entire group, it's safe to say that we're all not able to properly and enthusiastically advocate for any holding across both funds. Having so much information and technology at our fingertips was a great experience, but early on, we often brought too much information to dock in the ADs and we quickly had to realize that time was money and that we would have to decipher what is relevant to deliver our argument. And in this sense, we've evolved as analysts from not having an argument at all to not having the right argument to being able to pitch a company to dock in his office in the matter of two minutes whereas what he likes to call an elevator pitch. By keeping our information relevant and concise and giving these elevator pitches, we are now able to execute trades in a matter of minutes. Sometimes these trades can happen at any point during the day. Now, being a group of eight, it was natural that some of us had our strengths and weaknesses. Some of us were naturally more quantitative, while others were naturally more qualitative. One of our biggest tasks was not only putting people in positions that we succeed in, but also force each other to be uncomfortable. Forcing us outside of our comfort zones shaped us into more well-rounded analysts. In the beginning of the semester, I was not really good at looking at financial statements because I had only ever taken the two required accounting courses. And I've only taken one. So the doc would tell us what to look for in a financial statement. I would have no idea what he was talking about. But being in a room with so many different majors, I was able to sit down with someone like Matt DeBrowsky who had taken more accounting classes and be able to understand better what I was looking at. Throughout this semester, we got to be a part of an experiential learning program that has taught us so much more than just finance. Speaking for the entire group, it's safe to say that CAFE has given us all the necessary skills in order to become instantly successful upon entering industry. Now we would be remiss if we did not discuss a key differentiating factor between our program and others. And that's our international travel exposure. In January, the CAFE, as well as three CAFE advisory board members, Mr. Guthrie Carpenter, Ms. Megan Bishop, and of course Ms. Katherine Melton will be traveling to Dubai in order to present to academic institutions as well as financial centers. And this wouldn't be possible if it wasn't for the backing of our CAFE, Saudi alumni, our CAFE alumni here as well. And of course, Mr. Hans Christensen of MJ Asset Management. We really look forward to presenting to these institutions and thank you all again. As Pat and I have been in this program for over the past year, we have seen that the growth and maturity is a constant from semester to semester. And this group has stayed true to that. From the career-like setting and the expectations they must meet, it was inevitable that we maintain our fiduciary responsibility to our client, Doc. Thank you very much. We would now like to open the floor to questions. If you have any questions or comments, thank you. Any questions? Yes, Cam, please. First of all, great presentation. Thank you. How do you see the upcoming 2020 election affecting your fund now? Yeah, we don't back a candidate or anything like that, right? We're like cold numbers analysts. Obviously, whoever comes into that position is going to affect the market, especially obviously some sectors we can kind of understand more than others, healthcare as an example of one. But like I said, it's still some ways away. So is that priced in to some degree? But we're really paying attention to that, yes. Yes, Patrick, please. First of all, really excellent job, guys. Being in your seat a few, a couple years back, I know how stressful it is, so really, really excellent job. One question on your ratios and your risk metrics. Being, you know, focusing on a growth fund here, it looks like you guys have pretty low betas. You know, some may interpret that as kind of a risk inverse of overall macro people on the market. How do you justify having a growth fund with a beta below one? And what would it take for you guys to bring your beta above one? Good question. I think Bob or a growth PM would like to answer that as well. Yeah, so that was a function of obviously the entire year. We held a large cash position in the summer because of the uncertainty and it paid off. If any of you follow the market, large dips and swings in that, we profit from, you know, we like to minimize our risk below one, so that's kind of justifying it below one. But I mean, we've ran this calculation multiple times. We've used weighted betas. We've used regressions against the market, you know, and other metrics. So we're proud of our beta. I mean, it's paid off. And like I said, it's mitigated a lot of risk for us. Thank you. Good job, guys. That was awesome for you all. But on the tone of mitigating risk, I noticed that, oh, Louis Vuitton loved that you hold that first of all, but it is an ADR. So can you speak to why you hold an ADR? They do have different reporting standards in different countries. And, you know, speak about that with mitigating risk. I could talk about that. You know, being an ADR, it was just a matter of doing more due diligence to understand their reporting standards. And, you know, it's their large global exposure. We didn't see, like, any one country driving, you know, risk in either direction. We also chose Louis Vuitton because of their elasticity, which we saw very appealing with the market going all different directions, the uncertain economy and the future. We wanted to choose a consumer discretionary company that would be able to withstand either direction of the market because of their elasticity. Any other questions? Yes, Janetta. Great job, guys. You did fantastic. My favorite part of the presentation was about your earnings analysis. So in terms of something not hitting or part of the, like, three things that you look for not being filled and then seeing a huge price reaction in a way that we don't want going down, where do you hold a plug and, like, what is too much and why do you sell up holding after maybe a negative report? Yeah, so when we have a company that goes down a lot, we kind of, you know, jump into action of looking at the company's fundamentals more and see if it's, you know, an overreaction and if the company's going to bounce back or if it really is a true, like, kind of fundamental issue with the company that it's going to kind of continue to trickle down and not going to be able to come back from it. So after that kind of due diligence, we really decided on whether or not we want to pull the plug. Great guys. Great job, guys. One question most of your slides had is CAGR. What is it and how do you calculate it? That is at the compounded annual growth rate or for sure just CAGR. So. All right, and how do you calculate it? I just take, like, the overall growth rate and then compound it over the past previous time periods. So, like, let's say it's 10, you would do 10 to the x-pond, just all that kind of stuff. So. Thanks. Great question, though. Thank you. Just to piggyback off what the folks on my right said. Great job, guys. Definitely take a moment with the upcoming winter break and kind of bask in it. You guys went through a lot this semester and I think you'll find a lot of things easier at the next level because of this, if you remember your experience and your own personal growth. I got a quick question on unfavorable performance, particularly, if I'm looking at your value fund, it looks like it hasn't been so hot with either AT&T or Cisco. Talk a little bit about your process into reviewing a company and saying, okay, is it time we cut our losses here or if we liked it at 10, we love it at nine, something like that. I can speak a little bit to that as well. Cisco, when they announced their earnings, we still saw that the company was much more undervalued than the rest of the companies in the industry that it was in right now. So kind of, we still saw that there was a bounce back that was possible from this company and that they've been kind of attributing a lot of their performance to the trade war, which is why we kind of thought that this was an overreaction of what was happening and that was what you see there. It was soon after they reported that that number was pulled. And then with AT&T, it's a tough sector to be in with telecommunications and we kind of bounced back for rising AT&T, but we found AT&T's fundamentals to be favorable. Maybe just piggyback off that. As an actively managed fund, if you see a holding in there that hasn't been doing well, i.e. earnings or whatever it is, it speaks volumes to our modeling and the active management. If we still hold the company, simply put we see growth in the short term or the long term, whatever it may be for multiple reasons. What was the biggest lesson you learned during the semester that you're gonna take into the professional world? And if you wanna go down the line or... So you wanna do individual lessons online? Sure, I think my biggest lesson learned was to always be considerate of everyone else here and take into consideration every single person's feelings and thoughts and it really helped us allow it to become a better team, the way we shared our feelings and the way we shared what we thought was right and what we thought was wrong. I think taking that into the real world would be helpful because we will be working with teams and with other people and we have to be mindful of everyone else's thoughts. For me, I learned what you put in is what you get out. So you can come in and you can sit at a Bloomberg terminal and pretend like you're doing work for five hours or you could actually research some companies and sectors and grow yourself and your team. And going off that, it's kinda just really doing your due diligence when analyzing companies because eventually if they do get in the fund and if you haven't done the due diligence, it can really affect the fund's performance. That's Don's broker. My biggest lesson is probably battling through adversity. I know some of those all-nighters were getting no sleep and just kinda working through that and pushing through that. It really does build you as a person and build that callus on your brain to just keep working harder. Honestly, I've learned how to work hard. I mean, I think that's why I took this program because before this, I kinda went to class, I did my homework and stuff, but I never really put in a good amount of effort and then I got to cafe and you need to work hard and that really stuck with me throughout this entire program. So if anything I've learned, it's been that. Mine was probably playing off my strengths, well other people's strengths in order to fulfill my weaknesses. So obviously we have our two PMs, they're much more qualitative than I was. So I like to sit with them and kinda learn what they're doing so that I can hopefully do it when I get into the real world. I will be probably, you know, I've been in this program for close to a year now and sometimes my friend asked me, why are you doing this program for so long as a college student? And well, simply put, one of my favorite sayings, or probably again, say of it, is fire forges steal. The more uncomfortable situations you put yourself in, ultimately the better you're gonna be. So I think the biggest lesson learned is, from this point on throughout the rest of my life is I will strive to put myself in the wrong comfortable positions and situations. I guess we could say my most recent lesson is don't wear an apple wash dress. The lessons I learned at Cafe was really taking the theory that I'm learning the classroom and being able to put it into like a real world environment, real world applications. Let me learn just so much that I wouldn't be able to do just like looking at the theory at all. I'm kinda gonna piggyback off of what Jake said and really I learned to rely on other people to kinda help me with stuff that I wasn't as comfortable with. So that was definitely something that I'm gonna take moving forward is to kinda ask people when you need help. I think for me it was probably communicative skills. Like sometimes you find a company and sometimes it's hard to argue it just because the fundamentals might not add up. But being able to communicate and find catalysts for that company is definitely something I took away. I think one of my biggest things was being able to pull from like other courses I had taken, like having a political science minor, realizing like how that's gonna impact the financial markets and like you know at the end of the day it's not just numbers. So let's say for Christmas you got $10,000. Would you trust yourself to work with it? Only yourself. Hi Marisa. Uh. If you wanna give me $10,000. I'm gonna say that in the next video. In the next video, yes. Absolutely. Yes we definitely would. Do you have time? Yes. We'll make this a long one. That's what we learn in time management all the time. Yeah, make it work. Alright, some closing remarks. Great. Well, thank you all for a fabulous job. Please let's give them another round. I also wanted to thank once again both Hans Christensen from MJX securities investments, I think, and for his support of the international trip that's upcoming and so many that have come before. And also I'd like to thank Michael Melton, otherwise known as Doc, although I call him Michael, but for all the great work. This is always such a fun event. Thank you, Michael, for making this possible and working with our students year after year to not only help them have a great experience in this program, but to launch a lot of successful careers, many of which are represented here with us this afternoon. So I will conclude. I hope everyone can stay with us for a little while. We have a reception out in the lobby set up for you with some refreshments so you can talk with the students a little bit more. And I'd like to, again, thank the students for a great job. I will wish all of the students here good luck with their finals and everybody here a very happy holiday season and safe travels home. So thank you so much for being with us. Thank you. Take your pictures.