"Letter of Acknowledgement - DOC"
Cougar Investment Fund 2002 Fall Semi-Annual Report Presented by: Michael J. James, Portfolio Manager Kari A. Miller, Portfolio Manager Cougar Investment Fund 2002 Fall Semi-Annual Report Table of Contents Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Fund Objective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 CIF Background & Investment Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Equity Market Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Sector Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Performance Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Fund Performance Top 5 Performers Bottom 5 Performers Portfolio Holdings as of 9/30/02 Looking Forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Management Team Glossary Analyst Report Example For further information regarding the Cougar Investment Fund, contact: Richard W. Sias, Ph.D. Gary P. Brinson Chair of Investment Management Department of Finance, Insurance, and Real Estate P.O. Box 644746 Pullman, WA 99164-4746 Tel: (509) 335-2347 Fax: (509) 335-3857 Email: firstname.lastname@example.org Executive Summary Over the review period, April 1, 2002 through September 30, 2002, the U.S. stock markets declined dramatically. The Dow Jones Industrial Average, S&P 500, and Nasdaq fell by 26.7 percent, 28.9 percent and 37.1 percent, respectively. Over the same period, the Cougar Investment Fund (CIF) lost 21.6 percent, outperforming the S&P 500 by 6.8 percent, due largely to superior stock selection. Since inception, the CIF has exceeded the S&P 500 by 7.2 percent. Several program enhancements were implemented: In August of this year, Wilshire Associates donated iQuantum portfolio management software to the CIF program. This software (valued at $12,000/year) allows us to analyze portfolio risk and returns in greater detail. The Factor Attribution and Returns Analysis features were used in the creation of this report. The Compliance Officer position was created to manage the proxy voting and reporting process. A filing system of past news articles, analyst reports, and notes from weekly investment meetings was set up in the trading room to provide each new team with “institutional memory” of past research and decisions. 3 Fund Objectives Primary Offer a unique opportunity for students to gain first-hand investment and portfolio management experience in an educational environment. The program develops students’ intellectual, analytical, critical thinking, teamwork, writing and oral presentation skills. Moreover, the knowledge and experience gained through the CIF program give students an advantage in the job market. Secondary Provide equity investment management for a portion of the WSU Endowment Fund. The CIF strives to outperform the S&P 500 while maintaining comparable risk. Washington State University, the College of Business and Economics, the Department of Finance, Insurance and Real Estate, receive positive publicity through this unique offering. The trading room, located in the outer room of Dr. Sias’ office, finished renovations in January of 2002. CIF participants have benefited from utilization of the Trading Room equipped with Internet access through flat panel monitors, market information via TV monitors tuned to CNBC, and a meeting place for students to discuss market conditions. A stock ticker also displays movement in our current holdings and is visible to all who pass by. 4 CIF Background & Investment Process In June 2001, the Washington State University Board of Regents approved the establishment of the Cougar Investment Fund (CIF) with an initial $1 million portfolio. The proposal, authored by Dr. Richard Sias (Gary P. Brinson Chair of Investment Management), had also been reviewed and approved by the WSU Regents/Foundation Investment Committee. The CIF is one of the University’s large-capitalization domestic equity managers. Its performance is benchmarked against the Standard & Poor’s 500 (S&P 500) index and compared to a peer group of institutional large-capitalization domestic equity managers. The CIF is managed by Dr Sias’ Investments (Fall semester from September-December) and Portfolio Theory (Spring semester from January-May) classes. Two student portfolio managers guide the overall management of the fund, one compliance officer manages the proxy voting process, and the remaining students serve as analysts assigned to one of the ten Dow Jones Total Market Index sectors. The CIF is managed according to specific investment guidelines to minimize risk. These include: Investments limited to NYSE, AMEX, and NASDAQ securities. $5 billion minimum equity capitalization (large-cap stocks only). 5 percent maximum position in any one security (except SPDRs & ETFs). Sector weights within 5 percent of Dow Jones Total Market Index sector weights. Excess funds invested in SPDRs & ETFs. No margin trading, short positions, or derivatives (except SPDRs & ETFs). University’s Chief Investment Officer may veto any investment recommendations. University’s Chief Investment Officer has the option to liquidate any position. Each week the class holds an investment meeting in which analysts review their sectors’ performance and the performance of portfolio holdings within that sector. In addition, the portfolio managers provide an overall review of the portfolio that includes individual holding period returns, stop-loss and target price adjustments, current and target industry weights as well as a discussion of prevailing market conditions. Security recommendations are presented by analysts, which are followed by a class vote (a majority vote is required to initiate any order). Each recommendation includes a detailed analyst report. The report includes an outline of the firm’s operations, competitors, strategy, and current market valuation. A fundamental valuation is estimated using the Edwards-Bell-Ohlson (EBO) model. Securities are also valued relative to industry peers based on forward P/E and PEG indicators as well as historic P/B, P/S and value ratios. Historic earnings and revenues, forward growth estimates, analysts’ recommendations and revisions, and changes in institutional ownership are also evaluated. Short-term technical analysis, employing Bollinger bands, stochastics, regression, momentum, and periodic moving averages are also assessed. (See Appendix for a glossary of terms and sample analyst report.) 5 Equity Market Review Over the review period, the Dow Jones Industrial Average, S&P 500 and Nasdaq fell by 26.7 percent, 28.99 percent and 37.1 percent, respectively, amid on-going threats of terrorism, uncertainty about a potential war with Iraq and corporate governances failures. For the quarter ending June 30, 2002, the Dow finished down by 11.2 percent, while Nasdaq shed 20.7 percent, one of the steepest losses, on a percentage basis, in history. The Dow’s 12.4 percent decline over September 2002 was the worst September in history for large capitalization stocks. Market volatility increased dramatically over this period. The Chicago Board of Options Exchange’s Volatility Index (VIX), which measures the volatility of the U.S. equity market, started the period at 20.05 and ended the period at 44.57. The historical average for this index is in the low 20s. Although GDP growth was up 6.1 percent in the first quarter of 2002, the market failed to respond positively. Accounting and investment banking (e.g. Enron, Citigroup; respectively) issues continued to erode investor confidence. Contraction in many industries led to a reduction in IPOs and Venture Capital spending. April 1, 2002 - Septem ber 30, 2002 5% 0% DJIA S&P 500 -5% NASDAQ -10% -15% -20% -25% -30% -35% -40% 02 2 2 2 2 2 -0 l-0 0 r-0 0 n- g- p- ay Ju Ap Ju Au Se M 6 Sector Allocation Market declines in June and July caused many stocks hit their stop-loss prices. To maintain proper sector weights, the cash was invested in the appropriate sector ETFs. As of September 30, 2002, sector ETF holdings represented 67 percent of the portfolio. Throughout the period, portfolio sector weights closely tracked the Dow Jones Total Market Index. As of September 30, 2002, we were slightly overweighted in the Energy sector and slightly underweighted in the Technology and Telecommunications sectors. Sector allocations are depicted below. The light bars represent the sector weights in the Dow Jones Total Market Index. The dark bars represent the CIF weight in the sector. Sector Weights 9/30/2002 25% 20% DJ TMI 15% CIF 10% 5% 0% s ns y s s y re s l ls ia al og al al g tie ia Ca tio nc er lic tri lic l tili er no En ca us yc yc na th at U ch -C d i C Fi l un M ea In Te on er m sic H um om N Ba er s c on um le Te C s on C 7 Performance Report Fund Performance While sector weights were held relatively constant, portfolio composition changed dramatically over the period. On April 1, 2002, the CIF held thirty-seven individual securities and one sector ETF. By September 30 2002, the fund held twelve company stocks, ranging in position size from $6,000 to $32,000, and all ten sector ETFs. Twenty-five stocks hit their stop loss targets due to the sharp market decline in mid-July. At each investment meeting, in April, May and September, individual securities were recommended and many were approved. After doing extensive research and analysis, analysts presented their reports and defended their recommendations by answering difficult and specific questions about the company’s operations and future outlook. Overall, only 31 percent of the securities presented during this six-month period were accepted. Despite the market downturn, the CIF managed to outperform the S&P 500 by 680 basis points during the review period and by 720 basis points since inception. Returns since inception for the CIF portfolio versus the S&P 500 are depicted below. Quarterly Performance Quarter Ending Quarter Ending Quarter Ending Quarter Ending Since Inception 12/30/2001 3/31/2002 6/30/2002 9/30/2002 10/01/01 - 9/30/02 CIF 10.8% -0.2% -8.2% -14.5% -13.3% S&P500 10.7% 0.3% -13.4% -17.3% -20.5% Over/Under 0.1% -0.5% 5.2% 2.8% 7.2% Historical Performance October 1, 2001 - September 30, 2002 S&P 500 CIF 20% 10% 0% -10% -20% -30% Oct-01 Nov-01 Dec-01 Jan-02 Feb-02 Mar-02 Apr-02 May-02 Jun-02 Jul-02 Aug-02 Sep-02 According to iQuantum factor attribution analysis, (detailed in the table below) 98 percent of CIF’s outperformance, relative to the S&P, was due to superior stock selection. Holdings in Apache, Northrop, Tenet Healthcare, United Health Group and Intuit posted strong positive returns during the period. Industry weights made a modest positive contribution to relative performance. Our slight overweight in Energy, which performed poorly, actually benefited the CIF as our holding, Apache Corporation, performed well. Slightly underweighting the Technology and Telecommunications sectors also helped, as these were by far the worst performing sectors over the review period. 8 While we recognize that the manner in which iQuantum handles cash and transactions introduces some measurement error into the performance attribution analysis, we believe the impact this has on the overall assessment is immaterial. iQuantum software does not account for cash position or transaction fees and assumes the buy/sell prices are equal to the daily closing price. Over the review period, these factors accounted for the –0.6 percent deviation between the iQuantum daily linked return (-20.97 percent) and our actual return (-21.6 percent). Factor Return (based on iQuantum) April 1, 2002 – September 30, 2002 Contibutions to Return Return Factors CIF S&P 500 Net Size -2.26 -0.11 -2.15 Style -1.15 -0.31 -0.84 Momentum 0.79 -0.24 1.03 Historical Beta -17.45 -17.15 -0.3 Industry Weights -9.03 -11.45 2.42 Risk Free Return 0.91 0.91 0 Model Return -28.19 -28.35 0.16 Selection 7.22 0.03 7.19 Total Daily Linked Return -20.97 -28.32 7.35 9 Top 5 Performers 6-Month Company Investment Thesis Return Intuit 23.4% Intuit (INTU) has continued to grow and expand through Bought: 11/14/2001 innovations, acquisitions and strategic alliances. Intuit’s Sold: N/A personal tax division, which generates the most revenue, is resistant to market downturns. United Health Group 14.9% United Health Group (UNH) recently acquired Bought: 2/1/2002 AmeriChoice, a leading company engaged in facilitating Sold: 11/8/02 health care benefits and services for state Medicaid Holding Period Return: beneficiaries, which will reduce the negative effect of 18.8% increasing unemployment caused by lower enrollment in employer sponsored group healthcare. Northrop Corp 10.4% Northrop Grumman’s (NOC) numerous contracts have Bought: 4/9/2002 contributed to its continued growth and high Sold: 10/17/02 performance. Northrop’s NOC’s continued design, Holding Period Return: integration, production and support of complete systems -11.6% for airborne surveillance, in addition to maintaining its position as the largest supplier of non-nuclear surface ships for the U.S. Navy, has made it an attractive buy for investors. Tenet Healthcare Corp 10.2% Tenet Healthcare Corp (THC) has been meeting or Bought: 11/5/2001 beating earnings expectations and raising long-term Sold: 10/28/02 growth expectations. Tenet has been increasing returns Holding Period Return: on its existing asset base while receiving an increasing 16.6% number of clients from aging baby boomers. Apache Corp 3.3% Apache Corporation’s (APA) three consecutive Bought: 4/1/2002 deepwater discoveries off the shore of Egypt have Sold: N/A caused the company to advance beyond the competition. Its expansion of exploration techniques has contributed to its successful performance. Note: UNH, THC, and NOC were subsequently sold when they hit their respective stop-loss prices. 10 Bottom 5 Performers 6-Month Company Investment Thesis Return SBC -47.8% SBC Communications (SBC) eliminated 5,000 jobs in the Bought: 3/11/2002 second quarter in response to a continued poor economy. Sold: 7/22/02 Thus, SBC’s performance was primarily market driven. Holding Period However, SBC submitted false information to federal Return: -34.2% regulators to obtain permission to sell long-distance telephone service in several states. Citigroup -45.0% Citigroup’s (C) poor performance was primarily due to Bought: 5/2/2002 predatory lending charges filed against Citigroup’s Salomon, Sold: 7/22/02 Smith Barney and its former telecommunications analyst Jack Holding Period Grubman and the related investigations during this period. In Return: -31.8% addition, some of the company’s subsidiaries, such as Prudential, were downgraded to a “sell”, which also hurt their performance. DJ US Technology -42.7% The Technology sector (IYW) consistently contracted over this Fund period. All of the ten largest technology companies, based on market capitalization, have declined over this period, led by Texas Instruments (TXN, -56%), Intel (INTC, -55%) and International Business Machines (IBM, -43%). The decline in this sector is attributed to the fallout of the technology stock bubble, reduction of corporate technology spending, reduced consumer confidence, and the effects of an economic recession. Conoco -26.5% The Conoco merger with Phillips Petroleum Company, now Bought: 11/1/2001 know as ConocoPhillips (COP) had a negative impact on the Sold: 7/22/02 stock. The merger lead to employment reductions in certain Holding Period locations, such as Houston and Tempe. Conoco’s poor Return: -10.7% performance was primarily based on Phillips’ negative announcements, such as net operating loss and insufficient gasoline inventory. DJ US Cyclicals -24.4% The Consumer Cyclicals sector (IYC) was greatly affected by Fund consumer confidence and consumer spending. During this six-month period, unemployment rose and the consumer confidence index has dropped. Industries within the sector such as airlines, lodging and restaurants are still recovering from the September 11 tragedy. 11 Portfolio Holdings as of 9/30/2002 Ending Beginning Price Price # of Total % of Ticker Company Name 9/30/02 3/31/02 Shares Position Portfolio APA Apache Corp $59.45 $57.86 440 $26,158.00 3.15% AVY Avery Dennision $56.98 $60.61 100 $5,698.00 0.69% BAC Bank of America $63.80 $68.15 370 $23,606.00 2.84% BUD Anheuser Busch $50.60 $52.14 600 $30,360.00 3.66% FRE Freddie Mac $55.90 $63.70 300 $16,770.00 2.02% IDU DJ US Utilities Fund $46.17 $65.80 550 $25,393.50 3.06% INTU Intuit $45.53 $38.52 600 $27,318.00 3.29% IYC DJ US Consumer Cyclicals Fund $41.04 $56.30 2355 $96,649.20 11.65% IYE DJ US Energy Fund $37.80 $50.97 870 $32,886.00 3.96% IYF DJ US Financials Fund $64.50 $82.48 2100 $135,450.00 16.32% IYH DJ US Healthcare Fund $46.61 $60.95 1545 $72,012.45 8.68% IYJ DJ US Industrials Fund $34.86 $49.70 1250 $43,575.00 5.25% IYK DJ US Consumer Non-Cyclicals Fund $40.57 $47.25 1325 $53,755.25 6.48% IYM DJ US Basic Materials Fund $31.35 $42.00 530 $16,615.50 2.00% IYW DJ US Technology Fund $26.60 $50.05 2270 $60,382.00 7.28% IYZ DJ US Telecommunications Fund $14.04 $26.16 1100 $15,444.00 1.86% MMM 3M Corporation $109.97 $115.26 215 $23,643.55 2.85% NOC Northrop Grumman $124.04 $116.12 175 $21,707.00 2.62% THC Tenet Healthcare $49.50 $44.91 645 $31,927.50 3.85% TJX TJX Companies $17.00 $19.74 1300 $22,100.00 2.66% UNH UnitedHealth Group $87.22 $75.89 169 $14,740.18 1.78% UNP Union Pacific $57.87 $60.77 160 $9,259.20 1.12% Cash $24,297.96 2.93% Total $829,748.29 100% 12 Looking Forward The iQuantum portfolio management software provides vital information on fund performance. Going forward, we plan to use additional reports offered by iQuantum tools, such as Risk Analysis, to further our understanding and management of the CIF. With winter break approaching, stop-loss prices will be reviewed and adjusted as necessary. Dr. Sias will monitor the CIF during this break. Stocks that hit their stop-loss prices will be sold and sector weights will be maintained by investing in the appropriate sector ETF. The class will continue to research, analyze, and recommend securities and sectors. 13 Appendix Management Team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Analyst Example Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 14 Management Team Cougar Investment Fund Spring 2002 SECTOR STUDENT NAMES Portfolio Managers Michael James Kari Miller Basic Materials Gavin Clark Brad Gould Consumer Cyclicals Michael Anderberhan Sachin Patel Consumer Non-Cyclicals Holly Hobbs Michael Schneider Energy Per Artle Aaslid Jan Fossgard Financial Services Kelly McKeirnan Kari Miller Health Care Phillip Chapman Jeff Pierce Industrials Ryan Reid Mike Shelford Technology Michael James Dirk Woodworth Telecommunications Chi Yi Lee George Tchernokojev Utilities Shane McCauley Katelyn Woodbury 15 Glossary of Terms American Stock Exchange (AMEX): The stock exchange with the third highest volume of trading in the United States, located at 86 Trinity Place in downtown Manhattan. The bulk of trading on AMEX consists of ETFs, index options (computer technology index, institutional index, major market index) and shares of small to medium-size companies. It recently merged with the NASDAQ. Basis Points (bps): Each percentage point of yield on an investment equals 100 basis points. For example, a return of 5 percent is 50 basis points higher than a return of 4.5 percent. Bollinger bands: Trading bands useful for technical analysis, as they vary in distance from the moving average of a security’s price based on the security’s volatility. During periods of increased volatility, the bands widen. When the volatility decreases, the bands are tapered for a narrower focus to the price range. Derivatives: A financial security, such as an option or future, whose value is derived in part from the value and characteristics of another security (underlying asset). Dow Jones Total Market Index: An index of more than 2,000 publicly-traded U.S. companies representing 95 percent of the total capitalization of the U.S. stock market. Earnings per Share Torpedo: The earnings per share torpedo is an earnings momentum measure based on the ratio of the forecast yearly earnings per share divided by the yearly trailing earnings per share. All valid values are then ranked in ascending order. It is the measure of the estimated growth in earnings for a security, relative to historical earnings. This measure is used in iQuantum’s momentum factor. Earnings to price (earnings yield): The earnings to price ratio is the sum of the most recent four quarters’ earnings per share divided by the closing price (i.e. the inverse of the P/E ratio). This measure is used in iQuantum’s “style” factor Edwards-Bell-Ohlson (EBO) model: A simple, yet powerful, measure of a stock’s fundamental value. The fundamental value is derived as the sum of current book value and the present value of expected future abnormal earnings. Abnormal earnings are generated when the return on equity (ROE) is greater than the discount rate. Equity capitalization: The total dollar value of all outstanding shares. Computed as shares times current market price. Capitalization is a measure of firm size. 16 ETF (Exchange Traded Fund): Similar to a mutual fund, but shares are traded on an exchange (typically the American Stock Exchange), can be sold short, purchased on margin, and bought and sold throughout the trading day. Sector ETFs hold securities within a given sector (e.g., Technology). Historical Beta: Historical beta is calculated as the slope or coefficient in a regression of a security’s total returns over the past 60 months versus the returns of the S&P 500 over the same period. Institutional ownership: Ownership of securities by professional, including insurance companies, depository institutions, pension funds, investment companies, mutual funds, and endowment funds. Margin trading: Allows investors to buy securities by borrowing money from a broker. The margin is the difference between the market value of a stock and the loan a broker makes. Momentum: 1. A relatively straightforward indicator that measures the rate of change in price as opposed to price itself. It is calculated by subtracting the price of x periods ago from the price now. This indicator can also be referred to as rate-of-change (ROC). 2. Momentum as used in iQuantum reports is made up of three components: Net Earnings Revision, Price Reversal, and Earnings per Share Torpedo. National Association of Securities Dealers Automatic Quotation System (NASDAQ): An electronic quotation system that provides price quotations to market participants about the more actively traded common stock issues in the over-the-counter (OTC) market. About 4,000 common stock issues are included in the NASDAQ system. New York Stock Exchange (NYSE): Also known as the “Big Board” and “the Exchange”, where more than 2,000 common and preferred stocks are traded. The exchange is the oldest in the United States, founded in 1792, and the largest. It is located on Wall Street in New York City. Net Earnings Revision: Net earnings revision, also referred to as analyst estimate revisions, is the difference between the number of analyst upward earnings estimate revisions and the number of analyst downgrade estimate revisions divided by the total number of estimates. This measure is used in iQuantum’s momentum factor. PEG ratio: Price-to-earnings ratio divided by forecasted growth rate in earnings. This serves as an estimate of the growth rate-adjusted PE ratio. Periodic moving averages: An indicator for technical analysis that shows the average value of a security’s price over time. It is perhaps the oldest and the most widely used technical indicator. 17 Price Reversal: Price reversal, also known as price momentum, is the measure of the difference between a security’s actual return and expected return based on CAPM in the last month. This measure is used in iQuantum’s momentum factor. Price-to-book ratio (P/B): Compares a stock's market value to the value of total assets less total liabilities (book value of equity). Determined by dividing current stock price by common stockholder equity per share (book value), adjusted for stock splits. Price-to-earnings ratio (P/E): Current stock price divided by trailing annual earnings per share or expected annual earnings per share (forward P/E). Price-to-sales ratio (P/S): Determined by dividing current stock price by revenue per share (adjusted for stock splits). Revenue per share for the P/S ratio is determined by dividing revenue for past 12 months by number of shares outstanding. Regression: A statistical tool used for forecasting future price. The concept behind regression is to find the best estimate of the trend given a noisy sample of data points. It is calculated by using the "least squares" method over a given period to draw a trendline extending through the defined period that attempts to filter out noise. Short position: Occurs when a person sells stocks he or she does not yet own. Shares must be borrowed, before the sale, to make "good delivery" to the buyer. Eventually, the shares must be bought back to close out the transaction. This technique is used when an investor believes the stock price will drop. Size (Natural Logarithm of Market Capitalization): Natural logarithm of market capitalization is the natural logarithm of the product of a security’s price times the number of shares outstanding. This measure is iQuantum’s “size” factor. Standard & Poor’s 500 (S&P 500): A widely used U.S. stock market benchmark. The S&P 500 is a value-weighted index of 500 large capitalization U.S. securities. Standard & Poor’s Depositary Receipts (SPDRs): SPDRs (Spiders) are designed to track the value of the Standard & Poor's 500 Composite Price Index. They trade on the American Stock Exchange under the symbol SPY. SPDRs are similar to closed-end funds but are formally known as a unit investment trust. One SPDR unit is valued at approximately one-tenth (1/10) of the value of the S&P 500. Dividends are disbursed quarterly, and are based on the accumulated stock dividends held in trust, less any expenses of the trust. 18 Stochastics: The Stochastics oscillator, a popular and dynamic indicator developed by Dr. George Lane, is based on the premise that during an upward trading market, prices tend to close near their high, and during a downward trading market, prices tend to close near their low. Stochastics measures at what point the price of a security is within the entire price range of the security over a given period. Stop-loss price: The designated price which initiates a sell order when a securities price falls to this level. Target price: The price that an investor hopes a stock will reach in a certain time period. Technical analysis: Security analysis that seeks to detect and interpret patterns in past security prices. Value ratio: Price-to-book ratio divided by return on equity. This serves as an estimate of the ROE- adjusted price-to-book ratio. Many of the definitions for the terms in this glossary were obtained from the Yahoo! Financial Glossary (biz.yahoo.com/f/g/) or from Silicon Investor (www.siliconinvestor.com/research/indicators/index.html). Formatted 19 Analyst Example Report The following report was written by Sachin Patel for Electronic Arts. All stock recommendation reports follow this exact format. The first page reports basic information about the company, the investment thesis (i.e., why the student recommends we purchase the stock), and a summary of the valuation indicators. The next two pages provide a company summary and an analysis of the company’s competition and strategy. The last five pages provide the valuation analysis including EBO (fundamental) valuation, relative valuation, technical analysis, earnings analysis, and institutional ownership analysis. The fund purchased 300 shares of Electronic Arts at $67.27 ($20,181.00 total investment) on October 24, 2002. 20