Annie F. - Freshman Equities Trader

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BPOP is Going to POP
Posted by Annie F. - Freshman Equities Trader on Jul 8th, 2010 6:52pm

One of the names the firm has been involved with for a few months now is Popular, Inc (BPOP).  There is a long running joke that this $3 stock is going to be worth $10 by the end of the year. The fundemantal thesis behind this position is the rise in hispanic population in North America. Banks that are more equipped to provide services for the spanish speaking demographic are positioned to grow as they meet the needs of an increasing spanish speaking population in the US. BPOP is a foreign regional bank headquartered in Puerto Rico that provides commercial banking products and services in Puerto Rico, the United States, Venezuela, the Dominican Republic and Costa Rica. BPOP has a market cap of 1.76B, smaller than the industry Mkt cap of 9.7B but bigger than it's spanish comps BNS (50M),FBP (60M), SBP (590M). Today the stock closed at $2.75 up 8.7%; the stock is currently trading 153% off its 52 week lows, -40% off its 52 week highs.

Technicals aside, BPOP has potential for long term growth for the following reasons: the Hispanic population is projected to grow 40% in ten years, 80% in 20 years, and nearly 200% in 40 years. By 2050 the hispanic population will make up over 30% of the US population. With an evergrowing hispanic population, it makes sense for BPOP so continue franchising in the US.

As I learn more about the fundamentals of financials companies, I will continue to post on this name. For now, the thesis remains that there is a need for a strong spanish bank presence in the US.

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The Rip is Here
Posted by Annie F. - Freshman Equities Trader on Jul 7th, 2010 6:27pm

The rip in the market has finally arrived. Alas, we can comfortably sit in our seats and watch the green flash before us. It was a wild ride in this 3 month-long pullback from April highs. Our bullish thesis on the desk was tested and hammered on a number of occasions but as we continue to say the firm is in it for the LONG run. Despite taking down the book quite a bit over the last week, I believe we are in a good position to have a fresh start. The book has been nicely reorganized so that each of the traders is following a specific sector rather than an amalgam of stocks. My focus is on the financials and I intend to provide as much color as possible. Today financial sector performed exceptionally well; our basket of financials outperformed the market by appoximately 1%--JPM and GNW were our biggest winners.

The rip is finally here and that means that my one of two criteria for my investment strategy has been met. The S&P returns was 3.13% and I needed at least a 2% return from the lows.  About two weeks ago I finished a write up on the "Shock and Awe Investment Strategy" which is based on a quantitative market timing thesis. This thesis, which was formulated by our chief market strategist, suggests that when the S&P closes at least 2% above its lows of the day and on the subsequent day the S&P gaps up at least 45 basis points, the market will move right on up. I gathered data on this over the last 10 years and then applied an investment strategy. Since January 2001, this two criteria were met 23 times and of these instances the market moved considerably higher 21 times. I anxiously await tomorrow's open so that we can finally give this strategy a shot.

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Don't Get Emotional
Posted by Annie F. - Freshman Equities Trader on Jul 6th, 2010 7:41pm

Flipping through the channels as I was winding down after a long weekend yesterday, I came across the movie Wall Street on CNBC. The last time I saw the film must've been when I was 15 . With any movie you re-watch as an adult, it all make so much more sense. There is very little double that I understood half the movie the first time. Watching it again yesterday think about some of the things I've learned on the desk here. The token of wisdom I took away from the movie was to never get emotional about stocks--Gekko preaches this to Bud. This is the most stressed piece of advice for any trader in the stock market. When I first started working here, this mantra quickly became ingrained in my mind.

Today we watched the market tease us with the possibility of a reversal day as the market ripped early morning to only soon take away all the gains by mid afternoon. I witnessed the intensity of the elation in the room during the rally and then the slowly fade throughout the day. As traders we try to be emotionless during the trading day but the more we get in tune with the market, the more it seems we delve into our emotions. Today we were given EOD execution orders to add $25,000 in value to the top 20 positions in the firm's book. One of the prinicples decided to add a little competition in today's trading and announced that who ever beat their VWAP benchmark would earn a prize. Unfortunately we didn't see the outcome of this competition because we changed our trading strategy (don't worry I'll get 'em next time). So it made me wonder if adding this competition infused another element of emotion into our trading. I sure felt some competitive emotion kick in when I heard those words. In fact, I believe I felt less emotional in losing money, but  more concentrated and stoic. I wonder if  infusing competition reduces uneccesary emotions. Only experimenting will tell.

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Terrible Economics
Posted by Annie F. - Freshman Equities Trader on Jun 30th, 2010 6:14pm

As we grapple with the market's penchant for making lower lows, we continue to sit at the edge of our seats in this frenzy of negative economic news. Economic data in the last two weeks  has been nothing but terrible (except for today's in line Chicago PMI number). The market certainly shows it all as the two week return in the S&P is 6.6% in the last ten trading days. Aside from excellent Q1 2010 earnings, there really hasn't been oustanding positive economic news in the last few months. Is this what the bears are trying to convey to everyone? After taking a look at the graph below, I can't help but think the bear has got the upper hand in this battle. The phrase "Double dip recession" can be found in almost every financial blog or new article. Since April, the S&P is down 15% and the Shanghai composite, being down 25% since April, is pulling down the US market with it.

Today's month end windowdressing day was a distaster to say the least. For a day when PM's should be adding money into a cheap market, the S&P closing down 1% is quite depressing. After last week's poor housing numbers, yesterday's dismal consumer confidence missing by nearly 20%, today's woeful ADP unemployment number, the only positive news this market has had to chew recently is a slightly improved personal spending number and an inline manufacturing number. Tomorrow's wave of economic data should shed some light on what will pan out for the beginning of a new month. The line up is unemployment claims followed by, ISM manufacturing, pending home sales, construction spending and natural gas storage. Hopefully July's sunshine weather will be a barometer for the market.

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Return on Education (ROE)
Posted by Annie F. - Freshman Equities Trader on Jun 29th, 2010 7:20pm

In regard to my previous post on Return on the World Cup. The S&P did in fact close down .22% yesterday for the US losing team. The Russell 2000, which is the US small cap benchmark index of the bottom 2000 stocks in the Russell 3000, was down .55%. The large cap stocks measured in the Russell 3000 closed down .26%, confirming that the ROW thesis stands correct. Americans with primary holdings in small caps stocks must have been shattered by their loss to Ghana.

While I'm on the topic of returns, I thought I'd share an interesting case for returns on college education. I've talked about a project I did in a Labor Econmics class at school where I figured out my returns on my investment at Lehigh University. Well, I stumbled upon the actual statistics on returns at specific universities published by Payscale. This has been a hot topic on the desk as we discussed yesterday the value of a our education in the REAL WORLD. The prevailing question was whether or not we apply our concentrations of study to our job. For the most part, skills are learned on the job not in a classroom. Some of the principals argued that students these days are too tech-heavy or skill-oriented and there's not enough of a humanities in our course load. I think there should be an equal weight on humanities and the sciences in a college education. There is no other time in our lives, at an impressionable age at least, when we can explore the teachings of Fukuyama, study about Greek mythology or debate the Israeli-Palistinian conflict. Without taking an array of electives as an undergraduate, students limit themselves and become narrow minded in that one-path mentality. Now more than ever there is more of linear approach to the college education where students are directed to think, "If I do x then I will do Y and then I will land the Z job". Rather, the most important education we can get from college is learning to think critically, which comes from exposure to many schools of thought. With a solid foundation of knowledge, our career becomes a journey not a linear path.

The return on our education is becoming a heated subject as the costs of higher ed are skyrocketing. More and more families are taking out loans to send their kids to good schools and then the burden is left on the graduates to pay off these exhorbitant loans. All of this contributes to the credit bubble that we currently find ourselve trying to lift ourselves out of. So, is attending the university of your dreams worth it when the returns from one school are marginally similar to the returns from another school?  According to Payscale,  the highest returns on education are also from the most competitive and highest ranked schools? Will this trend last forever? Check out where your school ranks.

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Returns on World Cup (ROW)
Posted by Annie F. - Freshman Equities Trader on Jun 28th, 2010 3:52pm

Despite the ban of the World Cup on the tv's at work, I still have it on my mind. I came across a blog (yes, on my google reader), directing me to a pdf file of a paper titled "Sports Sentiment and Stock Returns" by three business school professors (two of which hail from Sloan and Tuck for those elites). The paper investigates the stock market reaction to sudden changes in investor mood and uses international soccer results as its mood variable. Predictably so, the study found significant market declines after soccer losses. The data includes games from the World Cup and the main continental cups from Jan 1973 through December 2004; there were a total of 1,162 games in the study. To measure the effect of international sports results on stock prices, they used the return on a broad stock market index on the first trading day following the game.

While the results seem to be believable in theory, I question whether the data and results in this study actually bring empirical truth. Across 39 countries, the experimenters found that the losses in soccer matches have an economically and statistically negative effect on the losing country's stock market. The study delves deeper and calculates that  the elimination from a major international soccer tournament is associated with a next-day return on the national stock market index that is 38 basis points lower than average. They also note that the mood effect is stronger on smaller stocks, which are known to be disproportionately held by local investors.

I've always been intrigued by behavioral economics and linkages made between world events and stock returns. It's a vast subject and the only book I've read about it is Freakonomics, which probably doesn't pass as a must read for learning good market pyschology (although it as pretty inteersting if you're a factoid nerd).  The mood variable of the World Cup was chosen because it satisfies three key characteristics to rationalize its link with stock returns: the variable must drive mood in a substantial and unambiguous way, must impact the mood of a large proportion of the population and lastly the effect must be correlated across the majority of individuals within a country. As the world's most widely viewed sport garnering 2.2 billion viewers over the course of the tournament, soccer clearly plays an important role in people's lives.  So after the US's upsetting loss to Ghana (1-2) on Saturday, will the US stock market be down today?  More specifically, how will the smaller stocks perform? Reading this paper might have been a big waste of time, however, I'm content with the fact that I filled my brain with rather worthless statistics that might be handy in a conversation with the lumberjack.

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Setting Intention
Posted by Annie F. - Freshman Equities Trader on Jun 25th, 2010 6:27pm

Like every Friday, I took away few good nuggets of advice from the lumberjack hour. This week was a long, busy week and I let me frustrations get the better of myself as a trader. I let myself become distracted by the World Cup and by other assignments like building earnings models when I should've been focused on my number one job at the desk. My foremost job at the desk is to know the portfolio inside and out. I haven't given it my fullest attention and the only one to blame is myself. Though it was exciting to be executing on a portfolio with stocks from varying industries and sectors, the firm is finally consolidating the portfolios and assigning each of the freshman their own industry sector to watch and trade. I was assigned the financials. I'm not sure if this is a good or bad assignment. However, I do know I will learn a ton. I'm weary because financials are more complicated stocks as their fundmentals are more difficult to understand and exogenous market events often have a greater impact on them.

So from the Lumberjack, I learned that I must be more aggressive. I just finished writing up a trading strategy that could potentially make the firm a lot of money but instead of letting our CEO become aware of this, I tucked it on his desk. Instead, I must formally present it to him. The only way to success in this business to be aggressive even if it means flaunting your work. Second, I must take a different approach to my newly assigned list of stocks. I must consult with our head PM, speak with analysts who cover my sector, learn the fundamentals and all the levels. Lastly, I must not be fearful to lose on trades. I had a winning week last week and the lumberjack detected that my failure to make more than four trades this week was a result of fear. I think it's part fear and part frustration. The frustration comes from not know my stocks as well as I could--memorizing the levels and important news items on EVERY single name. I have a lot to work on for next week and I look forward to getting to know the financials like the back of my hand.

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The Insecure Homebuilders
Posted by Annie F. - Freshman Equities Trader on Jun 23rd, 2010 8:28pm

As I regularly watch the Hombuilder sector, which make up about one sixth of the portfolio I execute, I thought it was apt to give a review of the housing market. Over the last month the homebuilders have lost nearly 25% in value; the homebuilder ETF XHB went from trading near 19. Housing numbers revealed yesterday and today were terrible; existing home sales in May were down 2.2% compared with April even though April sales were revised to show an 8% monthly gain. Although May's numbers weakended they're still 19% above the level in May 2009, as you can see in the graph below the house sector has recovered the plunge quite nicely. Investors, however are questioning "is it too fast?" There's a lot of chatter that the underperformance of the hombuilders this past month is due to the expiration of the First-Time  Hombuyers Tax credit, which essentially qualified anyone signing a contract $8,000 of free money. Now that this incentive is over, demand and prices are falling.

On an even more negative note, today's release of the New Home Sales number was terrible, missing by nearly 125K and decreasing from 446K to 300K. Immediately after the news, the homebuiders started to sell off after being up slightly at the open. As an executioner, I was given order to put a TWAP to sell half our position in HOV then minutes later the collective decided to keep their bullish stance on the hombuilders in our portfolio and so I took off the twap. As it turns out, the homebuilders were the JEREMYF book's biggest winners, up about 5% on the day. This was a great team call, displaying the conviction to keep a bullish position on these names. Dean noticed that TOL has been holding up nicely relative to the others  in the space and after looking at a long term chart he gave the order to buy about 500 shares. Despite the poor sentiment in this sector, we believe this too shall pass the test of the bears.

World Cup Trivia: Which World Cup team has historically allowed a high rate of goals (32%) scored in the first ten minutes of games in this and the previous three World Cups?

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Hedge Fund Defined
Posted by Annie F. - Freshman Equities Trader on Jun 21st, 2010 5:50pm

One of the most important parts of an interview is knowing what the company you're interviewing for does. If you can't answer that question then you're doomed for regretting not being prepared enough for the interview. Given these words of advice from the desk, it is appropo that I respond to the question of what I think or have learned a hedge fund is.

 My experience of working at a hedge fund has been similar to learning a new language. When I first started I understood the basics and I could recognize the key phrases. When most people hear or read about hedge funds in the news they are often reminded of the ivy league or elite getting rich or participating in some form of philanthropy to gain recognition. There is often confusion on differentiating between what a hedge fund does and what other financial firms do. In my few months so far as a trader at a hedge fund I have learned a tremendous amount on what a hedge fund is and what it is not.  Essentially, a hedge fund is an investment vehicle that pools together money to collectively invest in financial assets be it stocks, bonds, commodities, currencies or derivatives. The ultimate goal of a hedge fund is to generate high returns for its investors, in absolute terms.

 One of the key differentiating concepts of a hedge fund is that can invest in a number of strategies.  In addition, they are prominently known by their structure, which is typically a limited partnership. In this partnership, the manager acts as the general partner and investors act as the limited partners with performance related fees, high minimum investment requirements and restrictions on types of investor, entry and exit periods. The name “Hedge Fund” is originally derived from the concept of hedging, or protecting against the downside risk of a bear market. While this form of protection can help the hedge fund perform well in a down market, it can often limit the upside. Despite this title of hedge fund, some funds may be long-only stocks or “un-hedged”.

 Hedge Funds design hedging strategies to limit many types of perceivable risk such as fluctuations in the market, interest rate, inflation, sector, region, currency, etc. It is important to understand the differences between various hedge fund strategies because all hedge funds are not the same as the ROI, volatility, and risk vary among each fund. Some of the strategies utilized are holding cash, short selling, buying or selling options and futures. On top of being able to choose a fund based on managerial reputation, one of the reasons investors will choose to allocate their money in a hedge fund is because of the increased reward to risk. The higher the reward to risk implies that the investment in a hedge fund is highly illiquid. Many hedge funds require a minimum investment similar to the cost of an average American home with the common starting range being between $250,000-$500,000. High net worth or institutional investors are willing to invest such a large sum because they are willing to take the risk for huge returns. 

The last defining characteristic of a hedge fund is its unregulated nature. Hedge funds are operated by private limited partnerships and are not registered with the SEC. Mutual funds, which are also investment vehicles that pool together investor money, are on the opposite spectrum and they must register with the SEC. Hedge funds are not required to abide by liquidity requirements, disclosure regulations, and limits on the use of leverage. Because hedge funds have a different SEC registration than most companies in the investments industry, there is more room for growth, risk and public scrutiny.

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Posted by Annie F. - Freshman Equities Trader on Jun 18th, 2010 5:14pm

About a month ago I set up a google reader, which is a platform linked to your gmail account that filters RSS feeds to what is essentially a blog inbox. As of now, I'm following 50 blogs organized by topics such as economics,cooking, investing, most popular blogs, fitness, yoga and travel (all of the aforementioned covers pretty much all of my interests).  I end up getting between 200-300 blogs per day delivered to my reader. While I only read about one tenth of them, I am able to filter out the ones that interest me. As an avid blogger I have thoroughly enjoyed exploring the blogging world, reading about new ideas and sharing my thoughts on what I read and relating them to the market and what we do at the firm. One blog I subscribe to written by a best-selling author and entrepreneur Seth Godin published an intuitive  blog on what makes companies and people stand out as a succesful business or role model. Apparently, these days it's no longer about how fancy the business proposal is or the way a conference was presented, but it's about transparency and guts, which is what this firm is all about. As our CEO Jeremy wrote about in his most recent post this fundwas founded on these two principles and I keep finding these ideas in the blogosphere.

World Cup Trivia Round II: What is the  salary of a FIFA World Cup referee?

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