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APM Quarterly |
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| Portfolio Performance Report
APMs R.I.S.E. To The Occasion! On March 27th to 29th, seven students and Professor Shenoy traveled to Dayton, OH to participate in RISE VIII, the Redefining Investment Strategy The first day, all 2300 students were in the Dayton arena where they listened to an outstanding slate of keynote speakers. The speakers participated in panel discussions over topics such as the economy, markets, the Federal Reserve, and leadership. The highlight of they day was Chris Gardener who spoke on leadership. He told of how he overcame extreme poverty, including a year of homelessness. During this time he took care of his toddler son, worked full time, and had to find a place to sleep every night. Through hard work and dedication, he is now, the owner and CEO of Christopher Gardner International Holdings. A very dynamic speaker, he was motivating and inspiring. Another highlight of the day was participating in the NASDAQ closing bell ceremony. It was the first time this event had occurred on a college campus and it was very interesting to see how the process worked. Matt Brunner (F07) from our group was selected to be on stage for the ceremony. On the second day of the symposium Allie Atwood (F07), Brad Boeshaar (S07), Mark Robinson (F07), and Michael Weber (F07) presented the APM portfolio to a panel of investment professionals, which was followed by tough Q&A session. Their presentation covered the structure of the APM class and the portfolio performance. Matt Brunner was responsible for the performance calculations. APM placed 3rd in the Undergraduate division. The rest of the day, students participated in smaller break-out sessions. Those were interactive and full of investment management information. One highlight of the afternoon was the final reception for all conference participants. Each student group had on display a poster describing their class and portfolio. During the reception, students had the opportunity to look at other school’s methods and ask any questions. Rob Ralston (F07) designed the KU APM poster complete with basketball photos and performance information. The grand finale and dinner were held at the National Museum of the U.S. Air Force. It was closed to the public, and we were allowed to walk around and look at the museum. On display were hundreds of aircraft, including the two planes that dropped the bombs on Hiroshima and Nagasaki. Celebrity Professors and New APM Book 1. Whose idea was it to write the book? In the summer of 2005, Cathy presented a paper at a conference in Denver. Bill Falloon, an editor from Wiley Finance, heard the presentation. In the presentation, she mentioned something about the APM portfolio. Bill went back to New York and looked at our website. In the fall he called and asked if we would be interested in writing a book about APM. We immediately told him no, we weren’t interested in writing textbooks. He explained that it wouldn’t be a textbook. He was more interested in publishing a story of how the portfolio had been successful. Telling the APM story was more interesting to us, but we still weren’t sure what we’d write about. Finally after thinking about it for several months and coming up with an outline, we signed a contract in April 2006. 2. What are the one or two key takeaways you hope readers gain from the book? We wanted to emphasize that successful investing is hard work. There is so much information out there that you need to sort through and really understand. “Getting close to the information” to really understand what drives the business is the first idea. We discuss how you need to separate the hype and insignificant details from the real drivers of the business. The drivers might be an industry or a macro-economic trend or significant events in the company. Related to understanding and evaluating important information, is the idea of understanding what drives the “average” investor. If the average investor is a large mutual fund, then being a small investor, like the APM class is an advantage. We can look for mispricing in stocks that are unloved by the big mutual funds. Understanding the motivation of other market participants and how to use that to your advantage is a second key to successful investing. 3. Does the book deal more with stories about previous classes and students or the overall philosophy and performance of the APM class? The first section of the book provides a history of the class and contrasts the APM philosophy with other what we call Conventional Wisdom. We review overall performance in one chapter in this section. In the second section we discuss in detail how to write a case which is the basis for evaluating investment ideas in APM. The students work in groups and each week turn in a case. We have lots of examples of our holdings and excerpts from different cases over the years. In the last section we discuss some specific themes that have been important in class – investing in China, local investing, corporate governance, to name a few. For these we again use lots of class examples. In the last chapter we review the performance all of the groups’ final recommendations since the Fall 2003 class. To answer your question more directly, we have a mix of both. We use class examples to make a point about the APM philosophy. 4. The APM class presents a very hands-on, real world approach. Does the book offer the same "real-world" approach to investing, or does the book present more of an academic approach? In the book we try to be very “hands-on.” We show each step to building a case. We start with case preparation and discuss what to read , what to look for to prep for a case; and go through putting the final recommendation together. We have lots of tables and charts that illustrate the key ideas. We discuss some academic issues in the first part of the book, but the emphasis is on how an individual investor can actually use the APM approach. 5. What was the hardest part of writing this book? The hardest part of the book was getting started. The first few chapters took much longer than the rest. Getting the right words to express our philosophy wasn’t hard because we talk about the ideas in class all the time. Poker, onions, ants, ruler analysis – were all things we discuss. However, getting the right word with the right story took some time; especially getting started. 6. How long did it take to write the book? We started in May 2006 and finished in December 2007. 7. If you had to do it all over again, would you change anything in the book? We’re pretty happy with it. There are always sections that we’d like to rewrite, but we have to stop at some point. 8. Will there be a second book? Maybe. We keep thinking, “Oh, this would make a great story for the book,” or “Group 4’s case would make a great example to include.” We’ll have to take a year off from writing before we start the next one. Brad Shoup gives a "Quick" look at Stock Ownership
Mr. Shoup discussed his earlier recommendations and a current class holding, Quicksilver Resources Incorporated (NYSE: KWK). Quicksilver’s competitive advantage is its ability to control finding and development costs. The oil and natural gas industry is a commodity business. Since the selling price is determined by the market, the ability to control cost separates a good company from a poor one. Margins in the industry are defined by minimizing recovery costs in locating, drilling, and recovery methods. Quicksilver has been among the top in the industry in this regard. Shoup shared his opinion that Quicksilver should be able to increase natural gas wells in West Texas over the next five years, creating steady increases in revenues. Since Quicksilver was added to the APM portfolio on October 25, 2006 at a price of $35.49 and additional purchases in on October 26, 2007 at $54.83, the shares have split 2-for-1. As of February 20, 2008, the portfolio held 2800 shares of Quicksilver stock, and the price had risen to $35.01. The portfolio has made a $34,271 profit on this investment with an 80.4% annual return. UMB shows APM how to drill down on the mining industry On February 20th, Derek Smashey (F04) and Tim Burger (S05) from UMB's Scout Funds, came to speak to the APM class. Derek is the Assistant Portfolio Manager for UMB’s mid-cap fund, and Tim Burger is a Senior Analyst specializing in the Industrial Sector (See Tim's update). They spoke first about the day-to-da The primary discussion focused on the comparison and evaluation of two coal mining machinery companies, Joy Global (JOYG) and Bucyrus International (BUCY). The companies operate as a duopoly. There are high barriers to entry because of each company’s existing market penetration and the high switching costs associated with mining machinery. Derek and Tim thought that the companies will be able to maintain their current high margins. With a value of $1.4 million, APM returned -3.8% in Q1. The portfolio did however outperform the S&P 500, S&P 600 and NASDAQ. The first quarter's top performers were Capitol Federal (CFFN) at 22.6%, Quicksilver Resources Inc (KWK) at 22.6% and Kansas City Southern (KSU) at 16.8%. The weakest performers included Launch Tech (8196) at -53.8%, Garmin (GRMN) at -44.3%, Brooke Corp (BXXX) at -43.6% and Golden Meditech (8180) at -34%. Significant sales in the quarter include 200 shares of Companhia Vale (RIO), 400 shares of Valero Energy CP (VLO) and 700 shares of CDC Corp (CHINA). A stock of note is Golden Meditech, our largest holding (See related article). The stock reached a 52-week low at the end of the first quarter. Despite a slowdown in other Chinese equities, we believe Golden Meditech is well positioned in the Chinese medical device industry and think the stock will significantly outperform in the next 2-3 years. Also of note is Capitol Federal. Due to continued high credit standard policies, the Kansas thrift has not been threatened by the sub-prime lending mortgage crisis. The stock also continues to pay quarterly dividends resulting in a forward annual dividend yield of 5.0%. Class Remains Bullish on Golden Meditech Executive lecturer Kent McCarthy visited the class on March 12, 2008 to discuss APM’s largest holding, Golden Meditech. Golden Meditech is a holding company of hi-tech healthcare corporations in China. Growth highlights for the company include:
Golden Meditech has had success acquiring and developing healthcare businesses. Income is expected from the 40% stake in China Healthcare and 33.5% stake in Pypo. China Healthcare’s main product, TangHerb, an herbal AIDS remedy, has successfully gained China's SFDA approval and licensing. Brent Mason (APM F06) has accepted a position as a Mergers and Acquisitions Analyst at F.C. Stone in Kansas City. Grant Humphries (APM F06) has accepted a position with Citigroup as a Corporate Finance Analyst in the Banking and Credit business lines in Kansas City. Ryan Peschka (APM F07) and his wife Amber are the proud parents of a new baby girl. Lainey was born on April 10. David Iliff (APM F03) has accepted a position as an Analyst with Consensus Business Group in London. Fred Coulson (APM S97) recently announce the launch of Five Elms Capital and a new private equity fund focused on growth equity investments in business, financial, and healthcare services. Steve Simpson (APM S95) recently left Morgan Stanley & Co. to co-found a new asset management firm, Gurtin Fixed Income Management, LLC. The new firm is an SEC-registered investment adviser with offices in Chicago and San Diego specializing in managing discretionary fixed income portfolios for high net worth individuals, family offices, and investment consulting firms. Tim Burger (APM S05) recently joined Waddell & Reed as a Client Portfolio Strategist. Alums send us your news! Thanks to all our Recent Donors!
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Education Forum. The APM portfolio placed third in the undergraduate division. The students who attended were six assistant portfolio managers(APMs) and Sarah Byrne (Fall 07). 
The KU APM class welcomed Brad Shoup of Armstrong Equity Partners, as a guest speaker on February 13, 2008.
y rigors of working as a financial analyst, and gave the class advice on breaking into the industry as well as tips on how to succeed. Both cited the importance of following and understanding the news about each investment.
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Applied Portfolio Management Program University of Kansas School of Business |