Using PERT -...

Using PERTGretchen Hurt

BIVA Board Online ClassesOctober 11, 2012

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Using PERT

Gretchen Hurt

Chair, BIVA Board

Director, Heartland Chapter

Oct 11, 2012



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BIVA Board Online Classes

Disclaimer

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• The information in this presentation is for educational purposes only and is notintended to be a recommendation to purchase or sell any of the stocks, mutual funds,or other securities that may be referenced. The securities of companies referencedor featured in the seminar materials are for illustrative purposes only and are not tobe considered endorsed or recommended for purchase or sale by BetterInvestingTM

National Association of Investors Corporation (“BI”). The views expressed are thoseof the instructors, commentators, guests and participants, as the case may be, anddo not necessarily represent those of BetterInvestingTM. Investors should conducttheir own review and analysis of any company of interest before making aninvestment decision.

• Securities discussed may be held by the instructors in their own personal portfolios orin those of their clients. BI presenters and volunteers are held to a strict code ofconduct that precludes benefiting financially from educational presentations or publicactivities via any BetterInvesting programs, events and/or educational sessions inwhich they participate. Any violation is strictly prohibited and should be reported tothe CEO of BetterInvesting or the Director of Chapter Relations.

• This presentation may contain images of websites and products or services notendorsed by BetterInvesting. The presenter is not endorsing or promoting the use ofthese websites, products or services.

• This session is being recorded for future use.



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Portfolio Evaluation Review Technique

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WHAT WE WILL COVER

• What we mean by Portfolio Review?

• Why do a Portfolio review?

• The three sections of the PERT.

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DO PORTFOLIO MANAGEMENT TO…

•Balance risk andreward

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DO PORTFOLIO MANAGEMENTTO….

•Sell the stocksthat do notmeasure up toyour expectations

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DO PORTFOLIO MANAGEMENT TO…

• Invest moremoney in thosecompanies thathave thegreatestpotential reward

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PORTFOLIO MANAGEMENT

• Portfolio Management is not thesame as Portfolio Tracking

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Did theprice go

up?



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WHY USE THE PERT

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All necessary information is on one page

Uses current data

Uses your judgment

Highlights potential problems

Automatically completed



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THREE PARTS OF THE PERT

RiskAnd

Reward

Sell theLosers

Buy More ofthe Potential

Winners

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PERT WORKS ONLY IF……

• Price is current

• Projections are recent

No RedToday’sPrice

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RISK AND REWARD

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RISK AND REWARD

•Consider

• Your tolerance forrisk

• Large “blue chip”-high yield, low risk

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RISK AND REWARD

• If your goal is15% growth forportfolio• Must havemostly growthstocks

• No or low yield

• More risk

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RISK AND REWARD

•Greater risk- morepotential reward

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SELL THE LOSERS

Factual Performance“Just the Facts”

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FACTUAL TREND PERFORMANCE

•Conclusions are based on yourprojections

Compares Pre-TaxProfit to Sales

Year agoquarter

% Change

Most recentquarter

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EPS AND SALES

•PERT is aquick easyway to checkfundamentalsevery quarter

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EPS AND SALES

• Colored pink if % change does notmeet your projections

Projected Growth Rates

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COMPUTER DOES NOT ANALYZESTOCKS

• Any fundamental that doesn’tmeet your projections is coloredpink

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PRE-TAX PROFIT

• Uses the EPSprojections todetermine if pre-tax profit ismeeting yourgoals.

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PRE-TAX PROFIT MARGIN

•Secondcolumn is pre-tax profit as a% of sales forthe quarter.

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TRAILING 12 MONTHS EPS

• Last fourquarters of realearnings

• If this is coloredpink, it is a signof serious trouble

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TOOLKIT DOES NOT ANALYZE STOCKS

• If you are too optimistic withyour projections, thecomputer will not correct you

•See a lot of pink?

Consider your projections

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PERT

•Helps you quickly spot thestocks not meeting yourexpectations

•Does not tell you what to doabout them

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PORTFOLIO MANAGEMENT

•Portfolio Management is abouttaking

BuyHoldSell

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SELL THE LOSERS

• It’s all about fundamentals

•Price is not a consideration

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REVIEW

•Look atfundamentals

• Identify possiblelosers

•Sell the losers

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BUY MORE OF THE PROJECTEDWINNERS

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NEXT YEAR’S PROJECTEDPERFORMANCE

• What are welooking for?

• Stocks to buy

• Overpricedstocks

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NEXT YEAR’S PROJECTEDPERFORMANCE

• If this section is to be meaningful,you must have three things:

• Current price

• Best possible estimated earnings fornext year

• Reasonable 5 year P/E ratios

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CURRENT PRICE

•Need thecurrent priceto calculatethe potentialvalue.

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ESTIMATED EARNINGS PER SHARE

• Estimated EPS columnvery important

• PERT uses a forwardlooking EPS

• SSG uses trailing EPS

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ESTIMATED EARNINGS PER SHARE

•Default is yourestimated earnings• Is conservative

• Is crossed out

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DEFAULT ESTIMATED EPS FOR 3M

$5.63 times a 6% growth rate equals$5.97This is your projection

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YOUR ESTIMATED EPS

•Not the best number to use• Too conservative

• For 5 years

• May not reflect recent events

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ESTIMATED EPS

•Use the analysts’projections for thenext four quarters• Based on companyguidance

• Wall Street does notlike surprises

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ANALYSTS’ PROJECTIONS

•Find the projections on theinternet

•Many sources

• finance.yahoo.com

• Moneycentral.msm.com

• Zacks.com

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COMPAREPROJECTIONS

• If your projectionsare higher than theanalysts, reviewyour SSG

•Review recentnews

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ESTIMATED EPS

• Used in several calculations

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Projected P/EProjected

Relative Value

PEG RatioUpside/Downside

Ratio

% Total Return



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REASONABLE 5 YR. P/E RATIOS

• These are the high and low P/Es used inSection 4 of the SSG

17.4 11.5

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REASONABLE 5 YR. P/ERATIOS

How do you knowyour projected P/Esare reasonable?

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PROJECTED P/E

•Projected P/E istoday’s price dividedby estimatedearnings.

•$90.25 divided $6.21• Uses the analysts’projection

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PROJECTED P/E IS NOT

• The one on your SSG

• It is based on

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REASONABLE P/E

•Projected P/Eshould fall withinyour range

•If it doesn’t,reconsider yourrange

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DECIDING WHERE TO INVEST

• Now we can decide where toinvest to get the greatestreturn

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% TOTAL RETURN

•Bottom Line

• Price appreciation

• Dividends

•Sort your portfolio onthis column

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% TOTAL RETURN

•Look for companieswith less than 10%

• Color coded yellow

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WHERE TO INVEST

• Look for good companies(fundamentals)

• Look for companies with ahigh rate of return

• Look for reasonable price

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BUY LOW – SELL HIGH

• Before you select thecompany, check

• Reward/Risk column(Upside/Downside Ratio)

• P/E as % of Growth Rate(PEG ratio)

•You don’t want to paytoo much

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REWARD/RISK

• When youchange theestimated EPSthe computerrecalculates thehigh price andthe Reward/Risk

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ESTIMATED LOW & HIGH PRICE

• High price is nextyears projectedearnings calculatedout four more yearstimes yourprojected averagehigh P/E

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NEW UPSIDE/DOWNSIDE RATIO

•A new high price will changethe Upside/Downside Ratio

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RISK/REWARD RATIO

•We like ourUpside/DownsideRatio to be 3:1 orhigher

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P/E AS % OF GROWTHRATE

•Called the PEGRatio

•Compares theprojected P/E toyour projectedgrowth rate

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PEG RATIO

•PEG is a way to measuretoday’s price againstprojected future growth

•A PEG of 100 is consideredgood

• The higher the PEG the moreoverpriced the stock

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PEG RATIO

•“If the isover 150, peopleare not onlybuying thefuture but thehereafter.”

Ralph Seger

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PROJECTED RELATIVE VALUE

• Compares theProjected P/Eto theaverage P/Ein Section 3.

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PROJECTED RELATIVE VALUE

•Relative Value number ismeaningful for 3M

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RELATIVE VALUE

• Relative Value number is not meaningful forGoogle

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PROJECTED RELATIVEVALUE

• Ignore this column unlessyou can make the averageP/E in Section 3 match youraverage P/E in Section 4

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REVIEW

•PERT helps you• Quickly evaluate risk andreward

• Find and sell the losers

• Find the stocks with thegreatest potential rewardand buy more

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QUESTIONS OR COMMENTS?

• For a copy of the slides with instructornotes contact [email protected]

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