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Seminars

Traditional Securities Research in a Stochastic Framework

Date: 02-27-2006
Start Time: 6:00pm
End Time: 7:30pm
Speaker: Kenneth Posner, Morgan Stanley
Location: 412 Schapiro CEPSR, Davis Auditorium

ABSTRACT

This talk will provide a conceptual framework for estimating the intrinsic value of a variety of securities based on traditional, i.e. fundamental research and an appreciation for randomness and uncertainty. The objective of a security analyst is to develop high-conviction opinions about mistakes or mispricings in the market, and the set of tools we will be covering should help analysts identify those opportunities where investors are misjudging probabilities. We start by discussing earnings models (financial statement projections), which most securities analysts build and use, then progress to common equity valuation models, such as residual income. The earnings/residual income model framework, if calibrated and updated in a disciplined manner, should allow the analyst to evaluate the proprietary insights that result from traditional, fundamental research, including surveys, industry data, and management interviews. Next we confront uncertainty. We look at intrinsic value as the end-point of a generic probability tree, which includes branches for a macro-thought of as probability distributions rather than point estimates. We consider complex probability trees as a tactic for handling special situations and show how fundamental research is critical to scenario and Monte Carlo analysis, which in turn allows us to estimate the intrinsic volatility of a company or stock. This insight then provides the link to valuing derivative and fixed-income securities. The talk will include case studies to illustrate modeling tools and conceptual principles.

BIO

Kenneth A. Posner, CFA Specialty and Mortgage Finance. Kenneth Posner is a managing director and head of the mortgage finance equity research team. Prior to joining the Equity Research department in 1995, Ken worked in Morgan Stanley's investment banking group, where he focused on commercial real estate transactions. He previously served as a captain of infantry in the US Army, and was airborne and ranger qualified. Ken earned a B.A. from Yale University in 1985 and a M.B.A. with honors from the University of Chicago Graduate School of Business in 1991. He is a Certified Public Accountant and holds the Chartered Financial Analyst designation.