Security Analysis and Portfolio Management

(Agustin Gonzalez, 2000)

The project that is presented in this document is the development, analysis, and formulation of a mutual fund. This particular project focused on the development of two funds, Growth and Venture Funds, both with an emphasis in the technology sector. The Growth Fund will be invested primarily in large-cap companies while the Venture Fund seeks mid to small-cap emerging companies. There are three phases to this project each which involves a great deal of analysis and critical decision-making. The three phases of the project are as follows:

1. Sector / Industry Outlook - In this phase, I narrowed the focus of my two mutual funds to the technology sector. Within this sector I have also placed a great deal of emphasis on industry distinction. For example, I focused a great deal of my efforts on semiconductors which have done very well in outperforming the broader market the past year and is expected to continue to do so for the next two to three years. As a result, I ensured that careful analysis was done in this particular industry. There were over ten industries that were selected for study and are as follows: telecommunication equipment/services, semiconductors, circuits, telephone, wireless communication, internet portal/retailers, internet services, internet software, computer services, computer software, and applications software.
2. Security Analysis - After dividing up the companies into industries, I tasked my myself with the selection of securities for the two portfolios. In achieving this feat, I built business models for all the companies that I placed into consideration. When it was all done, my research which extended to over 350 companies with about half of those actually being chosen for a second look. In the ``second look" companies were evaluated based on revenue, net income, cash flow, and management effectiveness. Finally, each company was expected to closely satisfy three of the following four factors:
   1. Robust Earning (>20% year to year)
   2. Strong Market Share
   3. Proprietary Advantage
   4. High Profit Margins
3. After this was done, companies were categorized by their size and placed into one of the funds based on market capitalization.