Alpha, Beta & Other Key Concepts (Series: Personal Finance & Investing Fundamentals 2.0)

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Practical and entertaining education for
attorneys, accountants, business owners
and executives, and investors.
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DISCLAIMER
The material in this webinar is for informational purposes only. It should not be
considered legal, financial or other professional advice. You should consult with an
attorney or other appropriate professional to determine what may be best for your
individual needs. While Financial Poise™ takes reasonable steps to ensure the information
it publishes is accurate, Financial Poise™ makes no guaranty in this regard.
About this PowerPoint: if you are looking at this PowerPoint without the benefit of
listening to the conversation that surrounded it then you are doing yourself a disservice.
This PowerPoint was prepared in contemplation of being viewed in conjunction with
listening to a one hour webinar on the topic
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MEET THE FACULTY
Moderator:
Jonathan Friedland – Sugar Felsenthal Grais & Helsinger LLP
Panelists:
Tom Cohn – Cerity Partners
Ron Diamond – Diamond Wealth Strategies
Sang Lee – DarcMatter
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ABOUT THIS WEBINAR:
Alpha, Beta & Other Key Concepts
You buy some stocks, the market goes up (or down) and your stocks do too. How much of the move
of your stocks is due to your savvy as a stock picker (this is alpha) and how much is due to the rise in
the market generally (this is beta)? And if you used the advice of an advisor, how much in fees did
you pay? These and other basic questions about stock market investing and related topics are the
subjects for this webinar.
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ABOUT THIS SERIES: Personal
Finance & Investing Fundamentals 2.0
This webinar series is intended for the investor who has a beginning to intermediate level of
investing experience and knowledge. It assumes you know the difference between stocks and bonds,
and the difference between investing in publicly traded stock and investing in a mutual fund that, in
turn, invests in publicly traded stocks. It assumes further that there are good many things you do
not know but which you are quite capable of picking up quickly. The series begins with
fundamentals, such as the concepts of alpha and beta and how to approach reading financial
statements and financial journalism. The series then turns to look closely at certain alternative
investment objects of fascination: investment in VC/PE/HF (private equity, venture capital, and
hedge funds) and investment in "hard" assets like real estate.
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EPISODES IN THIS SERIES
4/24/19 Episode #1:
5/22/19 Episode #2:
How to Read Financial Statements and Financial Journalism
6/19/19 Episode #3:
All About Asset Allocation
7/17/19 Episode #4:
More About Stocks
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Dates shown are premiere dates.
All webinars will be available
On Demand approximately 4 weeks
after they premiere.

Episode #1:
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WHAT IS A SHARE OF STOCK?
• A stock is a share in the ownership of a particular company
o only a claim on company’s earnings
o company owns the assets
• A company issues stock to raise capital and grow business
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BENEFITS OF BEING A STOCKHOLDER
• Dividends – if and when company decides to issue dividends, stockholders are entitled to
dividends based on pro rata share of stock owned in company
• Liquidity – the ability to buy and sell similar shares of stock (generally)
• Voting rights –right to vote at shareholder meetings (generally)
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TWO MOST COMMON TYPES OF STOCK
• Common –majority of stock issued
o Variable Dividends –claim on profits, if and when issued by company
o Voting Rights
• Preferred - more like debt–
o Fixed Dividends
o Priority on liquidation
o Callable (sometimes)
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DIVIDENDS VS. APPRECIATION IN
SHARE PRICE
• A dividend is a distribution from a company’s earnings, if the company chooses to issue a
dividend
o Dividends have accounted for almost 1/3 of all market returns over the last century
o Dividend reinvestment
o A history of issuing dividends can prevent stock volatility
• Appreciation in share price –
o Some of the most profitable companies either wait a significant amount of time before
they issue dividends, or elect not to issue dividends at all
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BONDS
• What is a bond?
o A loan made by an investor to a borrower
o A fixed income instrument that is usually
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TYPES OF BONDS
• Corporate Bonds v. Government Bonds
• Zero-Coupon Bonds v. Regular Bonds
• Regular Bonds v. Junk Bonds
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BONDS RATINGS
• A bond is rated based on its credit quality
o Rating takes into consideration issuer’s financial strength
o “Investment-grade” ranging from AAA to BBB-, to Below-investment grade ranging
from BB+ to D
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BENEFITS OF BONDS
• Generate fixed and consistent income through interest payments
• Investors can gain reassurance in the safety of their original investment with interest
payments
• Easier to manage volatility with bonds based on the financial strength to make interest
payments and repay the principal
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STOCKS VS. BONDS
• Stocks and bonds usually run inverse to each other – when an economic event decreases stock prices,
the same event tends to boost bond prices
• Stocks –
o Shares in ownership of a company
o Return is a dividend and there is no return guarantee
o Could contain voting rights
• Bonds –
o Debt
o Return is interest and there is a return guarantee
o Priority payment upon maturity
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EFFICIENT MARKET HYPOTHESIS
• States that at any given time in a liquid market, prices reflect all available information
• Degrees of the “Efficient Market Hypothesis” –
o Weak – assumes stock prices fully reflect all current available market information
o Semi-strong – assumes that stock prices adjust quickly to all new public information
o Strong – assumes that stock prices reflect all public and private information
• Assumes a perfect market & excess returns impossible
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EFFICIENT MARKET HYPOTHESIS
(cont’d)
• “Random Walk Theory” is consistent with “Efficient Market Hypothesis” –
o States that change in stock prices are independent of one another and the past stock
prices cannot be used to predict its future prices
o In other words, information is unpredictable and stock prices move accordingly
o The underlying premise is that it is impossible to outperform the market without
assuming additional risk
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FUNDAMENTAL ANALYSIS VS.
TECHNICAL ANALYSIS
• Fundamental analysis –
o Study of the overall economy, industry, and business of a company
o Evaluates stock based on intrinsic value and factors that may affect price in the
future
o Used more by investors
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FUNDAMENTAL ANALYSIS VS.
TECHNICAL ANALYSIS (cont’d)
• Technical Analysis –
o Study of past stock prices in attempt to predict future prices
o Based on past patterns to predict future patterns to determine the right to time to
enter or exit a particular stock or the market generally
o Used more by traders
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ALPHA & BETA
• Alpha and Beta are standard measurements for investment risk
• Alpha measures an asset’s return compared to the risk adjusted expected return
o Measures excess return and attempts to inform an investor if she is being
compensated for the risk taken in the investment
o An alpha of 0 means the investor earned an adequate return for the risk assumed
o An alpha over 0 means the investor is more than compensated for the risk taken
o An alpha of less than 0 means the investor is less than compensated for the risk
taken
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ALPHA & BETA (cont’d)
• Beta measures systematic risk and how an asset performs versus the overall market
o A beta of 1.0 is a positive correlation in which the asset moves in the same direction
and incremental increase to the market
o Conversely, a beta of -1.0 is a negative correlation; the asset moves in the opposite
direction of the market, but in equal increments
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CAPM
• Calculates appropriate rate or return an asset would need to create to make it worth
adding to an investment portfolio
• Generally, the expected return of a security = the risk-free rate, + a risk premium
• According to the CAPM theory, if security does not meet or exceed the required return,
the investment should not be entered into
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CAPM (cont’d)
• CAPM formula –
o Expected return = Risk-free rate + (Market return – Risk-free rate)*Beta
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P/E RATIO
• Price/earnings ratio is one of the simplest and most popular ways to value a stock
• Allows someone to see how much they are paying for one share of stock ,for each dollar
of earnings that come from owning that share of stock
• Calculated by taking the current stock price (P) divided by the earnings per share (E)
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P/E RATIO (cont’d)
• Formulas –
o Trailing P/E: stock price divided by earnings per share over the last 12 months
o Current P/E: stock price divided by earnings per share for the current year
o Forward P/E: stock price divided by earnings estimated for next year
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ALTERNATIVE TO P/E RATIO FOR
VALUING A STOCK
• The P/E Ratio has 2 flaws –
▪ Does not take into account a company’s debt
▪ Earnings per share may not reflect actual amount of cash company generated
• Alternatives to the P/E Ratio
▪ Enterprise Value = Market Capitalization + Debt – Cash
▪ EBITDA measures earnings before interest, tax, depreciation, and amortization
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MUTUAL FUNDS
• A mutual fund is a company that pools money from investors and invests that money in
securities
• An investor buys shares in mutual funds and each share gives the investor part
ownership in the fund and its subsequent income
• Features –
o Fund managers do all the work for the investor
o Mutual funds diversify the investments
o Generally, mutual funds have a low dollar amount for initial investment
o Investors can redeem their shares at any time
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TYPES OF MUTUAL FUNDS
• Money market funds
o Can only invest in high-quality short-term investments
• Bond funds
o Higher risk than money markets because they aim for higher returns among various
types of bonds
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TYPES OF MUTUAL FUNDS (cont’d)
• Stock funds
o Invest in corporate stocks
o Many types, i.e.
▪ Growth funds
▪ Income funds
▪ Index funds
▪ Sector specific
▪ Geographic specific
▪ Alternatives
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STOCK CORRELATION
• What is stock correlation?
o Measures the degree to which two securities move in relation to each other
o Used in advanced portfolio management,
▪ correlation coefficient (value that must fall between -1.0 and +1.0)
o Risk reduction benefits of diversification rely on correlation
• Can measure movement of stock with that of a benchmark index (i.e. Beta)
• Correlation is NOT causation
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STOCK CORRELATION (cont’d)
• A “perfect positive correlation” means correlation coefficient is exactly 1
o Implies that as one security moves, either up or down, the other security moves in
lockstep, in the same direction
• A “perfect negative correlation”
o Implies two assets move in opposite directions
• A “zero correlation”
o implies no relationship at all
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DIVERSIFICATION OF A STOCK
PORTFOLIO VS. DIVERSIFICATION OF
AN INVESTMENT PORTFOLIO
• Essentially, having a portfolio of stocks that are negatively correlated to each other.
Investing in securities of many issuers helps reduce overall investment risk
• But there is some correlation among most stocks. Thus, just as one should not put all
their money in a single stock, one should not put all their money in the stock market
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DIVERSIFICATION OF A STOCK
PORTFOLIO VS. DIVERSIFICATION OF AN
INVESTMENT PORTFOLIO (cont’d)
• Consider the stock market one asset class. There are many other asset classes (each with many sub-classes). For
example:
o Bonds
o Real Estate
o Venture capital and Private equity
o Commodities
o Art, antiques, and collectibles
o Toulips
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THREE MOST COMMON ASSET
CLASSES
• Stocks
o Greatest risk and highest returns among the three
o Offer greatest potential for growth
o Volatility makes them a very risky investment in short term
• Bonds
o Less volatile than stocks but offer more modest returns
o High-yield or junk bonds = higher returns but higher risk
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THREE MOST COMMON ASSET
CLASSES (cont’d)
• Cash & cash equivalents ( i.e. savings deposits, certificates of deposit, treasury bills,
etc.)
o Safest investments but offer lowest return
o Federal government guarantees many investments in cash equivalents
o No protection from inflation
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DIVERSIFICATION OF AN
INVESTMENT PORTFOLIO
• Diversification – “don’t put all your eggs in one basket”
o Practice of spreading money among different investments to reduce risk
• Diversified portfolio should be diversified at 2 levels:
o Between asset categories; and
o Within asset categories
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DIVERSIFICATION OF AN
INVESTMENT PORTFOLIO (cont’d)
• Spread out your investments within each asset category
o Key is to identify investments in segments of each asset category that may perform
differently under different market conditions
▪ i.e. identify and invest in a wide range of companies and industry sectors
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REBALANCING TO MAINTAIN
DIVERSIFICATION
• Rebalancing - bringing your portfolio back to your original allocation mix
• 3 ways to rebalance your portfolio:
o Sell investments from over-weighted asset categories and use proceeds to purchase
investments for under-weighted asset categories
o Purchase new investments for under-weighted asset categories
o Alter regular contributions so that more investments go to under-weighted asset
categories until portfolio is back in balance
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ABOUT THE FACULTY
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Jonathan Friedland – jfriedland@sfgh.com
Jonathan Friedland, a senior partner with Sugar Felsenthal Grais & Helsinger, LLP, views his job
simply: to make money for clients whenever possible and to protect their interests at every turn.
Licensed in four states, Jonathan’s transactional work focusses on representing private funds and
other owners of private businesses, and the businesses they own. He regularly advises on M&A
activities, structuring new ventures and restructuring old ones, and on other commercial
relationships. Jonathan is rated AV® Preeminent™ by Martindale-Hubbell, 10/10 by AVVO, and
enjoys several other similar distinctions. Jonathan graduated from the State University of New York
at Albany, magna cum laude (in three years) and from the University of Pennsylvania Law School.
He clerked for a federal judge before entering private practice and served for several years as an
Adjunct Professor of Strategic Management at the University of Chicago’s Graduate School of
Business. Jonathan is lead author and editor of several significant treatises, several chapters in
other treatises, and scores of articles on law and business.
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Tom Cohn – tcohn@ceritypartners.com
Tom is a Principal in the Cleveland office and has more than five years of experience in various investment
management roles. He is a member of the Investment Committee, Investment Manager Selection Sub-
Committee, the Compliance Sub-Committee and the Performance Monitoring Sub-Committee.
Before joining Cerity Partners, Tom served as an Investment Analyst at Spero-Smith Investment Advisers
where he was responsible for the due diligence and analysis of third-party managers and assisted in global
market and asset allocation research. Prior to joining Spero-Smith, Tom worked as a Registered Investment
Advisor in Syracuse, NY, where he researched a factor-based investment strategy. He started his career as
an analyst in the Corporate Debt Products group at Bank of America in Boston, where he worked on a team
that managed the bank’s exposure to a portfolio of middle market and multinational companies.
Tom earned a Masters of Business Administration from the S.C. Johnson Graduate School of Management
at Cornell University. At Johnson, he served as a portfolio manager on the Cayuga Fund, a student-run,
market-neutral hedge fund. He earned a Bachelor of Science degree in Business Administration from Boston
University. Tom holds the Chartered Financial Analyst® designation.
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Ron Diamond – ron@diamondwealthstrategies.com
Diamond Wealth Strategies is the most comprehensive, holistic full service boutique advisory firm catering
exclusively to the many unique needs of 100 Single Family Offices ranging in size from $250 million to $20
billion. Diamond has a direct investment division that serves as an outsourced alternative assets platform
(private equity, venture capital, real estate) for Family Offices that do not have a dedicated alternative assets
team. This enables Family Offices to make direct investments in alternative assets without the high cost and
inflexibility of traditional fund investing. Mr. Diamond graduated Magna Cum Laude from Northwestern
University with a degree in Economics.Following graduation, Mr. Diamond worked at Drexel Burnham
Lambert working in high yield, investment banking, and money management.Following Drexel Burnham,
Diamond became a Managing Director at Bear Stearns managing over $ 1 billion for high net worth
individuals. After Bear Stearns, Diamond launched a $250 million hedge fund utilizing his proprietary trading
strategy. He successfully ran the hedge fund for 10 years, beating the S & P index each year, and ultimately sold
it to an institutional investment firm. Mr. Diamond is a frequent speaker at Family Office/ alternative
investment conferences, has published numerous articles about various aspects of Family Offices and
alternative investments, and is in the process of completing a book on Family Offices. He also sits on several
Boards in both the private sector as well as the not for profit sector.
To read more, go to https://www.financialpoise.com/financialpoisewebinars/faculty/ron-diamond-2/
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Sang Lee – sang@darcmatter.com
Sang H. Lee is the CEO and co-founder of DarcMatter, the global award winning fintech platform for
alternative investments. As a pioneer within the Financial Services and Technology industries, he has
worked to push forward necessary regulatory changes throughout the industry. Formerly an investment
banker at BNP Paribas, Sang has significant experience in the advisory and execution of more than $10.0
Bn equivalent of investment banking transactions in North America. He has been recognized as an
'Under30CEO Entrepreneur to Watch in New York City' and a 'GOOD100' fellow.
Sang is also an international keynote speaker on various topics within FinTech and Cross Border
investments, speaking at the UN, International CES, Harvard University, Council on Foreign Relations, and
featured in key publications such as Forbes, Bloomberg Radio,
Entrepreneur Magazine, CNBC, and many more.
As CEO, Sang continues to focus on the company’s mission globally; to enhance capital flow, transparency,
and efficiency for Asset Managers, Advisors, and Investors through fintech solutions.

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"The Investor's Guide to Alternative Assets: The JOBS
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investing in alternative assets.
Chapters include overviews of angel investing and
venture capital, private equity, hedge funds, and so-called
"hard assets." An introduction to crowdfunding is included
to help you decide whether investing via a crowdfunding
portal is for you. Other topics discussed include the JOBS
Act itself; "alternative mutual funds," and a host of others
that will arm you with the information you need in order to
make educated investment decisions.
Available on Amazon Kindle and Financial Poise.com.

QUESTIONS OR COMMENTS?
If you have any questions about this webinar that you did not get to ask during
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not hesitate to email us at info@financialpoise.com with any questions or
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IMPORTANT NOTE: The material in this presentation is for general educational purposes only. It has been prepared primarily
for attorneys and accountants for use in the pursuit of their continuing legal education and continuing professional education.
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ABOUT FINANCIAL POISE
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Alpha, Beta & Other Key Concepts (Series: Personal Finance & Investing Fundamentals 2.0)

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