Adm 4425 - Investments

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With AOBC in January 2017 Mr.Debney bought 25,000 shares in AOBC for the price per share of $20.50 displaying that fact that AOBC was currently undervalued at that time.[9] Mr. Debney’s total annual compensation is $2,435,950 with a fiscal year total including stock and other of $5,259,070.[10]

Conclusion for AOBC

The afore mentioned items have affected the stock price for both AOBC, in a positive way, and its competitors during the presidential election and since Trump has been nominated. I feel that AOBC is slightly undervalued by around 11% based on my analysis with O-S template and could prove to be a nice addition to an investors portfolio for the long run as they have several companies under their umbrella and do not simply sell guns, but they do account for a large portion of their revenue. Since I started following AOBC their stock has risen from $19.45 to $24.70/share and increase of $5.25 which amounts to a ~23% increase and yet it is still slightly undervalued. AOBC has continued to climb with no real signs of it slowing down yet. They release their fourth quarter and full fiscal 2017 results on Thursday, June 29th, 2017 after close, at this point investors will get a better picture of how they are doing, but I don’t expect any issues. [11]

Important Economic and/or Market Event

One of the major economic events of the year was the election of president Donald Trump. One of Trump’s campaign promises was his tax plan where he proposes to reduce corporate tax rates from over 35% to 15%. This is one of the reasons that under the trump administration the DOW has surged in his first 100 days and beyond as a postwar record. It has risen over 14.22% since his November, 2016 election. Compared to Barack Obama back in 2012 of 12.04%, which is also very respectable. [12] As for the rise under Trump, this is not what was expected. The market historically does not like uncertainty. In terms of individual investors, they seem bullish, one of the reasons is because of Trump’s top economic plans which include the corporate tax cuts, reductions in income tax rates paid by the wealthiest and deregulation. [13]

This has been great for investors. Also in the plan, high level of course, would be to reduce the seven individual tax brackets to three, and getting rid of the inheritance tax. This would allow individuals like President Trump to pay personal taxes at 15%. The Trump administration expects to pass this tax reform by end of 2017 but it is unlikely to happen until 2018. [14]

How does this impact Investors, the Market and the Economy? The United States has the second highest corporate income tax at 39.1%, just below Colombia’s 40% as seen in Figure 1 below. This chart compares a number of countries with Canada sitting in the middle of the pack.[15] Higher corporate tax rates burden investments by reducing potential revenue for federal and state governments causing a concern for growth and revenue. I understand now why many company headquarters are setup in Ireland as it has the one of the lowest corporate income tax rate.

Figure 1: 2017 and 2010 Corporate Tax rates by country. 12

The high corporate tax rate in the United States discourages investments while encouraging investment in some business activities and not others while being one of the more expensive sources of funds for public services.[16]

Lowering the corporate income tax rate would increase investment and growth rates while impacting retail sales taxes and changing international trade dramatically. Having a lower tax burden for these corporations will allow these companies to lower prices, generate higher revenue which then can be paid out in the form of wages, salaries and/or dividends. [17] All of the afore mentioned items will greatly aid the world economy.

The United States would need other countries reduce their tax rates which would hopefully result in a better world economy steering away from a decade of low growth while reducing tax inversion. High corporate tax encourages multinational corporations in the United States to shift profits out of the country reducing government tax revenues by more than $100 billion each year. This shifting of revenues has increased five-fold over the last decade. [18]

Tax inversion is where multinational corporation merges or acquires a company over sees in say Ireland where there is a much lower corporate tax thus setting up the corporation’s head quarters in Ireland to reap the benefit of the lower corporate taxes rates.[19] The Trump administration will be taking aim at repatriating an estimated US$$2.9 trillion in accumulated earnings offshore and in Canada.[20] This inversion has been looked at by the previous administration, including one by Burger King in recent years, which started process to look at issuing rules to crack down on the practice. President Trump signed documents in April this year ‘designed to reduce tax and regulatory burdens’ which included a review of major tax regulations.[21]

After-the-course reflection

During the Value Investing class, I had signed up for the Investopedia’s market game and chose some investments to do research on. I evaluated them based on a thorough analysis and choosing undervalued companies that contained a substantial margin of safety, an assurance of safety with an expectation of satisfactory return.

The following two figures compare the Stock challenge and Summer challenge returns. For the stock only game I’ve been playing since January/February of 2017 and have made a decent return, over 15% as of June 15th, as I have done analysis on all of the companies. There are a few like Callaway that I’m keeping around to see how they are doing in the long term which is why there are only 10 shares of each.

Figure 2: Investopedia Stock Only Game.

I did well with some of the companies that I chose, AAPL, AOBC, RGR, CGI and GOOG as I had done some robust analysis on them and they proved to be a worthy investment. What I did with the summer stock challenge game is that I slightly abandoned the hold for a long time idea of Value Investing and was doing quick research on companies and buying them to try to win the game. The game was just for six weeks and not really a value investing game so as mentioned I did take some chances by not using a system of heuristics in advance of making investments decisions.

Figure 3: Summer 2017 stock challenge Portfolio Cumulative Returns compared to NASDAQ and S&P 500. See Appendix A, Figure A2 for more details.

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