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ME AND MY MONEY

Investment club looks for companies with a competitive edge Add to ...

Antoine Boucher, 21

Occupation

Business-administration student

The investor

Antoine Boucher is studying accounting at Laval University. He is also an executive member of Fonds Alpha, a student-run organization that invests his and fellow students’ money in stocks. Founded in 1986, the fund is mainly used as a learning tool to supplement finance courses at Laval University.

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The fund’s portfolio

Includes shares in Jean Coutu Group Inc., Intact Financial Corp., Richelieu Hardware Ltd., Yamana Corp., Apple Inc., Bed Bath and Beyond Inc., Google Inc., Dollar Tree Inc. and Coca-Cola Co.

Investment approach

Fonds Alpha is focused on the fundamental analysis of stocks. This method requires a careful assessment of the factors influencing stock prices, notably economic environment, industry conditions, and company-specific factors such as financial strength, business strategy and management.

A key task is to analyze the competitive position of the company. One way the fund does this is with the “Porter approach” – a strategy named after Professor Michael Porter of Harvard Business School – which looks at five factors: 1) barriers to entry, 2) threat of substitute products, 3) competition within the industry, 4) bargaining power of suppliers and 5) bargaining power of customers.

Also important is getting a good read on valuation. A main step in this regard is comparing the prices of individual stocks to company earnings, free cash flow, and book value on a per-share basis. “If these ratios are under the industry average, we consider that the stock is undervalued,” says Mr. Boucher.

Recent move

Anticipating rising interest rates, Fonds Alpha sold off its pipeline stocks earlier this year. Capital gains of more than 20 per cent were captured.

Next move

The fund is growing less optimistic about large-capitalization stocks because valuations are becoming rich. Their current research is now concentrating on small-capitalization stocks.

Best move

Information-technology firm CGI Group Inc. was purchased when it traded on the former Montreal Exchange for 33 cents a share. Its shares subsequently moved to the Toronto Stock Exchange, where they were sold years later at $12.25 for a gain of more than 3,500 per cent.

Worst move

The purchase of clean-tech firm Orbite Aluminae Inc. in 2011 was their worse move. Fortunately, half of the position was sold before the big tumble.

Advice

“Real investment is about patience and hard work.”

Want to share your strategies? E-mail mccolumn@yahoo.com

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