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THE STOCK MARKET - Portland State University | Home

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  • 1. THE STOCK MARKET Portland State University School of Business Administration Spring 2008 Instructor: Douglas M. Crow JD/MBA Course Learning Objectives Understand stock market operations, investment analysis, equity investments and portfolio diversification through a study of: 6. The history, characteristics, rules and regulations of U.S. stock markets. 7. How the stock market relates to U.S. and global macroeconomic conditions and capital markets. 8. Investment research: a company and its environment and perform basic securities/stock analysis before investing. 9. Mutual funds, exchange traded funds and other stock related investment vehicles. 10. How to create a diversified investment portfolio. Investment risk and investment return and the relationship between the two Readings: Some selections from my personal investment library. 11. Ellis, Charles D. Investment Policy (1985). 12. Malkiel, Burton G., A Random Walk Down Wall Street (9th Edition 2007). This is a time-tested classic first published in 1973. One for stock investing. 13. Scott, D. L., Wall Street Words ( Any of several editions). Excellent reference. 14. Peter Lynch, One Up on Wall Street or Beating the Street 15. Graham, Benjamin. The Intelligent Investor (1973). 16. Graham, Dodd and Cottle, Securities Analysis (1962). 17. Gardner, David and Tom, The Motley Fool Investment Guide (1997). 18. Gitman and Joenik, Fundamentals of Investing (Text, several editions). 19. Investors Business Daily, Guide to the Markets (1996). 20. Kindleberger, Charles, Manias, Panics and Crashes (3d ed 1996) 21. Lefevre, Edwin, Reminiscences of a Stock Operator (1923). 22. Lowenstein, Roger, When Genius Failed (2000). 23. Navarro, Peter, When the Market Moves, Will You be Ready (2004). 24. O’Neal, William J., How to Make Money in Stocks (2002, various editions). 25. Samuelson, Paul. Economics (Text various editions). 26. Schwab, Charles, Guide to Financial Independence (2004) 27. Schwager, Jack D., Technical Analysis (1999). Class Approach. Each class of about 50 minutes will begin with 10 minutes of discussion about current events or questions about the general subject followed by a lecture that will cover the outline below. I try to link the subjects discussed in classes with what is actually happening in the equity markets now.
  • 2. 1. Stock Market History, Structure and Regulation. Learn stock market history. Bubbles and Booms! HO2-6 Behaviorial Finance—Any Lessons? HO8 Stock exchanges and securities markets. See: http://www.bloomberg.com/markets/stocks/ or http://www.yahoo finance.com or http://www.reuters.com/ or http://money.cnn.com/ Listing Requirements. HO9 How stocks are traded and cleared. The rules and laws—industry, federal and state HO10 Regulators: NASD/FINRA, NYSE, SEC, Dept. Justice, SPIC, etc. http://www.sec.gov/ http://www.finra.org/InvestorInformation/InvestorProtection/ http://www.sipc.org/ The use and risk of margin and its regulation. Regulation T http://www.federalreserve.gov/ Reporting Requirements See: http://www.sec.gov/edgar.shtml 2. Corporate Governance. See: http://en.wikipedia.org/wiki/Corporate_governance Legal Constructs and the Proxy •1 Review of Proxy Statements HO18 •2 Current Issues in Governance. HO17 Institutional v. individual investors v. “insiders.” The “Raider” and Carl Icahn The 13D Learn about stock market indexes and their use. HO6-7 Learn about types of stock orders and how the process works: Market, Limit, Day or GTC, etc. HO11-16 http://www.finra.org/InvestorInformation/InvestorProtection/ http://www.ameritrade.com http://www.etrade.com http://www.scottrade.com 3. Application of Economics to Securities Markets. How does the economy impact the stock market? Understand basic Economic Theory – key elements and their interrelations HO20 Understand the four phases of the business cycle. HO22 Economic Data and Stock Market Implications. Data: http://research.stlouisfed.org/publications/usfd/ 28. GNP/GDP and Demand HO21+ 29. Federal Reserve (monetary) and fiscal policy 30. Inflation and money supply HO27+ 31. Interest rates and borrowing HO26 32. Employment & Unemployment 33. Trade, Currencies and the Global Economy 34. Demographics
  • 3. 4. The 3 Pillars of Modern Portfolio Management: 35. Risk and Reward-Capital Asset Pricing Model –The Security Market Line. (Sharpe) HO31 36. Diversification of Portfolio Risk. (Markowitz) HO34 37. What is the “Efficient Market?” (Fama) HO35+ Discuss Basic Concepts for Valuations: Growth, Income and Value. HO46 Introduction to Stock Analysis and Valuation Methods: 38. Technical Analysis See: http://www.prophet.net/analyze/ HO38+ 39. Financial Analysis HO53-54 40. Value Analysis See: http://www.thirdavenuefunds.com/taf/aboutus-shareholder-letters.html or http://en.wikipedia.org/wiki/Martin_J._Whitman HO40-41 5. Stock Research (Note #4 and #5 will be combined over 2 periods) Stock Research on the Internet HO42 http://finance.yahoo.com/ http://www.sec.gov/edgar/searchedgar/ http://www.briefing.com/Investor/Index.htm Learn about Basic References like Value Line, Morningstar and Standard and Poors HO43 Valuation and Stock Picking/Investment Selection: Review of “Lists” of the “Masters.” HO44-47 http://www.mcdep.com/ http://magicformulainvesting.com/ http://seekingalpha.com/ http://bankstocks.com/ http://www.investors.com Industry Analysis: Basic Economic Sector Research HO51-52 Understand basic financial statements HO53-54 41. Income Statement 42. Balance Sheet 43. Cash Flow Statements-Operating Cash Flow Ratio Analysis: Understand and perform calculations for the following ratios: 44. Liquidity 45. Profitability 46. Funding Activity Price Multiple Valuation and the Problem of “Net Income:” 47. Price to earnings 48. Price to Sales 49. Price to Assets 50. Price to Cash Flow from Assets Comparisons: Value Line and Standard & Poors or WWW sources. http://www.valueline.com/ http://www2.standardandpoors.com/ 51. Application of Valuation. Stock Picking. HO50, HO48-49, HO40-41 Discuss limitations of Discounted Cash Flow Valuation and CAPM approach. Liquidity and Dilution Issues: Incentive Options, Insider Holdings/Buy or Sell, Buy-Backs, Need for Capital in Economic Growth. The Basics of the Earnings Forecast. The “bottom” Line. HO55-56 Importance of Dividends HO62 Pro forma Income or Free Cash Flow Spreadsheet and valuation implications. Multiples v. DCF. Limitations of forecasting the “future.”
  • 4. Sources: http://dhim.diamond-hill.com/DHIM2008/Public/HowToUse.aspx http://www.Fool@foolsubs.com 7. Mutual Funds and Exchange Traded Funds Mutual Fund Management HO57 Use of Yahoo Finance and Morningstar information. Closed end, Open end and Exchange Traded Trading and Pricing. Load and no-load Mutual Fund Companies and “Families” HO 48-49 Morningstar, Lipper and Value Line Guides HO58 Discuss the types of Mutual Funds—Investment Styles and Specialized Funds Exchange Traded Funds (ETF) See: http://www.etfconnect.com/ HO60 8. Portfolio Construction and Management. Diversification: The “driver” for allocation of risk and reward. HO63 Trading. HO61, 64-66 Options and hedging. HO59 Performance measurement. See Yahoo Finance-Mutual Funds (Morningstar) Newsletters and Commentary. John Mauldin: http://www.wave@frontlinethoughts.com The Motley Fool: http://www.Fool@foolsubs.com Guinness Atkinson: http://www.gafunds.22@reply.pr00.net Final Words—Financial Planning—The connection to life. HO67 Week Class Learning objective Reading Date