THE STOCK MARKET
Portland State University
School of Business Administration
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
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.
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.
The use and risk of margin and its regulation. Regulation T
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.
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
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
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
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:
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.
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.”
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://firstname.lastname@example.org
The Motley Fool: http://www.Fool@foolsubs.com
Guinness Atkinson: http://email@example.com
Final Words—Financial Planning—The connection to life. HO67
Week Class Learning objective Reading