772 — Student-Managed Investments


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772 — Student-Managed Investments

  1. 1. FINA 772: Student-Managed Investments Spring 2008 Course Summary Students are responsible, subject to the instructor’s approval of specific decisions, for making buy and sell decisions in the management of funds in a Business Partnership Foundation account. The group meets twice a week during the Spring semester to present analyses and formally critique investment alternatives. The current portfolio consists of 20-25 stocks or mutual/exchange traded funds and is valued at approximately $550,000. Students will be introduced to the money management business in terms of establishing an investment policy, selecting an appropriate portfolio objective and benchmark, developing portfolio strategies, and measuring risk-adjusted returns relative to the appropriate benchmark. Students will critique different approaches to security analysis and different valuation techniques with an emphasis on equities as the principal investment instrument. Students will be divided into teams that critique investment opportunities and make specific buy/sell recommendations. Course readings include numerous books and articles pertinent to valuation strategies and current issues. Students will be introduced to a variety of web sites with current information and valuation models and will be expected to demonstrate competency in the use of this information. Students will initially analyze the existing portfolio and evaluate various macro-strategies regarding money management. Once overall portfolio objectives and strategies are determined, teams will focus on firms within specific industries and those in special situations. They will examine the macro-environment and analyze the historical performance and future opportunities of the underlying firm and/or investment instrument. During the semester each student will write and present several research reports. The conclusion of each research report will state whether the security is ‘fairly valued’, document why the valuation is supported, and explain whether a buy, hold or sell recommendation is warranted. Each student will also complete and present one book review. Class discussion and analytics will emphasize the following valuation techniques: 1. Intrinsic value 5. Option valuation 2. Relative value 6. Technical analysis 3. Merger/acquisition value 7. Price-implied expectations 4. Break-up value 8. Sloan Richardson accruals analysis Students will become familiar with the theoretical underpinnings and empirical implications underlying market efficiency and behavioral finance arguments. A course grade will be assigned according to the following criteria.
  2. 2. 2 Portfolio Performance Funds are provided by the Business Partnership Foundation. All gains and/or losses on fund holdings will increase or decrease the fund balance accordingly. No funds may be spent without authorization of a representative from the Dean’s office of the Moore School of Business. Grading Percentage of Final Grade Written Research Reports 30 Presentation of Research Reports 30 Book Review 20 Class Discussion 20 Total 100 Professor Timothy W. Koch Tel: (803) 777-6748 Professor of Finance Fax: (803) 777-6876 Moore School of Business Email: tkoch@moore.sc.edu University of South Carolina Columbia, SC 29208 MSB, Room 460 Required Course Materials Shefrin, Hersh, Beyond Greed and Fear, Harvard Business School Press, 2002. Smartmoneyselect.com: financial analysis web site Selected research articles General References Bernstein, Leopold and John Wild, Analysis of Financial Statements, McGraw-Hill, 2000. Bogle, John, Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor, John Wiley & Sons, 2000. Bogle, John. John Bogle on Investing: The First 50 Years, McGraw-Hill, 2000. Cramer, Jim. Jim Cramer’s Real Money: Sane Investing in an Insane World, Simon & Schuster 2005.
  3. 3. 3 Dreman, David. Contrarian Investment Strategies, Simon & Schuster, 1998. Dreman, David. Contrarian Investment Strategies in the Next Generation, Simon & Schuster, 2007. Drobny, Steven, Inside the House of Money: Top Hedge Fund Traders on Profiting in the Global Markets, 2006. Ehrman, Douglas, The Handbook of Pairs Trading: Strategies Using Equities, Options, & Futures, John Wiley & Sons, 2006. Fisher, Kenneth, Chou, Jennifer and Lara Hoffmans. The Only Three Questions That Count: Investing by Knowing What Others Don’t, John Wiley & Sons, 2006. Graham, Benjamin and Jason Zweig, The Intelligent Investor: The Definitive Book on Value Investing, HarperBusiness, 2003. Greenblatt, Joel, The Little Book that Beats the Market, 2006. Hooke, Jeffrey, Security Analysis on Wall Street, John Wiley & Sons, 1999. Knee, Jonathan, The Accidental Investment Banker: Inside the Decade that Transformed Wall Street, 2006. Lowenstein, Roger, Origins of the Crash, Penguin Press, 2004. Malkiel, Burton, A Random Walk Down Wall Street, 8th edition, W.W. Norton & Co., January 2004. Penman, Stephen, Financial Statement Analysis & Security Valuation, McGraw-Hill, 2006. Poundstone, William, Fortune’s Formula: The Untold Story of the Scientific Betting System That Beat Casinos and Wall Street, 2005. Pring, Martin, Technical Analysis Explained, McGraw-Hill, 2002. Rappaport, Alfred and Michael Mauboussin, Expectations Investing, Harvard Business School Press, 2001. Rubenstein, David, Beyond Wall Street: The Rise of Private Equity and the Future of Investing, Collins, expected August 2007. Schilit, Howard, Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial Reports, McGraw-Hill, 2002.
  4. 4. 4 Shiller, Robert, Irrational Exuberance, Broadway Books, 2000. Siegel, Jeremy, Stocks for the Long Run, McGraw-Hill, 2002. Siegel, Jeremy, The Future for Investors: Why the Tried and the True Triumph Over the Bold and the New, Crown Business, 2005. Singal, Vijay, Beyond the Random Walk, Oxford University Press, 2004. Taleb, Nassim, Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets, 2005. Weekly Class Schedule (A – Mondays; B – Wednesdays) Week 1 A.1 Introduction to Money Management A.2 Review of Investment Policy & Guidelines A.3 Summary Review of Current Portfolio B.1 Overview of Valuation Techniques Week 2 A.1 Top Down (Macro) Analysis of Economies, Markets, Industries, and Equities A.2 Introduction to SmartmoneySelect web site B.1 Intrinsic Value Analysis B.3 Examine Damodoran’s web site B.4 Team Critiques of Individual Equities – Existing Portfolio Week 3 A.1 Presentation by Merrill Lynch Representative(s) A.2 Bottom Up (Firm Specific) Analysis of Individual Equities A.3 Relative Value Analysis Assignment: Stock Screening on SmartmoneySelect B.1 Team Critiques of Individual Equities – Existing Portfolio B.2 Criteria for Buy, Sell, and Hold Recommendations Assignment: Identify one significantly ‘undervalued’ stock Week 4 A.1 Student Presentations on Stock Selection B.1 Read articles by Sloan, Richardson, and others on accruals-based analysis
  5. 5. 5 B.2 Introduction of web sites (valuedogs and earnings torpedos) B.3 Team Critiques of Individual Equities – Existing Portfolio and New Recommendations Week 5 A.1 Read Shefrin on Core Principles of Behavioral Finance A.2 Merger/Acquisition and LBO Analysis Assignment: Student Presentations on Stock Selection B.1 Submit Written Research Reports: Teams Assignment: LBO Analysis of Two Firms Week 6 A.1 Read Shefrin on Earnings Surprises; Winners vs Losers A.2 Student Presentations on Stock Selection Assignment: Identify ‘Undervalued’ Firm Based on Earnings Surprise Analysis B.1 Submit Written Research Reports: Individual B.2 Critique of Recommendations Week 7 A.1 Read Shefrin Assignment: Select Book for Book Review Recommend Stocks based on Accruals Analysis B.1 Break-up Analysis B.2 Student Presentations on Stock Selection Week 8 A.1 Written Research Reports Based on Accruals Analysis: Team A.2 Student Presentations on Stock Selection B.1 Measuring Risk and Risk-adjusted Returns Week 9 A.1 Read Shefrin on Investing Pyramid A.2 Student Presentations on Stock Selection B.1 Critique of Portfolio Risk vs Return Trade-off Assignment: Stock Screener Recommendations Week 10 A.1 Submit Written Research Reports: Team A.2 Student Presentations on Stock Selection B.1 A Critique of Two Portfolios
  6. 6. 6 Assignment: Read Shefrin on Mutual Funds Week 11 A.1 Price-Implied Expectations Analysis B.1 A Critique of Two Equities B.2 Student Presentations on Stock Selection Week 12 A.1 Option Valuation Analysis A.2 Rebalancing Portfolio B.1 Student Presentations on Stock Selection B.2 Submit Written Research Reports Week 13 A.1 Technical Analysis Assignment: Identify One ‘Undervalued’ Stock and One ‘Overvalued’ Stock According to Technical Analysis B.1 Student Book Review Presentations Week 14 A.1 Submit Written Research Reports: Individual A.2 Student Book Review Presentations B.1 Overview of Portfolio Presentation to BPF Board Week 15 A.1 Summary Critique of Portfolio Risk-Adjusted Returns A.2 Student Book Review Presentations B.1 Preparation of Board Report Week 16 A.1 Where Do We Go From Here? A.2 Future Analysis and Decisions Suggested Readings B.1 Critique: What Have We Learned?