The Peter F. Drucker and Masatoshi Ito Graduate School of Management
Claremont Graduate University
Asset Management Practicum
12-11-05 (Subject to Revision)
Instructor: Donald Gould (Adjunct Professor and President, Gould Asset
Management) Contact: email@example.com
Office: Burkle 224
Office Hours: By appointment with Prof. Gould.
Time: Spring Semester, 2005; Wednesdays, 7:00-10:00 p.m. (plus special
session Saturday, January 21, 2006 from 2-5 pm)
Classroom: Burkle 24
Faculty support: Edie Young, Burkle Building upper level west end workstation, 909 607-
Prerequisites: Corporate Finance (MGT 335). Students who have not completed
the prerequisite must obtain specific approval from the instructor to enroll in the
The course centers on the practice of investment management and follows two
parallel tracks, one broad and the other more focused.
The broad track involves assigned textbook and other readings, classroom
discussions, lectures by the instructor, and guest speaker presentations. The
goal of this track is for students to gain a broad understanding of the major
theoretical and practical issues facing managers of portfolios of financial assets.
The focused track provides hands-on experience in the management of a
dedicated portion of the CGU endowment portfolio that has been segregated for
the educational benefit of the class. The class portfolio’s initial investments were
made in May 2002. In effect, students in the course will form an asset
management “firm” with responsibility for managing specific assets. Each year’s
students represent the “employees” of that firm and, as such, are responsible for
organizing themselves and executing the critical functions of an asset
management company. The goal of the applied track is for students to gain
appreciation for, and experience in, the complexities of real-world portfolio
The ongoing functions of the asset management firm include:
• Conducting investment research
• Determining the investment strategies to be implemented
• Investment decision making (securities selection) and implementation
(including buy/sell order entry, trade settlement, and reconciliation)
• Performance measurement/analysis/reporting
• Reviewing/revising investment policy
• Communications to the client and to the larger community
• Facilitating continuity of management of the client portfolio from one
academic year to the next
• Identifying, scheduling and promoting investment professionals who will
give on-campus presentations
Management of the Client Portfolio
Students will manage a portfolio of equity securities. The portfolio is presently
benchmarked to S&P 500 U.S. equity index. Students will develop and
implement passive strategies to achieve effective benchmark performance
tracking. In addition, students will undertake research seeking to identify
investment strategies that may enable the portfolio to earn returns superior to the
benchmark over time, i.e., value-added strategies. The research will involve ex
post testing using long-time-series historical return data. Finally, students will
implement selected value-added strategies.
The portfolio holdings will be adjusted once annually, near the end of the course
semester. Representatives of the class will report annually to the CGU Board of
Trustees Investment Committee and to Henry R. Kravis, who is the initial donor
of endowment funds to the project.
Portfolio Construction, Management, and Protection, Fourth Edition, 2006,
Robert A. Strong, (South-Western College Publishing).
Selected readings to be included in course packs available at Huntley Bookstore;
other materials to be posted on WFS during the semester.
NOTE: Course Lectures Outline: subject to revision; reading assignments
for a given date are to be completed prior to the class on that date; quizzes
will be based on the assigned reading and classroom lectures.) A separate
outline for the management of the CGU (client) account will be established
at the 1/21/06 session.
1. 1/18/06 – Part I - Investments, Investors, and Intermediaries: consumption
and savings; savings and investments; capital markets; securities;
financial intermediaries; the interplay of corporate finance and asset
management; different types of asset management clients and their
investment objectives. Part II – class discussion with CGU endowment
representative; overview of class objectives for management of CGU
portfolio account; review of class ground rules. No assigned reading or
2. 1/21/06 (Saturday, 2-5 pm, Mandatory Attendance) – Organizational
meeting to select CEO(s), assign students to research and functional
teams, review timetable for meeting class objectives, and establish
procedures for monitoring progress. No assigned reading or quiz.
3. 1/25/06 - Key Investment Concepts: return; risk and uncertainty; absolute
vs. relative risk; present value vs. future value; liquidity; long, short, and
leveraged positions. Reading: Strong – Ch. 1, 2, pp 618-624 (Stock
4. 2/1/06 - Investment Objectives and Policy. Mutual Funds. Reading:
Strong – Ch. 3 (skip appendix), 4; Two Wall St. Journal articles re Merrill-
5. 2/8/06 - Diversification: efficient frontier analysis and optimization; naïve
and rigorous diversification; diversification within asset class;
diversification among asset classes. Reading: Strong – Ch 5, 6; WSJ
article re HP Foundations and diversification.
6. 2/15/06 - Efficient Market Hypothesis: implications for portfolio
management; active and passive management strategies; issues in
behavioral finance - booms, busts, etc.; Japan, Inc.; Cisco; gaga for
Google? Reading: Strong – Ch. 8.
7. 2/22/06 - Bonds: types of bonds, types of bond issuers, risk factors, yield
calculations, valuation, duration, convexity, embedded options. Reading:
Strong – Ch. 11.
8. 3/1/06 - The Asset Universe and Asset Allocation: defining the asset class;
dimensions of diversification; international investing; alternative
investments; absolute and relative return strategies. Reading: Strong –
Ch.7 (pp. 192-197, 210-226, Ch. 12, Smith/Gould paper from Journal of
Investing (forthcoming) on asset allocation.
9. 3/8/06 – Options: calls and puts, principal determinants of option
valuation, Black-Scholes option pricing model, delta, call writing strategies,
VIX, BXM index. Reading: Strong Ch. 15, 16;
http://www.cboe.com/micro/bxm/introduction.aspx (read this summary
page and read link on page – “a 4-page paper [by Ibbotson Associates]
with a summary of highlights”).
10. 3/15/06 – Spring recess. No class.
11. 3/22/06 – Realities of Running an Asset Management Company:
competitive positioning and forms of value-added; types of asset
management clients; types of asset managers; methods for asset
management marketing; the asset management account cycle; regulatory
compliance. Reading: Strong – Ch. 17, 18; other readings to be
12. 3/29/06 – Mutual Funds and Other Funds: open-end, closed-end, ETFs,
UITs, funds of funds, hedge funds, commodity funds; legal and regulatory
structure; tax issues; fund categories; benefits and drawbacks; Eliot
Spitzer and the recent mutual fund scandal; Reading: Strong pp. 74-77,
627-629; other readings to be announced.
13. 4/5/06 – Tax Factors in Portfolio Management: US taxation of interest,
dividends, capital gains, index options; tax status of personal and
institutional accounts; implications for portfolio management; the personal
asset management matrix. Reading: to be announced.
14. 4/12/06 – Final exam. Final preparation for student presentation on
4/19/06. No assigned reading or quiz.
15. 4/19/06 – Student presentation to CGU Investment Committee on results
of research and recommendations for portfolio implementation. No
assigned reading or quiz.
16. 4/26/06 – Portfolio implementation begins. No assigned reading or quiz.
17. 5/3/06 – Portfolio implementation completed. No assigned reading or
Grading practice will adhere to school policy. Grades will be determined based
on student performance throughout the semester and are not subject to
negotiation during or at the end of the semester. The grade will be determined
based approximately on the weightings below.
20% Weekly quizzes on assigned reading
15% Final exam
15% Participation in class discussion
50% Management of CGU portfolio – team product and individual contribution
on research project, firm functional duties, intangibles.
Grading on the last item above will be determined in part by student peer
• Attendance is very important, and the school’s attendance policy must be
adhered to. Arriving on time is also very important. Quizzes will be given
at the start of each class (except where indicated above); no exceptions,
no make-ups. A student’s lowest quiz score during the semester will not
be counted. Excessive absence or tardiness will result in administrative
withdrawal from the course.
• Class participation is strongly encouraged. It’s ok to be wrong; take a
• Incompletes will not be granted except in the case of medical emergency.