This course provides an introduction to investment and portfolio management. It will cover classical tools like portfolio optimization and factor models. It will also examine who beats the market, including institutional investors like pensions, endowments, and mutual funds. The course consists of problem sets, case study assignments, a group presentation, and a final exam. The first module focuses on risk and return, asset allocation, and factor investing models.

1. NBA 5420:
Investment & Portfolio Management
Class 1: Introduction
Professor Matt Baron
January 23, 2023

2. What’s in this course?
• Module 1: Classical tools of disciplined investing
– Portfolio optimization
– Value and momentum investing (factor models)
– Portfolio implementation and trading costs
• Module 2: Who beats the market?
– Performance evaluation
– Institutional money management
• Pensions, endowments, foundations
– Mutual funds, hedge funds, private equity
• Module 3: Fixed income investing

3. Course basics
Instructor: Prof. Matt Baron Class Time and Place:
Email: baron@cornell.edu - Section 001: MW 10:05–11:20 am, Sage Hall B09
Office hours: MW 3–3:30pm, Sage 401J - Section 002: MW 1:25–2:40 pm, Sage Hall B08
Final exam: TBD, week of March 13
Hassan Ilyas, hi75@cornell.edu TA office hours: Wednesdays 4–5 pm, Sage 127
Changlun Lin, cl2525@cornell.edu Thursdays 4:30–5:30 pm, Sage 127
Siddharth Rai, sr2299@cornell.edu
Teaching Assistants:
Note: TA office hours start Wednesday, Feb. 1

4. Enrollment
• Johnson MBAs & MFEs have priority in enrollment.
• Johnson IRAM MBAs & MFEs: must take for letter grade
– Other students may take Pass / Fail (“S/U”).
– No auditing is allowed.

5. Prerequisites
• NCC 5060 (core finance) or an equivalent course
• Should already know basic concepts
– What stocks, bonds, derivatives, etc. are
• How they are traded
– An optional background text:
• Investments (Bodie, Kane, Marcus), on library reserve

6. Course materials
• Five case studies
– Can be purchased online at:
https://www.study.net/content-bundle/view/30164069/materials
• All other readings posted on Canvas
– See course outline for weekly schedule.
– Read each week before coming to class.

7. Grading
• Problem sets and case study assignments 25%
• Case study presentation 30%
• Final exam 40%
• Attendance & participation 5%

8. Attendance and participation
• If you show up to nearly all classes and participate
normally, especially during cases and discussions of the
readings, you will easily get full credit.
• Each student gets one class that they can miss without
penalty
– To accommodate illness, job interviews, etc.
– No need to email me
• If you need to miss two or more classes due to an
illness or emergency, please send me an email.

9. Classroom expectations
1. Please bring your name card to each class.
2. Be punctual and ready for class. Use the back door if
you are late.
– Readings should be done prior to coming to class.
3. Please no laptops, tablets, or phones in class
(except when specifically noted)
4. No food is allowed in the tiered classrooms.
– Drinks must be in closed containers

10. Office hours
• My office hours (starting January 30)
– Mondays and Wednesdays
– 3 – 3:30 pm, Sage 401J
• The TAs’ office hours (starting Feb 1):
– Wednesdays, 4 – 5 pm, Sage 127
– Thursdays, 4:30 – 5:30 pm, Sage 127
• All questions about problem sets should be
addressed to the TA.

11. Problem Sets
• Three short problem sets
– Due on various Fridays by 5 pm
– Submit electronically on Canvas as a single PDF
• Either typed or scan of handwritten answers is fine
• Five case study assignments
– Actually, you’ll only turn in four (skip the one you present)
– Due before class on day of case study
– Submit electronically on Canvas as a single PDF
• Late assignments will receive a zero
– No exceptions, no extensions

12. Looking ahead
• This week and next:
– Berk and DeMarzo: Chapter 10 and 11
– Before Wednesday’s class: Warren Buffett: Three
short essays
– Before Monday’s class: Wall Street Journal: “Is
Your Portfolio Too Diversified?”
• Problem Set 1: Portfolio Optimization
– due Friday, February 3 by 5 pm

13. Final Exam
• The exam:
– Date & Time TBD (evening, week of March 13)
– Comprehensive
• The style and content of exam questions will
closely mirror the problem sets
– I will provide many practice exams (with solutions)
to help you study
• No rescheduling or make-ups!

14. Case Presentations
1. Investment Policy at New England
Healthcare
2. Investment Policy at the Hewlett Foundation
3. AQR’s Momentum Fund
4. Blackstone and the Sale of Citigroup’s Loan
Portfolio

15. Case Presentations
• Will be done as student presentations
– Groups of ~5-6 students
• Each group will be assigned to present one of the 4 cases
• 2 groups present the same case on a given day with opposing
points of view
• And, since we have limited class time, 1 group (randomly chosen)
will present in the evening to me by Zoom
• If you want, you can choose your own groups and/or
which case you want to present
– Let Hassan (hi75@cornell.edu) know by email by Jan 30
– Students who volunteer to present the first case will get
5 extra bonus points

16. Case Presentations
• Presenters
– 35-minute presentations with slides.
– Detailed guidelines for each of the four cases are on
Canvas.
– I will facilitate discussion and often dig into particular
issues for different presentations.
• Audience members
– Read the case & complete the case assignment in advance
• If you’re presenting that day, you do not need to do the case
assignment.

17. Guest Speaker
1. Jean-Paul Kachour
– Portfolio Manager, Head of Systematic Core Strategies,
Abu Dhabi Investment Authority

18. Three “styles” of investing
1. Passive investing
– Efficient markets hypothesis
– Put all your money in low-cost index funds!
2. Factor investing (quantitative trading strategies)
– The in-between view
– Some aspects of markets are weakly predictable in the long-run
if you look at well-defined risk factors
3. Speculative investing
– Warren Buffett view: you can find good value if you look hard
enough
– Behavioral view: markets are prone to sentiment and mispricings

19. Why do we need financial markets?
1. Capital allocation
2. Price discovery
– Aggregation and public distribution of pricing information
3. Risk transfer (insurance)
4. Mediums of exchange; liquidity
– To facilitate trade: both across time and among large
groups of people
• Who don’t know/trust each other or don’t all have the same
information

20. Capital allocation
Savers Borrowers
Want to give up consumption
now and consume later
1. Want to consume now and
give up consumption later
2. Have an investment project
now which will generate
goods and services later

22. Financial intermediaries
Borrowers
Financial intermediaries
(banks, mutual funds,
hedge funds, etc.)
Specialize in:
1) connecting borrowers with lenders
2) finding the best projects
3) screening borrowers
Savers

23. Financial equilibrium
• Supply and demand for assets:
– Demand: The portfolio holding choices of investors
creates the demand for financial assets
– Supply: Issuance of stocks & bonds by corporations
to finance new projects creates the supply of assets

24. Financial equilibrium
Supply and demand of
securities
Quantity
(in $)
Price of Securities
Investors and savers
demand securities
Corporations and
borrowers supply
securities

25. Subfields of financial economics
Savers (investors, demand side):
– Asset pricing & investments
• How to price stocks, bonds, derivatives
• How to form portfolios and manage risk
– This class
Borrowers (issuers, supply side):
– Corporate finance
• Why do corporations issue stocks and bonds and pay dividends?
• How do firms decide on capital investment projects (new factories,
research and development) & mergers and acquisitions?
– Another class: Corporate Financial Policy or Valuations

26. Two basic types of markets
• Primary market
– Corporation initially issues the security (stock or bond)
• e.g.: IPO, SEO, bond offering
• Secondary market
– Investors trade already existing securities amongst
themselves
• e.g.: stock exchange
– Doesn’t facilitate new corporate investment,
but gives investors liquidity and price discovery
• Which in turn facilitate primary markets

27. Next class (Wednesday)
• Quantitative Portfolio Management
– Risk and return, asset allocation
• Required readings:
– Berk and DeMarzo: Chapter 10 and 11
– Before Wednesday’s class:
• Buffett, Three essays
– Before Monday’s class:
• Wall Street Journal: “Is Your Portfolio Too Diversified?”