FINANCE 4820 800 Seminar in Investment Management Spring 2009 Class Time Tu Th 5 00 6 15PM Class Room 375 Jerry Madigan Office Hours 3 30 4 45 Tu Th by appointment Office Koelbel 450 Telephone 303 735 1818 E mail madigan colorado edu Web page http leeds faculty colorado edu Madigan 4820 Course htm I Course Overview There is roughly 270 000 available in the CU Student investment Fund This is the sixth year of the fund which Gary Rolle established by generously donating 200 000 for students to invest He has donated additional amounts in the intervening years The purpose of this course is for you to understand the investment management profession The course is designed to be a blend of theory and practice We will extend the basic principles of security analysis asset pricing theory portfolio construction and portfolio performance evaluation You will apply these principles in determining over the next semester how we will manage the CU investment fund We will discuss a wide range of asset classes including traditional asset classes and alternative investments The schedule will be fluid depending on the availability of guest speakers There are two activities that will take place outside of class Some of us may attend a CU Foundation Investment Committee meeting At the Foundation Investment Committee Meeting we will make a presentation about what you have been investing in and why to the Investment Committee which is the same committee that oversees management of the roughly half a billion dollars in the CU endowment The last few years we have been bumped but I have asked again if we will be able to participate Second we are invited to the CU Investment Banking Forum which has not yet been scheduled II III Course Prerequisites Students are expected to have completed the following courses or equivalent before enrolling in FNCE 4820 FNCE 3010 FNCE3020 BCOR 2300 and the prerequisites for BCOR 2200 These are the formal prerequisites Knowledge of statistics and accounting will be very helpful in this course and we will review basic principles Learning Objectives 1 Students will learn that stat I is a useful course 2 Students will learn how to apply valuation methodology learned in previous corporate finance courses For example in the real world nobody hands you a discount rate or a growth projection or an opportunity cost of capital These numbers come from somewhere and we will discuss in depth the difficulties of using numbers estimated with error Further students will learn that estimating anything from accounting statements is difficult because 1 there s not a lot of data and 2 that data is noisy extraordinary items can ruin everything i Hence any precise valuation is precisely wrong but ii Back of the envelope calculations can be worth a lot 3 Students will learn how to apply methodology learned in previous investments courses In particular students will learn why diversification is really important and that this reason is obscured by textbook mean variance analysis Further students will learn why the textbook treatments used for asset allocation don t work that practitioners know this 1 4 5 6 IV and what practitioners do about it Finally students will learn that the standard asset pricing models they learned in previous finance courses don t explain very much of the cross sectional variation in average stock returns Students will use 1 3 to learn how to make a stock pitch that will satisfy practitioners Hence presentation skills will be extremely important Students will have ample opportunities to demonstrate these skills in their stock pitches for our portfolio You can evaluate portfolio performance sort of Students will learn to answer questions from a hostile audience This will be tested in their own presentations and questioning in class Course Materials 1 Aswarth Damodaran Damodaran On Valuation 2nd edition 2006 2 David F Swensen Pioneering Portfolio Management 2000 3 Roger Lowenstein When Genius Failed 2000 4 Other articles will be made available as background reading including HBS case 9 103 015 United Parcel Service s IPO V Course Policies Read any material assigned for the lectures in ADVANCE Lecture slides will be available on the website in advance YOU MUST READ STUDENT PRESENTATIONS IN ADVANCE HENCE STUDENT PRESNTATIONS MUST BE AVAILABLE TO THE OTHER GROUPS AT LEAST THREE DAYS LECTURE IN ADVANCE VI Grades and Grading The final grade for the course will be determined from the following 1 2 3 4 15 35 30 25 100 Class participation is particularly important in a class like this Indeed you should be the ones critiquing your fellow students presentations not me A Initial presentation Final presentation Other assignments and class participation Final exam The Portfolio The class has roughly 270 000 to invest On the first day of class we will divide the class into groups Each group will analyze a different sector One sector has been chosen for us the Socially Responsible Investments sector Each group will be the analysts for the sector and each two student group will be the lead analyst for a particular stock in the sector Depending on the stocks selected you may or may not be able to do the sector part of your project together Each sector will be an equally weighted at the start fraction of the portfolio If we need to double up on a sector the investment per stock will be adjusted We plan on restricting your investments to the equity of relatively large capitalization companies above 1 billion with average daily trading in excess of 2million The reason is that small firms often trade infrequently and then trading costs mount up In addition the CU Foundation does not allow short selling or buying on margin The 12 sectors we wish you to consider are with examples Energy Exxon Materials Alcoa Industrials 2 3M Consumer Discretionary Maytag Consumer Staples Kraft Altria Coke health care Merck Amgen US healthcare financials BankAmerica Met Life American Express Capital One Information technology Microsoft Cisco IBM Applied materials Telecoms Verizon Lucent Utilities Duke Energy Colorado based Qwest socially responsible companies For you to set criteria At the standardandpoors com site you can get up to date information regarding the 10 S P industry categories http www2 standardandpoors com portal site sp en us page topic indices 500 2 3 2 2 0 0 0 0 0 0 0 0 0 0 0 0 html Here are two lists of Colorado based or major operations companies http www allbusiness com north america united