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CU-Boulder FNCE 4820 - Syllabus

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1 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: [email protected] 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. 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. III. 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,2and 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. 4. 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. 5. You can evaluate portfolio performance – sort of. 6. Students will learn to answer questions from a hostile audience. This will be tested in their own presentations and questioning in class. IV. 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. Initial presentation 15% 2. Final presentation 35% 3. Other assignments and class participation 30% 4. Final exam: 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: 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 • Industrials3– 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 •


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CU-Boulder FNCE 4820 - Syllabus

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