Investments Analysis & Portfolio Management, FIN 3102B
National University of Singapore
NUS Business School
Investments Analysis & Portfolio Management
FIN 3102B
Fall 2009
Professor:
Office:
Phone:
Class Schedule:
Class Room:
Office Hours:
e-mail:
Dr. Emir HRNJIĆ
BIZ2 #03-09
6516 – 7824
Thu
9:00 am – 12:00 noon
Thu
3:00 pm – 6:00 pm
Fri
12:00 noon – 3:00 pm
Conference Room C1
Fri
3:30 pm – 5:00 pm
bizemirh@nus.edu.sg
COURSE DESCRIPTION
The course content consists of a mix of descriptive material, theoretical models, model application,
and case studies. We shall cover fundamental analysis and security valuation on stocks, bonds,
options and futures, as well as modern portfolio management. On completion, students should be
conversant in investment management in preparation for careers in financial analysis and financial
planning, investment banking, and corporate finance. Also, students should be ready for the
Chartered Financial Analysts (CFA) examinations in quantitative analysis, equity securities
analysis and portfolio management.
COURSE STRUCTURE
The course is designed to help students develop an understanding of equity, bonds, and derivatives.
A tentative course schedule and assigned textbook readings and problems are attached. Additional
supplemental problem sets will also be assigned during the semester. Several things are done that
give students the opportunity to integrate material into the real world. Investment Gurus consists of
interviews with successful stock gurus detailing how they have successfully applied investment
theories and models to real world equity investing. Students apply what they learn by running a
simulated stock portfolio during the semester and by analyzing case studies.
COURSE PRE-REQUISITES
Finance (FIN 2004)
ATTENDANCE POLICY
Class attendance is beneficial, but not mandatory. You are responsible for all material and
announcements made in class. All students should display name sign during the class AND during
the exam.
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NUS Business School
Investments Analysis & Portfolio Management, FIN 3102B
REQUIRED COURSE MATERIALS
(1) Textbook: Investments, 7th or 8th edition
by Bodie, Kane, and Marcus
(2) Case studies (some of the following case studies will NOT be covered):
The State of South Carolina (HBS)
Dimensional Fund Advisors (HBS)
GMO: The Value Versus Growth Dilemma (Darden)
Zeus Asset Management, Inc. (Darden)
Valuing Wal-Mart Stock (Ivey School of Business)
JetBlue Airways IPO Valuation (v. 2.0) (Darden)
Subprime Meltdown: American Housing and Global Financial Turmoil
Washington Mutual Covered Bonds
The Harvard Management Company and Inflation-Protected Bonds
Behavioral Finance at JP Morgan
Cadim: China and India Real Estate Deals
(3) STOCK-TRAK Account: Information about Stock-Trak is also available from the web site www.stocktrak.com.
(4) Calculator: A calculator that does two variable statistics is needed for homework and exams.
If you do not have one, I recommend the Texas Instruments BAII plus business calculator
(that’s the one I use). It does everything you need to be able to do, is user friendly, and is
relatively inexpensive. You are required to bring calculator every class.
RECOMMENDED READING
(1) Barron’s
(2) The Wall Street Journal: In particular, Section C.
(3) Investment Gurus:
by Peter Tanous, NYIF, 1997
COURSE EVALUATION
The assessment policy for this course is specified in the following paragraphs. Please read it
carefully. The final course grade will be computed based on the following weights:
(1) First Exam: 20% of your final course grade.
(2) Case Studies (reports, presentations, and discussions): 25% of your final course grade.
(3) Stock Trak portfolio performance evaluation (written report): 25%
(4) Second Exam: 30% of your final course grade
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NUS Business School
Investments Analysis & Portfolio Management, FIN 3102B
EXAMS
You will need to bring a calculator to all exams. Exams will be a combination of multiple choice
questions, show-your-work problems, and essay questions. Exams will cover all assigned readings
and problems as well as material covered and discussed in class. The multiple-choice questions will
be conceptual. The show-your-work problems will be computation based and similar to assigned
problems. The essay questions will ask you to explain a concept. Answers to these should be one or
two paragraphs in length. The mid-term exams will be cumulative only in the sense that the
material itself is cumulative. The final exam will cover all material. The best way to prepare for the
exams is to do the readings and the assignments and attend class.
You may bring in a 5”× 8” formula sheet (both sides) for the exam or a 8”x11” formula sheet
(one side only). You are allowed to write only formulas on a formula sheet (this should be selfexplanatory). Each formula sheet will be stapled to your exam when you turn it in. If you know that
you have a conflict with an upcoming examination such as a job interview, you must notify me
several days in advance and provide supporting documentation or a make-up exam will be denied.
Students on athletic scholarships have to provide supporting material in the first week of the
semester. Last minute requests for a make-up examination will be denied except in the case of
medical emergencies. In these cases, you must provide supporting documentation.
TEAMS
You will form teams by the date specified. If you don’t have a team, come and talk to me. Teams
are responsible for the presentation, discussion, and report on case studies.
CASE STUDIES
Each team will present one case study and discuss one. Questions / issues that need to be addressed
will be given. Presenting team should email their presentation before the class. One team will be
assigned to present the case and one team will be assigned to challenge the presenters. Both teams
are graded. Other teams are expected to participate in discussion. At the end of the semester you
will be asked to rank other teams’ presentations. Material from cases will be covered in the
exam.
PROJECT
Project is individual effort. This project is to be done in Excel. Many recruiters want to see that you
have done financial modeling. Calculations must be done using Excel formulas or formulas you
write in the cells. You will submit report (hard copy) and Excel file (on a floppy disk, CD, UBS or
any other data storage device). Guidelines will be posted on the class web page. Project is due on
specified date at the beginning of the class. Late submissions will be penalized at the rate of 10%
for every 6 hours (with first 10% being deducted immediately after the deadline).
STOCK-TRAK Portfolio
The goal is to manage a portfolio of stocks while attempting to outperform the S&P 500 over the
contest period. Each student is required to individually run a STOCK-TRAK portfolio during the
semester.
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NUS Business School
Investments Analysis & Portfolio Management, FIN 3102B
STOCK-TRAK Registration
A firm called STOCK-TRAK runs a service allowing students to manage a portfolio in a realistic
simulation. They will handle your trades, record your account activity, provide a daily class
ranking, and provide weekly portfolio statements. All trade disputes need to be handled directly
with STOCK-TRAK. You need to initiate your account before you can trade. You will start with
$1,000,000 of pretend cash. An additional $1,000,000 can be borrowed with interest. Class contest
will run during the period specified. You are limited to 200 trades. In order to register go to
www.stocktrak.com/ and print out the trading rules. After having printed out the trading rules,
register your assigned account number (will be given in class) at the OPEN ACCOUNT link on
STOCK-TRAK home page http://www.stocktrak.com/. On this OPEN ACCOUNT registration
page you will be asked for your STOCK-TRAK account number (given on the first day of class),
and you will select your password and provide your name and payment information. You have to
register in the first week in order to be able to start trading by the deadline.
STOCK-TRAK Class Portfolio Rules (VERY IMPORTANT!)
(1) You must have positions in at least five (5) individual stocks at all times during the
remaining contest period. Submit the name, ticker symbol, number of shares, and the price
of all stocks from your portfolio at the beginning of the class. You cannot have more than
25% of your money in any stock. You may use limit orders or market orders.
(2) You are not allowed to invest in any other type of security other than individual stocks.
(3) You are not allowed to day trade (i.e., offset a trade in a given security during a single
trading day during the contest period).
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NUS Business School
Investments Analysis & Portfolio Management, FIN 3102B
CLASS SCHEDULE:
Week
Subject
1
Aug 11/12
Introduction
Syllabus
Risk / Return
Description
1. Risk / Return
Form Teams
5
2
Aug 18/19
Portfolio Theory / CAPM I
3
Aug 25/26
Portfolio Theory / CAPM II
4
Sept 1/2
Case Studies
5
Sept 8/9
Efficient Market Hypothesis
1. Portfolio Theory
2. Efficient Frontier
3. CAPM
Submit StockTrak initial
investments
1. Case 1
2. Case 2
1. Forms of Market
Efficiency
2. Tests of Market
Efficiency
3. Implications of
Efficient Capital
Markets
4. Fama-French 3 factor
model / Carhart 4 factor
model
NUS Business School
Investments Analysis & Portfolio Management, FIN 3102B
6
Sept 15/16
Case Studies
Sept 22/23
Recess week
7
Sept 29/30
8
Oct 6/7
9
Oct 13/14
Equity Portfolio Management
Strategies and Evaluation of
Portfolio Performance
Case Studies
Bond Fundamentals
1. Case 3
2. Case 4
1.
2.
3.
4.
Passive Strategies
Active Strategies
Style Investing
Asset Allocation
Strategies
5. What is required of a
Fund Manager?
6. Composite Portfolio
Performance Measures
1. Case 5
2. Case 6
1. Bond Features and
Characteristics
2. Participating Issuers
Test 1
10
Oct 20/21
6
Bond Valuation
And
Bond Volatility Measures
1. Bond Yields
2. Bond Valuations
3. What Determines Bond
Price Volatility?
4. Duration measures
5. Determinants of
convexity
NUS Business School
Investments Analysis & Portfolio Management, FIN 3102B
11
Oct 27/28
Case Studies
1. Case 7
2. Case 8
Derivatives
1. Hedging with Forwards
and Futures
2. Optimal Hedge Ratio
3. Basic Valuation
Concepts
4. Payoff Diagrams of
Options
5. The Binomial Option
Pricing Model
6. Black-Scholes
Valuation Model
Deepavali
12
Nov 3/4
13
Nov 10/11
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Test 2
NUS Business School
Investments Analysis & Portfolio Management, FIN 3102B
NON-TEXTBOOK INVESTMENT BOOKS
Frequently, students will be interested in non-textbook books on investing in equity securities.
There is a huge range in the difficulty level and quality of these books. Following is a list of books
that complement what you are learning in this course and are at an adequate difficulty level. They
are organized by general topic area.
GENERAL
• A Random Walk Down Wall Street by Burton G. Malkiel
• The Intelligent Investor by Benjamin Graham
• Security Analysis by Benjamin Graham and David L. Dodd
• Applied Equity Analysis by James English
• Beyond the Random Walk by Vijay Singal
BEHAVIORAL FINANCE
• The New Finance: The Case Against Efficient Markets by Robert A. Haugen
• The Inefficient Stock Market: What Pays Off and Why by Robert A. Haugen
• Irrational Exuberance by Robert J. Shiller
• Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of
Investing by Hersh Shefrin
• Inefficient Markets: An Introduction to Behavioral Finance by Andrei Schleifer
• Advances in Behavioral Finance by Richard H. Thaler
• Behavioral Corporate Finance by Hersh Shefrin
SPECIFIC EVENTS OR PEOPLE
• One Up on Wall Street by Peter Lynch with John Rothchild
• Beating the Street by Peter Lynch with John Rothchild
• The Warren Buffet Way by Robert G. Hagstrom, Jr.
• Buffetology by Mary Buffet and David Clark
• Winning on Wall Street by Martin Zweig
• Freakonomics by Stephen J. Dubner, Steven D. Levitt
• Accidental Investment Banker by Jonathan A. Knee
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NUS Business School