FIN 377 1-Portfolio Analysis and Management- Kamm.doc

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FIN 377-1: Portfolio Analysis and Management (Fall 2007)

Instructor: Dr. Kamm, Department of Finance, GSB 5.124C

Email: [email protected]

Instructor Office Hours: 11-12:30 Tuesdays & by Appointment

T.A. & Contact Information: to be announced

Sections 03225 & 03230: 8-9:30, 9:30-11 TTH in CBA 4.348

Course Packets: Notes at GSB Copy Center; Cases at Custom Publishing, Univ. COOP

Other Required Materials: Wall Street Journal Subscription; Financial Calculator

Group Portfolio Simulation: Follow Portfolio Requirements / www.stocktrak.com

Reference Textbook: See your Investments Text or a Portfolio Management TextSpreadsheets, Grades, Other Material: posted on Blackboard or eGradebook.

COURSE OVERVIEW:

FIN377-1, Portfolio Management, is a course overview of the areas of portfoliomanagement and security analysis. Topics covered include: exchange traded funds,mutual funds, portfolio strategy and policies, stock and bond analysis, security selection,hedge funds, and evaluation of performance and risk. The course is designed for upper-level finance majors to provide them with advanced skills in economic analysis, securityanalysis and portfolio management. The course Investment Theory (FIN 367) is a pre-requisite.

The course is taught as a combination of lecture, case study analysis, and hands-on-learning. Students take an active role in the class via student presentations, discussion,and “real world” application of portfolio management. Real world application includes:exposure to trading center software, working with Excel Spreadsheets and completing a portfolio project simulation and paper. Using cases on portfolio analysis andmanagement, students enhance their understanding of topics such as: portfolio objectives;asset allocation; types of investment vehicles (stocks, ETF’s, bonds, real estate); performance measurement; risk management; and futures and options strategies.Students get hands-on practice at selecting securities and managing a portfolio usingStock Track, an investment simulation product in “real time”. The instructor will provideeach group with $500,000 to manage in the regular portfolio and $100,000 in the “hedgefund” portfolio. The professor and teaching assistant will guide you toward building a portfolio of investments that will include the following securities: stocks and / or exchange traded funds, bonds and / or real estate (using mutual funds or ETF’s), and

mailto:[email protected]

http://www.stocktrak.com/

mailto:[email protected]

http://www.stocktrak.com/



options. Additional features are margin trading, short selling, and the use of stop andlimit orders.

In this course a combination of methods is utilized with special emphasis on studentinvolvement. Some of the methods are: lecture, case review, spreadsheet modeling in

Excel, working with trading center data (Bloomberg, Stock Val, etc.), and discussion of current financial events. Class attendance is very important; students who attendregularly tend to do better. The professor utilizes the lecture format to introduce keytopics, to demonstrate financial models & techniques, and to guide students in their portfolio project. Students take an active part in this class; you will likely find that thelevel of learning depends on your effort level both during class and outside of class.Students will be asked to form groups of about four students to work on the portfolio projects and for the purposes of the portfolio presentation. Group members areencouraged to assist one another and learn from one another. The emphasis on studentinvolvement encourages students to learn by doing and encourages the self-motivation soimportant to the workplace. If a student is unable to fulfill his or her commitment to the

group, he or she may be asked to work alone.

EVALUATION:

Final grades will be determined as follows:

Two Written Homework Assignments on Portfolios (Group Grade) 10%

In groups students will submit near the beginning of the term “The Portfolio Objectiveand Asset Allocation Plan.” This is a short paper describing the objective of the basic portfolio and showing the allocation of funds over various assets. The basic or main portfolio is a diversified portfolio comprised mainly of domestic stocks, foreign stocks,and bonds. A second portfolio, “the hedge fund portfolio,” permits students in groups totrade futures and options and to see the effects of heavy use of margin. Later in the termstudents will submit a short paper evaluating this second fund. Please see additionaldocuments related to these assignments as well as the university policy on academichonesty. The assignments will be graded on strength of analysis, demonstration of your understanding and ability to apply concepts learned in the course, and how well they arewritten. The first counts 3% and the second counts 7%.

First, In-Class Test (Individual Grade) 25%

The mid-term test will be given after we have reviewed a several cases and started the portfolio simulation project. The multiple-choice questions will test students’ ability toanalyze markets, work financial problems, solve and interpret spreadsheets and modelsand the like. The test will evaluate students’ understanding of all material covered to dateincluding: theory, application and interpretation related to portfolio management topics;material learned from reading cases; articles covered in class discussion; and your hands-on experience from investing and from working in the trading center. In addition tomultiple choice, the professor may choose to word a limited number of questions

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(problem solving, interpretation) in a short answer / essay type format to be completedduring class. Students may prepare and bring a page of formulas / notes to use during thetest.

Group Presentation (Group Grade with Individual Component) 10%In the group presentation, students will present and analyze their investment strategy, performance results and also discuss what they have learned from the portfoliomanagement simulation. In the presentations, students shall use power-point slides andreserve and set up the laptop. Presentations are 15 minutes long allowing for two group presentations in one day. There are several different presentation days and we will waituntil later in the term to set the schedule. Presentations will be graded on strength of analysis, level of interest, and presentation skills. The overall team effort supports eachmember’s performance and generally leads to similar presentation grades. Still, due toindividual differences, grades may vary among students in the same group. Please seethe document on the group presentation for additional detail.

Second, In-Class Test (Individual Grade) 25%

The second test will be completed in class on the last day. Test questions will primarilyfocus on material covered after the first test; it will be cumulative only in so far as thecourse material is cumulative. The multiple choice questions will test students’ ability toanalyze markets, work financial problems, solve and interpret spreadsheets and modelsand the like. The test will evaluate students’ understanding of all material covered to dateincluding: theory, application and interpretation related to portfolio management topics;material learned from reading cases; articles covered in class discussion; and your hands-on experience from investing and from working in the trading center. In addition to

multiple choice, the professor may choose to word a limited number of questions(problem solving, interpretation) in a short answer / essay type format to be completedduring class. Students may prepare and bring a page of formulas / notes to use during thetest.

Final Portfolio Project Paper (Group Grade) 15%

The final paper is written after students have set up a diversified portfolio in Stock Track and managed the basic portfolio for two to three months. At the beginning of the term,students will invest in domestic and foreign stocks (or ETF’s) and bonds. They also mayuse some margin, and may invest in real estate and commodities. All groups will have placed stop and limit orders by the end of the term. In the paper, students shall analyzethe performance of the portfolio over the term. Analysis of portfolio statistics and performance shall be demonstrated by way of exhibits. The paper must display evidenceof research in the attached Bibliography. References used may be recent articles from theWall Street Journal, Economist, etc. The paper will entail: approximately 10-12 pageswritten, 10 or more exhibit pages, and a page of references. See additional documentsregarding the paper as well as the university policy on academic honesty. The paper will be graded on strength of analysis, demonstration of your understanding and ability to

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apply concepts learned in the course, and how well it is written. The paper grade is not based on portfolio “ranking.”

Participation & Peer Review (Individual Grade) 15%

Class participation is based on the contribution of each student to the class as a whole andto the group efforts. Solid performance in this area depends on: consistent attendanceand participation; contribution to two group portfolio projects; a presentation, and good peer evaluations. For most students, participation serves as a slight curve toward the finalgrade. After the items above have been scored, they are combined to provide an“objective average” or “starting point” grade for participation. Students with good participation will receive this grade or higher (up to half a grade) for the participationgrade. Students with poor participation and / or peer reviews do not receive a“participation curve;” nor do they necessarily receive the “objective grade” for participation. Most students—those with good class performance and solid participation,receive an A or B for the participation curve.

SCHEDULE:

Note: Bold on the date indicates something important must be completed or turned in. A star before the date indicates that class takes place in the trading center.

Current events will be added as the schedule allows. The schedule is meant to be approximate.

At times we may be slightly ahead of or slightly behind schedule. Necessary changes regarding times or

assignments will be announced in class.

DateTh, Aug 30 Review of Syllabus / Introduction to Portfolio Analysis and Management

T, Sept 4 Lecture and Case Review: Introduction to Portfolio Theory

*Th, Sept 6 Trading Center: Excel – Imperfect Correlation and Risk Reduction

T, Sept 11 Lecture: Stock Valuation Review / Current Events Discussion

*Th, Sept 13 Trading Center – PE, DDM & Portfolio Assignment with ETF’s

T, Sept 18 Group Work – Discuss Portfolio Objective & Asset Allocation Plan;Discuss Hedge Fund (Levered Portfolio)

*Th, Sept 20 Trading Center– Portfolio Assignment with Stocks & ETF’sThe Smart Investor’s Large Cap Fund

*T, Sept 25 Trading Center—Mutual Fund Assignment / Professor DemonstratesStock-Track

*Th, Sept 27 HW1 Due: Portfolio Objective & Asset Allocation Plan

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Trading Center—Invest Funds (Regular & Levered)

T, Oct 2 Turn in Positions Print-Out from Portfolios (Regular & Levered)

Case Review: Does the CAPM Work? / Current Financial Events

*Th, Oct 4 Trading Center—Case Review on Beta Management (and CAPM)

T, Oct 9 Case Review: Measuring Mutual Fund Performance

Th, Oct 11 Class Discussion: Analysis of Portfolio Project to Date

T, Oct 16 Catch Up and Review / Current Financial Events

Th, Oct 18 In-Class Test (Bring page of notes)

T, Oct 23 Speaker – Professions in Finance (or: Financial Management)

Th, Oct 25 Lecture: Short-Selling & Margin / Futures & OptionsCase Review: Basic Option Properties & Note on Option Valuation

T, Oct 30 Lecture: Short-Selling & Margin / Futures & Options (continued)Case Review: Commodity Futures

*Th, Nov 1 Trading Center—Options Valuation & Volatility, Futures / Project Review

T, Nov 6 Portfolio Presentations – 2 Groups (15 minutes each) / Current Events

Th, Nov 8 Portfolio Presentations – 2 Groups (15 minutes each) / Current Events

T, Nov 13 Group Work – Analyze Levered Portfolio (Hedge Fund)

Th, Nov 15 HW2 Due: Hedge Fund Project Analysis

Case Review: Walt Disney Sleeping Beauty Bonds / bring calculator

*T, Nov 20 Trading Center: Bonds, Convexity and Duration in Excel

Th, Nov 22 No Class – Thanksgiving

T, Nov 27 Portfolio Presentations – 2 Groups (15 minutes each) / Current Events

Th, Nov 29 Portfolio Presentations – 2 Groups (15 minutes each) / Current Events Fill Out Instructor Evaluations

T, Dec 4 Portfolio Presentations – 2 Groups (15 minutes each) / Current Events Fill Out Peer Evaluations

Th, Dec 6 In-Class Test (Bring page of notes) Portfolio Project Paper Due Dec. 13 by 2 p.m. in finance department

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Information Regarding Scholastic Dishonesty, Class Web Sites and Student Privacy

I. Scholastic Dishonesty – I follow university policy on scholastic dishonesty and include

for your benefit a review of the Policy Statement on Scholastic Dishonesty for theMcCombs School of Business. It says, “ By teaching this course, I have agreed to

observe all of the faculty responsibilities described in that document. By enrolling in this

course, you have agreed to observe all of the student responsibilities described in that document. If the application of that Policy Statement to this class and its assignments is

unclear in any way, it is your responsibility to ask me for clarification. Policy on

Scholastic Dishonesty: Students who violate University rules on scholastic dishonesty

are subject to disciplinary penalties including the possibility of failure in the course and / or dismissal from the University. Since dishonesty harms the individual, all students, and

the integrity of the University, policies on scholastic dishonesty will be strictly enforced.

You should refer to the Student Judicial Services website at

http://deanofstudents.utexas.edu/sjs/ or the General Information Catalog to access theofficial University policies and procedures on scholastic dishonesty as well as further

elaboration on what constitutes scholastic dishonesty.”

II. Class Web Sites and Student Privacy: Please know that I use Blackboard to post your course packet and relevant course documents and I use egradebook to post grades whereeach student in the class is able to check his or her grade privately. I also use the emaillist provided me in Blackboard to send out occasional class emails. From the Fall 2001Course Schedule the following paragraph may help you determine any related privacyissues. It states, “ Password-protected class sites will be available for all accredited

courses taught at the University. Syllabi, handouts, assignments, and other resourcesare types of information that may be available within these sites. Site activities could

include exchanging email, engaging in class discussion and chats, and exchanging files. In addition, class e-mail rosters will be a component of the sites. Students who do not

want their names included in these electronic class rosters must restrict their directory

information in the Office of the Registrar, Main Building, Room 1. For information onrestricting directory information, see

http://www.utexas.edu/student/registrar/catlalogs/gi02-03/app/appc09.html .”

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http://deanofstudents.utexas.edu/sjs/

http://www.utexas.edu/student/registrar/catlalogs/gi02-03/app/appc09.html

http://deanofstudents.utexas.edu/sjs/

http://www.utexas.edu/student/registrar/catlalogs/gi02-03/app/appc09.html

FIN 377 1-Portfolio Analysis and Management- Kamm.doc

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