National University of Singapore NUS Business School Investment Analysis and Portfolio Management FIN 3102 Spring 2014 Professor: Dr. Emir HRNJIĆ Office: MRB #07-80 Phone: 6516 7824 e-mail: emir@nus.edu.sg Office Hours: Wed 6:00 pm 7:00 pm and by appointment (via email) 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. 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 test. 1 NUS Business School
REQUIRED COURSE MATERIALS (1) Textbook: Investments, 8 th edition by Bodie, Kane, and Marcus Case studies: 1) Dimensional Fund Advisors (Harvard) 2) Warren Buffett, 2005 (Darden) 3) Principled Investment Funds (NUS) 4) Jiuding Capital: Private Equity Firm with Chinese Characteristics (Tsignhua) 5) Emirates Airlines: A Billion-Dollar Sukuk-Bond Issue (NUS) 6) Syndicated Loan in Asia: Alibaba s Buyback of Yahoo! s Stake (NUS) 7) East Meets West: Rothschild s Investment in The Indonesian Mining Sector (NUS) 8) Focus Media (NUS) (2) Calculator: A calculator that does two variable statistics is needed for homework and tests. 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) The Wall Street Journal: In particular, Section C. (2) 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) Class Participation 25% (2) Test 1: 20% (3) Presentation: 15% (4) Team project: 20% (5) Test 2: 20% 2 NUS Business School
TESTS Tests will be a combination of multiple choice questions, show-your-work problems, and essay questions. Tests 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 best way to prepare for the tests is to do the readings and the assignments and attend class. You are allowed to have a calculator and formula sheet (and nothing else) to all tests. You may bring in a 5 8 formula sheet (both sides) for the test or a 8 x11 formula sheet (one side only). You are allowed to write only formulas on a formula sheet (this should be self-explanatory). Each formula sheet will be submitted with your test when you turn it in. If you know that you have a conflict with an upcoming test such as a job interview, you must notify me several days in advance and provide supporting documentation or a make-up test 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 test will be denied except in the case of medical emergencies. In these cases, you must provide supporting documentation. TEAMS You will be assigned to a team of 4 6 students. If you are not assigned to a team, come and talk to me. Teams are responsible for the presentation and discussion of case studies and the class project. CASE STUDIES Each team will present one case study and discuss one. Questions / issues that need to be addressed will be given. 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 the discussion. At the end of the semester you will be asked to rank other teams presentations. Cases are very important and will be covered in tests. PRESENTING TEAM HAS TO SUBMIT THE EDITED PRESENTATION SLIDES AND EXCEL SHEET (IF NEEDED) TO IVLE WITHIN 24 HOURS AFTER THE PRESENTATION. NAME OF THE FILE HAS TO LOOK LIKE FOLLOWING: <SECTION#_TEAM#_CASETITLE>. For example, <MBA_1_DFA>. Names of team members, your section number, and team number need to be printed on the cover page. PROJECT Project is team effort. The 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. You will submit the report (hard copy) to me in the class and Excel file to IVLE. Guidelines will be posted on the class web page later in the course. Project is due on a specified date at the beginning of the class. Late submissions will be penalized at the rate of 10% for every 12 hours (with first 10% being deducted immediately after the deadline). NAME OF THE FILE HAS TO LOOK LIKE FOLLOWING: <SECTION#_TEAM#_CASETITLE>. For example, <MBA_1_DFA>. Names of team members, your section number, and team number need to be printed on the cover page. 3 NUS Business School
CLASS SCHEDULE: Week Subject Description 1 Jan 16 Introduction Syllabus Risk / Return 1. Risk / Return Teams 2 Jan 23 Portfolio Theory / CAPM 1. Portfolio Theory 2. Efficient Frontier 3. CAPM 3 Jan 30 Efficient Market Hypothesis 1. Definition 2. Forms of Market Efficiency 4 Feb 6 Efficient Market Hypothesis 3. Tests of Market Efficiency 4. Implications of Efficient Capital Markets 5. Fama-French 3 factor model / Carhart 4 factor model 5 Feb 13 Case Studies Case 1 Case 2 6 Feb 20 Equity Portfolio Management Strategies and Evaluation of Portfolio Performance 1. Passive Strategies 2. Active Strategies 3. Asset Allocation Strategies 4. Composite Portfolio Performance Measures Project Assignment 4 NUS Business School
Feb 22 March 2 Recess week 7 March 6 Test 1 8 March 13 Case Studies Case 3 Case 4 9 March 20 Test 1 results Bond Fundamentals 1. Bond Features and Characteristics 2. Participating Issuers 10 March 27 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 11 April 3 Case Studies Case 5 Case 6 12 April 10 Derivatives 1. Hedging with Forwards and Futures 2. Optimal Hedge Ratio 3. Basic Valuation Concepts 4. Payoff Diagrams of Options 5. Black-Scholes Valuation Model Project due 5 NUS Business School
13 April 17 Applied Investments in Asia Case 7 Case 8 14 April 24 Test 2 6 NUS Business School
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 Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism by George A. Akerlof, Robert J. Shiller Predictably Irrational by Dan Ariely 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 7 NUS Business School