UNIVERSITY OF SINGAPORE
Department of Finance
BMA 5302, INVESTMENT ANALYSIS AND MANAGEMENT
Sat from 8.30 a.m.-12.00 p.m. and 1.00 p.m.-4.30 p.m.
(65) 6516 4620
BIZ 1, #03-21
Fri 10.30 a.m.-12.00 p.m. Other times on walk in basis but appointment is preferred.
Course Description and Objectives
This is an introductory course in investment analysis and portfolio management. It provides a comprehensive coverage of financial concepts and theories and their applications to investments and portfolio management. Specifically, the course will focus on the analysis of securities like stocks, bonds, and derivative instruments and how efficient portfolios are constructed. In addition, the course will examine the role and performance of portfolio managers and mutual funds and how to evaluate whether these are value adding to investors. On completion, students should acquire knowledge that prepares them for careers involving investment analysis and portfolio management. The topics covered in this course will overlap with some of the investments related topics for the Chartered Financial Analysts (CFA) Level I examinations.
The students enrolled in this module are assumed to have successfully completed the Financial Management (BMA 5008) module.
Textbook and Other Resources
Required textbook: Zvi Bodie, Alex Kane and Alan J. Marcus, Investments, 8th edition, McGraw-Hill, International Edition.
The readings from the text will be supplemented by other materials such as relevant news articles, academic journal articles and readings from books by successful investors. I recommend regular reading of a financial publication like The Wall Street Journal or Financial Times to stay abreast of current developments in the financial markets.
The lectures will focus on the major points introduced in the textbook. I will draw on related academic research and books and articles by successful practitioners to illustrate some of the concepts being discussed. The lectures will not provide an exhaustive coverage of all topics in the text book. Prior to each class, students are expected to read the relevant textbook chapter and any additional assigned readings. You are encouraged to ask questions and to be an active participant in class. You are expected to attend class regularly and to come to class on time.
Your grade will be based on your performance in homework assignments (5%), case assignment (10%), a stock valuation project (10%), an investment portfolio project (15%) a mid-term examination (30%), and a final examination (30%). The homework assignments, case assignment, stock valuation project and investment portfolio project are to be done by groups of four to five students.
You will be asked to do a few homework assignments. At the end of the term I will grade only two randomly selected assignments. Failure to turn in an assignment (even one which is not eventually graded) by the deadline will result in a penalty.
You are expected to submit a case report for one case that we will discuss in class. The case report should be a maximum of 6 pages (typed and double-spaced) for the write-up and a maximum of three pages for any supporting tables/graphs/exhibits. The report should also include a separate cover page listing the names of the group members, the name and number of the course, and the name of the case. Write it as a memo to the key decision-maker. The case report must have a professional appearance and should not contain any blatant grammatical/spelling errors. For the case, you will be provided with a list of study questions. These questions are not to be answered literally, but are provided to provoke thought on the key issues addressed by the case. You should keep in mind that, as in any business situation, not all the information included in a case may be relevant. Part of the art of good case analysis is to focus on the critical facts and not be distracted by detail. You may have to make some reasonable assumptions. State clearly what your assumptions are and support the assumptions you make. Effective teamwork should both lighten the workload and improve the quality of learning for all students. You should not look for a “solution” to any case. You should present a balanced analysis of the case and discuss the pros and cons of all the options, and then convince the reader that your chosen option is superior to the others.
Stock Valuation Project
The valuation project involves a complete financial analysis of a real-life company as of the end of its most recent financial year. The focus of the analysis is to evaluate past performance; compare the performance to a set of peers; and to estimate the value of the firm’s stock by using the (discounted) free cash flow method and by relative valuation.
General guidelines on the contents will be provided but you have some flexibility on how to present the material. Once your company selection is approved, you are responsible for obtaining all the necessary information, and for developing your own analysis and valuation templates based on models we develop in class. Along with a written report, each group will be required to make a short presentation (20 minutes) presenting their analysis.
Investment Portfolio Project
For this project, groups of four to five students will be formed to create and manage hypothetical portfolios using a web-based portfolio simulation (investopedia). With a hypothetical $500,000 initial capital, each group will decide on an investment strategy, execute the strategy, and prepare two written reports (initial and final) regarding their portfolio composition and performance. Details of the investment portfolio project reports and their due dates will be announced in class.
The portfolio simulation will be managed by Investopedia, at www.investopedia.com. Each team will register and join the private game: Portfolio game. The password for the game is bma5302. My (game creator’s) nickname in Investopedia is puthenpu. Once you register on investopedia and say you want to join a private game, it will allow you to search games on game creator’s nickname. The simulation will run from June 27, 2009 to July 31, 2009.
Mid-term and Final Examination
The examination format will likely be a combination of multiple-choice questions, work out problems, and short essay-type questions. These questions will be designed to test your analytical and problem solving skills, and your knowledge of conceptual and qualitative material. The final examination will be cumulative but will emphasize topics covered after the mid-term exam. If you are not satisfied with your grade on an exam or an assignment, you may ask for your work to be re-graded, giving detailed justifications for your request. Requests for re-grading should be made within one week of the graded exam/assignment being returned to you. You should bear in mind that if I accept your request and re-grade your exam or assignment, you can be given the same grade, a higher grade or a lower grade than originally assigned.
In general, you may meet me at any time I am in my office. However, to ensure that I am available to talk to you during non-office hour times, I recommend that you make an appointment. No appointment is necessary if you plan to see me during the scheduled office hours. I am also accessible by email.
Detailed List of Topics
The following is a detailed list of some of the major topics that are proposed to be covered in this course. Based on the progress of the class, changes (additions or deletions) may be made to this list.
Basics of financial investments
The investment environment
How securities are traded
Mutual funds, hedge funds, and other investment companies
Gutierrez, Roberto, 2006. Review of Statistics. University of OregonCollege of Business.
: Mahoney, Paul, G., 2004. Manager-Investor conflicts in Mutual Funds, Journal of Economic Perspectives 18(2) Spring 2004 p. 161-182.
Forms of market efficiency
Tests of market efficiency
Implications of efficient capital markets
: Martin, Gerald and John Puthenpurackal, 2009. Imitation is the sincerest form of flattery: Warren Buffett and Berkshire Hathaway, Working Paper.
: Shiller, Robert, J., 2003. From Efficient Markets Theory to Behavioral Finance, Journal of Economic Perspectives 17(1) Winter 2003 p. 83-104.
History of interest rates and risk premiums
Diversification and asset allocation
The Markowitz portfolio selection model
: David Swensen’s Pioneering Portfolio Management, Chapter 5. Asset Allocation p. 100-131.
Analysis of equity
Valuation of equity
Financial statement analysis
Analysis of fixed income securities
Bond prices and yields
Term structure of interest rates
Bond duration and convexity
Analysis of derivative securities
Forwards, Futures, and Swaps
Hedging using derivatives
Active Portfolio Management
The process of portfolio management
Portfolio performance evaluation
Case: Lerner, Josh. “YaleUniversity Investments Office: August 2006”. HarvardBusinessSchool Case No: 9-807-073 (Rev: May 8, 2007).
Background Reading: Lerner, J., Hardymon, F., and A. Leamon. “Note on Private Equity Partnership Agreements”. HarvardBusinessSchool No: 9-294-084 (Rev: August 14, 2007).