FIN 367 - Investment Management - Ritter

FINANCE 367 INVESTMENT MANAGEMENT (UNIQUE # 03505) SPRING 2014 Professor Class Class Hours Office Office Hours Phone E-Mail Course Web Page Teaching Assistant John T Ritter GSB 5.142B Tuesday and Thursday 3:30-5:00 6.210 GSB - Walkway Tuesday and Thursday 5:00 – 6:30 or by appointment 512-799-7749 (c) john.ritter@mccombs.utexas.edu via Canvas I prefer that you see me with questions Course Objectives This course is designed to be a survey of the field of investments The course will focus on the application of financial theory to the issues and problems of investment management In particular, you should leave this class understanding the components used to put together a portfolio This requires you to understand many different types of investable assets (bonds, stocks, mutual funds, and derivatives), how they are combined to form a portfolio, and how they are each affected by the overall economy In addition, there is background and fundamental information which is necessary to understand This information includes topics such as types of markets, how to place orders, behavioral finance and what stock indices represent Prerequisites Finance 367 is a Restricted Course for students who are currently enrolled in a major program in the College of Business and Administration Note that several prerequisites apply for this course and are published in the Course Schedule Prior completion of Finance 357 or Finance 357 H, Statistics 371G or Statistics 371 H are among these requirements In addition, proficiency in mathematics and spreadsheet packages is assumed Students who are uncertain as to whether they satisfy these requirements should notify the instructor Materials Textbook: Investment Analysis and Portfolio Management, 10 h Edition by F Reilly and K Brown (Cengage Learning, 2011) – available at the Co-Op Supplementary Readings & Lecture Slides: All supplementary readings listed in the syllabus and lecture slides will be available on-line on Canvas Lecture Slides will be available following the class Lecture Slides are meant as Ritter FIN 367 – Spring 2014 page an outline to reduce the amount of rote copying of definitions and formulas but certainly not as a self-contained lecture summary Reading the lecture slides without attending class will most likely be of little benefit Additional Readings: Additional readings regarding current events may be made available as Handouts or posted on-line via Canvas Book for Project: “The Essays of Warren Buffett: Lessons for Corporate America” by Warren Buffett and edited by Lawrence Cunningham (3 rd Edition) You must buy this on your own – it is sold by Amazon (and others) Calculator: You will need a business calculator for this class The calculator should have the following keys: IRR, n, i, PV, PMT, FV, and CF As long as those keys are present, the calculator is fine If you may consider taking the CFA exam in the future, I recommend the HP 12c (this calculator is the finance industry standard and one of only two calculators that may be used on the CFA exam) The other calculator which is permissible for the CFA exam is the Texas Instruments BA II Plus You should bring a financial calculator to every one of our class meetings Strongly Recommended: Bloomberg.com, WSJ, Economist, or some other Financial News source Financial Times, The Professionalism Policy The highest professional standards are expected of all members of the McCombs community The collective class reputation and the value of the program’s experience hinges on this Faculty are expected to be professional and prepared to deliver value for each and every class session Students are expected to be professional in all respects This Includes: -Being on-time and in your seat when class starts -Staying until the end of class -Being constructive to the learning environment -Being “present” in the class and focused on class material This includes, but is not limited to no internet, no email, no cell phones, no laptops, no texting, and no talking to your neighbor about last night -Coming prepared to contribute to the class -Communication with the professor Think about this class as though it were a job, and this is a bi-weekly meeting with a senior executive at your firm Would you show up late, unprepared, be texting during the meeting? Of course not! Professionalism in class is a good discipline to prepare you for the real world As the semester progresses, you will realize that I will hold you to a very high standard, but I will hold myself (and how this class is presented) to an even higher one Grading Ritter FIN 367 – Spring 2014 page Your grade in the course will be determined as follows: Mid-Term Exam (Weeks through 11) 20% Mid-Term Exam (Weeks 13 through 20) 25% Final Exam (Comprehensive): 30% Book Review of “The Essays of Warren Buffet” 20% Class Participation 5% Letter grades for the course will be based on the student’s ranking in the course relative to other students (i.e., the curve) as shown to the left In general, there will be about 30% A’s, 40-50% B’s, 20-30% C’s or below Plus/minus grades will be assigned for the final grade (there is no A+ though) With that said, grades are typically curved up substantially at the end of the semester Curves are done for the class as a whole, not for individuals In other words, someone with a final course grade of 88 will not get a higher grade than someone with a course grade of 89 as long as that person is eligible for the curve Also, there will be a uniform grading average target for all 367 classes which will be somewhere between 3.2 & 3.4 Appeals: There are no verbal appeals of grade changes You should submit a written statement explaining the problem within one week of receiving your grade and we will be happy to re-grade any exam or assignment The entire exam or project will be re-graded and the score may increase, remain the same, or even decrease Late Assignments: Assignment turned in after the start of Class will lose 25% of the grade After day, an assignment will not be accepted There is only one assignment, so make sure it is in on-time Bad Questions: Unfortunately, there are poorly written questions that find their way into exams from time to time If more than 3/4 of the class misses a question, it will automatically be deemed a ‘bad question’ and removed from consideration Fairness to Students: I strive to treat students with dignity and fairness This does not mean that I will agree with your ideas or opinions If you feel that I have been unfair in any way, please let me know It takes courage to so Make-Up Work: There are no do-overs in the business world are no make-ups or extra-credit given in this class Likewise, there Class Preparation It is particularly important to me that you prepare for class, arrive on time, stay for the entire class, keep your laptops and other non-necessary electronics closed and most of all respect your peers Being prepared for class means that you have read the assigned materials and that you have worked any assigned problems Ritter FIN 367 – Spring 2014 page That way, you will have thought about the material already I will not collect homework However, failure to the problems can result in a lower grade (See Attendance Policy and Class Participation Below) Homework should be done because you want to learn the material and contribute to the class, rather than because you want to receive a check mark I am a firm believer that you learn finance by working problems The assigned problems are there to ensure that you consistently progress in the course and pace yourself The material builds upon itself If you fall behind, it will be difficult to catch up at exam time Class Participation Class participation and questions are encouraged! If you have a question, you can be assured that someone else in the class has the same question, so ask However, participation will not always be voluntary This is why it is important to come to class prepared Participation will be 5% of your grade Class contribution consists of positive and constructive comments, questions, remarks, and answers in class Effective contribution means participating such that your answer or question moves our analysis and understanding forward In addition, as with your future employer, your participation includes participating in the class in an ethical and upstanding manner Any violations of the honor code or inappropriate attitude in class will be met with zero tolerance, removal from the classroom, and potential prosecution under University guidelines Attendance Policy and Late Policy I expect you to attend class and I expect you to be on time I understand that things happen – you oversleep, a bus runs late, you’re sick, etc I excuse three absences or late appearances You get absences / tardies After that, you are ineligible to have your grade curved When students don’t come to class tend to receive grades of D or F on the exams When students arrive late, they are generally confused and tend to disrupt other students and the teaching of the class Here’s the positive side of my policy: as long as your absences and late arrivals not add up to more than three (note: that is a total of three, not three of each) and you not disrupt our class in any other way (packing up early, leaving early, talking to your neighbors, etc.), you will be eligible to have your grade curved If you are not eligible to have your grade curved, you will be graded solely on the above grading scale As stated above, the curve in this class is normally significant and something that you want to be eligible to participate in If you need to leave the class early for any reason, please let me know before the beginning of the class period and leave quietly so as not to disturb the other members of class Students should attend the class section to which they are registered I only teach section My class will cover different topics than or topics in a different order than other professors Excused Absences: I honor excused absences as determined by the College of Business Administration The College makes the determination and you provide the approved excuse to me Please, not bring an excused absence to me until you have been approved by the College If you plan to observe a religious Ritter FIN 367 – Spring 2014 page holiday, please let me know at least weeks in advance according to University guidelines, so that I may make appropriate accommodations for you, if required Preparing for the Exams I will teach you the material in class and then you will need to spend time working AFTER class You will need to review what we did in class and work problems Working problems is essential You should read the textbook when you are having difficulty understanding my notes and problems If you still have questions, please come see me during my office hours as soon as possible Since you won’t have time to the homework problems again and again, let me suggest a good way to study After you work the problems, every few days you should go back and re-read the questions By doing this, you will trigger the thought process that you had to go through in order to answer the question And always remember, it’s not a matter of whether you are able to answer the question the first time you see it…the issue is whether you can recognize the question / problem and answer the question in the future (and whether you can apply these concepts to the real world) This class utilizes a lot of non-textbook readings These readings are used to enhance and expand on the text book readings and provide additional real world application for the discussions You will not be tested on anything in the non-textbook readings that is not specifically discussed in class This means you not need to memorize all of the facts and ideas in these readings However, you need to read them in order to be able discuss them in class Exams The Mid-Term exams will be held in class and will cover material covered up to that point in class The Final Exam will be comprehensive and will cover material from lectures, class discussions, assigned readings, and guest lectures Exams will strive to test the comprehension level, not merely memorization skills Exams tend to include most of the material that I have taught (rather than just a few big questions) The tests will include both qualitative and quantitative material The qualitative questions are usually short answer or multiple-choice The difficulty level of the multiple-choice questions is intended to parallel the level of question that you could face on the CFA® exam I not release old exams I have found that releasing old exams is problematic because (1) it results in people studying “to the exam” rather than studying to learn; and (2) students inevitably feel that old exams are easier than the current exam In addition, I not allow students to keep their exams This maintains the fairness of exams, since you know that no one has seen old exams You will have ample opportunity to review your exam during the week following the reception of the grade Book Review Project This project is intended to further your Investments education and to help you to Ritter FIN 367 – Spring 2014 page realize that you can continue to educate yourself when you graduate For your project, I want you to write a paper about “The Essays of Warren Buffett: Lessons for Corporate America” by Warren Buffett and edited by Lawrence Cunningham (3rd Edition) Your paper should be a well-written, coherent summary that addresses the following topic: “Key Takeaways from ‘The Essays of Warren Buffett’” There are two reasons that I have you this project: (1) people love this book; and (2) there is probably no better way to learn about the market and investing than by reading Buffett’s letters to his shareholders This book consolidates key points from letters If you have further interest, all of his letters are available online at www.berkshirehathaway.com Your paper cannot be longer than five pages plus a cover page In the business world, getting your point across succinctly and concisely is highly valued Doing so takes time Pascal is quoted as saying, “I would have written you a shorter letter if I only had more time.” Five pages is the total (other than the cover) regardless of whether you call something an appendix or anything else I will stop reading at five pages Anything after that point will not be considered The goal of your paper should be to allow someone who has not read this book to fully understand what it is about A good paper clearly distinguishes thoughts Your paper should evidence that fact that you have read the entire book The project is not a grade differentiator The reality is that the exams will result in grade differentiation The project is a learning exercise and the grading scale is normally pretty tight (usually 88 - 94) With that said, every so often someone turns in something that results in a significantly lower grade The fact that the grade range is normally tight is not intended to diminish the importance of this assignment This assignment is to be done alone Examples of times that people receive low grades include when someone clearly has not read the entire book or turns in a paper that is full of grammatical errors If you have not read the entire book, the highest grade you can receive is 50 (and that score isn’t likely) But, if you read the book and you feel like you have made a good-faith effort, you should not worry You will know if you fall into one of the “troubled” categories Ritter FIN 367 – Spring 2014 page Tentative Class Schedule All readings correspond to “Investment Analysis & Portfolio Management” 10 th Edition by Reilly and Brown (Cengage South-Western, 2012) Readings are to be read ahead of class All classes will be held in GSB 5.142A on Tuesdays & Thursdays from 3:30 to 5:00 The following Schedule is Subject to Change Check Canvas for any updates and the latest version Tuesday, January 14 Class #1 The Global Investment Setting Week Textbook: None Readings: None Problems: None Thursday, January 16 Class #2 The Global Investment Setting (Cont.) Textbook: Chapter & Appendix Readings: “Understanding Expected Returns” Video: “How the Economic Machine Works” Problems: Q1.11, P1.5,P1.9,P1A.2,P1A.3 Tuesday, January 21 Class #3 Week Week The Asset Allocation Decision Textbook: Chapter Readings: “Does Asset Allocation Policy…” Problems: Q2.1, Q2.6, Q2.9, P2.5 Thursday, January 23 Class #4 Global Capital Markets & Security Types Textbook: Chapter & Appendix Readings: “International Diversification Works ” “Rise of Cross-Asset Correlations” Problems: Q3.4, Q3.5, Q3.10, P3.4, P3A.1, P3A.2 Tuesday, January 28 Class #5 Thursday, January 30 Class #6 Security Markets & Trading Security Market Indexes & Indicators Textbook: Chapter Readings: “Embracing Complexity” “ETFs, Market Structure, and Flash ” Problems: Q4.6, P.4.2, P4.6, P4.7 Textbook: Chapter Chapter 16 (16.1,16.2,16.4,16.5 only) Readings: “A Primer on Commercial Real…” “Alerian MLP – Fact Sheet” “Alerian MLP – Methodology” Problems: Q5.16, P5.1, P5.2,P.5.4a&b Ritter FIN 367 – Spring 2014 Tuesday, February Class #7 Market Efficiency & Capital Markets Week Textbook: RB Chapter 6: 147161,165-176 Readings: “The Demographics of Overconfidence” “Tools for Financial Innovation…” Problems: Q6.24, P6.1, P6.2, P6.3 Tuesday, February 11 Class #9 No Class Week Textbook: Readings: Risk …” Problems: “Engineering Targeted Tuesday, February 18 Class #11 Week Multifactor Models of Risk & Return Thursday, February Class #8 An Introduction to Portfolio Mgmt Textbook: RB Chapter Readings: None Problems: P7.3, P7.5,P7.6,P7.7 Thursday, February 13 Class #10 Asset Pricing Models Textbook: RB Chapter (excluding 8.4) Readings: None Problems: Q8.3, Q8.6, P8.3, P8.5, P8.7, P8.9 Thursday, February 20 Class #12 Mid-Term Exam #1 Textbook: RB Chapter (exclude 9.1.3) Readings: Problems: P9.3, P9.4 Tuesday, February 25 Class #13 Macro Analysis & Intro to Equity Valuation Week page Textbook: RB Chapter 11 (11.1-11.4 only) & Appendix 11 RB Chapter 12 (12.1-12.3 only) Readings: None Problems: Q11.1, Q11.8, P11.4, P11.6, P11.15 Thursday, February 27 Class #14 Company Analysis & Stock Valuation Textbook: RB Chapter 14 (14.1-14.4 only) RB Chapter 15 (15.1-15.3 only) Readings: None Problems: P14.3,P14.8,Q15.1,Q15.2,Q15.3 Ritter FIN 367 – Spring 2014 Tuesday, March Class #15 Company Analysis & Stock Valuation Week Week Week 10 Week 11 Week 12 Textbook: RB Chapter 11 (11.5 Only) RB Chapter 14 (14.8-14.9 only) RB Chapter 16 (16.3 only) Readings: None Problems: Q14.10, Q14.21,Q16.9,P16.5 page Thursday, March Class #16 Bond Fundamentals Textbook: RB Chapter 17 (Exclude 17.3) RB Chapter 18 (18.1,18.2,18.5 only) Readings: None Problems: Q17.2,Q17.8,P17.4,P18.2 SPRING BREAK! Tuesday, March 18 Class #17 Analysis & Valuation of Bonds Textbook: RB Chapter 18 (18.8 only) Readings: “What Practitioners Need to Know…” Problems: Q18.7, Q18.8, P18.3, P18.7 Tuesday, March 25 Class #19 Performance Measurement I Textbook: RB Chapter 25 (25.1-25.4 only) Readings: None Problems: Q18.7, Q18.8, P18.3, P18.7 Tuesday, April Mid-Term Exam #2 Thursday, March 20 Class #18 Fixed Income Strategies Textbook: RB Chapter 19 (19.119.3.1,19.5only) Readings: None Problems: Q19.1, Q19.8, P19.1, P19.7 Thursday, March 27 Class #20 Performance Measurement II Textbook: RB Chapter 25 (25.5-25.7 only) Readings: “The Right Answer to the Wrong Q ” Problems: Q18.7, Q18.8, P18.3, P18.7 Thursday, April Class #22 Forwards & Futures - Intro Textbook: RB Chapter 20 (20.1-20.1.2, 20.2.2, 20.4.1 only) RB Chapter 21 (21.1 only) Readings: None Problems: Q20.2 Ritter FIN 367 – Spring 2014 page 10 P20.1a1&b1,P20.2a1&b1, P20.3a1&b1 Tuesday, April Class #23 Forwards & Futures – Cont Week 13 Textbook: RB Chapter 21 (21.221.4.5 only) Readings: None Problems: Q21.7, P21.4, P21.9, Tuesday, April 15 Class #25 Options – Cont Week 14 Textbook: RB Chapter 20 (20.3.1 – 20.3.4 only ) RB Chapter 22 (22.2.122.2.3 only) Readings: None Problems: P20.5c, Q22.5, P22.2, P22.3, P22.4 Tuesday, April 22 Class #27 Professional Asset Mgmt – Part I Week 15 Week 16 Textbook: RB Chapter 24 (24.1-24.4 only) Readings: “The Winner’s Game” Problems: Q24.1, Q24.5, P24.1, P24.8 Tuesday, April 29 Class #29 Professional Asset Mgmt – Part III Textbook: None Readings: TBD – Topics in Private Thursday, April 10 Class #24 Options – Intro Textbook: RB Chapter 20 (20.1.3, 20.1.4, 20.2.3, 20.2.4, 20.4.2, 20.4.3 only ) RB Chapter 22 (22.1 only) Readings: None Problems: Q20.2 P20.1a2&b2,P20.2a2&b2, P20.3a2&b2 Thursday, April 17 Class #26 Options – Cont Textbook: RB Chapter 22 (22.2.4 22.2.6 & 22 4.1 - 22.4.6 only ) Readings: None Problems: Q22.4, P22.6, P22.10, P22.11 Thursday, April 24 Class #28 Professional Asset Mgmt – Part II Textbook: RB Chapter 24 (24.5 only) Readings: “The Hedge Fund Mirage” “CFA Code of Ethics” Problems: Q24.8, P24.10 Thursday, May Class #30 Flex Class / Course Review This class will be used to finish any carry over materials If we are on schedule, then this class Ritter FIN 367 – Spring 2014 Equity Problems: TBD page 11 will be used as a course review THIS OUTLINE SHOULD BE CONSIDERED REPRESENTATIVE OF THE MATERIAL WE WILL COVER DURING THE SEMESTER; IT IS SUBJECT TO CHANGE UPON PROPER NOTIFICATION – WHICH INCLUDES POSTING ON CANVAS AND / OR IN CLASS NOTIFICATION KEY DATES PLEASE NOTE: I DO NOT GIVE MAKE-UP EXAMS (EXCEPT FOR DOCUMENTED ILLNESS OR UNIVERSITY APPROVED ABSENCES) IF YOU CAN’T MAKE THE EXAMS, PLEASE DO NOT TAKE THIS CLASS I AM FREQUENTLY ASKED ABOUT TAKING THE FINAL EXAM EARLY IN ORDER TO ACCOMMODATE PLANE TRIPS HOME I AM SIMPLY UNABLE TO ACCOMMODATE THESE REQUESTS I ABIDE BY THE UNIVERSITY EXAM SCHEDULE Thursday, February 20: Mid-Term Exam – IN CLASS Thursday, April 1: Mid-Term Exam – IN CLASS Monday April 14 – Book Project Due by 5PM in my email Box Final Exam – Per University Schedule – Comprehensive Ritter FIN 367 – Spring 2014 Short Bio John Ritter, Esq., CFA Lecturer Department of Finance • MBA, University of Texas Graduate School of Business, 1994 • JD, University of Texas School of Law, 1994 • BS, University of Texas, 1991 CFA - 2002 page 12 Ritter FIN 367 – Spring 2014 page 13 Academic Dishonesty Academic dishonesty will not be tolerated Any individual suspected of cheating, including stealing or using stolen examinations, will be disciplined to the maximum extent possible Review UT Honor Code at http://registrar.utexas.edu/catalogs/gi09-10/ch01/index.html The McCombs School of Business has no tolerance for acts of scholastic dishonesty The responsibilities of both students and faculty with regard to scholastic dishonesty are described in detail in the Policy Statement on Scholastic Dishonesty for the McCombs School of Business: By teaching this course, I have agreed to observe all of the faculty responsibilities described in that document By enrolling in this class, 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 an/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 the official University policies and procedures on scholastic dishonesty as well as further elaboration on what constitutes scholastic dishonesty Students with Disabilities Upon request, the University of Texas at Austin provides appropriate academic accommodations for qualified students with disabilities Services for Students with Disabilities (SSD) is housed in the Office of the Dean of Students, located on the fourth floor of the Student Services Building Information on how to register, downloadable forms, including guidelines for documentation, accommodation request letters, and releases of information are available online at http://deanofstudents.utexas.edu/ssd/index.php Please not hesitate to contact SSD at (512) 471-6259, 471-6441 TTY or via e-mail if you have any questions Religious Holidays By UT Austin policy, you must notify me of your pending absence at least fourteen days prior to the date of observance of a religious holiday day If you miss a class, Ritter FIN 367 – Spring 2014 page 14 an examination, a work assignment or a project in order to observe a religious holiday day, you will be given an opportunity to complete the missed work within a reasonable time after the absence  ... one Grading Ritter FIN 367 – Spring 2014 page Your grade in the course will be determined as follows: Mid-Term Exam (Weeks through 11) 20% Mid-Term Exam (Weeks 13 through 20) 25% Final Exam (Comprehensive):... Mid-Term Exam – IN CLASS Thursday, April 1: Mid-Term Exam – IN CLASS Monday April 14 – Book Project Due by 5PM in my email Box Final Exam – Per University Schedule – Comprehensive Ritter FIN 367. . .Ritter FIN 367 – Spring 2014 page an outline to reduce the amount of rote copying of definitions and formulas but certainly not as a self-contained lecture summary