CALIFORNIA STATE UNIVERSITY-LONG BEACH

COLLEGE OF BUSINESS ADMINISTRATION

DEPARTMENT OF FINANCE, REAL ESTATE & LAW

FINANCE 450: SECURITY ANALYSIS

Fall 2005

Section 1 – Tuesday & Thursday Afternoons, 12:30 – 1:45 – CBA 235

Section 2 – Thursday Evenings, 7:00 – 9:45 – CBA 124

 

 

Instructor:  Peter A. Ammermann, Ph.D.

Office:  CBA 328

Phone:  (562) 985-7526

E-mail: pammerma@csulb.edu

Website: http://www.csulb.edu/~pammerma

Office Hours: 

My official office hours are listed in the following table.  Additional office hours are available by appointment.

Monday

Tuesday

Wednesday

Thursday

Friday

 

2:00 – 3:15

7:00 – 7:30

 

2:00 – 3:15 (alternate weeks)

6:20 – 6:50

 

 

Course Description and Objective: 

This course could best be described as a course in “Perspectives on Security Analysis.” As such, it provides an in-depth discussion of investment and portfolio analysis, providing a combination of theoretical and practical knowledge, although the larger emphasis will actually be placed on analysis at the portfolio level.  The course will be divided into the following components: 

 

  i. Introduction

  I. The EMH and Behavioral Finance

 II. Portfolio Theory and Quantitative Investment Analysis

III. Portfolio Construction and Performance Assessment

 IV. Security Valuation and Fundamental Analysis

  V. Bond Analysis and Bond Portfolio Management

 

Using these building blocks, the students are expected to gain an advanced understanding of the investment process, which they must apply to a simulated, group-managed portfolio that satisfies a specific risk-return objective.  Furthermore, the students must develop their empirical skills to apply investment models and techniques.  Students are expected to apply investment knowledge and relevant financial models taught in class to complete each assignment.  The instruction method used for the course is lecture and group projects, together with in-class presentations.  The learning experience should be interactive rather than passive. 


 

Required Texts: 

1.      “Investment Analysis and Portfolio Management, 7th Ed.,” by Frank K. Reilly and Keith C. Brown, The Dryden Press

2.      “The Inefficient Stock Market: What Pays Off and Why, 2nd Ed.,” by Robert A. Haugen, Prentice Hall 

Optional Text: 

1.      “The Intelligent Investor, Revised Edition,” by Benjamin Graham, updated with new commentary by Jason Zweig

                                               

Some Other Recommended Readings:  

“One Up On Wall Street” and “Beating the Street,” by Peter Lynch; “The New Buffettology,” by Mary Buffett and David Clark; “The Warren Buffett Way” and “The Warren Buffett Portfolio,” by Robert G. Hagstrom; “Value Investing: From Graham to Buffett and Beyond,” by Bruce C.N. Greenwald, et al; “John Neff on Investing,” by John Neff; “Buffett: The Making of an American Capitalist” and “When Genius Failed” by Roger Lowenstein; “Fischer Black and the Revolutionary Idea of Finance,” by Perry Mehrling; “Capital Ideas,” by Peter Bernstein; “The (Mis)Behaviour of Markets: A Fractal View of Risk, Ruin and Reward,” by Benoit B. Mandelbrot and Richard L. Hudson; “A Random Walk Down Wall Street,” by Burton Malkiel; “Common Stocks and Uncommon Profits,” by Philip Fisher; “Technical Analysis Explained” and “Investor Psychology Explained” by Martin J. Pring; and “Practical Speculation” by Victor Niederhoffer and Laurel Kenner

 

Recommended Computer Skills:  

Microsoft Applications: Word, PowerPoint, and Excel

Any statistical / regression software package, such as Minitab, SPSS, the Regression toolkit in Excel, and / or the analytical tools of the Bloomberg Professional Service

 

Prerequisites:  FIN 350 (Note that this class also relies on material from IS 310, which is a co-requisite for FIN 300)

 

Class Procedures:

 

1.      Your success in this class will have a direct relationship to the amount of reading and preparation you do.  The lectures and exercises will concentrate on the major and more difficult concepts involved in the text.  If you have read over and familiarized yourself with the assigned chapter prior to lecture, your understanding of the discussion will be greatly enhanced.

2.      Participation in class is a necessity and will contribute to your grade.

3.      In addition to the lectures, an integrated group portfolio project will be an important part of the learning process for this course.  As part of this project, you will be part of a group that will maintain a simulated portfolio.  This will give you the opportunity to apply, in a virtual setting, many of the topics covered in the lectures.  This will lead to a better understanding of the intricacies, complications, and rewards of investment and portfolio analysis and the investment process.  Portfolio updates must be presented to the class on a regular basis.  Groups for this project must be chosen by the end of the first week of class.  Note that other homework assignments will also be completed as part of this group. 

4.      In general, the use of the Internet will be an integral part of the course, and information from various financial websites will be drawn upon for both in-class discussion and outside assignments. 

5.      For in-class discussion, knowledge of current business news will be assumed and drawn upon.  Thus, frequent reading of financial magazines and newspapers, reading of financial websites, and viewing of financial news programs is strongly recommended.

6.      Some of the material covered will be complicated.  If, after reviewing the material, you find you still don’t understand it, please take advantage of office hours, and ask!!

8.      The tests will contain numerous quantitative problems.  It is recommended that you attempt to work through some of the end-of-chapter problems after each chapter is covered and in preparation for the tests.  Answers will be provided to those students who attempt to work such problems. 

9.      The university policy on academic dishonesty will be strictly followed.

10.  It is the student’s responsibility to notify me in advance of the need for accommodation of a disability or of the expected dates of predictable excused absences (e.g., track meets).

11.  It is the student’s responsibility to make up any assignments that are missed due to excused absences.

 

Planned Performance Evaluation: 

Component

Percentage

Test #1

20

Test #2

20

Integrated Portfolio Project

& Group Homework Assignments

20

Journal Article Summary Reports

5

Quizzes & Participation

5

Final Exam

30

Total

100

 

Grades will be assigned on the following scale:

 

A  =  4.0

B  =  3.0

C  =  2.0

D  =  1.0

F   =  0.0

 

Performance Evaluation (Cont.): 

1.      Letter grades will be assigned based upon the ranges of actual component outcomes. 

2.      Each exam will include some combination of conceptual and problem-solving questions.

3.      Test #1 is tentatively planned for Thursday of the 6th week of class. 

4.      Test #2 is tentatively planned for Thursday of the 12th week of class.

5.      The relative weights for the two mid-term exams will be assigned in accordance with the student’s relative performance on these two exams.

6.     The final exam will be comprehensive.

 

Tentative Topic Outline and Schedule (will likely be altered as the term progresses): 

 

Weeks

Topic / Reading

Assignments

(Partial Listing)

Introduction – Historical Perspective

1 – 2

Historical Perspective (Haugen, Ch. 1, R&B, Ch. 3, pp. 90-99, and Warren Buffett: Oracle of Omaha)

Economic and Capital Market Outlook

Mission Statement Presentations

I. The EMH and Behavioral Finance

3 – 4

The Efficient Market Hypothesis (Ch. 6)

Mauboussin (Shift Happens)

Rubinstein (Rational Markets: Yes or No?)

Behavioral Finance (Mind Over Markets)

Mauboussin (What have you learned in the last two seconds?)

 Portfolio Objectives and Strategy

II. Portfolio Theory and Quantitative Investment Analysis

5 – 8

Introduction to Portfolio Management (Ch. 7)

Introduction to Asset-Pricing Models (Ch. 8)

Multi-Factor Models of Risk and Return (Ch. 9)

"Estimating Expected Return with the Theories of Modern Finance" (Haugen, Ch. 2)

Haugen, Part I: "What Pays Off"

Test #1

Beta / Correlation Estimation

Two-Stock Portfolio Possibilities Curve Estimation

III. Portfolio Construction and Performance Assessment

9 – 11

Equity Portfolio Management Strategies (Ch. 17)

Evaluation of Portfolio Performance (Ch. 26)

Videotape: Trillion Dollar Bet

 

IV. Security Valuation and Fundamental Analysis

12 – 13

Introduction to Security Valuation (Ch. 11)

Industry Analysis (Ch. 14)

Company Analysis and Stock Selection (Ch. 15)

Graham (Ch. 18)

Test #2

Industry Assessments

Comparative Company Evaluations

V. Bond Analysis and Bond Portfolio Management

14

The Analysis and Valuation of Bonds (Ch. 19)               

Bond Portfolio Management (Ch. 20)

 

VI. Conclusions

15

"The Wrong 20-Yard Line" (Haugen, Ch. 15)

Final Portfolio Report Binders Due

 

 

Note 1 – Prior Background: Knowledge of basic concepts of investments and the time value of money will be assumed, as well as basic concepts of statistics.  

 

Note 2 – Changing of Schedule: The contents of this syllabus may be subject to change if circumstances require. If such changes do occur, they will be announced in class.

 

Note 3 – Add-Drop Policy:  Adding or dropping/withdrawing from a class should comply with the University and College of Business Administration policies and rules.