Golden Gate University Department of Finance and Economics FI 350 – Portfolio Management January 2007

Marty Dirks – 415-845-7829– [email protected] Elliot Blumberg – [email protected] Adjunct Professors

Course Objectives

This is a hands-on course, placing students in the role of an equity securities analyst and portfolio manager. As such, students will regularly submit investment ideas for in-class and online discussion. Through this process, students will enhance their ability to develop their investment analysis skills as well as communicate their investment ideas, both verbally and in writing. Students will consider all aspects of the investment evaluation process including valuation, event catalyst impact, risk management and hedging.

Alternative investment strategies utilized by funds will be discussed, including long- (Jones Model), risk , , , and trading of securities.

Security selection and risk management will be examined through the use of textbook excerpts, journal articles, newspaper and magazine articles, SEC filings and written case situations.

Portfolio optimization, and portfolio performance attribution and evaluation will be presented. Creating synthetic positions and risk management through use of options will be examined.

Prerequisites

FI 340. Basic understanding of financial accounting and equity valuation techniques.

This is a “capstone” course, building concepts from many prerequisite courses. Students should be familiar with basic option theory and using option “.” Options As A Strategic Investment is on reserve in the library. Students should understand the concepts in this book prior to the lectures involving options theory.

Similarly, students should be familiar with the material in an investments text such as Investment Analysis and Portfolio Management by Reilly and Brown or Investments by Bodie, Kane and Marcus. These books are on reserve in the library.

This is not to say students need to be ready for a comprehensive exam on all the material in these books, but that the books are a “comfortable read.”

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Required Text and other Readings

Required: • Harvard Business School Cases are available for purchase online at http://harvardbusinessonline.hbsp.harvard.edu or on reserve in the Golden Gate University library • A 15-week online subscription to the Wall Street Journal and Barron’s. • Journal and news articles on reserve in Golden Gate University online library.

Recommended for reference (not required) and on reserve in library: • Reilly and Brown, Investment Analysis and Portfolio Management, Thomson-South-Western • Zvi Bodie, Alex Kane and Alan Marcus, Investments, Irwin McGraw Hill • Lawrence G. McMillan, Options As A Strategic Investment, New York Institute of Finance

Grading Written Assignments 20% Presentation and Class / Online Participation 25% Team presentation of assigned case 10% Midterm Exam 20% Final Exam 25%

Extra Credit Work

It may be possible for students to arrange extra credit assignments. If this is of interest, discuss it with an instructor.

Class Reflection Sheet:

You may be asked to complete a reflection sheet at the end of a class to give feedback to instructors. Please be diligent and complete this short feedback form. The purpose of this is to help improve the course with feedback while your memory of the class is fresh. It will also help assure your attendance and in-class participation is correctly noted.

Office Hours:

Instructors are usually available to meet with students for the hour prior to the start of class. If you wish to meet with us, contact us by Email or phone to schedule an appointment.

Teaching Mode

The course will be taught in “Mixed Mode” – using both in-classroom lectures and CyberCampus online.

In-Class Participation

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Much of the class time is designed for an exploration of the assigned readings and cases through class discussion. The value of the class itself is highly dependant on the participation of the entire class. You are expected to attend each class and participate in the class discussions. Effective participation will require that you arrive at every class period having read the assigned text material and case(s) and prepared to offer and defend your recommendations. A brief guide to preparing for case discussions is included in this syllabus.

One objective of this course is to help assure your career success. Discussion, defending your ideas and being open to discuss other’s different ideas are critical to success in most professional positions you may seek. This classroom provides a “safe” environment where you can practice these skills. Contribution to discussion, no matter how difficult or awkward, will be rewarded, where no participation cannot be rewarded. For those of you who find class discussions challenging, we encourage you to step into uncomfortable territory. Where you find your greatest fear, you often find your greatest opportunity for personal growth.

It is understood that some students are more comfortable speaking in public than others. Those that participate less in class will be expected to compensate by being especially active in online discussions.

Students are encouraged to submit recent news stories of interest for discussion in class. (It is best to Email the news story to the instructor in advance of the class meeting.)

Please use name cards (provided) to help professors learn student names and assure in-class participation is properly credited. Attendance is important; if you are absent, you cannot participate and you cannot be given credit for participation.

Group Case Analysis

Each student will be required to present one case to the class as part of a 3-4 student team. Other classmates must be prepared to discuss the case as well. Please select your case preparation group by the second class meeting.

Late Assignments

Work submitted late is generally discounted at half credit. Note that this is a failing grade for that assignment. If there are unusual circumstances, approval for late submission must be arranged in advance with an instructor.

Makeup exams will be given only in exceptional circumstances, and only with prior approval of an instructor.

Note This is a Tentative Syllabus

This tentative syllabus is based on the assumption that there are no guest lecturers. As guest lecturers become available and as unanticipated students needs become clear, this course will evolve to accommodate changes. Students should expect changes to the syllabus as the course FI 350 Page 4 progresses, including the possibility that a scheduled online class may be changed to a classroom lecture.

Plagiarism and Other GGU Policies

Students should consult the current Golden Gate University Bulletin for University policies regarding incompletes and withdrawals. In addition, students should refer to the Bulletin for University policies regarding academic integrity.

The university’s official (and extended) policy on plagiarism is found online at: http://www.ggu.edu/services/studentaffairs/griffin/cheating.htom

The official university policy on plagiarism follows: “Golden Gate University requires that students be honest in their academic work. Academic dishonesty is viewed as an ethical issue and the violation of the principles expressed in the university’s Mission Statement. Academic dishonesty degrades all those who depend upon the integrity of the university, its courses, and its degrees. Definitions of academic dishonesty, identification and reporting procedures, academic and administrative sanctions and appeal procedures are outlined in detail in the Griffin (student handbook), and are available from the Division of Student Affairs.”

In the workplace, discussion and collaboration with peers is valuable; it may be essential to your success. We encourage collaboration in this class. The only exceptions are that the exam work, the actual writing of your assignments and the cyber discussion dialog is your own work.

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Tentative Syllabus

Approximately half of classes will be held Wednesdays at 4:00 PM and half will be taught online, with flexible hours. Live classes will be held in Building 536M (the GGU downtown San Francisco campus at 536 Mission Street) in Room ____.

Lecture 1 – January 10 – Introduction

Introduction to the course Investment industry overview Trading exercise Selection of industries by students for individual research projects

Lecture 2 – January 17 – Industry analysis & overview of strategies

Analysis of industries Sector valuation and levers Hedge funds Discussion of student/analyst equity recommendations and sector investment write-up requirements

Lecture 3 – January 24 – Equity analysis

Industry analysis, using semiconductor industry as an example Equity analysis Valuation of equities Short selling Total enterprise valuation analysis

Lecture 4 – January 31 – Industry analysis

Students submit an analysis of how companies compete in their chosen sector

Lecture 5 – February 7 – T Eaton case and student presentations of short investments

T Eaton case Written analysis of individual short recommendations is due Wal-Mart discussion

Lecture 6 – February 14 – Presentations of long recommendations within student sectors

Written analysis of individual long recommendations is due

Lecture 7 – February 21 – Midterm Exam

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Lecture 8 – February 28 – Options Lecture 1

Inputs to option pricing (Volatility, Interest, Underlying Price, Strike Price, Time) Characteristics: Delta, Gamma, Vega, Theta Calls: Buying with and without stock Puts: Buying with and without stock Risks and Rewards

Lecture 9 – March 7 – case and quantitative aspects of portfolio management

Harvard Business School Note: Note on Risk Arbitrage Harvard Business School Case: Farallon Capital Management: Risk Arbitrage (A) Portfolio performance analysis Asset allocation

Lecture 10 – March 14 – Options Lecture 2

Volatility-based decisions Spreads: Vertical (Long Put = Short Call), Calendar, Diagonal Straddles, Strangles and Butterflies

Lecture 11 – March 21 – Pine Street case and various topics

Harvard Business School Case: Pine Street Capital Momentum investing Statistical arbitrage

Lecture 12 – March 28 – Options Lecture 3

Advanced options topics arbitrage Mergers & acquisitions

Lecture 13 – April 4 – Strategic Capital Management case and various topics

Harvard Business School Case: Strategic Capital Management, LLC (A) Valuation bubbles Seasonality Sustainable fund withdrawal rates

Lecture 14 – April 11 – Portfolio optimization

Lecture 15 – April 18 – Long Term Capital Management case and various topics

Lecture 16 – April 25 – Final Examination FI 350 Page 7

Investment Recommendations

There will be several investment recommendation write-ups required during the class. They must be publicly traded equities with a market capitalization of $2 billion or more.

The write-up should be 1-2 pages long, in 12 point type with 1-1/2 space lines. Additional information may be attached, such as relevant new stories, SEC filings or other analysis.

This should be presented from the point of view as an analyst who may present a recommendation to a portfolio manger for consideration in their portfolio or a portfolio manager meeting with an investor. The idea for the recommendation may be selected from a story in the Wall Street Journal, Barron’s, Fortune, Forbes or any other source.

The write-up should include the basic investment thesis, catalyst events which will help realize profit in the position, suggestions on how to reduce risk (i.e. a short sale against a long position, use of an option strategy as opposed to simply an outright stock position, etc.)

Outline additional research steps required prior to implementing the position. (i.e. questions to ask management, surveys to be performed, etc.)

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Case Analysis Guide I. Why do cases?

Develop analytical and judgment skills Learn how to ask the right questions Gain exposure to a variety of organizational and managerial situations Enhance skills to analyze, persuade, defend and change your opinion as new facts or perspectives are revealed Enables practicing analysis of a real business situation in a classroom environment Cases help develop analytical instincts/intuition and the ability to “think on your feet”

II. What to expect in a case:

The critical issues are not explicitly identified The information is ambiguous and contradictory Some information may be redundant or irrelevant There is no unique or right answer

III. How to approach a case:

Read the case through quickly to get a general feel for what the case is about and what information is given. Reread the case carefully, noting key facts and information. Develop a sense of the important issues and basic problems. Decide what issues must be resolved and provide answers to them. Use and analyze the data and information in the case. Develop a set of recommendations that are supported by your analysis. Evaluate and reject alternative courses of action based on your analysis. Address implementation issues. Consider: goal consistency, strategic relevance, organizational capability, political feasibility, personal agendas, investment risk factors.

IV. Class discussion suggestions:

Take a stand on the issues and present your case with conviction. Keep an open mind Bring in your outside experience, text material, outside reading and outside research. Be concise and to the point Push beyond any hesitation or shyness Learn from other students Make comments that build on those made by previous speakers, or suggest ideas that bring together the ideas of other speakers

V. Written case suggestions:

Don’t start writing until you have completed your analysis. Address the assigned issues, if there are any. Avoid extensive restatement of case material. Use tables, graphs or other attachments if helpful. Spend the majority of your effort on analysis, not the write-up. After your analysis is completed do not spend more than 30 minutes on your case write-up. FI 350 Page 9

Instructor Biographies

Marty Dirks

Martin Dirks was a hedge fund analyst or portfolio manager for 15 years, working for Feshbach Brothers, a short-only hedge fund, Odyssey Partners, a multi-strategy hedge fund based in New York, Harvard Management Company, which manages the endowment for Harvard University, and his own firm. He now consults to hedge funds and law firms. He has an MBA from Harvard Business School and a BS in Physics from Bemidji State University.

Elliot Blumberg

Elliot Blumberg has been a stockbroker or hedge fund manager for most of his career, beginning in 1991. He managed $23 million in options arbitrage strategies for Vigilant Asset Management LLC, a company he founded. Elliot now consults to the investment industry. He has a BA in Psychology from The University of Southern California and an MBA from Columbia Business School.