Investments (BUS 365)
Syllabus
Winter 2008: TR 10:10 – 12:10 (Huntley 230), 2:30 – 4:30 (Huntley 235)
Instructor: Professor Scott Hoover Office: 121 Holekamp Hall
Office Phone: (540)458-8178 Home Phone: (540)463-4874
Fax: (540)458-8639 Email:
Course Website: http://home.wlu.edu/~hoovers/bus365
Readings: The Warren Buffett Way, by Robert Hagstrom
Warren Buffett’s letters to shareholders (to be distributed in class)
Stock Valuation, by Scott Hoover
Course Prerequisites
Business/Economics 202
Business 221
Learning Objectives
This course was designed to provide students with both a specific knowledge of the tools needed to conduct security analysis and a general knowledge of real-world investments. Specifically, we have the following learning objectives
1. Students will understand what history teaches us about the returns on various asset classes.
2. Students will understand how to estimate the value of future cash flows.
3. Students will understand the theoretical relationship between risk and expected return.
4. Students will understand key bond concepts such as duration and immunization
5. Students will understand both the strategic use of derivatives and the relationship between derivative prices and key underlying variables.
6. Students will understand different techniques we might use to value common stock.
Course Design
To provide motivation and structure to the course, discussions are cast in terms of answering the simple question, “What is the value of a company’s stock?” To answer that question, we must first understand how to value the company’s debt and the company’s employee stock options. The course is therefore one in which we consider the valuation of three major asset classes, equity, debt, and derivatives. We begin by discussing the fundamentals of valuation, including financial statement analysis, the time value of money, and the risk-return relationship. We then consider bond valuation and derivative valuation before tying everything together to value stocks. The structure of the course is one of intensive classroom discussion coupled with substantial out-of-class assignments.
All the course notes will be provided to students on the course website. Posting the notes prior to class has an adverse effect on class discussions, so notes will be posted only after a given topic is completed. Although students may be tempted to use course notes and other material from prior terms, such activity is strictly forbidden.
Assignments
Students are encouraged to study together throughout the term, but may not work together on graded assignments without prior authorization. Receiving any unauthorized help on assignments may be considered a violation of the Honor System. If you have any doubt about what is appropriate, please ask me.
Exams
There will be two exams. The final exam will be cumulative in the sense that the material covered late in the course builds upon the material covered before the midterm. As such, much of the course material is covered on both the midterm and the final exam. Generally speaking, however, material covered on the midterm will be covered only in a qualitative sense on the final exam.
Group Homeworks
There will be two graded homework assignments in which students are asked to analyze historical investment returns. These assignments require a substantial amount of thought and effort, and I will be happy to provide ample support on them.
Course Project
The course project is one in which students are asked to prepare a “pitch book” in which they present an analysis of a given stock. The project requires a substantial time commitment and students are encouraged to be disciplined in working on it throughout the term.
Grading
Course grades will be set based on a curve to be determined. Grades will not be curved down. For example, if a student earns a 90% in the class, that student will receive no worse than an A- for the course. Points will be assigned as follows:
Attendance/Participation: 100
Homework Assignments: 100
Course Project: 100
Midterm: 100
Final Exam: 100
Total: 500
Attendance and class participation are expected, and a portion of the grade will be based on those elements. In addition, excessive absences will result in a failing grade for the course, regardless of the student’s performance on other assignments. For example, a student who misses half the classes will automatically receive a grade of ‘F’ for the course. You must take the course in order to pass it! Furthermore, history shows that those with poor attendance in this course tend to perform rather poorly on exams-- do not underestimate the value of classroom discussions.
Course Schedule: Important Dates (subject to change)
Class # / Date / Event4 / Thursday, January 17 / Founder’s Day, Adjusted Schedule
5 / Tuesday, January 22 / Homework #1 Due
9 / Tuesday, February 5 / Homework #2 Due
10 / Thursday, February 7 / Class may be cancelled
12 / Thursday, February 14 / Midterm
20 / Thursday, March 20 / The Warren Buffett Way to be completed
23 / Tuesday, April 1 / Course Project due
24 / Thursday, April 3 / Last day of class
Various dates / Readings from Buffett’s letters to shareholders
1