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Portfolio management course Dubai

Portfolio Management

I am teaching a new course on portfolio management and portfolio optimization at the S P Jain School of Management and Research in Dubai starting this Saturday.  The sessions will run for six evenings for a group of Executive MBA students at the SP Jain campus in academic city.

Here is your chance to follow my classes, reading assignment, problem sets and case discussions. (Last update – 28th November 2016, 9:40 am PST – final exam prep challenge and bonus point opportunity solution posted).

Portfolio management 101 – Course background

At an individual level the biggest reasons to study portfolio management is the need to take ownership and control of our own savings and investments. Even if you don’t want to manage and run your own money, it is important to understand the many choices available today to retail and high net worth investors.

Whether it is investment styles, fees, taxes, sector allocation and selection, the models available are bewildering in their range, complexity and eventual payoff.

As fund managers the speed with which volatility switches gears and technology changes the investment landscape requires us to better understand how our investment management models are put together. Under what conditions would these models hold and what factors would create enough stress to break them.

The portfolio management course focuses on a few core themes.

  1. The first is investment landscape. How has the environment changed over the last two decades? What factors do we need to be aware off? What can history tell us about future shock?
  2. How do models work at the fundamental level? What assumptions are questionable and what assumptions hold? What drivers can break models and create disasters as well as opportunity
  3. There is a dictionary worth of terms and terminology in the investment management field? How do I navigate it?
  4. How does portfolio management work in practice? Where do I get data, what do I do with it? How do I optimize for performance and risk?
  5. What does the regulatory landscape look like? We look at the Galleon fund case study to understand the challenges around regulatory compliance that fund managers need to understand and get comfortable with.
portfolio-management-optimization-1a

Portfolio management

Here is the six day schedule of sessions and topic outlines I will cover. Updates, reading materials and transcripts will be posted here as they become available.

portfolio-management-dubai-schedule-2

Day One – Overview and introduction. Portfolio management – Drivers and context.

Understanding risk and reward. A first look at mean variance optimization. Putting together a simple equity portfolio. Sector allocation over security selection.  Regulatory framework.

Day one core topics – Mean variance optimization. Regulatory compliance. (See reading list below).

  1. Day one lecture one – part one – Portfolio Management – Introducing risk and return.
  2. Day one lecture one – part two – Building the Excel Portfolio management worksheet.
  3. Also see Market Risk – Portfolio volatility and Market risk metrics – volatility trend analysis.

volatility-vs-return-first-look-1

Day Two – Multi asset class portfolio optimization.

Optimizing a multi asset class portfolio. Adding fixed income, foreign exchange and commodities to the mix.  Single and multi-period optimization.

Please see Fixed Income Portfolio Optimization using Solver and Duration and Convexity calculations for Fixed Income Bonds.  Also Liquidity stress testing a fixed income portfolio.

Day Three – Portfolio management models. Review of models and weaknesses.

A second look at the efficient frontier. Multi factor models and APT.

alpha-beta-return-nasdaq-nyse-2008-2016

  1. Lecture 3a – Calculating Beta and Alpha for portfolio management in Excel.
  2. Lecture 3b – The difference between Alpha and Beta
  3. Background and context – The Capital Asset Pricing Model – CAPM

See – Market risk metrics – calculating Beta, Market risk metrics – Sharpe ratio, and Market risk metrics – calculating Alpha using regression.

Day Four – Portfolio management styles. Comparing value and momentum.

A quick review of investment styles. Fundamental and technical models. A detailed look at value versus momentum.  Active versus Passive. Dissecting Index funds, funds of funds and hedge funds. Adding more advance products to the mix. Simpler is better?

index-matching-double-alpha

  1. Lecture Four – The Index Matching Portfolio Optimization problem set.

Day Five – Risk metrics and investment policy.

Putting together investment policy guidelines. A review of risk metrics.  Understanding volatility and volatility driven metrics. Trading and stop losses. Allocation and preservation of capital.

holding-period-return-hpr-security-contribution

  1. Lecture 5 – Evaluating Portfolio performance using Holding period return – a case study.

Day Six – Group presentations

Group presentations on pre-assigned portfolio management and optimization problems.

Bonus material – Final Exam preparation.

Solver investment portfolio optimization Challenge – Optimizing the investment portfolio allocation challenge for a life insurance company.  You have 14 hours from the point of this post to solve the challenge. Bonus points for early completion and submission directly to my account.  Deadline for submission expires at 9 pm UAE time, Friday, 25th November 2016.  

Optimizing the investment portfolio allocation for a life insurance company – solution

Course Reading materials, recommended readings and references.

I will post a list of links for background reading recommended before daily lectures as well as problems sets, reading assignments and data files required for problem sets. If you are following the course online, you will get the most out of the course by doing the work and catching up on the reading lists.

Portfolio Management Dubai – Recommended Readings

Here is the initial list of books included in recommended reading for students of the Portfolio Optimization Course.  I will add to the list as we move forward with the course

  1. Irrational Exuberance, Robert Shiller, Princeton University Press, 2015. Also take a look at Shiller’s website at Irrational Exuberance for additional resources, updates and datasets. Shiller provides a great review of the history of speculative behavior and documents the absence of irrationality amidst retail and institution investors. It is a great book on the background and context of successful trading within equity markets and the 2nd and 3rd edition provide updated commentary on the housing market.
  2. Fooled by randomness, Nicholas Nassim Taleb, Random House Trade Paperbacks, 2005. While reading the book it appears that Taleb wrote the first edition in a fit of cold, controlled anger. It is a brilliant read on the chance, failure of models, trader biases, what it takes to succeed in financial markets as a trader. Taleb identifies, comments on and set asides many myths that still confound new arrivals at trading desks across the world.
  3. Thinking Fast and Slow, Daniel Kahneman, Farrar, Strous and Giroux, 2013. For a quick reference on the field see, net as well as Misbehaving. Documents the limitations of human behavior and the commonality of information and intuition biases and errors.
  4. Competition Demystified, Bruce Greenwald and Judd Kahn, Portfolio publishers, 2007 and Value Investing, also by Bruce Greenwald and Judd Kahn, 2004.

The Text book prescribed for the course is Elton and Gruber Modern Portfolio Theory and Investment Analysis, 9th Edition.  I recommend it because I worked with the 5th edition and was very impressed by Elton and Gruber treatment of the subject. A word of fair warning, the book is fairly mathematical and technical but still remains readable.

The alternate text book for the course is Analysis of Investments and Management of Portfolios by Reilly and Brown, 10th Edition, published by CENGAGE. You can use either of the two books for reference or review.

From an investment style point of view I am clearly biased towards value rather than growth, momentum or technical analysis. While we will cover and review all styles, I will spend a bit more time on value and tend to recommend materials more focused on value.

Day One recommended reading.

Background reading for day one lecture.

http://www.bloomberg.com/news/articles/2016-10-21/hedge-fund-managers-struggle-to-master-their-miserable-new-world

https://www.bloomberg.com/features/2016-goldman-sachs-libya/

http://www.bloomberg.com/news/articles/2016-11-02/hedge-fund-investors-dump-humans-for-computers-and-still-lose

Day one core topic – Regulatory compliance – The Galleon Funds case study.

The Galleon funds insider trading scandal rocked the financial world when it broke in 2009. Galleon at its peak had managed US$ 7 billion in assets and it’s performance during its peak years was quoted as a benchmark.

The case presents an interesting view on what can or cannot be classified as insider information.  This was the primary defense used by the counsel for Galleon’s founder but it was rejected by the Jury when it convicted Raj on all 14 counts.

On a much difficult note the case also high lights the impact of insider trading on the lives of people touches. It will form the center piece of our discussion on regulatory compliance.

http://www.newyorker.com/magazine/2011/06/27/a-dirty-business

https://www.thenation.com/article/the-strange-true-story-of-how-a-chairman-at-mckinsey-made-millions-of-dollars-off-his-maid/

http://www.nytimes.com/2009/11/06/business/06insider.html?pagewanted=all

http://dealbook.nytimes.com/2014/10/16/varied-paths-in-life-after-galleon-but-few-led-to-success/?_r=0

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