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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 the academic city.

Here is your chance to follow my classes, reading assignments, problem sets and case discussions.

(Last updated – 27th Feb 2017, 9:50 am PST – The Big short clips, Debunking data science myths, Higher Order Portfolio Models, Sample Final Exam).

Portfolio management 101 – Course background

This is the third run of the course in its current form. The earlier run included the SP Jain EMBA batch in Dubai (November 2016) and the IBA EMBA Batch in Karachi (Jan-Mar 2017). 

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 the 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

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.


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 the 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.

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.

  1. Lecture 3a – Calculating Beta and Alpha for portfolio management in Excel.
  2. Lecture 3b – The difference between Alpha and Beta
  3. Lecture 3c – Alpha dominant strategy and evaluation.
  4. 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 advanced products to the mix. Simpler is better?

  1. Lecture Four – The Index Matching Portfolio Optimization problem set.
  2. Lecture Four – a – Debunking Finance Data Science myths.
  3. Lecture Four – b – Where do valuation multiples come from?

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.

  1. Lecture 5 – Evaluating Portfolio performance using Holding period return – a case study.
  2. Lecture 5a – Holding period returns, aggregate returns and annual returns
  3. Lecture 6 – Higher Order Portfolio Optimization Models.

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 – For more context and background into the problem please see the ALM for Board Members series.

Sample Final Exam for Portfolio Management and Optimization Models.

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 sets aside 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.
  5. The Big Short, Michael Lewis. Read the book first. Then watch the movie. If you can’t find the time, see the trailer, then the two extended clips below under the recommended reading section. Also see the two part Big Short Case Study – Lessons for investors, traders and portfolio managers.

The textbook 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 textbook 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.

Teaching notes for the class are based on Portfolio Optimization with Excel Solver. As part of your class notes package, you will get a printed copy as well as a download link to the PDF edition.

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 – Galleon

Background reading for day one lecture.

  1. http://www.bloomberg.com/news/articles/2016-10-21/hedge-fund-managers-struggle-to-master-their-miserable-new-world
  2. https://www.bloomberg.com/features/2016-goldman-sachs-libya/
  3. 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 its 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 centerpiece of our discussion on regulatory compliance.

  1. http://www.newyorker.com/magazine/2011/06/27/a-dirty-business
  2. https://www.thenation.com/article/the-strange-true-story-of-how-a-chairman-at-mckinsey-made-millions-of-dollars-off-his-maid/
  3. http://www.nytimes.com/2009/11/06/business/06insider.html?pagewanted=all
  4. http://dealbook.nytimes.com/2014/10/16/varied-paths-in-life-after-galleon-but-few-led-to-success/?_r=0

Day Two recommended readings – On models

  1. The Blow up artist 
  2. The original blow up article by Malcolm Gladwell juxtaposing Taleb against Victor
  3. Taleb on understanding probability in financial markets.

Day Three recommended readings – Meet Kelly Criteria

  1. Understanding Kelly for Portfolio management.
  2. Understanding the Kelly Capital Growth investment strategy.
  3. Position sizing using Kelly’s growth criteria.

Day Four – Film recommendation – The Big Short

As Mir mentioned in his session with the class – the single most valued attribute in high performing investment teams is curiosity. Figure out the math, trace the equation, see if the numbers really add up.

See The Big Short – the film based on the Michael Lewis book of the same name to get a sense of what do outstanding portfolio managers have in common. Why curiosity rules the day and the payoff reserved for individuals who are not afraid to question and challenge assumptions.

See the following two clips in order. The first presents the pitch for the short using CDS. The second walks through the on the ground investigation in Florida.

See the full film if you can. If you are serious about portfolio management, you won’t regret it.