FEMBA 457: Fieldwork in Investment Management
March 30, 2019
ASAM is a 10-unit course which requires continual commitment for six quarters in order to meet GAP and AMR requirements. (The exact distribution of credit units over quarters will be determined by the registrar.) Students organize into four teams to manage real money in the Anderson Student Asset Management (ASAM) Fellowship.
This year, the class meeting time was every Monday, 6:30-9:30pm. I (the instructor Ivo Welch) am flexible in moving the class to a different time slot from Fall to Spring by majority consent of the enrolled students (preceding Spring quarter). In particular, we are considering 7:00pm-10pm starting Sep 2019.
The class uses google groups for 2019 and 2020 to communicate even when not meeting.
All students should send the instructor a 1-page biography at the outset of the course.
The class is (partly) student-run. It requires students with exceptional maturity and responsibility.
Admission is based on interviews of applicants by the outgoing class in early winter quarter. Applicants should have strong finance and quantitative backgrounds. Programming skills (e.g., in Excel) are not required but very useful. At least one third of the class should have programming skills.
Students will have to meet frequently outside of class, consult with the instructor, be self-motivated, and be able to resolve issues independently—especially but not only issues that hinder progress in implementing successful portfolio strategies.
Students who are not full participants throughout the course may be dropped by the instructor.
Students may not schedule another class during the class meeting time. They are expected to attend all class sessions.
Enrollment requires the permission of the instructor.
Students should always sit near the center in the first two rows and always display name plates. This is especially (but not only) the case when there is an external visitor.
Students should prepare and ask intelligent questions of class speakers, whether internal or external:
Do your homework!
You now represent UCLA Anderson Finance.
Each team nominates one of its members to hold class-wide office. The team representatives will be elected each into one of the following four positions by the entire class, in this order:
The remaining three team members will have the following responsibilities as team officers:
All team members must participate in the development of their strategies.
All members must give class presentations both about their strategy and about team progress on a quarterly basis.
All team members must assist with the broader roles required of the team and ASAM officers.
My office hours are before and after class meetings. (Check with me. I may go for dinner at Ackerman and ask you to join me instead of meeting in my office.) Each team should arrange to meet privately with me at least once per quarter. I want to get to know each student and understand the group dynamics. My contact info is
My role is primarily as a coach and not as an officer (much less as an executive or an enforcer) in this course. I am here to help, although I can also cut bad players. And I am assigning grades. But I am not running the show.
The two mandatory fixed-time attendance categories are
Class attendance, except on non-university holidays and finals week.
Two company visits (field trips), usually at least one in Fall and one in Winter.
Absence Policy: Students can be absent for four sessions without grade penalty. They are expected to take advantage of this absence policy only when they really need to be absent. For every two absences above these four sessions, the grade will be reduced by 0.333 (e.g., from an A to an A-). Miss 7 classes, and the highest grade possible is an A-. Miss 9 classes, and the highest grade possible is a B+.
Regular but not time-fixed mandatory attendance is
ASAM investment strategies must be primarily quantitative and back-tested by the students. However, they need not be novel. They can be based on strategies that have already been reported in the academic literature.
My predecessor, Mark Grinblatt, tried to find out our exact fund sources and investment covenants. Alas, these seem to have been lost in the mists of time.
At the moment, we know that ASAM can invest long in equities.
ASAM has never shorted stocks or traded derivatives.
If there is interest:
I would approve modest slow market timing with the use of an S&P500 futures overlay, not to exceed half of the portfolio’s value and only used to hedge against market downturns, and with turnover no more than once a month.
I would permit $100,000 to be used for a dynamic (earnings-)announcement related trading strategy, with up to one trade per week. This needs to be carefully researched, for recent behavior, past behavior, and trading costs. This team needs to receive and maintain approval not only from the instructor but also from the other teams.
Trading in pink-sheet or other esoteric and/or illiquid securities is not permitted.
Trading activity has to be approved by the instructor. Please be aware of trading costs—not just brokerage fees.
What should be different between a UCLA endowment and a personal investment portfolio? If ASAM had been taxable, how would our strategy differ?
Should we build a site to calculate the portfolio value automatically every day?
How much should we worry about transaction costs? How good is our execution?
Later: How well do our strategies follow what we expected of it given the backtests we ran to select them?
Should each group reduce its own risk?
How good is the across-industry vs. across-size diversification? (How strongly correlated are stocks in the same XX?)
Should we care about average rates of return or compound rates of return?
Should we hedge market risk (modestly)?
Should we invest cash? High-dividend stocks? Low-Leverage and Low-Leverage Increasing Stocks? Should we try to trade around earnings announcement (or avoid them)?
Is Wedbush a good broker for us? The UCLA endowment no longer pays brokerage fees as of 2019. Does this apply to us, too?
We can also try again whether we can do the following:
Most reading will need to take place in the first two quarters of this course. The instructor may assign more miscellaneous readings from the research literature (and/or textbooks) from time to time.
The first writing assignment, 5-10 pages, is to summarize and analyze one read academic paper due by December 4. It is due at the end of Fall Quarter (December). Students should also be prepared to present this to the class.
You may find it useful to read over my (free) Corporate Finance textbook on the web. Its first half are mostly chapters of direct relevance to this course, such as those about perfect markets, efficient markets, risk and return, benchmarking, etc.
Ang, Investment Analysis may or may not be helpful. It is not required.
Does Academic Research Destroy Stock Return Predictability? R. David McLean and Jeffrey Pontiff, January 2016 The Journal of Finance.
...and the Cross-Section of Expected Returns, Campbell Harvey, Yang Liu, and Hequing Zhu, Review of Financial Studies, 2016, 29:1 (January): 5-68. Focus on Table 1.
Fama and French, 2015, A five-factor asset pricing model.
Lewellen, 2015. The Cross-section of Expected Stock Returns.
Welch, 2017, Leverage- and Cash-Based Tests of Risk and Reward with Improved Identification.
Optional:
Mean-Variance Analysis: There are many reasonable sources. You need only free items. Examples: Chapter 5, Grinblatt and Titman. Ivo Welch bookg were my notes for an investments text book that I ended up not writing. CorpFin Ch 8. Bodie, Kane, Marcus are good, too. Please, do not believe the CAPM. The only parts that matter are mean-variance efficiency. (To estimate market-betas, look at this.
Factor Models: See Grinblatt-Titman Ch 6 and/or Bodie-Kane-Marcus.
Style and Skill: Hedge Funds, Mutual Funds, and Momentum, by Mark Grinblatt, Gergana Jostova, Lubomir Petrasek, Alexander Philipov. 2017.
Fama-French: Luck vs. Skill in Mutual Fund Performance.
I have not yet read and made up my mind on the following.
Anderson does not want to turn students into professional programmers. However, we do want every student to have basic programming skills. This means every student must have the ability to read computer code, write small code snippets, and make small changes. These skills are important not just for finance, but for many tasks and goals that students will encounter during their professional careers.
Students need to divide into programmers and non-programmers. In the first quarter, programmers will have an easier life than non-programmers:
The non-programmers need to take an online course. There are many Internet and within-UCLA resources to help students acquire programming skills. I like codeacademy, but other resources may be even better. The target commitment for non-programming students is to spend about one week of work (40 hours) to acquire basic competence.
The first year’s first-quarter (spring) task is for the programmers to mentor their non-programming classmates into acquiring basic programming literacy, ideally one-on-one. They should expect to spend about 10-20 hours to do so—be available answering questions, etc. Help break the entry barriers. Etc.
The instructor is not a resource for writing and diagnosing code.
The recommended computer languages are all free: python, R, and possibly Julia. It is easiest if the class agrees on one language.
In addition to self-programming, I would also like students to check out portfolio123.com and other useful online tools. At the end of the first (Spring) quarter, each student should have written up a 1-2 page summary of what they have found useful. This will be shared with all other students. Let’s see who writes the best list of pointers.
Each team must make at least two site visits to portfolio management companies. Each student must write up a 1-page summary, reviewing each site visit made within one week of the site visit, and submit it to the professor. Visiting groups must present 5-10 minute oral synopses of the review to the class, at a time determined by the ASAM president.
Individuals may swap positions for site visits with members of another team.
Most site visits should be in the SoCal area. However, there may be visits to SF/NY, depending on availability. There also may be an opportunity for some (but not all or even the majority of) students to visit with Warren Buffett, usually in January, at their own expense.
Important: Our ASAM students are representing, UC, UCLA, Anderson, Finance, and ASAM to these companies. We want future students to be invited, too:
Each month should feature at least one non-student speaker, either from the faculty or from the investment management community.
To avoid multiple requests of the same speaker, please clear all speaking invitations with external relations (Al Osborne or Valerie Myers), the dean’s office, and/or the Fink Center.
Students are assigned to write the second 5-10 page paper, due by April 30 (after the end of Winter Quarter). This winter/spring written assignment should be a summary and an analysis of the information content from each guest speaker seen in person (excluding the May 2019 speakers).
Protocol: Business informal attire. Reasonable research preparation to ask intelligent questions.
The incoming and outgoing ASAM classes overlap each Spring quarter.
By design, the first 9 months require more time than the remaining 6 months.
Each year, in Spring quarter, the outgoing class presents its four running strategies to the incoming class. Moreover, the outgoing class works with the incoming class to familiarize them and to suggest future possible strategies.
The target inception date for the incoming classes’ strategy inceptions will be December-January. It’s not a lot of time—it is important to keep the eye on the ball.
The schedule dates are not firm. For example, we may want to switch speakers and teaching days.
This quarter is dedicated to facilitating a coordinated handover from the outgoing cohort to the incoming cohort, to planning of the class, to teaching/learning programming (Python or R), to data (CRSP and Compustat) expertise acquisition, and the basic theory of portfolio strategies.
| S1 | Syllabus and Methods. Goals. Matching tentative incoming teams to outgoing teams |
| S2 | Guest speaker. Transition meetings (Teams, officers, etc.) |
| S3 | Python or R. CRSP, Compustat. Transition meetings |
| S4 | Fama-Macbeth. Transition meetings |
| S5 | Fama-French. Alpha. Elections. Final Team Arrangements |
| S6 | Other Finance Prep. Annual Report Due |
| S7 | Teams 1 and 2 present strategy. Discuss possible future strategies |
| S8 | Guest Speaker. |
| S9 | Teams 3 and 4 present strategy. Evaluations due from both outgoing and incoming class |
| S10 | ANNUAL DINNER |
By popular demand, the class does not meet physically during the summer months unless we have at least 2/3 of the class available for an August session. Every student is required to check the google groups every other day.
This quarter is dedicated to data programming, academic literature reading, all with coordination and engagement via our google group.
Students must check the google group site at random intervals (think drug-testing); and (b) hand in required homeworks and milestones. At the beginning of Fall quarter, we will have a short quiz to confirm that each student put in the requisite effort during the summer. Students who are not full participants throughout the course, including the summer, will be dropped.
In addition, read more papers and start discussing what strategies to pursue.
This quarter is dedicated primarily to the selection of the investment strategies.
Around December-January (depending on back tests): Strategy switchover.
| S1 | Teams meet: Develop the strategy |
| S2 | Teams meet: Instructor meets with strategy heads |
| S3 | Teams meet: Develop the strategy |
| S4 | Teams meet: Develop the strategy |
| S5 | Guest Speaker |
| S6 | Teams meet: prepare to launch trades |
| S7 | Teams meet and discuss initial trades with full class. |
| S8 | Guest Speaker |
| S9 | Team 1 & 2 present. |
| S10 | Teams 3 & 4 present. Plan recruiting. Fall major paper due. |
This quarter is dedicated to analysis of running strategies and plans for the next incoming class.
| S1 | Guest Speaker |
| S2 | NO CLASS |
| S3 | Teams 1 & 2 present. Mixer for Recruiting |
| S4 | Teams 3 & 4 present |
| S5 | Guest Speaker. |
| S6 | Select 2019-20 class |
| S7 | NO CLASS |
| S8 | Welch meets with teams |
| S9 | Guest Speaker |
| S10 | Teams Meet. Preliminary assignment of incoming to outgoing teams |
This quarter is dedicated to a smooth transition to the incoming cohort, both portfolios and skills.
We want to build a basic ASAM website here.
The second year will receive reporting and presentation skills instruction and support. (A written report must be self-explanatory and clear. A presentation must be graspable by someone without the written report and focus on the key aspects [in big fonts!].)
Ideally, one non-graduating student from each group tries to remain available and in contact over the summer and fall.
| S1 | Discuss syllabus and methods. New class welcome mixer. Match incoming with outgoing teams |
| S2 | Guest speaker. Transition meetings between old and new class. |
| S3 | Transition meetings between old and new class |
| S4 | Transition meetings between old and new class |
| S5 | Officer elections. Spring major paper Due. |
| S6 | Teams 1 & 2 present strategy. |
| S7 | Guest Speaker. Annual Report Due. |
| S8 | Teams 3 & 4 present strategy. |
| S9 | NO CLASS |
| S10 | ANNUAL DINNER |
The way grading is formally assigned to transcripts may change with Anderson, UCLA, and UC requirements. At the moment, this means: students enroll in 457A in Spring 2018 (no grade, 2 units), 457B in Fall 2018 (no grade, 2 units), 457C in Winter 2019 (no grade, 2 units), and 457D and 596 in Spring 2018 (2+2 units). The grades will appear on transcripts to be for MBA 457D and MBA 596. In total, students will receive 10 course credits and have fulfilled the AMR requirement.
Grading is at the instructor’s discretion. It is based on evaluation of presentations, written output, team effort and quality, participation, peer evaluation (see below), and attendance. There are no graded exams, although there will be a quiz to test satisfactory completion of summer work.
Students enjoy a lot of independence in this course. This makes it difficult for the instructor to monitor free-riding. The learning experience collapses for all when there is free-riding by any team member. It is everyone’s duty to prevent this. At the end of the quarter, all class members will be required to complete a confidential peer evaluation form, in which each team member assesses the relative performance of the other three participants in the team project. There will also be assessments of class officers.
Incoming class members will also rate mentorship from the outgoing 2018 class.
The mean grade for the course should be about an A-.