Ivo Welch, October 2023

ASAM Syllabus

Introduction

ASAM is a 10-unit six-quarter set of courses, required in order to meet GAP and AMR requirements. (The exact distribution of credit units over the quarters will be determined by the FEMBA program and the registrar.) Enrolled students organize into four teams to manage about $1 million held in the Anderson Student Asset Management (ASAM) Fellowship.

The instructor’s role is to help the president and students, and to assign grades. The instructor does not run ASAM like a regular course. For example, if the students believe they already know the material in the instructor’s lectures, they can decide to skip them.

Online Communication

  • The class should maintain a website, both for internal and external purposes.

  • The class should use a forum, like slack.

    • To facilitate easy search, please follow these posting conventions:

      • start posts with your last name if you intend your post primarily not to be a generic discussion item, but information you are posting that relates to you. For example, Smith: My Resume or Smith: My Bio or Smith: Fama-Macbeth (1973) Quick Summary or Smith: Summary of DFA Company Visit. You can reply to your own threads when you want to update them (e.g., when your resume changes).

      • start posts with All: if you want to discuss something and/or others to weigh in, such as All: Who Wants to Visit Vanguard on Monday? or All: Scheduled Speaker 11/13: Warren Buffett or All: Complaints About The Instructor or All: What does the following python error mean?.

Participants

  • All enrolled students should post a 1-page biography on the ASAM Website (TBD).

  • The class is (mostly) student-run. Ergo, it requires students with exceptional maturity and reliability.

  • Students will have to meet (virtually or physically) outside of class, consult with me, be self-motivated, and be able to resolve issues independently—especially but not only conflict issues that hinder their progress in implementing successful portfolio strategies.

  • Students may not schedule another class during the standard class meeting time. They are expected to attend all class sessions. There is a grade penalty for missing class sessions. (The ASAM President keeps attendance.)

  • Students who are not full participants throughout the course may be dropped from receiving a grade at the instructor’s discretion. They can also be voted out by 3/4 majority of the remaining students, in which case they cannot receive a grade, either. I hope such an extreme situation of a student being kicked out will never happen, but it is a valid possibility to which all enrollees must agree.

Etiquette

  • Students should prepare and ask intelligent questions of class speakers, whether internal or external:

    • Students are expected to do their research homework about the speaker before the session!

    • Students represent both UCLA Anderson Finance and ASAM. ASAM is the elite capstone course of our Anderson finance education.

  • 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. Bring a big binder clip for your name sign. This makes it possible to lift up your name sign.

Admission

  • ASAM 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 (regardless of language) are not required but useful. At least one third of the class should have basic programming skills. Students who do not know how to program are expected to learn it (with ASAM and colleagues’ help).

    • Enrollment is decided by the current ASAM group but requires my final approval. This has historically never been a hurdle. I usually just consent to the existing ASAM class’ choices.

  • The target group is 16 or 20 students, depending on demand.

ASAM Roles

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:

  1. President
    responsible for the agenda and the annual report. keeps attendance records.
  2. VP External
    responsible for guest speakers and coordinating company visits.
  3. VP Internal
    responsible for recruiting coordination, website. Also functions as corporate secretary.
  4. VP Finance
    responsible for budget, performance attribution, and overall risk management.

The remaining three team members will have the following responsibilities as team officers:

A. Team Strategy Lead/CIO
coordinates with the president for the entire class.
B. Team Strategist/Risk Manager
provides market updates on a rotating basis, with members of other teams sharing this role. This is the team’s chief of performance reporting, evaluation, and risk management. also coordinates with VP Finance for entire class.
C. Team Operations
organizes team site visits and joins with the other team operation chiefs on social events and recruitment. Also coordinates with class’s VP External and VP Internal.

All team members must participate in the development of their strategies.

All team members must assist with the broader roles required of the team and ASAM officers.

All team members must give class presentations both about their strategy and about team progress on a quarterly basis.

“Instructor” Role

My role in this class is primarily as a coach and mentor, and not as an officer (much less as an executive or an enforcer). I enjoy this role. I am here to help, although I can also cut bad players. (And I am sadly obliged to assign grades by the university, too.) But I am not running the show.

My office hours are before and after class meetings. (Check with me first, though. I may go for dinner at Plateia or Ackermann, which means that I may ask students to join me instead of meeting in my office.) Each team should arrange to meet privately with me at least once per quarter (but definitively by Winter quarter). I want to get to know each student and understand basic group dynamics.

Attendance And Absence Policy

The two mandatory fixed-time attendance categories are

  • Class attendance, except on non-university holidays and finals week. From experience, I know that it is best to skip Thanksgiving week. However, I do expect students to work on their projects during this week.

  • Two company visits (field trips), usually at least one in Winter and one in Spring.

    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+.

  • Students are expected to meet with their teams regularly (usually Monday and Wednesday), indicated below as “team meeting,” even when the team meeting is the only agenda item. Students can do this on a virtual basis when agreed by all members of the team beforehand. If needed, students also need to make themselves available to meet with me and/or their team mates.

The ASAM Investment Portfolio

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.

Students typically need the first Spring quarter to learn how the class runs, their predecessors’ strategies, the use of financial data sets, and basic computer programming; the Summer quarter to learn more programming and understand our financial data; the Fall (the busiest quarter) to investigate portfolio investment strategies; the Winter quarter and Spring quarter to teach, monitor portfolios, and write investment reports. This means that for at least half the year, ASAM typically does not trade at all. This naturally limits the kind of investment strategies that ASAM should investigate to annual buy-and-hold portfolios. Whereas most real equity quant funds focus on monthly trading and performance, ASAM focuses on annual trading and performance.

The ASAM Investment Mandate and Constraints

Our exact fund sources and investment covenants have been lost in the mists of time. Most likely, we have to thank the Price Center and Bill Cockrum, as well as John Muse and Wedbush, for setting up our endowment and thus course.

ASAM’s mandate is that it can invest only long in equities. ASAM has never shorted or traded derivatives. Ergo, we may be able to hedge out market-risk with S&P futures, but we have never tested this.

As already noted, our key problem is that the portfolio is passive from the end of Spring quarter to the start of Winter quarter. This makes it impossible to consider strategies other than low-frequency buy-and-hold. Typically, backtests can therefore run on calendar-year strategies.

I have to approve trading activity, but this has typically never been a barrier. Please be aware that trading costs are not just brokerage fees. For larger funds, there would be significant price impact, too. For us, we are so tiny that this is not a concern. I do not permit trading in pink-sheet or other esoteric and/or illiquid securities.

Useful Readings

Student work should be posted to our website and the forum. They are as much for other students as they for the instructor’s grading purposes.

I only recommend miscellaneous readings from the research literature (and/or textbooks) from time to time.

I can recommend to every student to read:

  1. Does Academic Research Destroy Stock Return Predictability? R. David McLean and Jeffrey Pontiff, The Journal of Finance (January 2016).

  2. …and the Cross-Section of Expected Returns, Campbell Harvey, Yang Liu, and Hequing Zhu, Review of Financial Studies 29:1 (January 2016): 5-68. Focus on Table 1.

  3. Fama and French, JFE 2015, A five-factor asset pricing model.

  4. Lewellen, CFR 2015. The Cross-section of Expected Stock Returns.

  5. Welch, 2017, Leverage- and Cash-Based Tests of Risk and Reward with Improved Identification.

(These can qualify for the reading of two articles per week.)

I can also suggest more optional reading:

  1. Mean-Variance Analysis: There are many reasonable sources. Students 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.

  2. Factor Models: See Grinblatt-Titman Ch 6 and/or Bodie-Kane-Marcus.

  3. Funds:

If students want a text book, there is nothing that fits well. The following two may be useful:

  • I post a (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.

Assignments

Self-Directed Academic Readings

Students need to have read academic papers during the first 3 quarters (ending in Fall quarter) in order to contemplate possible investment strategies. This reading is self-directed.

When feasible, please post (on the forum) what papers you are reading and what strategies you are considering. No one is expected to produce a summary, writeup, or presentation beyond a 1 sentence description in the post, although a paragraph could be helpful to others. (More description/assessment is allowed but not required.) I expect each team to read about two academic papers each week.

Programming

ASAM does not want to turn students into professional programmers. However, for grading, I insist that every student use ASAM to acquire at least basic programming skills. This means every student must have the ability to read and write computer code, 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.

I will make sure to facilitate that every student who wants to satisfy this coding requirement can learn it. The resources and help will be there. Students who are unwilling to satisfy this requirement should not enroll—they will be failed.

Students should divide into programmers and non-programmers. In the first spring quarter, programmers will have an easier life than non-programmers:

  • The non-programmers need to take an online programming 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 programmers should 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. Mentoring is not a free nuisance, but part of the expectation and part of the grade.

  • I am not a resource for writing and diagnosing code. Teammates are.

The recommended computer languages are free: python and R. It is easiest if the class agrees on one language. Typically, this is python.

Other Resources and Tasks

ASAM has the website.

  • Show off static view of past ASAM performance.

  • Show off current positions, updated nightly

  • Show off current ASAM members

  • List ASAM alumni

    • In addition, an internal section should keep contact information for ASAM alumni.

I would also like students to investigate online precanned resources—for example, portfolio123.com. At the end of the first (Spring) quarter, each student should post a 1-2 page summary on the forum of what programming resources they have found useful. Let’s see who writes the best list of pointers.

Self-Directed Writeup and Presentation

The first real write-up (5-10 pages) and presentation assignment is to summarize, analyze, and present the academic paper(s) that led to the group’s specific trading strategy. These presentations are due to be posted on the forum in early December and should be presented in February.

Company Visits

  • Each team should make at least two site visits to portfolio management companies. Each student should write up a 1-page summary, reviewing each site visit made within one week of the site visit, and post it on the forum. See title convention explained above.

  • Visiting groups should briefly and casually summarize their visiting experiences to the class (about 5-10 minutes, typically at the start).

  • Individuals may swap positions for site visits with members of other teams.

  • Most site visits should be in the SoCal area. However, I am ok with visits to SF/NY, depending on student desires and availability.

  • Important: Our ASAM students are representing the best of the UCLA Anderson Finance program to these companies. We want future students to be invited, too:

    • Business formal attire.
    • 30-minutes early arrival.
    • Research about the company.
    • Prepared to ask intelligent questions.

  • I do not join site visits. I just read the student reports on the forum.

Oral Presentations

  • In November, student teams must present outlines of their planned strategy to the course. This must contain

    • papers on which the strategy is based, if any.

    • exact description of portfolio formation.

    • performance metric the analysis used in its backtesting.

  • In Winter quarter, student teams can mostly take a breath. However, they should work on preparing a quasi-professional presentation of the strategy to potential investors.

  • In Spring quarter (2),

    • A discussion of the process (incl. collaboration) and performance of the strategy, plus any useful thoughts and advice.

    • A presentation at the annual wrapup dinner

ASAM Annual Report

  • All teams must participate in the write up of ASAM’s annual report.

External Speakers

  • Most speakers are to be scheduled for Winter quarter (i.e., after the strategies have been incepted).

  • To avoid multiple requests of the same speaker, please clear all speaking invitations with external relations (Valerie Myers), the dean’s office, and/or the Fink Center.

  • Physical Protocol: Business informal attire. Research preparation to ask intelligent questions. Put up name signs.

Class Timeline

Summary

The class schedule is roughly as follows:

Spring 1
Handover. Start learning computer programming and data.
Summer
Finish learning programming. Create financial data sets.
Fall
Read academic literature and design strategy. Ready to incept.
Winter
Monitor portfolio performance and write/present reports. Invite class speakers, and visit local firms.
Spring 2
Handover. Teach basic quant analysis.

Thus

  • The incoming and outgoing ASAM classes overlap each Spring quarter.

  • By design, the first 3 quarters require more time than the last 2 quarters.

  • Each year, in Spring quarter, the outgoing class becomes the teacher. It explains the instructor’s slides (including FM and BJS/FF analysis) and 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 late December to early January. March through December is not a whole lot of time to learn and prepare everything—it is important to keep the eye on the ball.

  • In the schedules suggested below, the dates are not firm. For example, we may want to switch speakers and teaching days.

Year 1 Spring Quarter

The first 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.

Most tasks here are not group assignments. each and every student must learn how to accomplish them. However, this is not about grading and mutual help is desirable. The point is that after a task has been completed, each student must be able to understand it and be able to do similar tasks without the help of others.

I have already re-presented and re-explained FM and BJS/FF methods to outgoing students, and this outgoing class has already used it in their portfolio work, too. Now it is up to them to present these topics to the incoming ASAM class.

Monthly Focus

April
Download the daily and monthly CRSP files, as well as the Compustat annual files to your laptop. In compressed form, this should occupy about 10GB. Familiarize with special codes (eg. missing), data content, organization, etc.
May
Become a comfortable programmer in Python. (I have not tried the following, but I hear they come recommended: Codeacademy Python; Bootcamp, Coursera.) Read and write CRSP and Compustat data sets into Python, and design “unit tests.” Calculate Means, Variances, and Market Betas. Write some tests (e.g., all returns > -1.0). Automated Tests have become an important design aspect of all software.

A Sample Schedule

  • 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 Student Presentations. Transition meetings
  • S5 BJS/FF Student Presentations. Alpha. Elections. Final Team Arrangements
  • S6 Other Finance Preparations. Annual Report Due.
  • S7 Outgoing Teams 1 and 2 present strategy. Discuss possible future strategies
  • S8 Guest Speaker.
  • S9 Outgoing Teams 3 and 4 present strategy. Evaluations due from both outgoing and incoming class
  • S10 ANNUAL DINNER

As already noted, this is not a firm outline. It is a sample outline. The actual plan for the week will be decided by the class in-time.

Year 1 Summer Quarter (Not In Residence)

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 forum every other day.

This quarter is dedicated to learning about data and programming, and to academic literature reading, all with coordination and engagement via our forum. Students must check the forum at random intervals (think drug-testing); and (b) post required homeworks and milestones as requested. At the beginning of Fall quarter, I may have a short quiz to confirm that each student has put in the requisite effort during the summer. Students who are not full participants throughout the course, including the summer, will be dropped. Students who cannot write even basic simple computer programs to process data and/or who do not understand the basic contents and organization of the CRSP and Compustat data at the end of summer will be dropped from the course.

Monthly Focus and Homework

June
Finish learning computer programming and finance data base understandings.
July
Write programs that creates and saves annual rates of return for all CRSP stocks to a csv file. See Introduction to Programming and Data for ASAM.
August
See remaining tasks in Introduction to Programming and Data for ASAM.

Year 1 Fall Quarter

This quarter is dedicated primarily to the selection of the investment strategies. It is by far the most work-intensive quarter.

Now that students have the proper background, I will re-present Fama-Macbeth and Fama-French techniques.

Your ultimate goal is to choose a portfolio of 20-50 stocks, long only.

(Note that long only means that your short leg for a zero-investment strategy evaluation should be the risk-free rate of return.)

Monthly Focus

October
Analyze first (and more) strategies. Full understanding of FM and BJSFF.
November
Strategy research. Strategy decided. Transaction cost assessments. (Annual Trading. Variable Definitions. Correct Specifications. Time-Analysis of Performance. Factor-Contribution.)
December
Replicate one another (!). Optimal inception time determination—pre Jan 1? at Jan 1? Jan 7?. Overall portfolio risk-reward contribution analysis.

Around December-January (depending on back tests): Strategy switchover.

Year 1 Winter Quarter

This quarter is dedicated to analysis of running strategies and plans for the next incoming class. Keep the website updated.

Monthly Focus

January
Strategy is incepted and running. Speakers. Visits.
February
Execution and Transaction cost analysis. Analysis of events. Speakers. Visits.
March
First Risk and Attribution Analysis. Market Hedge? Speakers. Visits.

A Sample Schedule

TBD

Year 2 Spring Quarter

  • This quarter is dedicated to a smooth transition to the incoming cohort, both portfolios and skills.

  • 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!].)

  • The outgoing class gets to explain FM, BJSFF, etc., methods to the incoming class.

  • 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).

Monthly Focus

April
Second Risk and Attribution Analysis. Event Analysis. Rebalance?
May
Monitoring portfolio. Evaluating lessons learned.

Ideally, one non-graduating student from each group tries to remain available and in contact over the summer and fall.

A Sample Schedule

TBD

Grading

  • 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 my 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. Expect grades between B and A-, with B+/A- a typical grade.

  • 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 a B+/A-.

EACH STUDENT SHOULD WRITE A 2-PAGE REPORT, EXPLAINING WHAT THEY LEARNED AND WHAT HAS FAILED THEM.

Summary of Student Deliverables

To Forum

  • Short Summary of (Virtual) Classroom Visitors

  • Short Summaries of Read Papers

  • Python code and Data Set Summary, Report on Performance of (lagmcap/sale).

  • Long summary of chosen strategy

  • ASAM Final Report

Confidential to Instructor

  • Assessment of Grades and Performance/Contribution of Group Peers and ASAM Peers

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