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 Friday, 28 September 2007 10:02


Departmento de Administração de Empresas

Introduction to Financial Investments 2005-2006 (MBA)

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Schedule: Fridays, as listed in the course outline.
Prof. António Marques-Mendes
Office nr.: 417. Tel +351-239-790-548; Fax +351-239-790-413
Web site   http://www.marques-mendes.com • E-mail student@marques-mendes.com

Lectures and seminars take place in Room PC2

Tutorials and appointments are available by prior booking through email


Students taking this elective course should expect to learn the nature and purposes of financial investments in an international context. They will gain skills in investing techniques and in risk management, including trading aspects. They will learn, through hands-on case studies and portfolio management, how to judge the risk of stocks from an investor's perspective, and how to create and manage investment positions. In the end, the goal is to apply state-of-the-art techniques to stock market investing and risk management decisions.


Marques Mendes has taught international finance at FEUC - University of Coimbra, in Portugal, and in more than 10 countries abroad for the past two decades. Currently, he is Associate Professor of International Finance at the School of Economics at the University of Coimbra (FEUC). He is also the founder of Marques Mendes & Associados Ltd, a consultancy on investment and wealth management. Previously (1992-98), he was a Senior Banker and Head of Unit at the EBRD Banking Department in the City of London.  Before moving into banking, he was closely involved in European Union affairs having been an elected Member of the Portuguese and the European Parliaments in 1985-87 and a national expert with the European Commission in 1991.  He began his post-university career in the mid 1970s as a trainee in cost accounting at a major multinational company in Finland (Upm Kymmene), after which he returned to his home town (Covilhã) to teach at the local University. Details on Marques Mendes' current research interests and availability to supervise MBA and PhD thesis can be found in his personal web page.


The course employs cases and problems as well as classroom lectures and discussions. We will make use of international as well as domestic examples. Written assignments will be due for most sessions. Some will be prepared individually and some in group. Each student will be expected to participate actively in class discussions. There will be a final exam.

The Course on the Internet

We will make use of the Internet--notably the World Wide Web--for resource material and communication. Indeed this course outline itself will change: the definitive version is the Web site at http://www.marques-mendes.com/feuc/ifi/ . All students must have an email address and Web access. Your default address will be the one assigned by the Course Instructor. Lecture materials, as available, can be downloaded from the Web. (In some cases you will need the Adobe Acrobat reader, Version 3 or higher, available free from Adobe's World Wide Web Site http://www.adobe.com/prodindex/acrobat/readstep.html.). To access it, use alunoifi+student number (e.g. alunoifi01) as ID, and your 9-digit password (ask me) to get in.

To keep up with the world of international investment try the following Web sites:

Text and cases

Marques-Mendes, The education of a stock market investor ( mimeo, forthcoming);

Stephen Lofthouse, et al, Investment Management  (2001)

Students should have read the assignments before coming to class. Material covered in the assigned textbook readings will generally not be repeated in class. Rather, class time will be devoted to lecture and case discussion, applying the material covered in the readings.


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Course Outline

Date Topic  ESMI (IM) Chapters  Other Readings, and Materials on the Web Cases/Assignments
May 5 pm 1 The investment process 1 Capital Ideas Revisited Collective assignment: create market monitoring portfolios at Yahoo Finance or MarketWatch
May 12 pm 2 Main varieties of equity instruments 2 (25) Stocks Vs. Bonds

Fiduciary Duties of Asset Management

Collective assignment: "Comparative analysis of the investment processes and securities holdings of the following asset managers: " BCP, CaixaGest; ES;
May 19 and 26 pm   Portfolio management     Home work case 1: Managing the portfolio created in the 1st lecture
June 2 pm 3 Risk management (24) Value at Risk article
Risk Management Guide
Hand-in case 1a: Assess the risk of the portfolio created in the first lecture and discuss whether it needs rebalancing, using Riskgrades
Jun 9 pm 4 The fundamentals of portfolio diversification (7)

Indexed Investing: A Prosaic Way to Beat the Average Investor

Observer: Diversification may be good, but returns are better

Hand-in case 1b: "Conduct a comparative analysis of the following methods for weighting your portfolio: equal allocation, capitalisation and mean variance"
Jun 16 pm   Strategy Selection I     Class work case 2: "Strategy development"
Jun 23 pm 5 Creating and structuring watch lists (17)   Hand-in case 2a: "Discuss the Pros and Cons of the following stock screeners: Yahoo, Reuters and MarketWatch"
Jun 30 pm   Strategy Selection II     Hand-in case 2b: "Selected strategy "
Jul 07 pm 6 Due diligence and research tools   INVESTMENT FRAUD AWARENESS QUIZ Hand-in case 2c: "Using due diligence tools to eliminate four of the top ten stocks under your chosen strategy"
Jul 14 7 Placing and routing buy and sell orders   Understanding Order Execution

Trade Execution: What Every Investor Should Know

Hand-in case 3: "Compare the following brokers in terms of market coverage, and types of orders: Carregosa, CaixaDirecta, Ameritrade and Inversis
Jul 21?   1-Hour Final Exam      Sample Exams
And: Suggested Solutions

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Course Topic Contents

420 L The investment process
S420.1   Key steps in the decision-making process
S420.2   Targeting objectives
S420.3   The definition of targets and aims
S420.4   Selection of investment positions
S420.5   The identification of investment opportunities
S420.6   The allocation of funds
S420.7   Managing investment positions
S420.8   Boosting investment returns
S420.9   Learning by doing through failure and success
S420.10   Decision-making by private investors and asset managers


35 L Main varieties of equity instruments
S35.1   Capital structure and use of equity instruments
S35.2   The use of common stock relative to other types of equity
S35.3   The main types of equity instruments
S35.4   How we can create equity instruments
S35.5   Issuing equity securities
S35.6   Dividend rights and policies
S35.7   The type of exposure created by shares
S35.8   Ownership structure
S35.9   Negotiability
S35.10   Domestic vs. foreign stocks


546 L Risk management
S546.1   Attitudes towards risk management
S546.2   Risk management strategies
S546.3   Choosing risk-return trade-offs
S546.4   Options on risk protection: care, limit, insure, share or diversify
S546.5   Risk management through diversification
S546.6   Risk-adjusted returns
S546.7   Risk management through hedging
S546.8   Hedging instruments
S546.9   Monitoring hedges and risks
S546.10   Managing loss tolerance levels


433 L The fundamentals of portfolio diversification
S433.1   Diversification and uncertainty
S433.2   How many eggs and baskets
S433.3   Needles in haystacks
S433.4   Volatility
S433.5   The rationale for diversification
S433.6   Correlation and naive diversification
S433.7   The inconveniences of diversification
S433.8   Diversification strategies
S433.9   Switching vs. rebalancing
S433.10   Watchlists and portfolio optimizers


466 L Creating and structuring watch lists
S466.1   Matching your skills and investor style at each stage of investing
S466.2   Why diversify: foundations of diversification (the eggs and the purse)
S466.3   Choosing single assets or asset groups (categories)
S466.4   Defining and structuring levels of diversification (naivety vs. covariance)
S466.5   Selection vs. randomness
S466.6   Basics of stock picking
S466.7   Basics on investment timing
S466.8   Screening databases to create watch lists
S466.9   Drawing and investment plan and structuring your watchlist matrix
S466.10   Watchlist management and price targeting


550 L Due diligence and research tools
S550.1   Structuring a due diligence process
S550.2   Business and ownership profiling
S550.3   Ownership structure
S550.4   Investing Crowds
S550.5   Financial condition & practices
S550.6   Accounting practices
S550.7   Financial analysis
S550.8   Price trends & events
S550.9   Price Targets
S550.10   Market risk ratings


75 L Placing and routing buy and sell orders
S75.1   Key rules on buying and selling [the low(er)/high(er) game]
S75.2   Mind the trading costs
S75.3   The choice of jurisdictions (e.g. Spain/ Portugal vs. others in Euroland)
S75.4   With whom should you open your trading accounts
S75.5   Choosing the right type of order
S75.6   Brokers and different types of orders: e.g. CaixaInvest
S75.7   Risks associated with market timing and stop orders
S75.8   Intraday timing of buy/sell orders
S75.9   Defining limit prices to buy and sell 
S75.10   How good was your broker's execution?



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