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Cameron School of BusinessEconomics and Finance Page 1
Darwin Dennison, EdD, MS, CNS and William H. Sackley, Ph.D., CFA, CFP® Department of Economics and Finance, School of Business, University of North Carolina, Wilmington, North Carolina 28403 Bloomberg White Paper 04202017
Portfolio Development Leadership
Introduction FIN 440 Portfolio Design and Management in the Cameron School of Business (CSB) is Blackboard assisted and utilizes the Bloomberg Terminal Financial Lab. The course includes value-based equity analysis, experiential portfolio management, and moral exemplifications adhering to current ethical policies. The Activated Portfolio Development (APD) model provides the underpinnings for the strategic design. The mission is to produce value-based, ethically enabled professionals for leadership positions in major financial corporations worldwide. The course is offered each semester in a unique environment, the Financial Markets Classroom with analytical activity in the Lab.
An investment from a regional bank provides students the opportunity to purchase stocks for the Seahawk Investment Management LLC portfolio (aka LLC). The instructor details the Investment Policy Statement, value-based portfolio design and management strategy; and may probe students with questions regarding stock values. However, equity selection decisions are
Cameron School of BusinessEconomics and Finance Page 2 made by students. The course emulates a real-time, actual applied learning and experiential experiences that includes the essentials of successful portfolio development and ethical standards.
The applied learning activities involve students in articulating their expectations regarding the purpose, assignments and goals of the course. Other activities provide students with opportunities to synthesize knowledge drawn from their previous and present coursework, as well as critically reflect the impact of the course on their present educational development and future plans. Importantly, applied learning activities are retrofitted to heighten responsibility for ethical promotion and moral attribution to establish value-base leadership in finance.
Components and Content
The content covers the basis of Modern Portfolio Theory, the Efficient Market Hypothesis, top-down vs bottom-up approaches, Sector Rotation Theory, technical analysis, and performance-attribution analysis. Assignments include Bloomberg Certification for Equities and Fixed Income, interviews with established professionals. A take-home midterm covering Modern Portfolio Theory, development of hypothetical stock indices, active share/closet indexing, portfolio performance measures, and the VIX Confidence Gauge. The Bloomberg Lab provides data for valuation analytics including the Dividend Discount Model, Modified Graham formula, Earning Power Valuation as well as relative market measures.
Reflection assignments review previous courses and internships to identify possible information gaps. Applied Learning-based group discussions are conducted related to ethical issues and the moral attribution of capitalism. The culminating assignment includes the
Cameron School of BusinessEconomics and Finance Page 4 Pedagogical Strategy
Applied learning is a pedagogical strategy that places students in experiences requiring them to integrate theories, ideas, and skills they have learned into new contexts, thereby extending their learning ( What is Applied Learning? n.d.). There is some evidence that correlates multiple, high-impact applied learning experiences with continued academic success including depth of knowledge, graduation rates, and degree efficiency as well as a more successful transition to the next phase of the student's life, whether it be graduate study or the workplace (Siefert, 2011).
The APD involves students in the process of analyzing complex issues and then integrating their new knowledge to solve complex issues. The model links content with pedagogical strategy forming an eclectic strategical matrix. The content is subdivided into stock- based metrics and the value-investing process. Ethical issues reveal dispositional and situational influences that are arbitrated in positive directions. The process involves honest self-assessment, openness to change, genuine self-discipline, and acceptance of responsibility (Nilson, 2013).
Experiential theory indicates that “before a system can be fully useful the concepts in it have to be defined… or permits the treatment of both qualitative and quantitative aspects of the phenomena in a single system.” (Kolb & Kolb, 2005). Simply stated, experiential education needs action, reflection and transfer with measurement criteria and guidelines at each phase. One component cannot occur without transference with interrelated parts.
The pedagogy includes experiential instructional components, but focuses upon Applied Learning activities and concepts. Each stage has a time paradigm designed to incrementally
Cameron School of BusinessEconomics and Finance Page 5 change the focus of the course from instructor-directed to a student course-management style. For example, the Basis Stage occupies about 50% of course time with detailed instructor-directed lectures. Over time, the Awareness Phase starts up but decreases in time while the Responsibility Phase increases in student time. Toward the end of the Responsibility Phase virtually 100% of time is conducted by student leaders, team action and student management. See Figure 2.
Figure 2 illustrates the input basis, the strategic time allotment and the output basis including the general target outcome measures. Noted also is the course time paradigm for the three stages of the model.
Figure 2. Activated Model
Phases
Figures 3, 4 and 5 provide objectives for each phase as well as represented time frame. The Basis Phase, first phase, is organized in the same manner as a basic university laboratory experience. The first phase is dominated by the instructor with specific assignments for the
Cameron School of BusinessEconomics and Finance Page 7 Responsibility, is organized to involve students in management including the selection of stocks for the LLC, see Figure 5. Applied learning activities and tasks are in full force during this phase. Students are participating in feedback sessions to discuss risk tolerance, sector buy-sell-hold positions, negotiating for funds that are available from selling decisions, and adhering to and/or making decisions based upon macroeconomic forecasts. The climate is now informal and student freedom is expanded. The students are in command and the instructor becomes a facilitator. During the last few weeks there is a flurry of activity that is focused on group discussion regarding the final selection of equities for the portfolio. The students are making decisions.
Figure 5. Phase 3 During applied learning activities in Phases 2 and 3, students complete assignments to clarify their personal professional values, determine their perspective on corporation policies and ethics, and importantly establish personal plans for present and future educational pursuits. Also during these phases, feedback is given to the students regarding the results of their intention,
Cameron School of BusinessEconomics and Finance Page 8 application of knowledge, and critical reflection activities. Openness and frank discussion between the instructor and students is paramount which establishes group collegiality.
Figure 6 provides a graph that illustrates the movement of the intervention methodology during each phase. Importantly, as dissonance is created and then reduced in Phases 2 and 3, students’ responsibility is formed. Think about it ‘when issues or crises occur, leaders emerge to provide solutions.’ The applied learning format with experiential action provides a framework for leadership. Students are in teams of 2-3 per GICS sector and there are another seven production teams, allowing an opportunity for all students to exhibit leadership and management skills. The APD model moves from instructor centered to student centered, from individual assignments to group assignments. And, from traditional classroom assignments to making stock choices for the LLC.
Figure 6. Intervention Methodology Figure 7. Moderation System Applied Learning (A) is a critical aspect of the success of this process. Applied learning gradations can be intermittently quantified, see Figure 7. A < 1 indicates that activities are short in student report time with general prompts. As the course proceeds though the APD model
Cameron School of BusinessEconomics and Finance Page 10 Bad News: The instructor thinks that students thought that they would be handed the “magic formula” for investing – informing them of the process that would certainly assist them making positive and quick portfolio decisions. Students learned a lot of terminology and a lot of processes and strategies, but applied learning assignments provided insights of where the students were and what needs to be accomplished.
Instructor reflection is that students needed to know that reading is probably the best process to promote investment success. Reading annual reports consisting of 150 pages from each company considered for the portfolio plus reading The Wall Street Journal every day and Barron’s every week. Students learn to take the time and effort to build slowly, accurately and strategically.
Good News: Students reflect that it is not so bad they were not handed “the magic formula to investing success.” They wanted to receive it, but not receiving it placed the emphasis on them. Students reported learning a lot of terminology and many metrics that were seemingly used on a daily basis by professional investors.
Reflections suggest that students have a better appreciation for the importance of ethics in the financial marketplace. Everyone says that they want to behave ethically – but do they mean it or do they just think it is something they are expected to say? Anyway, it is easy to learn how students could possibly cheat future clients if they are managing the investment funds of others. However, student output made it clear that a career path is stopped dead in its tracks with a lapse of ethics.
Cameron School of BusinessEconomics and Finance Page 11 There were many occasions in FIN 440 where students mentioned the CFA Institute. References in class to the CFA Institute remind students that it will be more difficult to succeed in this profession without continuing their education. CFA candidates’ scores on the ethics portion of the exam will receive enhanced significance in the case of borderline exam scores. The top employers of CFA Charter-holders include JP Morgan, Morgan Stanley and Black Rock. Students completing FIN 440 will be very competitive to move forward with CFA certification and will be familiar with the standard for the ethics portion of the exam.
Students’ comments from reviews of ethical issues: “If I was a member of the SEC’s ethics committee then I would probably have to say that ‘Mr. X’ traded on inside information that was not available to the public;” “It is a classic case of greed at an extremely high level;” “…used company resources for his own gain,;” “I also think that tax reasons should not be an acceptable response for an executive to disclose as the reason behind his actions;” and “…discussions about capitalism was very interesting since it pushed students to present their arguments.” A unique aspect of FIN 440 is that students are taking the premier course in portfolio development and management. And, at the same time receive experiential insight into ethical issues where the focus is to resolve issues positively. This combination of portfolio leadership and moral attributions produces new professionals that are versed in value-based investing as well as integration into the positive aspects of capitalism.
