Some of you may know that last year I was asked to teach a course on Risk Management at the University of North Carolina. Scheduling and other difficulties meant that after quite a bit of preparation I had to turn it down. However, developing the material, the anticipation and a very good experience teaching at Kiev Mohyla University a few years ago got me excited about teaching.
So for the past few months I have been teaching Securities Analysis. Well, private tutoring is probably a better description as there is only one student. You will know him, as I talk about him all the time; it’s my grandson, Viktor.
He’s eleven.
In my defense, this is not a chore that I am foisting on him. He’s sincerely interested and inspired the whole thing when he told me he thought Nike (NKE) made great stuff and recommended the stock. We have since turned that initial discussion into a sort of colloquium on securities and investing.
Each week I send him a 4-5 page note on the basics, with references to SEC filings, or financial news websites as examples (via click-through, very techie of me). We discuss real world cases, though I’ve tried to keep the focus on companies with a product he might know so he can relate. Then there is homework (for which he is currently running a perfect record) and follow-up discussion. I must confess that the calls, meant to enrich the material, often (well, usually) ramble to football, basketball, cars and girls, but come on I’m trying to ditch my reputation as a boring grandpa.
At this writing we are about half way through the syllabus below. I’m posting all this in the hope that if you see any gaps you will let me know. We don’t want to send him into the jungle unarmed.
Syllabus
This has been a lot of fun for me in so many ways. Clearly spending time with Viktor has been great, and it is fascinating to see how much he knows about a broad range of subjects. For example, at his instigation we have talked about the bizarre state of American politics. Reminder: he’s eleven.
I think it is also useful to revisit securities analysis basics from time to time. Generally I think I’m pretty disciplined about investing but very few of us can fully tune out the cocktail party chatter. The objectivity of returning to first principles gets a good reboot from this process. And of course the structure of writing something down forces a recognition and justification of nearly all my assumptions and biases. I recommend it, though it is very time consuming.
Maybe there will be a silver lining and Viktor will hire me for his hedge fund in ten years, or thereabouts.
On a related note I also have a book recommendation, though more likely aimed at adults: Dear Chairman by Jeff Gramm. It is broadly about corporate governance, a topic that would seem very dry, even to someone like me who has quite a bit of expertise and interest. However it is a fun romp through eight specific cases, mostly proxy battles.
I promise that anyone with a basic business knowledge will easily follow the stories and even the mechanics. The shareholder letters, which yield the title, are included in full at the back. My suggestion would be to read the letters after each chapter rather than at the end.
It may also enhance your securities valuation skills, which anyone with a 401K should welcome. A useful lesson is that not all activism benefits shareholders and there is one absolutely disastrous case as an example. It reminds me that owning a company where the most valuable assets walk out the door every day at 5:00 is, as the saying goes, an asymmetric risk!
One case relates to the notorious Tino DeAngelis and the salad oil swindle. Even though this was before my business career it was somehow in my consciousness, and now I know more of the story. Included is a letter from Warren Buffett in support of the management that was defrauded. While most of us are already fans of Buffett, the investing logic and principles demonstrated in this case raise him to an even higher plinth.
I recommend.
Hoping you are all well, and please let me know if you see anything I’ve missed in my syllabus.
So for the past few months I have been teaching Securities Analysis. Well, private tutoring is probably a better description as there is only one student. You will know him, as I talk about him all the time; it’s my grandson, Viktor.
He’s eleven.
In my defense, this is not a chore that I am foisting on him. He’s sincerely interested and inspired the whole thing when he told me he thought Nike (NKE) made great stuff and recommended the stock. We have since turned that initial discussion into a sort of colloquium on securities and investing.
Each week I send him a 4-5 page note on the basics, with references to SEC filings, or financial news websites as examples (via click-through, very techie of me). We discuss real world cases, though I’ve tried to keep the focus on companies with a product he might know so he can relate. Then there is homework (for which he is currently running a perfect record) and follow-up discussion. I must confess that the calls, meant to enrich the material, often (well, usually) ramble to football, basketball, cars and girls, but come on I’m trying to ditch my reputation as a boring grandpa.
At this writing we are about half way through the syllabus below. I’m posting all this in the hope that if you see any gaps you will let me know. We don’t want to send him into the jungle unarmed.
Syllabus
- What is a share of stock
- Value derives from earnings
- Exploiting company assets
- Calculating net income
- Earnings per share
- Price/earnings ratio
- Asset classes
- Comparing returns
- Risk/reward
- Earnings predictability
- Trends in revenues, expenses and profit
- Forecasting*
- Companies that aren’t yet profitable
- What is a bond
- Bond risk: interest rate, credit, term, currency
- How to calculate simple yield
- Bond prices
- Yield curve
- Risk premium, effect of interest rates on stocks
- Funds flow, market conditions, psychology and fads
- Balance sheets
- Effect of leverage
- Income statements, quality of earnings, profit margins
- Effect of multiple currencies
- Operating leverage, effect of growth
- Total return, dividends
- Corporate governance
- Business cycle
- Short selling
- Uncertainty and strength of opinions
This has been a lot of fun for me in so many ways. Clearly spending time with Viktor has been great, and it is fascinating to see how much he knows about a broad range of subjects. For example, at his instigation we have talked about the bizarre state of American politics. Reminder: he’s eleven.
I think it is also useful to revisit securities analysis basics from time to time. Generally I think I’m pretty disciplined about investing but very few of us can fully tune out the cocktail party chatter. The objectivity of returning to first principles gets a good reboot from this process. And of course the structure of writing something down forces a recognition and justification of nearly all my assumptions and biases. I recommend it, though it is very time consuming.
Maybe there will be a silver lining and Viktor will hire me for his hedge fund in ten years, or thereabouts.
On a related note I also have a book recommendation, though more likely aimed at adults: Dear Chairman by Jeff Gramm. It is broadly about corporate governance, a topic that would seem very dry, even to someone like me who has quite a bit of expertise and interest. However it is a fun romp through eight specific cases, mostly proxy battles.
I promise that anyone with a basic business knowledge will easily follow the stories and even the mechanics. The shareholder letters, which yield the title, are included in full at the back. My suggestion would be to read the letters after each chapter rather than at the end.
It may also enhance your securities valuation skills, which anyone with a 401K should welcome. A useful lesson is that not all activism benefits shareholders and there is one absolutely disastrous case as an example. It reminds me that owning a company where the most valuable assets walk out the door every day at 5:00 is, as the saying goes, an asymmetric risk!
One case relates to the notorious Tino DeAngelis and the salad oil swindle. Even though this was before my business career it was somehow in my consciousness, and now I know more of the story. Included is a letter from Warren Buffett in support of the management that was defrauded. While most of us are already fans of Buffett, the investing logic and principles demonstrated in this case raise him to an even higher plinth.
I recommend.
Hoping you are all well, and please let me know if you see anything I’ve missed in my syllabus.
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