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News

Course not your stock experience

Business class prompts student to utilize technology 
as they learn through managing ‘phantom portfolios' 

by DANTE EGLIN
The Daily Cougar

For some students in the Bauer College of Business, technology has greatly affected their first steps into the world of investing.

Making use of technological advances is a vital element of the security analysis and portfolio management topics covered in the Security Financial Analysis course taught by associate professor William Kretlow. Topics covered include the valuation of equity securities, financial statement analysis, security analysis and research and practical business portfolio management.

"I view the class as more of a quasi-job than a real course," Kretlow said. "I'm really the facilitator. I've got a lot of years experience at working with investments, but rather than me trying to teach them investments, I want them doing real things -- utilizing technology, utilizing the Internet, going online. 

"They are going online to research stocks; they're getting the data. My job is to teach them how to do security analysis in the real world, in a live, actual setting."

In previous years, the department has offered a course in which graduate students manage genuine financial assets. Those enrolled in Kretlow's undergraduate class, however, manage "phantom portfolios" -- funds that do not work with real money -- for the duration of the semester. 

During the first section of the course, students are asked to compile reports based on the information they have read about the stocks they have been selected to manage. In the second section, they receive data reports from media sources but must formulate their own opinions on whether to buy, hold or sell specific stocks. 

Often, some industry analysts claim that a stock is a guaranteed sell while others insist the same stock is a sure buy. Despite what specialists may suggest, students in the class must form their own management decisions. Utilizing various data, such as earnings reports or price forecasts, the students calculate the stock's "free cash flow" -- a company's operating cash flow minus capital expenditures. 

While companies calculate free cash flow in different ways, Kretlow's students utilize a specific criterion that is designed to mirror the strategies of top Wall Street firms.

Students in the class recently completed presentations of a two-stock analysis project in which they compared two stocks and decided which to include in their investment portfolios. 

Finance senior Agata Bielicki was pleased with her presentation but said she would have preferred to take greater advantage of the department's resources. 

"I was constantly flipping back from screen to screen at home looking at problems," she said. "The (AIM Center for Investment Management) would've been a great resource, but given the nature of my two stock picks, I did most of my studies during the middle of the night."

Bielicki said that the center, which includes a 16-station trading laboratory, a 36-seat classroom and a classroom with video conference capabilities, is a chief asset to students throughout the department.

Finance and entrepreneurship senior Sandra Ruiz compared two companies within the health care industry. 

"They have similar market caps and are global companies, but they do not compete," she said. 

As a commuter student, the ability to seamlessly compile research at home and on campus was a significant benefit for Ruiz. She said she completed the bulk of her inquiries from home, making use of several online sources. 

"There's certain Web sites that we used like (investment research company) Value Line, Google Finance and Yahoo! Finance, but there are also sources we don't have access to that the professor provides us," she said. 

Because Kretlow has his own investments and an account with a private company, he is able to access exclusive reports from financial research service companies such as Standard & Poor's, as well as information from sources such as Solomon Brothers, Lehman Brothers, Prudential and other investment banks. 

After graduating last spring with a bachelor's in business administration, Janak Desai quickly landed a job with leading global financial firm JP Morgan and has been a trust associate at the Bank of New York since November. He attributes his experience in the Security Financial Analysis course as one of the key reasons for his success.

"I feel that several basic foundations that we learned in the course are exactly what I'm doing right now at my current position," Janak said. "Most of the courses you take are like basics courses that teach theories and similar concepts. (The Security Financial Analysis course) is where you put the actual things into practice. You cover interest rates, you worry about future long-term growth, what happens if the oil prices go up. It's where you get to put your knowledge into action."

The foundations of the study of business haven't changed much in Kretlow's eyes, but he said technology has made things more efficient and succinct.

"Ten years ago we were doing pretty much the same thing we're doing now in this course, but as I look back, very little of the data was online in real time that I could get a hold of. I was usually working with printed material one to six months old," he said.

Kretlow said he's usually pleased with the students' performances.

"I'm just the facilitator," he said. "They truly are junior security analysts when they're through. This course is all about them."

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