FINE 441 - Investment Management - Winter 2015 - Course Outline

Step 1: Read this document very carefully. You will be tested on it. Think of it as a contract.
Step 2: Check the schedule online and your inbox for announcements and updates

Table of Contents:
I. Contact Information
II. Course Description
III. Course Website & Communications
IV. Required Material
V. Assignments & Grades
VI. Tutors
VII. Honour Code
VIII. Tips for a Successful Semester
IX. Reviews

I. Contact Information [back]

Instructor: Prof. Sebastien Betermier
E-mail: sebastien.betermier@mcgill.ca
Tel: (514) 398 3762
Office: BRONF 502
OH: Thurs 12PM-1PM
Tutors:
Sean Maislin - sean.maislin2@mail.mcgill.ca
Henri St-Pierre - henri.st-pierre@mail.mcgill.ca
OH: Wed 4-5PM, location TBD
Secretary: Cynthia Wong
Phone: (514) 398 4000 ext 00974
OH: 9-11AM, 2:30-3:30PM, Deans office
Email: cynthia.wong3@mcgill.ca
[Note: Grace Pawelec will be replacing Cynthia in January]
Course Times:
Tues/Thurs 10:05AM 11:25AM in BRONF 001
A couple of sessions will take place in the trading lab (BRONF 205).
Tutorials: Tues 5:35 - 6:55PM in BRONF 205 (Sean & Henri)

II. Course Description [back]

The objective of this course is to provide you with the tools to become a successful investment manager.
It builds on the knowledge that youve learned in the Intro. to Finance core course. After this course
youll have enough knowledge of the fundamental concepts to tackle some of the more advanced and
specific courses such as derivatives, fixed income, or real estate finance.
Becoming a good investment manager involves a solid understanding of (i) peoples investment
objectives, (ii) the mechanics of financial markets, and (iii) the characteristics of the various investment
opportunities. It also requires the ability to make decisions under uncertainty and to think creatively and
independently. Well address all these points via a mix of theory and various real-world applications.
I divided this course into two parts. The first part is what I call the theory. Before we delve into the
characteristics of the various investment assets, we need to set-up a general framework about
investment management. The framework is built on three pillars: portfolio theory, asset pricing, and
market efficiency. The second part is what I call the microscope. We will study in depth the
characteristics of the three major types of financial assets -- stocks, bonds, and derivatives -- in the
context of the framework from Part I.
My objective isn't to teach you a set of formulas. It is to teach you a method for thinking about IM. We'll
take a scientific approach to model the financial world by breaking it down into its key components and
studying each effect in a simpler setting. This means that the formulas we'll derive often depend on very
strong assumptions. We'll spend a considerable amount of time understanding their context, their
limitations, and their real-world value from the perspective of a portfolio manager who must make
decisions on a daily basis.
Expect this course to be hard, intense, and time consuming. The concepts we will cover are fundamental
for modern investment management. It is extremely important that you devote enough time to
understand the material. IM is a field where the stakes are high and you do not want to end up on the
loser side of a deal. I will impose a lot of work from you: an intense real-world group project, four
homework assignments, one midterm, and one final. I will also expect you to be fluent in Excel by the
end of the semester. And I have a strict policy of making no exceptions. If you're not willing to spend the
time or you don't like independent open-ended projects then you should take this course with someone
else. See the comments from last year's student evaluations at the end of this document to help you
decide.

III. Course Website & Communications [back]

You will find all the course material on MyCourses. The material includes the course outline and the
online quiz, the schedule which will be continuously updated, lecture slides, additional excel
spreadsheets and handouts, homework assignments and solutions, additional readings, grades, and also
discussion boards where you're welcome to discuss with each other. I will post the lecture slides in the
evening prior to the lecture day.
For specific announcements, check your email. Expect lots of emails throughout the semester. I strongly
recommend that you create a specific folder for this course so that you don't lose track of my emails.
You are responsible for making sure that your mailbox is never full or doesn't treat my emails as spam.
If you have specific questions regarding course content or genuine administrative uncertainty please
contact me via email and I will answer you within one business day. I will be happy to help. However, be
aware that if you send a question where the answer has already been clearly stated then it will be
ignored. I expect you to be professional and do your homework before contacting me. So if you don't
get a reply to your email by the end of the next business day it is very likely your answer has already
been made available to you.

IV. Required Material [back]

Textbook
Bodie Kane Marcus Perrakis Ryan Switzer -- Investments 8th CA Edition -- McGraw Hill Ryerson
Available at the bookstore. You can also get temporary access to the digital version
(www.coursesmart.com) for a lower fee. Three copies of the full textbook are available on reserve at the
library. If you prefer to buy a cheaper, older edition that's fine, but keep in mind that there may be a
mismatch between your end-of-chapter problems and the ones that Ill use. You'll need to double check
with a classmate or at the library.
There is a lot of information in the text, some of which isn't relevant to the course. You should view this
textbook as a dictionary and use it whenever you want to read more about a particular concept. Do not
spend all your time reading the book from A to Z. You will not be tested on material that we haven't
covered in class / assignments.
Microsoft Excel
We will use Excel extensively for applications of the course material. It is fundamental that you learn
how to use Excel. It's a language that you will have to speak fluently at the workplace, otherwise you
won't get a good job. If you're not willing to learn Excel then you should not take this course. The tutors
will spend a lot of time on Excel during the tutorials.
Additional readings
Available on MyCourses. Read them. You won't regret it.

V. Assignments & Grades [back]

Final Grade
Your final grade is a risky outcome of how much time and effort you invest in this course. The grading
scheme is designed to eliminate some of this risk via diversification of assignments and also to give you
enough time and options to best prepare for the non-diversifiable part. Your final grade consists of:
2.5% Syllabus test
2.5% RIT Participation
10% Homework
25% Group project
20% Midterm
40% Final
+/- General Participation

Online Test of the Course Outline

I want the expectations of this course to be 100% clear to everyone. So there will be a comprehensive
online examination on the course outline (sections I-VII). You assume it will be easy at your own peril.
You can access it from MyCourses from Wed Jan 7 8:00AM to Tues Jan 20 11:59PM. It will be entirely
multiple choice and you can expect 30 questions. You will need to use a calculator. You have two weeks
to take it, so excuses for not completing this online test WILL NOT BE ACCEPTED, even if you choose to
enroll in this class late. Do not wait until the last minute to take it. Save your answers as you go. You are
only allowed one submission. Failure to submit this test in time will result in a zero. If you choose to
share your answers with your peers just keep in mind that ultimately grades are determined
competitively so it will result in a lower grade for you.
Your final score on the syllabus test will be 90% of the points you earn on the test. In other words, if you
answer most questions right you get an A, but you still need to do well on the other assignments to get
an A in the course.

RIT Participation
We will run 2-3 live simulations in class via the Rotman Interactive Trader (RIT) software. The
simulations will take place in the trading lab. They are terrific to help you understand some topics such
as the dynamics of the limit order book. I expect all of you to be prepared and to participate actively.
Some of these simulations will require some preparation in advance such as the creation of an Excel
spreadsheet.
You will not be graded on how well you do in the simulations. But I do expect you to be prepared and to
give it a genuine try. If thats the case then you will receive a check (i.e. 90/100) as the RIT participation
grade. If thats not the case then I reserve the right to decrease your RIT participation grade down to 0%.
The top participants will receive bonus points on the exams.
I will let you know in advance when I plan to run the simulation. If you cannot attend then I will need
prior notice from you, otherwise you will get a zero on the RIT participation grade.

You will be able to do extra practice on the simulations during lab hours. This year we have hired for the
first time two lab specialists whose job is to hold lab hours each week and run additional simulations of
the RIT cases and help you with the software.

Homework
This is a hard course. If you don't believe me, check out the unedited comments about the course from
last year's students at the end of this document. You must practice on a regular basis. It is the only way
for you to monitor your progress, reduce the risk of getting lost, and get something durable out of this
course.
There are 4 homework assignments which consist of modified problems from the textbook and other
tasks such as learning how to download data and finding news articles that are related to the course
material. You will have at least two weeks to complete each assignment so I WILL NOT ACCEPT LATE
ASSIGNMENTS under any circumstances. So if you choose to wait until the last day it's at your own risk.
You may choose to work together with other students but at the end you must submit your own
individual copy. Two copies that are nearly identical are considered plagiarism.
The purpose of the homework is to reward continuous practice. Each homework will have 6 questions,
and each time 2 out of the 6 questions will be randomly picked for grading. The selection will be random
for the whole class and not each student. For example, I may choose to grade questions 1 and 2 of hwk
#1 for everyone, so if you haven't worked on these questions you will get a zero.
Each question will be graded out of 10 points as follows: good (9/10), ok - mostly complete (7/10), poor incomplete (5/10), very poor - missing (0/10). You will not get full points for just the correct answers.
You will need to show all the steps and convince me that you fully understood the problems. At the end
of the semester I will add up all your homework points and the final homework grade (out of 100) will
count for 10% of your final grade.
This is how I want you to understand the grading: if you put in the effort, you will get an A on 10% of
your final grade. In fact, to remove some of the uncertainty, I will post on MyCourses partial solutions in
advance so that you can check your work before turning it in. Like with the course outline test, I don't
give out 10/10 on each homework because it shouldn't give you an A if you did just okay on the exams.
But it will help you to secure it.

Group project
The group project is an intense real-world application of the course material. You will form groups of 4
students by the Add/Drop deadline (01/20) and inform me via email. Please come up with a team name.
Your team will ultimately submit a concise executive report (5 pages max). I will grade both the content
of your report and the way it is presented. I WILL NOT ACCEPT LATE REPORTS under any circumstances.
Each group will also be expected to participate actively during the class discussions. There will be a
couple of coaching sessions in class where I will review and grade the progress you have made. Detailed
instructions will be posted later on MyCourses.
You are free to choose your group members and I urge you to think carefully about your choice. It will
have a huge impact on what you get out of the projects. Note that if you do not give me a group of 4
students by the Add/Drop deadline then I will do the rest of the matching myself. You will run the risks
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of (i) ending up in a group of 3 (market clearing) and (ii) being matched with students who do not bother
to respond.
The project is worth 25% of your final grade. You will be asked to step in the shoes of a portfolio
manager and do research on how to design a portfolio for a specific household. In other words, you will
have to interview people to get a sense of their risk profile, come up with a particular investment
strategy, look for relevant assets, come up with a precise asset allocation, and summarize your findings
in a professional executive summary. There will be a prize for the winning groups. More details to come.
I expect everyone to participate actively in the group project. If one member of the group is free-riding
then the other members should build a case and inform me ASAP. Make sure to clearly set the
expectations upfront, keep a written trail of all communications, and record any evidence of noncooperation. If I deem the evidence of free-riding to be sufficiently strong then I reserve the right to
reduce the free-rider's project grade by up to 100%. It has happened in the past. These decisions will be
dealt on a case-by-case basis.

Exams
Both the midterm and the final exam are closed-book, closed-notes, and closed-computer. For each
exam you will be given a sheet with relevant formulas. You may use a non-text storing calculator. You
will be expected to write down all the steps you took to get to the solutions.
If for some reason you cannot attend the midterm then you must let me know ASAP and provide formal
written documentation for your absence (e.g. doctor's note) within one week of the midterm, otherwise
you will get a zero. No exceptions. There will not be any make-up exam.
I will post on MyCourses sample exams from previous years as well as guidelines so that you know what
to expect. They're not easy exams. Some of the problems will be more challenging than the end-ofchapter problems from the book. You should also note that while the final exam is designed to be a bit
harder than the midterm, it does not affect your grade. I will ultimately impose a curve so that the
average grade on each exam will be roughly similar. What matters is your performance relative to that
of your peers.

Drop the midterm option

If you feel that your performance on the midterm is inadequate, then you have the option to drop it and
instead opt for a 60% weight on the final. This option is not automatic. IT REQUIRES A WRITTEN
REQUEST BEFORE the final (e.g. email). You cannot rescind your request once you send it in, youre
committed.
If for some valid reason you should miss the midterm (see above), then the final will automatically count
for 60% of your final grade. But if you miss the midterm and do not provide any formal written
documentation, then you will not be able to drop that zero. That's right, I want you to take that midterm
exam no matter what. Even if you haven't studied for it and you plan to drop it, it will get you a sense of
what to expect on the final exam.

Regrades
I have a strict policy for re-grades. Exam re-grades must be requested within one week of the day the
copies are made available to you. During that week you will be able to access your exam but you will not
be able to bring it home. You must submit the exam along with a written and precise explanation of why
you think the exam was incorrectly graded. The entire exam will be re-graded and the final mark may go
up or down. After the re-grade week you are free to take your exam home.

General Participation
If your final grade is within one point of two letter grades (e.g. between 69 and 71) -- which happens
40% of the time -- I reserve the right to adjust it upwards or downwards (B- or B in this case) depending
on your level of participation. I take into account whether you attended and participated in lectures,
acted with professionalism and integrity throughout the course, and participated actively in your groups.
The participation adjustment will not be assigned until after the final exam. Do not contact me what +/you might have going into the final exam as I do not know.

VI. Tutors [back]

We have a fantastic team of tutors for this course: Sean and Henri. Both took the course last year and
did extremely well. Their team also won the prize for the best project. Their tasks include holding
tutorial sessions and office hours and responding to questions via email.
Tutorial sessions: To help you work on practice problems I've set up a weekly tutorial session each Tues
5:30-7PM in Bronfman 205. During the sessions Sean and Henri will go through practice problems step
by step, review some Excel basics, etc... These sessions are optional so you are not obliged to attend
them. Some of the material will be posted on MyCourses.
Tutor Office hours:
Weekly office hours TBD.
There will be additional OH right before the exams and during the group project. Times will be
announced later via email.

VII. Honour code [back]

McGill University values academic integrity. Therefore, all students must understand the meaning
and consequences of cheating, plagiarism and other academic offences under the Code of Student
Conduct and Disciplinary Procedures (see www.mcgill.ca/integrity for more information)
My personal view: please read carefully.
I view cheating as theft. Because grades are determined competitively you are literally stealing
somebody else's grade. So it is disrespectful and unfair to all the students who actually work hard in this
course. I have zero tolerance for it and will make sure to make your life miserable throughout the rest of
the course. In the past I have failed quite a few students as a result of it. My graders are specially trained

to detect cheating. The consequences of an F on your transcript can be devastating for your career if you
plan to work in Finance.
By cheating I do not mean just copying someone else's exam. It also includes plagiarism on an
assignment, making up fake information on a project, coming up with a fake excuse to avoid an
assignment, etc.... You wouldn't believe how far some students are willing to go to get away with an
assignment. Since it has too often been a serious issue in the past, I will not consider any medical
conditions or emergency situations without formal documentation. For example, if a sudden death in
the family requires you to miss an exam, I will require a copy of the obituary, the contact information of
the funeral home handling the arrangements, and your relation to the deceased. And if you have a real
and serious emergency that prevents you from completing the rest of the assignments in the course
then you will be assigned an "I" for Incomplete.
As I've mentioned repeatedly throughout this course outline, I have a strict policy of zero exceptions.
Please do not test me on it. Whining about it will ultimately make your case worse.
Note about copyrighted material
I have recently noticed that some students anonymously upload copyrighted course material on
websites such as CourseHero. These students are not only committing something illegal and
disrespectful to the authors but they are also sabotaging McGills educational value. Once this material
is posted online everybody can use it.
I realize that sometimes it is tempting to use these websites because some Professors keep using the
same exams over and over. This is not the case here. I will post on MyCourses many sample exams and
lots of additional material for you to study and practice. I also do not recycle exams.
Please respect the copyrights. I have spent hundreds of hours preparing material for this course. This
material is not meant to be distributed outside of class.

VIII. Tips for a Successful Semester [back]

Most students get a poor grade in the class because they don't work hard enough. Tons of
resources are available to you: lectures, tutorials, OH. Take advantage of these resources. Most
of the OH are under-used. If you start early enough then you'll have the opportunity to figure
out what you might be doing wrong. If you start too late then you're taking a huge risk and you'll
regret it ex-post.
Don't take the midterm for granted. I mean it. If you don't score well, you'll have the
opportunity to drop it. But it will also give you a chance to figure out what went wrong and how
to make adjustments for the final exam.
When you take the practice exam, try to make it as real as possible. Have a timer, hide the
solutions, hide your notes. Only then will you be able to judge whether you're in good shape for
the real exam.

Read the chapter before lecture. Then you're ready to come to class having identified the topics
you don't understand. It might sound like additional work but it will save you tons of time down
the road when you need to study for three exams at once.
Come to class. This is your second opportunity to learn about the material. Since you have read
the chapter and identified what you do not understand hopefully lecture will clarify things.
Again, huge efficiency gains here.
Expect homework problems to be harder than the ones covered in class. Expect to be confused
when you start them. This is normal, and it's a good thing. You'll only really understand a topic if
you have to introspect for a while and fight with it by yourself. Learning doesn't happen in one
go.
Pair up with a classmate and play the role of a tutor. It will force you to confront the material
and see whether you really understand it or not.
Look for the narrative in the lecture slides. I try to connect all the different concepts by telling a
story. Does the narrative make sense? If not, where does the chain of logic break?
When you're confused on a problem, do not look for help right away. Confront the issue on your
own for a while, write down exactly where and why you're confused, just like if you were
troubleshooting a bug in a computer code. This will help you to build confidence during exam
time when you won't have your notes nearby and anyone else to help you. If you ask someone
for the solution straight away you might get it but it won't help you down the road. You should
only ask for help if you're still stuck on the issue after a while.
Most students lose points on exams because they don't pay attention to the details. Don't rush.
My other advice is to re-frame the question in your own language so that you can make sure
that you really understand it. Then you can build a checklist and see whether you have all the
ingredients you need to answer the question.

IX. Reviews [back]

Last year's evaluations are available on Mercury. Here are some of the comments (unedited). They will
help you decide whether you want to stay in this course.
The course was absolutely fantastic. The professor was one of the few professors at McGill who was
able to teach their students the link between theory and practice. In this class, I had the opportunity to
apply theory to real-world activities like investment labs and to present my project to professionals at
different firms. I definitely feel that this class enriched my business education and it helped prepare me
for industry.
It was tough, but fair. He makes you think beyond the basics. The project was definitely tough, but once
we completed it we felt a sense of accomplishment. This is the only case I've taken in finance yet that
has challenged me and engaged me to think beyond the scope of the material. I wish his methods would
be applied to more classes.
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The uniqueness of Professor Betermier's teaching is that although he sets the bar hard to challenge
students, his goal is not to fail students or put them down. Nothing is easy but he provides all the right
tools for students to succeed. His class is rewarding and makes you want to take that extra steps. By
setting the bar high, Professor Betermier demonstrates to his students how much he believe in their
potential, never have I seen in 3 years at McGill a class of students so intrinsically motivated to learn and
do well.
Prof. Betermier is an extremely dedicated teacher. The material can be challenging at times. However,
he makes available all the necessary resources to get a good grasp on the concepts. His slides are very
thorough, so you don't need to do too much reading from the textbook. Overall Betermier goes above
and beyond what is necessary from him as an instructor in my opinion. The semester long project is very
demanding, but if you put in the work and produce something good, you will learn a lot. He also gives
the strongest groups incredible opportunities to meet and present their work to investment
management professionals. I would recommend this class to someone who is willing to work hard and
who is interested in a career in investment management.
The prof made this class amazing. Hope he continues to teach it so other students can benefit. It's not
easy, but if you want to learn it shouldn't be easy. I feel like he prepared me for the real world.
Professor Betermier presents students with a very organized and thorough framework for
understanding investment management decisions. He then challenges students to apply the theory
learned in class to real world situations in assignments and group projects. I feel confident I'll remember
what I learned in this course because of the method by which it was taught.
-----------------------------------If you've read this far congratulations. Now get to work and start learning.

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