Investments I: Fundamentals of Performance Evaluation

Go to Course: https://www.coursera.org/learn/investments-fundamentals

Introduction

# Course Review: Investments I: Fundamentals of Performance Evaluation In the ever-evolving landscape of finance and investment, staying informed and enhancing one’s knowledge base is of paramount importance. Coursera's **"Investments I: Fundamentals of Performance Evaluation"** offers an entrepreneurial journey into the critical principles of investment, blending theory with practical applications. Led by experienced instructors, this course is designed for anyone looking to deepen their understanding of asset management, portfolio optimization, and security evaluation. ## Course Overview The course opens with an introduction to the fundamental concepts of investments, creating a solid foundation for what lies ahead. This initial module ensures students familiarize themselves with the online learning environment and obtain the essential technical skills required for effective engagement throughout the duration of the course. ### Module Breakdown 1. **Investments Toolkit and Portfolio Formation** In the first module, students are introduced to critical investment concepts and historical patterns of stock returns and government securities in the U.S. It emphasizes the fundamental trade-offs between risk and return while providing hands-on practice with Excel for portfolio optimization. This practical approach makes complex concepts more accessible, particularly for those who may not have a robust mathematical background. 2. **Motivating, Explaining, & Implementing the Capital Asset Pricing Model (CAPM)** The second module focuses on the CAPM, a cornerstone of modern finance. Here, students will develop financial intuition around the model, learning to interpret regressions and understand the concepts of beta and alpha. This module is pivotal, as it lays the groundwork for evaluating asset performance against market risks. 3. **Testing the CAPM, Multifactor Models, & Market Efficiency** In the third intellectual dive, students will expand their knowledge by analyzing various asset-pricing models, dissecting their pros and cons. Examining the efficiency of the CAPM and the introduction of the Fama-French 3-Factor Model broadens the analytical lens through which investments can be viewed. This section is critical for students aspiring to challenge conventional investment wisdom and achieve deeper insights into market behaviors. 4. **Investment Finance and Corporate Finance: Firm Valuation** The final module transitions to valuation methods where students learn to value firms using market multiples and discounted cash flows. A noteworthy exercise involves evaluating Google at the time of its IPO using Yahoo! as a benchmark, bridging theory directly into a real-world context. ### Conclusion As the course wraps up, students will revisit key learnings, sustaining a dialogue about the future of investment strategies. The conclusion not only synthesizes the course content but also offers a glimpse into advanced topics that await in the subsequent course led by Professor Weisbenner. ## Recommendations ### Who Should Enroll? This course is ideal for: - Undergraduate and graduate students seeking to augment their understanding of finance. - Early-stage professionals in finance, investment banking, or asset management. - Avid investors wishing to refine their portfolio management skills. ### Key Takeaways - **Comprehensive Learning:** Coupling theoretical lessons with practical exercises ensures learners can apply concepts readily. - **Market Relevance:** The inclusion of current market tools and trends prepares students for real-world applications. - **Expert Insight:** The pacing and instructional design benefit from Professor Weisbenner’s profound knowledge and experience in the realm of investments. ### Final Thoughts "Investments I: Fundamentals of Performance Evaluation" is more than just an academic course; it's an essential toolkit for understanding investments in today's dynamic market. Whether you are looking to make informed investment decisions, enhance your financial acumen, or lay a solid foundation for advanced finance studies, this course is a highly recommended starting point. Equip yourself with the essential skills required in the financial industry, and unlock the potential of effective investment strategies through this well-structured and informative offering on Coursera.

Syllabus

Course Overview

In this module, you will become familiar with the course, your instructor, your classmates, and our learning environment. The orientation also helps you obtain the technical skills required for the course.

In Module 1, we will build the fundamentals of portfolio formation. After providing a brief refresher of basic investment concepts (our toolkit), a summary of historical patterns of stock returns and government securities in the U.S. is provided. We then consider general examples of portfolio choice to highlight the tradeoffs between “risk” and return. We end the module with a discussion of dominated assets and efficient portfolio formation, emphasizing real-world examples and practice in Excel solving for the optimal portfolio given certain constraints (such as the amount of volatility we will accept in our portfolio).

In Module 2, we will develop the financial intuition that led to the Capital Asset Pricing Model (CAPM), starting with the Separation Theorem of Investments. We will understand that in a CAPM setting, only the market-wide risk of an asset is priced – securities with greater sensitivity to the market are required by investors to yield higher returns on average. We will also learn how to interpret regressions that provide us with both a benchmark to use for a security given its risk (determined by its beta), as well as a risk-adjusted measure of the security’s performance (measured by its alpha).

In Module 3, we will discuss different asset-pricing models, the pros and cons of each, and market efficiency. In particular, we will test the effectiveness of the Capital Asset Pricing Model (CAPM) and examine survey data concerning its use by chief financial officers (CFOs) of firms. Predictable patterns in stock returns, such as the size and value effects, will also be examined and the Fama-French 3-Factor Model will be introduced. Market efficiency will be discussed in this module, as well as its implications for the asset-management industry and observed patterns in stock returns.

In Module 4, we will learn about the two key approaches to valuing a company or stock: market multiples and discounted cash flow. We will learn how to value perpetuities and will discuss how caution should be exercised in terms of projecting both the growth in long-term cash flows and the riskiness of those cash flows – two key components of the perpetuity formula. Finally, to gain experience with the market multiples approach, we will estimate a value of Google at the time of its initial public offering (IPO) back in 2004 using market data on Yahoo! as a comparable firm.

In this module, we say goodbye to the Investments course as key takeaways from the course are reviewed. A tease is also provided to topics that will be covered in Professor Weisbenner's second course on Investments.