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Asset Management -Portfolio Manager-

Asset Management -Portfolio Manager-. Tetsuya Hirano thirano@umich.edu October 9, 2005 Tozzi Finance Center. Today’s Agenda. Portfolio Management Overview What is Portfolio Manager? Career Path for a Portfolio Manager Skills Investment Decision Making Style Investment Style

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Asset Management -Portfolio Manager-

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  1. Asset Management-Portfolio Manager- Tetsuya Hirano thirano@umich.edu October 9, 2005 Tozzi Finance Center

  2. Today’s Agenda • Portfolio Management Overview • What is Portfolio Manager? • Career Path for a Portfolio Manager • Skills • Investment Decision Making Style • Investment Style • Top down / Bottom up • Typical day • Main Players • Books

  3. What is Portfolio Manager? • Portfolio managers make investment decisions for a portfolio of assets,and expected to produce excess return to benchmark (ex. S&P 500) • Portfolio Managers decide which stocks and what % they should buy for their portfolio • Buy-side analysts help portfolio managers to identify which stocks are good, but do not recommend what % • Portfolio managers need to adjust the portfolio to control portfolio risk (ex. BARRA analysis) • To control risk, P.M. might need to buy stocks that they don’t like.

  4. Career Path to Portfolio Manager It is very difficult for MBAs to directly get a Portfolio manager position. We need a bridge. Typical Career Path will be, • People spend several years as a research analyst • Firms rotate analysts to several sectors every a couple of years • Some firms assign analysts to manage sector fund(s) • Finally, good stock pickers are promoted to Portfolio managers

  5. Skills • Skills mentioned during Fidelity campus recruiting session • Integrity • Curiosity: Keep asking “why” • Creative/Independent thinker: Can be contrarian? • Individual/Teamwork achievement • Entrepreneur • Communication • Passion in financial market

  6. P.M. involves judgment.. Portfolio managers always judge information; Important? Correct? Biased? Media Paper, News, Magazines etc. Buy/Sell-sides Economists Strategists Final Portfolio/ Risk Control Buy-side Sell-side Analysts Portfolio Manager Own Experience (ex. I like eBay. Am I biased? ) Individual Company (earning guidance etc.)

  7. How do P.M.s build portfolio? • Top down approach • General to specific • Start with the macroeconomic view, then identify which sectors perform better, and finally choose stocks • Portfolio managers decide • First, sector allocation • Second, individual stocks weights% • Finally, adjust portfolio risk • Bottom up approach • Start with Stock fundamentals • Portfolio managers decide • First, individual stocks and weight% • Second, build initial portfolio • Finally, adjust portfolio risk

  8. Value Value Blend Growth Blend Growth Investment Style • There is a range of different styles • Growth, Value, Small/Mid cap., Indexed, market neutral, etc. • Very important to understand which investment style your target firm(s) employ • Firms/Funds have their own investment style, categories. These styles are very consistent. Large Mid Small

  9. Investment Style (Cont.) • Growth Stock • Stock of a company with faster growing earnings than its industry or overall market. Usually pay little or no dividends. Instead, use income to finance future growth • Value Stock • Stock of a company which is not expanding rapidly but has excellent fundamentals. Stock is considered undervalued, but expected to appreciate in near future. • Large: • >$5 billion • Medium: • $1.5 million - $5 billion • Small: • $250 million - $1.5 billion

  10. Typical Day • Working style varies firm by firm. (Below is very simplified schedule) • Earning release seasons are very tough (ex. 5 earnings on one day. You might need to follow all of them.)

  11. Main Players

  12. Recommended Books • Portfolio Manager 101 • Peter Lynch • One Up on Wall Street • Beating the Street • Learn to Earn • Jim Rogers • Investment Biker • Hot Commodities • Adventure Capitalist • More recommended books http://webuser.bus.umich.edu/Organizations/investmentclub/Roadmap.doc

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