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FINC 241: Principles of Investment: Home

Professor: William Droms

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Portfolio Project

A portfolio project is required for this course. Projects may be co-authored with up to three participants, but a partner is not required; sole authored papers are acceptable. All partners will receive the same grade on the paper. If you are having difficulty working with your partners for any reason, simply dissolve the partnership, move on and submit a single authored project.

The portfolio project requires that you construct a stock portfolio consisting of a minimum of 20 stocks selected from no fewer than five industry groups. Standard and Poor’s maintains a Global Industry Classification System (GICS) used to construct all S&P U.S. stock indexes that provides an industry standard classification system for the U.S. economy. A list of the major economic sectors and industry groups from the S&P system is provided as an appendix to the portfolio project teaching note posted on Blackboard; the full classification is available at www.standardandpoors.com. A listing of stocks included in the various S&P Indexes and their market caps can also be found at the S&P website. The S&P classifications provide “macro” industry groupings that may be broken down into smaller subgroups.

The intent of this project is for you to develop a logical and defensible strategy to structure an equity portfolio, not a contest to develop a list of “hot” stocks. The key to success in this project is to establish a logical link between each stock’s intrinsic value and the market price of the stock. We will discuss stock valuation models in detail in class. You are required to apply some logically defensible valuation model that justifies the price you pay for the stocks included in your portfolio. In prior years, the most successful portfolio projects have been in a format resembling a mutual fund “pitch book” presenting the team’s concept of how they would structure an equity mutual fund.

Please feel free to ask any questions about this project during any class or to come by my office with questions. Although my posted office hours offer the highest probability of catching me in the office, I am on campus most days during the fall semester and you are free to stop in any time, or make an appointment. I will make an announcement in class of any days that I will be off campus.

Your portfolio project report must present at least the following sections (feel free to make any creative additions to the “standard” report):

1. A summary description of how you selected the industry groups in which you have chosen to invest.

2. For each industry group you select, a one to two page summary of the structure of the industry that includes such factors as major sources of revenues in the industry by product line, past and expected future trends in demand for industry products, industry growth relative to GDP or other economic indicators, financial strength of industry, and general investment outlook for the industry.

3. A list of the major companies in the industry, recent stock prices and P/E ratios.

4. A detailed description of the stock valuation model that you used to estimate the intrinsic value of the stocks in your portfolio.

5. A brief (one paragraph) description of each stock you selected for your portfolio explaining your reason for selecting each stock, including the estimated intrinsic value and the market price of each stock.

6. Organize your stocks into a portfolio of approximately $1,000,000 market value with approximately equal dollar amounts invested in each stock. Provide a list, organized by industry group, that lists all of the stocks in your portfolio, the stock’s ticker symbol, number of shares owned, price per share, dollar value of each investment, and total dollar value of the portfolio.

6. A list of references used for your report: All sources consulted must be clearly identified in your report.

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