Finance and Security Analysis: Expectations Investing

Course Overview
Security Analysis
Columbia University, Graduate School of Business
Professor Michael Mauboussin

Course Content:
The goal of this course will be to gain a basic understanding of the thought process involved with security analysis.
The course will approach the issue addressing the four building blocks:

1. What makes stocks go up and down?

- What factors drive market value and how should they be understood and analyzed?
- Are markets efficient?
- Does modern portfolio theory best explain market activity?
- Is there a deviation between conventional wisdom and “reality?”
- Are stock prices determined by intrinsic value or market psychology?
2. How are the capital markets and business value linked?
- How should a business be valued?
- Which of the commonly used analytical tools tells you the most about value?
- What does the stock market say about corporate performance?
- How is “risk” incorporated into value calculation?
- How are competitive advantages captured into valuation?
- Which is better, “value” or “growth” investing?
3. What factors determine business value?
- What is the definition of a good business?
- How does one evaluate industry/company specific factors?
- What criteria guide management decisions?
- Are the goals of maximizing shareholder value and managing for the long-term reconcilable?
- Does the new economy require new models of strategy?
4. What role does individual/collective decision-making play in product and capital markets?
- Are economic agents rational?
- Do common cognitive pitfalls exist?
- Can “self awareness” negate personal biases?
- How are cognition and economics linked?

Answers to these questions will be considered in the context of a highly competitive market, and will focus on
practical tools versus theoretical approaches.

Course prerequisites are Corporate Financial Reporting (B8100) and Foundations of Finance (B6302). Early in the
semester, some of the material covered will overlap with finance courses. This material should be viewed as the
opposite side of the same coin, and is intended to firmly establish a foundation upon which the key tenets of the
course will be based. It is important to underscore that while an understanding of basic finance is important for this
course, the course is designed to develop concepts that are highly intuitive.

The following brief course outline includes core readings available from Harvard Business School Publishing. For
more information on Expectations Investing, visit Professor Mauboussin’s website at:
http://www.expectationsinvesting.com

Sessions 3 and 4
Market Myths and Realities
Market Efficiency/Non-Linear Dynamic Systems

This course overview is provided for the use of teaching faculty. To order materials or for questions, please contact
us at (800)-545-7685, or visit www.hbsp.harvard.edu.
Suggested reading:
Relevance Lost: The Rise and Fall of Management Accounting
by H. Thomas Johnson and Roberta Kaplan
Harvard Business School Press Book
Product Number: 2542

Sessions 5 and 6
Valuation Concepts
Review of Techniques

Suggested reading:
Stock Market Signals
by Alfred Rappaport
Harvard Business Review article
Product Number: 87611

Sessions 9 and 10
Competitive Strategy Framework
Capital Allocation Decisions
Identification of Key Value Drivers

Suggested reading:
What is Strategy?
by Michael E. Porter
Harvard Business Review article
Product Number: 96608

CFOs and Strategists: Forging a Competitive Framework

by Alfred Rappaport
Harvard Business Review article
Product Number: 92309

Increasing Returns and the New World of Business

by W. Brian Arthur
Harvard Business Review article
Product Number: 96401

This course overview is provided for the use of teaching faculty. To order materials or for questions, please contact
us at (800)-545-7685, or visit www.hbsp.harvard.edu.