Investments I: Fundamentals of Performance Evaluation from Coursera

In this course, we will discuss fundamental principles of trading off risk and return, portfolio optimization, and security pricing. We will study and use risk-return models such as the Capital Asset Pricing Model (CAPM) and multi-factor models to evaluate the performance of various securities and portfolios. Specifically, we will learn how to interpret and estimate 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). Building upon this framework, market efficiency and its implications for patterns in stock returns and the asset-management industry will be discussed. Finally, the course will conclude by connecting investment finance with corporate finance by examining firm valuation techniques such as the use of market multiples and discounted cash flow analysis. The course emphasizes real-world examples and applications in Excel throughout. This course is the first of two on Investments that I am offering online (“Investments II: Lessons and Applications for Investors” is the second course).

The over-arching goals of this course are to build an understanding of the fundamentals of investment finance and provide an ability to implement key asset-pricing models and firm-valuation techniques in real-world situations. Specifically, upon successful completion of this course, you will be able to:

• Explain the tradeoffs between risk and return

• Form a portfolio of securities and calculate the expected return and standard deviation of that portfolio

• Understand the real-world implications of the Separation Theorem of investments

• Use the Capital Asset Pricing Model (CAPM) and 3-Factor Model to evaluate the performance of an asset (like stocks) through regression analysis

• Estimate and interpret the ALPHA (α) and BETA (β) of a security, two statistics commonly reported on financial websites

• Describe what is meant by market efficiency and what it implies for patterns in stock returns and for the asset-management industry

• Understand market multiples and income approaches to valuing a firm and its stock, as well as the sensitivity of each approach to assumptions made

• Conduct specific examples of a market multiples valuation and a discounted cash flow valuation

This course was previously entitled “Financial Evaluation and Strategy: Investments” and was part of a previous specialization entitled "Improving Business and Finances Operations", which is now closed to new learner enrollment. “Financial Evaluation and Strategy: Investments” received an average rating of 4.8 out of 5 based on 199 reviews over the period August 2015 through August 2016. You can view a detailed summary of the ratings and reviews for this course in the Course Overview section.

This course is part of the iMBA offered by the University of Illinois, a flexible, fully-accredited online MBA at an incredibly competitive price. For more information, please see the Resource page in this course and onlinemba.illinois.edu.

What's inside

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.

Module 1: Investments Toolkit and Portfolio Formation

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).

Module 2: Motivating, Explaining, & Implementing the Capital Asset Pricing Model (CAPM)

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).

Module 3: Testing the CAPM, Multifactor Models, & Market Efficiency

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.

Module 4: Investment Finance and Corporate Finance: Firm Valuation

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.

Course Conclusion

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.

Good to know

Know what's good

, what to watch for

, and possible dealbreakers

Designed for learners with a foundational understanding of finance

Explores critical principles of risk and return analysis

Develops a toolkit of portfolio optimization and asset pricing models

Provides hands-on practice in Excel for real-world applications

Taught by renowned professors from Gies College of Business, University of Illinois

Can serve as a stepping stone to the second course in the investment finance series

Reviews summary

Performance evaluation mastery

Learners say that this course is largely positive and engaging. Professor Scott Weisbenner is described as excellent and knowledgeable. Students appreciate the practical and thoughtful approach to teaching complex topics like the Capital Assets Pricing Model (CAPM). The course is well-received by those seeking to gain a deeper understanding of investment strategies and decision-making.

Challenging but rewarding.

"This course takes me to the next level of knowledge and in terms of demanding and challenging path to receive most of takeaways."

"It may seem like a TON of material to get through at first - and it is! - but hang in there and keep going!"

"All the "broccoli" you're going to be working through in the first part of the course is SO worth it because you will feel so gratified as you begin to realize that suddenly you understand Capital Assets Pricing Models"

Excellent professor with a great teaching style.

"Excellent course with plenty of historical data with thorough analysis and very nice presentation."

"Professor Weisbenner was great in a recorded session and in live sessions. He is excellent in teaching complicated materials and providing common analogies to help us understand."

"Professor Weisbenner is really the best - he is sooo good!"

In-depth and practical investment knowledge.

"Great course which adds a lot of knowledge."

"This course was really amazing. ... I learnt from this course."

"It is a really complete course with a lot of good content and information on investments ..."

Too long with unnecessary details.

"Videos are WAY too long. So many sidebars, tangents, and extra details that ultimately detract away from the lesson."

"Way too long. Things can be summarize further to get the learning objectives across."

Career center

Learners who complete Investments I: Fundamentals of Performance Evaluation will develop knowledge and skills that may be useful to these careers:

Portfolio Manager

Portfolio Managers are responsible for making investment decisions and managing investment portfolios for their clients. This course on Investments I: Fundamentals of Performance Evaluation would provide a strong foundation for individuals interested in a career as a Portfolio Manager. The course covers topics such as portfolio theory, asset pricing, and performance evaluation, which are all essential for success in this role. Additionally, the course emphasizes real-world examples and applications, which will give students the practical skills they need to be successful in the field.

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Financial Analyst

Financial Analysts research and analyze financial data to provide investment recommendations to their clients. This course on Investments I: Fundamentals of Performance Evaluation would be very helpful for individuals interested in a career as a Financial Analyst. The course covers topics such as portfolio theory, asset pricing, and performance evaluation, which are all essential for success in this role. Additionally, the course emphasizes real-world examples and applications, which will give students the practical skills they need to be successful in the field.

See salaries and explore the career path for Financial Analyst

Investment Banker

Investment Bankers help companies raise capital and advise them on mergers and acquisitions. This course on Investments I: Fundamentals of Performance Evaluation would be very helpful for individuals interested in a career as an Investment Banker. The course covers topics such as portfolio theory, asset pricing, and performance evaluation, which are all essential for success in this role. Additionally, the course emphasizes real-world examples and applications, which will give students the practical skills they need to be successful in the field.

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Hedge Fund Manager

Hedge Fund Managers manage investment funds that use advanced investment strategies to generate superior returns. This course on Investments I: Fundamentals of Performance Evaluation would be very helpful for individuals interested in a career as a Hedge Fund Manager. The course covers topics such as portfolio theory, asset pricing, and performance evaluation, which are all essential for success in this role. Additionally, the course emphasizes real-world examples and applications, which will give students the practical skills they need to be successful in the field.

See salaries and explore the career path for Hedge Fund Manager

Stockbroker

Stockbrokers execute and manage orders for the buying and selling of stocks and other securities. This course on Investments I: Fundamentals of Performance Evaluation would be very helpful for individuals interested in a career as a Stockbroker. The course covers topics such as portfolio theory, asset pricing, and performance evaluation, which are all essential for success in this role. Additionally, the course emphasizes real-world examples and applications, which will give students the practical skills they need to be successful in the field.

See salaries and explore the career path for Stockbroker

Private Equity Investor

Private Equity Investors invest in private companies with the goal of generating superior returns. This course on Investments I: Fundamentals of Performance Evaluation would be very helpful for individuals interested in a career as a Private Equity Investor. The course covers topics such as portfolio theory, asset pricing, and performance evaluation, which are all essential for success in this role. Additionally, the course emphasizes real-world examples and applications, which will give students the practical skills they need to be successful in the field.

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Venture Capitalist

Venture Capitalists invest in early-stage companies with the goal of generating superior returns. This course on Investments I: Fundamentals of Performance Evaluation may be helpful for individuals interested in a career as a Venture Capitalist. The course covers topics such as portfolio theory, asset pricing, and performance evaluation, which can provide a foundation for success in this role. Additionally, the course emphasizes real-world examples and applications, which may provide valuable insights for those working in the field.

See salaries and explore the career path for Venture Capitalist

Actuary

Actuaries use mathematical and statistical techniques to assess risk and uncertainty. This course on Investments I: Fundamentals of Performance Evaluation may be helpful for individuals interested in a career as an Actuary. The course covers topics such as portfolio theory, asset pricing, and performance evaluation, which can provide a foundation for understanding the financial aspects of risk and uncertainty. Additionally, the course emphasizes real-world examples and applications, which may provide valuable insights for those working in the field.

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Financial Planner

Financial Planners help individuals and families plan for their financial future. This course on Investments I: Fundamentals of Performance Evaluation may be helpful for individuals interested in a career as a Financial Planner. The course covers topics such as portfolio theory, asset pricing, and performance evaluation, which can provide a foundation for understanding the investment aspects of financial planning. Additionally, the course emphasizes real-world examples and applications, which may provide valuable insights for those working in the field.

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Reinsurance Underwriter

Reinsurance Underwriters assess risk and determine the premiums for insurance policies for insurance companies. This course on Investments I: Fundamentals of Performance Evaluation may be helpful for individuals interested in a career as a Reinsurance Underwriter. The course covers topics such as portfolio theory, asset pricing, and performance evaluation, which can provide a foundation for understanding the financial aspects of risk assessment. Additionally, the course emphasizes real-world examples and applications, which may provide valuable insights for those working in the field.

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Insurance Underwriter

Insurance Underwriters assess risk and determine the premiums for insurance policies. This course on Investments I: Fundamentals of Performance Evaluation may be helpful for individuals interested in a career as an Insurance Underwriter. The course covers topics such as portfolio theory, asset pricing, and performance evaluation, which can provide a foundation for understanding the financial aspects of risk assessment. Additionally, the course emphasizes real-world examples and applications, which may provide valuable insights for those working in the field.

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Credit Analyst

Credit Analysts assess the creditworthiness of borrowers and make recommendations on lending decisions. This course on Investments I: Fundamentals of Performance Evaluation may be helpful for individuals interested in a career as a Credit Analyst. The course covers topics such as portfolio theory, asset pricing, and performance evaluation, which can provide a foundation for understanding the financial aspects of credit analysis. Additionally, the course emphasizes real-world examples and applications, which may provide valuable insights for those working in the field.

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Quantitative Analyst

Quantitative Analysts use mathematical and statistical techniques to analyze financial data and make investment decisions. This course on Investments I: Fundamentals of Performance Evaluation may be helpful for individuals interested in a career as a Quantitative Analyst. The course covers topics such as portfolio theory, asset pricing, and performance evaluation, which can provide a foundation for understanding the quantitative aspects of financial analysis. Additionally, the course emphasizes real-world examples and applications, which may provide valuable insights for those working in the field.

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Economist

Economists study the production, distribution, and consumption of goods and services. This course on Investments I: Fundamentals of Performance Evaluation may be helpful for individuals interested in a career as an Economist. The course covers topics such as portfolio theory, asset pricing, and performance evaluation, which can provide a foundation for understanding the financial aspects of the economy. Additionally, the course emphasizes real-world examples and applications, which may provide valuable insights for those working in the field.

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Consultant

Consultants provide advice and expertise to businesses and organizations. This course on Investments I: Fundamentals of Performance Evaluation may be helpful for individuals interested in a career as a Consultant. The course covers topics such as portfolio theory, asset pricing, and performance evaluation, which can provide a foundation for understanding the financial aspects of business and organizational decision-making. Additionally, the course emphasizes real-world examples and applications, which may provide valuable insights for those working in the field.

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