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

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. Investment Style There is a range of different styles –Growth, Value, Small/Mid cap., Indexed, market neutral, etc. Large Mid Small Blend Growth Value Blend Growth –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.

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