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It has been said that at the heart of most investment decisions lie two human emotions: greed and fear. These powerful impulses urge many people into playing the stock market, for example, in such a manner as defies sound thinking. These same impulses drive people into buying overvalued stocks, then unloading them as their value is decreasing. What’s at play here? Is it merely so-called herd mentality? Or the fear of being left behind or of holding on to something worthless? Ho can investors avoid these types of pitfalls?
These are some of the questions graduate students will delve into when the John Molson School of Business launches the Goodman Institute of Investment Management in September 2001, the first formalized investment management program in Canada. Students attending the three-year, part-time program can pursue either an MBA with an investment management option or a master in investment management (MIM).
The new Goodman Institute neatly fits into the John Molson School of Business’s long-range academic plan and its goal of being ranked within five years as one of the top five business schools in Canada. According to Mohsen Anvari, dean of the business school, “The programs are linked to the strong finance department that we have, one of the best, if not the best in the country.” Up to 30 students are expected be enrolled in the Institute when classes begin in September, typical for new programs of this type, says Anvari. But once set in motion and word hits the street, particularly in Toronto — the financial centre of Canada — he expects the programs to attract greater attention.
Significantly — and uniquely — students in either the MBA or MIM will take courses toward obtaining a coveted chartered financial analyst (CFA) designation. “In the past,” says Institute director George Lowenfeld, “people could only do the CFA and the MBA separately. These programs combine the two.” Graduating students will be well prepared for the final CFA examination. While there are other ways to get ready for the CFA exams, Lowenfeld believes the Concordia route adds value by teaching students ethical and professional conduct together with investment knowledge.
"I would be extremely happy to see doctors, lawyers and priests in the program - students from all kinds of background."
There are nine core courses for the programs, including Financial Economics, Asset Valuation, and Ethics and Case Studies. Courses are offered on evenings and weekends and students are free to take classes in either Montreal or Toronto, aided by teleconferencing technology.
The business school expects most candidates for the Goodman Institute of Investment Management to be financial careerists in their mid- to late 20s who want to pursue a graduate education. Yet not all have to hold commerce degrees, Lowenfeld points out. “I would be extremely happy to see doctors, lawyers and priests in the program — students from all kinds of backgrounds.”
Goodman’s goal
The Institute’s primary aim is practical: give students a better chance of obtaining the CFA designation while providing practical knowledge of investment management from people who actually do the job. Yet it has another purpose, its benefactor says. The idea for such a course of study took shape when Ned Goodman, chair of Dynamic Mutual Funds in Toronto, made a generous donation to the John Molson School of Business, part of which is earmarked to set up the investment management program.
Goodman, who has 40 years of experience as an investor, has found that there’s often something missing in the education of recent graduates entering the investment field. “We can teach them accounting. We can teach finance. We can teach business strategy,” he says. “But it takes five to six years before we’re comfortable enough to consider them to be what I would call a ‘sensible and rational investor’ ” — someone who understands how to properly value businesses that can be held forever. In real estate, the mantra is ‘location, location, location,’ in the stock market, the mantra should be ‘valuation, valuation, valuation’.” To better equip investment decision makers and advisors, Goodman would like to see more of the human factor taught in universities, which would include courses in psychology and lateral thinking — also known as “thinking outside the box.”
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"The market is a pendulum, which swings with emotion and psychology. It swings from being grossy overvalued to being grossy undervalued."
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Such an approach is at odds with fundamental economic thinking that uses, among other indicators, trend analysis and reliance on numbers. “The stock market is nothing more than an auction market,” Goodman contends, “where people react to various pieces of information about a company.” However, the efficient market theory espoused by most academics, he explains, states “that every piece of a company is known, and thus everyone acting rationally should arrive at the same decision. Therefore it concludes that the stock market is valued properly at all times.”
But of course it isn’t, certainly not in a bear market, nor at any time. Goodman cites the well-known example of Nortel, whose stock dropped from $120 a share to $20 in short order. “You must wonder why the efficient market theory didn’t keep the stock at a level price,” he says. Goodman finds the answer in human behaviour. “The market is a pendulum, which swings with emotion and psychology,” he notes. “It swings from being grossly overvalued to being grossly undervalued. The key is the valuation process. That part has not yet made it into the academic world.”
Until now. When the John Molson School of Business’s investment management program begins, Goodman expects it will break new ground in the “art” of investment management as it combines economic analysis and human psychology. As Lowenfeld says, “When you teach, for example, asset allocation, one of the things that has to be considered is market psychology.”
Investor's emotions
The courses in the graduate programs, taught by industry financial analysts, will bring to light the importance of such ideas as how people arrive at investment decisions. Investors, the legend goes, rely on all kinds of ridiculous strategies to predict whether the market is going up or down, from looking to astrology and psychoanalysis to gauging the hemline of women’s skirts. Money, it has been said, is emotional, and that often translates to irrational investment decisions, which trend analysis is poorly qualified to consider. The Institute will verse students in the core competencies of finance, accounting and marketing, but it will also teach them to consider humanities disciplines like psychology, philosophy and ethics, which are better qualified to explore and account for human behaviour.
Ned
Goodman, chair of Dynamic Mutual Funds, also recently established the Ned
Goodman Chair in Investing Finance, which will be held by John Molson
School of Business professor Lawrence Kryzanowski
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To be sure, the Goodman Institute of Investment Management’s aims are ambitious. After all, trying to understand the market is a daunting prospect, even for the most seasoned financial veterans. But the bold thinking and distinctive approach of these investment management programs will make people in the investment community take notice.
Perry J. Greenbaum, BA (journ.) 96, is a Montreal freelance journalist. He can be reached at saltpub@sympatico.ca
For more information on the Goodman Institute of Investment Management, contact (514) 848-2796, investenet@mercalo.concordia.ca, or visit www.commerce.concordia.ca
Students invest actual funds through the Kenneth Woods Portfolio Management Program
While most business schools give students experience investing in the stock market using virtual money, since last year Concordia’s John Molson School of Business has been running a program where eight undergraduate students each year get to invest real money in the market. (The University of British Columbia has a similar program in place.)
Through a $1 million donation by Vancouver businessperson Kenneth Woods, MBA 75, “the students get hands-on experience managing a real portfolio,” says Abraham Brodt, director of the Kenneth Woods Portfolio Management Program. “It’s not like a simulation. If you lose money, you have to explain what happened.” Students completing the program will be known as Calvin Potter Fellows, named after the former chair of the Department of Finance. Potter was one of Woods’s mentors while he studied at Concordia. After receiving his MBA in 1975, Woods founded a Montreal investment firm that was sold to Canadian Imperial Bank of Commerce in 1997. He now helps other people get into the industry.
Each year, eight finance majors are selected. “We are looking for good academic grades, a strong interest in investments, which is sometimes shown by their actual investment holdings,” Brodt says. The eight are paired with at least three mentors, volunteers from such investment management firms as CIBC World Markets, Goodman and Company, Scotia Capital, Jarislowsky Fraser, Formula Growth and Nesbitt Burns.
Woods and industry insiders picked the first cohort of students in January 2000 and the second in January 2001. After their first semester, the eight students are awarded summer jobs at Toronto investment dealers, where they learn to analyze securities and recommend them to investors. The next summer they’re promoted to portfolio managers, working as interns at Montreal firms, where they get to make investment decisions as a team, by consensus.
Safeguards are in place to ensure that the money is well invested. For example, students have to report bi-monthly to a client committee composed of industry veterans, which acts like a board of directors. “The committee has to approve their investment choices, and keep them from going off track,” explains Brodt, who holds final veto.
The students, however, have a degree of freedom. Alka Patel, 20, in the program’s second year and working as a portfolio manager for the Caisse de Dépôt et Placement du Québec in Montreal, says, “The program allows us to display our capabilities and to mature as we take on a huge responsibility.” As long as the students build a diversified portfolio, which is well thought out and researched, Brodt says he won’t exercise his veto — even if he disagrees with any investment choice. The $1 million, plus or minus any profits or losses and expenses, will be reinvested by subsequent students. “The idea is to at least maintain the principal,” Brodt notes, which would be a strong accomplishment given today’s rocky markets.
— Perry J. Greenbaum