Security valuation with Thorsten Egelkraut

December 2, 2013

Earlier I had told myself I should not only follow finance courses as I already have quite some experience in this field, but again I ended up with 2 finance subjects for this second part of the second quarter. The main reason for picking this course of security valuation by Thorsten Egelkraut was not that I disliked the others courses on offer so badly, but more because it seemed like the angle of approach would be a bit different from earlier courses.

Our approach to find an undervalued stock.

Our approach to find an undervalued stock for the final project. While most of this has already been covered in earlier classes the new insights of this course came at an earlier point.

Instead of applying theories and calculating the standard deviation of a stock or a portfolio of stocks, we went back to the basics to cover things that have been jumped over in other finance courses. For example: with one of the homework assignments we were asked to come up with the long-term growth rate of the Thai economy; you would expect this to be a simple exercise but most people ended up with different numbers. Do you take the average of the past 3 years, past 10 years, or maybe the past 50 years? In each case you end up with a different number and none of the answers is wrong (or right?). The whole idea of this assignment was to get you thinking about this kind of basic questions since the impact on further calculations can be substantial.

Which GDP growth rate do you pick for Thailand? It makes a huge difference to include certain years.

Which GDP growth rate do you pick for Thailand? It makes a huge difference to include certain years.

In total 30% of our grade would depend on the homework assignments and while some of them took some decent time to complete, many of them could be done within 15 minutes. Just to make sure you would not spend too much time on them the grading for these assignments was pass/fail. Another part of your grade would be participation but unlike other courses this did not mean you had to ask or answer questions, paying attention was already enough. While this seems strange it did limit the number of students asking questions just to participate. Next there were also 2 quizzes, each counting for 10% of your final grade, which mostly repeated calculations done earlier in class. And finally there was a presentation at the end of the course where each group of 4 people had to present a stock recommendation for a company of their choice. This became a rather dull exercise for the audience as nobody trusts their classmates enough to actually trade on their recommendations meaning all information goes in one ear and comes out the other.

The analysis we did to come to a buy recommendation for CH Karnchang stock. If you want to trade on this recommendation and it turns out well please consider donating part of your profits to us, if it turns out badly then it is your own mistake.

The analysis we did to come to a buy recommendation for CH Karnchang stock. If you want to trade on this recommendation and it turns out well please consider donating part of your profits to us, if it turns out badly then it is your own mistake.

An interesting part of the course was the guest speaker who had extensive experience in stock research. Since he was retired, at a young age, he could speak the truth about the whole industry and the main lesson we got from him was that you should not trust brokerage firms with their recommendations since they just try to make you trade to get commissions. So if you want to invest in a stock market you can best buy index trackers as the commissions are very low on these products. Or, in case you got inside information, you could make some decent money in the stock market. But of course it is not allowed to trade on inside information…

Guest speaker Andy Chang (left) and professor Thorsten Egelkraut (right)

Guest speaker Andy Chang (left) and professor Thorsten Egelkraut (right)

At the end I have to say that the timing of this course seems odd to me since it covers many basics things that could come in handy for other finance courses. It is strange to first do 3 courses where the professor just wants you to pick a growth rate of a country to later find out that this decision can have large implications. Luckily the total workload for this course was rather light meaning it combined well with the other course I did this quarter which had a heavy workload.

For questions/remarks you can contact me at: eric@stuckinthailand.com

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