Investing in the Future: Security Analysis Course Gives Students a Forward-Looking Perspective

In 2001, Yale School of Management Professors Shyam Sunder and Matthew Spiegel created a course to better prepare their students for the real-world process of choosing investments. The key aspect that they wanted to emphasize was a forward-looking perspective.

“For most of a student’s education, questions tend to revolve around what happened previously,” says Spiegel, a professor of finance. “But when it comes to valuing a security, the question is what will happen in the future.”

Security Analysis and Valuation, a popular elective at Yale SOM, asks students to conduct financial analysis  of publicly traded firms and industries and present investment recommendations on publicly traded firms to classmates and professors, who take on the roles of members of an institutional investment committee.

“We’re basically asking them to assess the value of shares of a firm, which is an inherently difficult thing to do, because nobody knows the future and a lot of variables come into play,” says Sunder, the James L. Frank Professor of Accounting, Economics, and Finance.

The course asks students to collect data, perform financial analyses, and then make recommendations based on a firm’s 6- to 12-month performance outlook.

“Expecting to learn valuation without actually performing it and convincing others of your judgment is a little like learning how to swim or cycle without ever getting in a pool or on a bike,” Sunder says.

A successful valuation is one that would convince students and professors to invest their own money based on the recommendation. “Otherwise we view the report as subpar and we make sure the students know that,” Spiegel says. Critiques are blunt. “In this class, nobody minces words, and you learn to thrive on criticism and develop a tough skin,” Sunder says.

Students with reports deemed to be among the best are invited to  post their reports along with their recommendations on a public website, analystreports.som.yale.edu. There they and the general public can track the accuracy of their predictions over time.

Last semester, 23 students enrolled in the course, including students from EGADE Business School in Monterrey, Mexico, and from UCD Smurfit Graduate Business School in Dublin, Ireland—both members of the Global Network for Advanced Management. Classes were conducted via a live video link.

Sunder says that many of his former students are applying the concepts and skills they learned in the course in a wide variety of roles across the investment management industry.

“Feedback from former students has been nothing short of spectacular,” Spiegel adds. “One year we had a class alumnus give a guest lecture. He said his firm told him that he had made their portfolio more money in one year than any junior employee ever had. A short time later he was running his own fund.”

Patricio González ’11, a vice president in Citigroup’s investment banking division, says the course gave him valuable grounding. “It taught me how to build a deep understanding of an industry,” he says. “As an investment banker, this has been so useful in my day-to-day work. It helps me identify industry dynamics and trends that impact the companies I cover.”

The class has proven equally valuable for students not working directly in finance.

Joshua Twilley ’02 says his skills were immediately applicable when he went to work for a strategy consulting firm. One project analyzed whether to disband Tyco into constituent businesses, which meant understanding the value of each business alone and as part of the larger firm. “For each of Tyco's product segments, we ran a model on the industry participation of Tyco as a conglomerate, and then on Tyco as a standalone,” he says. “It was very similar to what we had done in class.”  

Samantha Siegal ’12, a senior manager at PepsiCo, said that lessons from the course in assembling and defending an argument have proven very relevant in her job.

“Beyond strategic thinking, concise analysis, and cogent storytelling, it forced me to prove I could deliver whatever was asked of me,” Siegal says. “The ability to go into an ambiguous problem, knowing I have the ability solve it, has fundamentally shaped how I conduct myself at work.”