Pick a client!

In this Capstone Project, you will be advising a client on their investment policy over the
course of 5 years. But first of all, you must pick a client among the following 3
propositions. We suggest you take some time to do so because you will have to work with
them for the next 4 weeks...

The material used to build the client profiles was kindly supplied by UBS, our corporate
sponsor, and adapted for the purpose of this Capstone Project.

IMPORTANT:

 For the purpose of this Capstone Project, the reference currency is the USD for
all clients. Unless stated otherwise, "equities" and "bonds" refer to globally
diversified equity and bond investments.
 It may be useful to print or save your client's profile on your computer since
you will have to directly rely on it to complete the assignments of the Capstone
Project.

Client 1: DAVINA TURNER

Davina Turner is a single, 70-year-old retiree living a good lifestyle (yearly expenses of
USD 400,000) in Lugano (Switzerland) and also in Tuscany (Italy). She loves art and
culture and is immensely proud of her small collection of paintings, photographs and first
editions. Despite this, she's not particularly ostentatious – her art is her indulgence. Davina
is generous – not just to friends and family, but to society, donating money to various
causes, both charitable and cultural. She feels like her income allows her to do this without
feeling that she is frittering away her children’s inheritance.

Davina’s mother lived until age 96, but spent the last three years of her life in a nursing
home in Torino (Italy). Davina is in a very good health for her age and has many plans for
her future. Her only income is generated by her investment portfolio, which totals USD
9mio. You have known her for three years. Your advisory relationship reveals that
Davina’s primary concern is for her assets to sufficiently support her for the rest of her life.
Having inherited a large part of her wealth, Davina also feels a responsibility to maintain
the family fortune for future generations. But above all, she is a philanthropist and has
pledged to give away USD 3mio to charities by the end of the year.

She says she does not, under any circumstances, want to lose money. She has vivid
memories of the dotcom bubble of the early 2000s when her best friend’s father lost all of
his money and reputation. He went into a depression that ended his marriage and
culminated in a suicide attempt.
You have also recognized that Davina is quite stubborn and inflexible in her thinking,
especially when it comes to financial markets. Once, you discussed with her the idea of
reducing her investment in a local biscuit company. She told you that she had known the
company since she was a child and that it still had great potential. Anyways, the price she
was being offered for her shares was too low. You enquired why she did not want to buy
more shares if the price was so low and the company’s future promising. She answered that
the price wasn’t actually attractive enough that she would consider buying additional
shares.

Although Davina is not an expert in financial markets, she periodically studies familiar
markets and therefore tends to invest in instruments like Italian bonds. She is not the type
of person that likes to boast about their portfolio’s performance. Nonetheless, it is
important for her to be able to discuss investment performance and market events at dinners
and cocktail parties.

In your review of Davina's portfolio, you realize that, despite your recommendations, she
has never changed her portfolio structure once. She invests a major part of her portfolio in
familiar government bonds (80%, thereof 60% in Italian bonds, 15% in French bonds and
25% in Swiss bonds). The rest is invested in cash (15%, only in USD) and equities (5%).

Client 2: ERIKA KOZLOV

Starting out as a rare woman trader at a bank, Erika Kozlov (49 years old) decided she
could be better without the bosses that tried to put her down. She became a successful
investor in private markets (real estate, venture capital), and made a fortune that belies her
humble roots. So far, she has managed to accumulate USD 37mio. Money motivates her
and provides a sense of self-worth, which she has in plenty.

As she says, “If you've got it, flaunt it!”: A penthouse apartment, Cartier watches, a Bentley
convertible and a Ferrari are the symbols of her success, and she's happy if everyone knows
about them. Besides, spending money is the best way to give back to society. Erika
employs a couple of staff, pays her income taxes and plenty of VAT. She has had a string
of handsome, eligible boyfriends, but she's too busy doing deals to think of a having kids.

Erika had a mild heart attack last year but now seems to have a clean bill of health.
Nonetheless, it somewhat changed her outlook on life and she now has as a 5-year goal to
donate USD 30mio to a health care foundation. She also reduced her working hours and
would like to retire earlier than she previously thought. Given that she is knowledgeable
about investments, she feels like she will be able to secure a large enough income from her
portfolio to pay for her exclusive lifestyle (yearly expenses of USD 500,000). Currently,
90% of her portfolio is invested in equities and in accordance with her motto: nothing
ventured, nothing gained. The rest of her assets are split evenly between bonds and cash.

You have been working with Erika over the past two years. Given her health problems and
financial goals, you have proposed a sound financial plan. Your concern is that a large
downward market fluctuation may have a severe impact on Erika’s financial goals or may
cut into her daily living expenses, including possible health expenses. Your knowledge tells
you that with a less aggressive portfolio, she will be able to meet her goal to donate money
and still maintain her lifestyle. However you are worried that Erika may not fully buy into
the idea. She told you that she sees herself as a very good and successful investor. Indeed,
her track record in private investments speaks for itself. “It’s all about picking the right
company and investing a large chunk of money into it” she says. She is very good with
people and this certainly gave her an edge in her career. She has always considered herself
more gifted and savvy than her competitors and believes that publicly traded equities will
provide an even more rewarding playing field for her given that information in these
markets is readily available. She says that all this information will give her an even bigger
edge on other market participants because she knows how to use it. As she recalls big
trades she made during her career, she talks passionately about seeing her bank account
grow and impressing her friends and parents with newly bought jewelry. Investing is more
than a career for Erika, it’s a fun game and she plays it well.

In fact, she has come prepared to your last meeting and discussed with you her bullish view
on the energy sector and gas companies in particular. You tried you best to mention the
political instability that seems to be on the rise in major regions where gas is extracted but
she quickly wiped out your concerns by showing you a number of headlines and expert
forecasts corroborating her views. Since you take your job as a financial advisor to heart,
you are worried that the traits of Erika’s character that have helped her in her career might
be detrimental to her wealth planning. You know that every investors is affected by
cognitive biases and emotions which must be put in check in order to reach sound financial
decisions. You have tried to raise this issue with Erika and she agrees: many investors let
their emotions and cognitive biases drive their investment decisions. But what does it have
to do with her?

Client 3: JOHN LAM

John Lam is a successful 54-year-old commercial lawyer with his own firm. He’s married
and has two children (aged 19 and 22). He works hard and values the success this has
bought him. John lives in an average suburban house and drives a top of the range VW
Passat estate; he dresses well but not flashily and his idea of partying is lunch with friends
at a restaurant by the lake. John keeps a low profile but acts as a mentor to a number of
young lawyers and takes part as a member of various committees in the legal life of the
city, but never appears as a spokesperson. His business is successful and the need for
detailed attention is less. His goal is now to spend more time with family, friends and
children.

John made his money through hard work and he doesn't believe in a free lunch. His total
wealth amounts to USD 8mio. He is willing to help his children out in their future
entrepreneurial activities, but expects them to make their own way until then. His expenses
are covered by his salary and he wishes to grow his wealth through investments but does
not think he could stomach to see his portfolio lose more than one third of its value in the
process.

You have been working with John for eight years. You have been recommending an
investment strategy annually. Five years ago, you suggested the following asset allocation,
which was in line with his risk profile at that time: 60% equities, 35% bonds, and 5% cash.
John, however, chose to be more aggressive to take advantage of a recent rally in emerging
markets and lost almost 40% of his invested assets. Two years ago, you proposed a more
conservative strategy. John followed your advice but soon expressed dissatisfaction with
missed market trend opportunities and low returns. Last year, when you recommended
again a more aggressive strategy with an allocation of 50% equities, 40% bonds, and 10%
cash, he actually desired a much more conservative position to respond to a recent concern
about decelerating growth in developed countries, requesting 30% equities, 30% bonds, and
40% cash.

Currently, John has the idea that he should go out of consumer equity investments and be
more in IT equity investments, which have come into fashion following the latest virtual
reality boom and the new wave of social media IPOs. Although he is not an expert in new
technologies, John has been an occasional reader of IT magazines ever since he bought
shares in several new tech firms. He is confident that their stock price will go past their all-
time high which was reached 6 years ago. John has made some good calls over the past
decade. He invested in three different successful companies, making decent returns and
never keeping his positions open for more than a year. Being a hard worker, John regularly
revisits his past fruitful trades and finds that he nearly always had a feeling whether the
trades were going to end up being winners or losers. “If only I was able to listen more to
my intuition…” he often says. When he talks to you about investments he made, he turns
into a storyteller for a moment. Whether big gains or losses, his face lights up as he revisits
past trades and remembers the excitement of watching his positions change in value.

Tareas calificadas por los compañeros: Assignment for

the first milestone: client profile
Entregar antes del 31 de ago. 1:59 -05
i
 
Parece que esta es tu primera tarea calificada por los compañeros.  
Enviar tu trabajo antes
Si bien debes entregar tu trabajo el 31 de ago. 1:59 -05, si puedes, intenta enviarlo 1 o
2 días antes. Si lo envías antes, puedes tener una mejor oportunidad de obtener las
revisiones de compañeros que necesitas a tiempo.

1. Instrucciones
2. Mi presentación
3. Discusiones

Título del proyecto *

 Helping to an active investor to correct dangerous biases affecting her
invesment decisions.

What is the full name of the client you have chosen to advise over the course of the
Capstone Project?

Note: please refer to the previous reading called "Pick a client!" to learn about the 3
clients you can choose from.

ERIKA KOZLOV

What are your client's investment goals?

Note: each client has 2 investment goals.

1. She now has as a 5-year goal to donate USD 30mio to a health care foundation.

2. She will be able to secure a large enough income from her portfolio to pay for her
exclusive lifestyle.

Does your client have any incoming expense (in less than one-year time)?

Note: please exclude any (recurring) yearly expenses.

Erika doesn´t have any incoming expenses in less than one-year time.

What are your client's reasons for investing?

Note: each client has either 2 (Davina Turner & John Lam) or 3 (Erika Kozlov) reasons
for investing.

1. Providing status as money motivates her and provides a sense of self-worth, which she
has in plenty.

2. Stimulating her emotions by spending money and showing it to family and friends.

3. Increasing personal wealth by reducing working hours and the thought to retire earlier
plus the idea to donate USD 30mio to a health care foundation.
What are your client's cognitive biases and is fear likely to affect their risk tolerance?

Note: each client has either 3 cognitive biases or 2 cognitive biases and a susceptibility to
fear when it comes to financial markets.

In the case of Erika, she is been influenced by overconfidence biases as she trusts herself as
investor with a proven track record. Besides, she is influenced by confirmation biases as she
believes in information about forecasts she founded. Because of her aggresive investment style,
Erika is influenced too by blind spot biases as she acts emotionally.

Given that you client's reasons for investing go beyond increasing their personal wealth,
what would you suggest they do to fulfill these other (sometimes conflicting) needs in a
way that will not affect their financial situation?

Note: please give 1 suggestion.

I suggest Erika to not over invest in emerging markets because of political inestability.
Despite the fact, I tell her, that I know that she is a very experienced investor with proven
record, there are many emotiions that affect our rational decision making. That it is
important to hear about real facts influencing financial markets.

What would you suggest they do if they still need to win and lose actual money (at least a
little bit) in order the previously mentioned needs to be fulfilled?

Note: please give 1 suggestion.

To run a virtual portfolio first of all.

Your client's cognitive biases correspond to at least 1 of the 3 steps in the investment
process. For example, the anchoring bias corresponds to the second step of the investment
process ("Construction of the optimal investment strategy").

Please write down one of your client's cognitive biases, the corresponding step in the
investment process and at least one piece of advice for you client to deal with the said
cognitive bias.
In the case of Erika, she is been influenced by confirmation biases as she trusts in
information about forecasts she founded about emerging markets of energy and gas sectors.
I suggest Erika to not over invest in these because of political inestability. Despite the fact,
I tell her, that I know that she is a very experienced investor with proven record, there are
many emotiions that affect our rational decision making. That it is important to hear about

real facts influencing financial markets.

Although you are lacking some information to precisely determine the investment profile of
your client at this point, use their description to make an educated guess of their
investment profile between the following propositions:

 Conservative investor
 Balanced investor
 Aggressive investor

(Hint: it may be useful to look at the 3 client profiles to see where your client stands in
relative terms.)

Erika is an aggresive investor. She strongly believes in her proven record, experience and
the high capacity to analyse numbers.

Congratulations! You have reached the end of the first assignment of the Capstone Project.
At the end of the fourth and last assignment, you will have to compile all of your work in
a document that you will be able to showcase to your current or future employer (or
anyone else interested).

We suggest you use this last prompt to compile your answers for this first assignment
in a particular format: we would like you to prepare a transcript for your next meeting with
your client.

For example: "Our last conversation suggests that you may be affected by what we call the
"anchoring bias": a tendency to be influenced by recently encountered numbers that may
be completely unrelated (and detrimental) to the estimation task at hand".

Although this rubric is ungraded, your fellow learners will review your transcript and
suggest improvements to be made and/or elements to be clarified in order for you to
build a final document for this Capstone Project that will be of high quality and able to
enhance your career prospects. In this aspect, try to use an adequate tone when writing
your transcript; just like you were speaking to your client.

Although you´re an experienced investor and are very good at analyzing numbers, I
perceive that you may be affected by what we call the overconfidence, confirmation and
blind spot biases. Therefore, it is very important that you take into account my
recommendations about to do a rigorous fundamental analysis of emerging markets of
enery and gas, specially what is happening at a political level around and if your time
allows it, to experiment with a virtual run fun portfolio before to invest on these markets. In
that way, you can take out all that energy that you have as aggresive investor in a secure

way without risking your money in a real scenario.

Honor Code Agreement
Yo, Infante Grijalba, entiendo que enviar trabajo que no es mío generará la desaprobación
permanente de este curso y la desactivación de mi cuenta de Coursera. 
Este proyecto no ha sido guardado.

Rúbrica

Has the learner written down one of the following client names?

 Davina Turner
 Erika Kozlov
 John Lam

1 punto
Yes

0 puntos
No
Rúbrica

The video related to identifying investment goals is "The key things you need to know to
define your investment profile - UBS guest speaker".

The investment goals of Davina Turner are:

 To live on her portfolio's income ("...Davina’s primary concern is for her assets to
sufficiently support her for the rest of her life.")
  To maintain her family's fortune ("Davina also feels a responsibility to maintain the
family fortune for future generations.")

The investment goals of Erika Kozlov are:

 To make a donation to charity ("...she now has as a 5-year goal to donate USD
30mio to a health care foundation.")
 To live on her portfolio's income ("She also reduced her working hours and would
like to retire earlier than she previously thought. Given that she is knowledgeable
about investments, she feels like she will be able to secure a large enough income
from her portfolio to pay for her exclusive lifestyle...")

The investment goals of John Lam are:

 To help his children out ("He is willing to help his children out in their future
entrepreneurial activities...")
 To grow his wealth ("...he wishes to grow his wealth through investments...")

Has the learner correctly identified their client's 2 investment goals?

0 puntos

The learner has not mentioned any of the 2 investment goals of their client.

1 punto

The learner has mentioned only 1 of the 2 investment goals of their client.

2 puntos

The learner has mentioned the 2 investment goals of their client.

Rúbrica

The video related to identifying incoming expenses is "The key things you need to know
to define your investment profile - UBS guest speaker".

Davina Turner has an incoming expense of USD 3mio in less than one-year time ("...she
is a philanthropist and has pledged to give away USD 3 mio to charities by the end of the
year")

Erika Kozlov and John Lam have no incoming expense in less than one-year time.
Has the learner correctly identified their client's incoming expense or lack thereof?

0 puntos

No

1 punto

Yes

Rúbrica

The video related to identifying reasons for investing is "Why we trade".

The reasons for investing of Davina Turner are:

 Increasing her personal wealth and/or providing income ("Your advisory

relationship reveals that Davina’s primary concern is for her assets to sufficiently
support her for the rest of her life. Having inherited a large part of her wealth,
Davina also feels a responsibility to maintain the family fortune for future
generations.")
 Providing status and/or value ("She is not the type of person that likes to boast
about their portfolio’s performance. Nonetheless, it is important for her to be able
to discuss investment performance and market events at dinners and cocktail
parties.")

The reasons for investing of Erika Kozlov are:

 Increasing her personal wealth and/or providing income ("...she now has as a 5-
year goal to donate USD 30mio to a health care foundation. She also reduced her
working hours and would like to retire earlier than she previously thought. Given
that she is knowledgeable about investments, she feels like she will be able to
secure a large enough income from her portfolio to pay for her exclusive
lifestyle...")
 Providing status and/or value ("As she recalls big trades she made during her
career, she talks passionately about seeing her bank account grow and impressing
her friends and parents with newly bought jewelry. Investing is more than a career
for Erika, it’s a fun game and she plays it well.")
 Triggering emotions ("As she recalls big trades she made during her career, she
talks passionately about seeing her bank account grow and impressing her friends
and parents with newly bought jewelry. Investing is more than a career for Erika,
it’s a fun game and she plays it well.")

The reasons for investing of John Lam are:

  Increasing his personal wealth and/or providing income ("His expenses are covered
by his salary and he wishes to grow his wealth through investments")
 Triggering emotions ("When he talks to you about investments he made, he turns
into a storyteller for a moment. Whether big gains or losses, his face lights up as he
revisits past trades and remembers the excitement of watching his positions change
in value.")

Has the learner correctly identified their client's reasons for investing (the wording of
the reasons for investing need not be exactly the same)?

0 puntos

The learner has not mentioned any of their client's reasons for investing.

1 punto

The learner has mentioned only part of their client's reasons for investing.

2 puntos

The learner has mentioned all of their client's reasons for investing.

Rúbrica

The videos related to identifying cognitive biases and emotions (fear) are "Biases when
choosing which assets to look at", "Biases when processing financial information",
"Biases when rebalancing your portfolio", "Biases when evaluating performance" and
"How our emotions impact our investment decisions".

The cognitive biases of Davina Turner are:

 Endowment effect ("Once, you discussed with her the idea of reducing her
investment in a local biscuit company. She told you that she had known the
company since she was a child and that it still had great potential. Anyways, the
price she was being offered for her shares was too low. You enquired why she did
not want to buy more shares if the price was so low and the company’s future
promising. She answered that the price wasn’t actually attractive enough that she
would consider buying additional shares.")
 Home bias ("Although Davina is not an expert in financial markets, she
periodically studies familiar markets and therefore tends to invest in instruments
like Italian bonds. She is not the type of person that likes to boast about their
portfolio’s performance. Nonetheless, it is important for her to be able to discuss
 investment performance and market events at dinners and cocktail parties.In your
review of Davina's portfolio, you realize that, despite your recommendations, she
has never changed her portfolio structure once. She invests a major part of her
portfolio in familiar government bonds (80%, thereof 60% in Italian bonds, 15% in
French bonds and 25% in Swiss bonds).")
 Susceptibility to fear ("She has vivid memories of the dotcom bubble of the early
2000s when her best friend’s father lost all of his money and reputation. He went
into a depression that ended his marriage and culminated in a suicide attempt.")

The cognitive biases of Erika Kozlov are:

 Overconfidence ("She told you that she sees herself as a very good and successful
investor. Indeed, her track record in private investments speaks for itself. “It’s all
about picking the right company and investing a large chunk of money into it” she
says. She is very good with people and this certainly gave her an edge in her
career. She has always considered herself more gifted and savvy than her
competitors and believes that publicly traded equities will provide an even more
rewarding playing field for her given that information in these markets is readily
available. She says that all this information will give her an even bigger edge on
other market participants because she knows how to use it.")
 Confirmation bias ("In fact, she has come prepared to your last meeting and
discussed with you her bullish view on the energy sector and gas companies in
particular. You tried you best to mention the political instability that seems to be on
the rise in major regions where gas is extracted but she quickly wiped out your
concerns by showing you a number of headlines and expert forecasts corroborating
her views.")
 Bias blind spot ("Since you take your job as a financial advisor to heart, you are
worried that the traits of Erika’s character that have helped her in her career might
be detrimental to her wealth planning. You know that every investors is affected by
cognitive biases and emotions which must be put in check in order to reach sound
financial decisions. You have tried to raise this issue with Erika and she agrees:
many investors let their emotions and cognitive biases drive their investment
decisions. But what does it have to do with her?")

The cognitive biases of John Lam are:

 Recency bias ("Five years ago, you suggested the following asset allocation, which
was in line with his risk profile at that time: 60% equities, 35% bonds, and 5%
cash. John, however, chose to be more aggressive to take advantage of a recent
rally in emerging markets and lost almost 40% of his invested assets. Two years
ago, you proposed a more conservative strategy. John followed your advice but
soon expressed dissatisfaction with missed market trend opportunities and low
returns. Last year, when you recommended again a more aggressive strategy with
an allocation of 50% equities, 40% bonds, and 10% cash, he actually desired a
much more conservative position to respond to a recent concern about decelerating
growth in developed countries, requesting 30% equities, 30% bonds, and 40% cash.
 Currently, John has the idea that he should go out of consumer equity investments
and be more in IT equity investments, which have come into fashion following the
latest virtual reality boom and the new wave of social media IPOs.")
 Disposition effect ("Although he is not an expert in new technologies, John has
been an occasional reader of IT magazines ever since he bought shares in several
new tech firms. He is confident that their stock price will go past their all-time high
which was reached 6 years ago. John has made some good calls over the past
decade. He invested in three different successful companies, making decent returns
and never keeping his positions open for more than a year.")
 Hindsight bias ("Being a hard worker, John regularly revisits his past fruitful
trades and finds that he nearly always had a feeling whether the trades were going
to end up being winners or losers. “If only I was able to listen more to my
intuition…” he often says.")

Has the learner correctly identified their client's cognitive biases and/or susceptibility
to fear?

0 puntos

The learner has not mentioned any of their client's cognitive biases and/or susceptibility to
fear.

1 punto

The learner has mentioned only 1 of their client's cognitive biases and/or susceptibility to
fear.

2 puntos

The learner has mentioned only 2 of their client's cognitive biases and/or susceptibility to
fear.

3 puntos

The learner has mentioned all 3 of their client's cognitive biases and/or susceptibility to
fear.

Rúbrica

The video related to advising your client on how to deal with investment motives that go
beyond increasing their personal wealth is "What can we learn from this?".
Has the learner suggested that their client run a virtual portfolio?

0 puntos

No

1 punto

Yes

Rúbrica

The video related to advising your client on how to deal with investment motives that go
beyond increasing their personal wealth is "What can we learn from this?".

Has the learner suggested that their client run a "fun" portfolio (i.e. a portfolio that is
treated like a hobby and does not affect the fulfillment of the client's basic needs and
investment goals)?

0 puntos

No

1 punto

Yes

Rúbrica

The videos related to identifying cognitive biases and the corresponding step in the
investment process are "Biases when choosing which assets to look at", "Biases when
processing financial information" and "Biases when rebalancing your portfolio".

The client's cognitive biases that are related to one of the three basic steps in investment
are:

Davina Turner:

 Endowment effect (step 3: adjustment and rebalancing over time)

 Home bias (step 1: definition of the investment universe)
Erika Kozlov:

 Overconfidence (step 2: construction of the optimal investment strategy)

 Confirmation bias (step 2: construction of the optimal investment strategy)

John Lam:

 Recency bias (step 1: definition of the investment universe)

 Disposition (step 3: adjustment and rebalancing over time)

The video related to advising your client on how to deal with their cognitive biases is
"Wrap-up".

The advice relevant to cognitive biases that correspond to the first step of the investment
process is:

 Don't rely solely on readily available data

 Get out of your comfort zone
 Do some extensive research

The advice relevant to cognitive biases that correspond to the second step of the
investment process is:

 Look for information that contradicts your current beliefs and forecast

The advice relevant to cognitive biases that correspond to the third step of the investment
process is:

 Stick to your original and carefully designed strategy

 Your buy and sell orders should be dictated by this strategy only

Has the learner written down one of his client's cognitive biases?

Has the learner written down the corresponding step in the investment process?

Has the learner given at least one piece of advice relevant for cognitive biases that are
related to the aforementioned step in the investment process?

0 puntos

The learner has given 0 element among the following:

 one of his client's cognitive biases

 the corresponding step in the investment process
  a relevant piece of advice.

1 punto

The learner has given only 1 element among the following:

 one of his client's cognitive biases

 the corresponding step in the investment process
 a relevant piece of advice.

2 puntos

The learner has given only 2 elements among the following:

 one of his client's cognitive biases

 the corresponding step in the investment process
 a relevant piece of advice.

3 puntos

The learner has given all 3 following elements:

 one of his client's cognitive biases

 the corresponding step in the investment process
 a relevant piece of advice.

Rúbrica

The videos related to getting a general idea of a client's investment profile are "The path
from an investor's profile to his/her optimal investment strategy", "How our age and
wealth affect our investment profile - Main views" and "How our age and wealth affect
our investment profile - Robo-advisors".

 Davina Turner is a conservative investor.

 Erika Kozlov is an aggressive investor.
 John Lam is a balanced investor.

Has the learner correctly guessed the investment profile of their client?

2 puntos
Yes

0 puntos
No
Rúbrica

Please review your fellow learner's transcript and suggest improvements to be made
and/or elements to be clarified. Do not focus only on elements to be improved but
mention also when things are well and clearly presented so that the learner knows in
which direction to head.

Keep in mind that you are helping fellow learners in their career prospects and that
receiving a thoughtful review will encourage them to do the same when it comes to your
submitted work.

Rúbrica

Compare the learner's computations with the ones highlighted in yellow in the Excel file
"Milestone 2 - Prompt 1 - Solution".

You should check two things:

1. Are the returns computed by the learners equal (or very close) to the ones in
the solution file?
2. Were the returns consistently computed through the use of a formula?

To do so, you should not check every cell as it would be too time-consuming. We
recommend you only check the first few and last few cells of each columns.

0 puntos

 The learner's returns are not equal (nor very close) to the ones in the solution file.

AND
  The learner's returns were not consistently computed through the use of a
formula.

1 punto

 The learner's returns are equal (or very close) to the ones in the solution file BUT
they were not consistently computed through the use of a formula.

OR

 The learner's returns are not equal (nor very close) to the ones in the solution file
BUT they were consistently computed through the use of a formula.

2 puntos

 The learner's returns are equal (or very close) to the ones in the solution file.

AND

 The learner's returns were consistently computed through the use of a formula.

Rúbrica

The video related to computing portfolio (or SAA) returns is "The impact of correlation -
The benefits of diversification".

Compare the learner's computations with the ones highlighted in yellow in the Excel file
"Milestone 2 - Prompt 2 - Solution".

You should check two things:

1. Are the results of the learner's computations equal (or very close) to the ones in
the solution file?
2. Were they consistently computed through the use of a formula?

To do so, you should not check every cell as it would be too time-consuming. We
recommend you only check the first few and last few cells of each columns.

0 puntos

 The learner's results are not equal (nor very close) to the ones in the solution file.
AND

 The learner's results were not consistently computed through the use of a
formula.

1 punto

 The learner's results are equal (or very close) to the ones in the solution file BUT
they were not consistently computed through the use of a formula.

OR

 The learner's results are not equal (nor very close) to the ones in the solution file
BUT they were consistently computed through the use of a formula.

2 puntos

 The learner's results are equal (or very close) to the ones in the solution file.

AND

 The learner's results were consistently computed through the use of a formula.

Rúbrica

Compare the learner's computations with the ones highlighted in yellow in the Excel file
"Milestone 2 - Prompt 3 - Solution".

You should check two things:

1. Are the results of the learner's computations equal (or very close) to the ones in
the solution file?
2. Were they consistently computed through the use of a formula?

To do so, you should not check every cell as it would be too time-consuming. We
recommend you only check the first few and last few cells of each columns.

0 puntos

 The learner's results are not equal (nor very close) to the ones in the solution file.

AND
  The learner's results were not consistently computed through the use of a
formula.

1 punto

 The learner's results are equal (or very close) to the ones in the solution file BUT
they were not consistently computed through the use of a formula.

OR

 The learner's results are not equal (nor very close) to the ones in the solution file
BUT they were consistently computed through the use of a formula.

2 puntos

 The learner's results are equal (or very close) to the ones in the solution file.

AND

 The learner's results were consistently computed through the use of a formula.

Rúbrica

The videos related to computing the risk and return of a portfolio are “Distribution of
returns - Numbers” and "The impact of correlation - The benefits of diversification".

Compare the learner's computations with the ones highlighted in yellow in the Excel file
"Milestone 2 - Prompt 4 - Solution".

NOTE: for the "in USD terms" columns, the solution file uses the wealth of Davina
Turner (6mio) for the conservative SAA, John Lam (8mio) for the balanced one and
Erika Kozlov (37mio) for the aggressive one. In the learner's submission, these will be
replaced by their client's wealth for all SAAs (e.g. if their client is John Lam, the "in
USD terms" column will correspond to a wealth of 8mio for all three SAAs).

You should check two things:

1. Are the summary statistics computed by the learners equal (or very close) to
the ones in the solution file?
2. Were the summary statistics consistently computed through the use of a
formula?
0 puntos

 The learner's summary statistics are not equal (nor very close) to the ones in the
solution file.

AND

 The learner's summary statistics were not consistently computed through the use
of a formula.

2 puntos

 The learner's summary statistics are equal (or very close) to the ones in the
solution file BUT they were not consistently computed through the use of a
formula.

OR

 The learner's summary statistics are not equal (nor very close) to the ones in the
solution file BUT they were consistently computed through the use of a formula.

4 puntos

 The learner's summary statistics are equal (or very close) to the ones in the
solution file.

AND

 The learner's summary statistics were consistently computed through the use of a
formula.

Rúbrica

The video related to determining whether the standard deviation is an adequate risk
measure is "Risk as volatility?".

Has the learner justified the use of the normality assumption (and/or the use of the
standard deviation or volatility as a good risk measure) by mentioning that the
distribution of the returns of primary assets (such as the SAAs and their individual
constituents) is approximately symmetric?

0 puntos
No, the learner has not justified the use of the normality assumption (and/or the use of
the standard deviation or volatility as a good risk measure) by mentioning that the
distribution of the returns of primary assets (such as the SAAs and their individual
constituents) is approximately symmetric.

1 punto

Yes, the learner has justified the use of the normality assumption (and/or the use of the
standard deviation or volatility as a good risk measure) by mentioning that the distribution
of the returns of primary assets (such as the SAAs and their individual constituents) is
approximately symmetric.

Rúbrica

The video related to the relationship between expected returns and risk is "The risk-return
trade-off - UBS guest speaker".

Has the learner mentioned that there is indeed a relationship between the expected
return of the SAAs and the size of the range that goes from the lowest to the highest
expected return in 68% of the time AND that this relationship is positive (i.e. the
higher the expected return, the larger the range or vice-versa)?

0 puntos

No

1 punto

Yes

Rúbrica

The video related to this question is "Measuring our risk tolerance".

Has the learner given the following SAA for their client?:

 Conservative for Davina Turner

 Aggressive for Erika Kozlov
 Balanced for John Lam
Davina Turner should follow the conservative SAA because with her wealth of (USD 6mio,
it is the only SAA that offers a lowest expected return in 68% of the time that is above USD
120,000.

Erika Kozlov should follow the aggressive SAA because it is the only one that offers an
expected yearly gain of more than USD 3,500,000 (USD 3,672,497 with her wealth of USD
37mio).

John Lam should follow the balanced SAA because he is not comfortable with a minimum
yearly return below 1% in 68% of the time (thus excluding the aggressive SAA) and likes
the possibility of earning as much as USD 1,200,000 a year in 68% of the time (thus
excluding the conservative SAA).

0 puntos

No

2 puntos

Yes

Rúbrica

Has the learner typed in a TAA for their client that satisfies the following
constraints?:

 The individual allocations sum up to 100%

 The individual allocations are within the range specified by the maximum
positive and negative deviations (highlighted in light blue) from the client's
SAA.

The Excel file "Milestone 2 - Prompt 8 - Solution" gives an example of a TAA that
satisfies these two constraints for the client John Lam who opted for the balanced SAA.

0 puntos

 The individual allocations of the learner's TAA do not sum up to 100%

AND
  The individual allocations of the learner's TAA are not within the range specified
by the maximum positive and negative deviations (highlighted in light blue) from
the client's SAA.

1 punto

 The individual allocations of the learner's TAA do not sum up to 100% BUT the
individual allocations are within the range specified by the maximum positive and
negative deviations (highlighted in light blue) from the client's SAA.

OR

 The individual allocations of the learner's TAA sum up to 100% BUT the
individual allocations are not within the range specified by the maximum positive
and negative deviations (highlighted in light blue) from the client's SAA.

2 puntos

 The individual allocations of the learner's TAA sum up to 100%

AND

 The individual allocations of the learner's TAA are within the range specified by
the maximum positive and negative deviations (highlighted in light blue) from the
client's SAA.

Rúbrica

Please review your fellow learner's transcript and suggest improvements to be made
and/or elements to be clarified. Do not focus only on elements to be improved but
mention also when things are well and clearly presented so that the learner knows in
which direction to head.

Keep in mind that you are helping fellow learners in their career prospects and that
receiving a thoughtful review will encourage them to do the same when it comes to your
submitted work.
the distribution of the returns of primary assets (such as the SAAs and their individual
constituents) is approximately symmetric.