Answer the Question

This is a tale about the Duewell family siblings. They became a famous family of security analysts and portfolio managers. You have probably seen them on CNN. Isadora Duewell is the oldest and started the firm (I Duewell).

When her twin siblings Ignatius (who was born at 11:56 P.M. on December 31^st 1970) and Ida (who was born at 12:02 A.M on January 1^st 1971), thereby becoming the only known twins to be born in different decades, were old enough, they joined the firm. Finally, little Ike, who not only was born (some say by mistake) in 1985, but also never grew beyond 5 feet 1 inch, joined the firm in 2007. They claim that one of the reasons they have done so well is that they use different techniques in doing their jobs. They are very competitive with one another and always struggle to gain bragging rights.

On September 17^th 2001, CNN interviewed Ida and asked her when the market would fully recover from the events of September 11^th. Ida predicted that it would take one month. In an interview with Barrons that same day Ignatius predicted that the rebound would take between six months to one year as it typically has in the past in response to events of this ilk. On October 11^th, the market, as measured by the S&P 500, closed just above its September 10^th close. Per their usual bet, Ignatius had to buy lunch for Ida at Taco Bell. Besides the obvious effect of luck, how do you think Ida arrived at her prediction? How do you think Ignatius arrived at his prediction? Is Idas methodology generally better than Ignatius? Defend you answer.

2) On September 11^th, 2020 little Ike, got a call on his answering machine from one of his best clients Moore Gray. Mr. Gray informed Ike that he was interested in a flight to quality. He wanted to invest in one of two bonds. He left only this information:

Bond A is a 50-year 12 percent coupon bond due in 2030.

Bond B is a 20-year 7 percent coupon bond due in 2040.

He told Ike he would be in at 10:00 AM on the 12^th to talk about the bonds and to make his selection. Ike knew nothing else about the bonds, but he does know a lot about Mr. Gray. Moore is a very conservative man. He always carries an umbrella and always wears sunscreen. His favorite rock star is Josh Groban, his favorite flavor of ice cream is vanilla, and his favorite color is, of course, gray. He always writes in Rush Limbaugh for every position at every election. Which bond should Ike select for Mr. Gray? Why? Are there any issues that might get you to change your mind?

3) As a pro bono project, Ida and Ignatius have taken on a client by the name of Knockly Rasputin. Knockly Rasputin is the only surviving relative (a great-great nephew) of Knookley Rasputin. Recently, Knockly was moving his Uncle from his home in South Philadelphia to the Home for the Aged and Well Forgotten in Northeast Philadelphia when he came across a letter from Lord Pound, who at the time was the Secretary of the Royal Navy dated August 1942. In the letter, Lord Pound informed Uncle Knookley that he would be receiving a 500 bonus for his dangerous work in anti-submarine warfare in World War II. On questioning Uncle Knookley about the issue, his Uncle informed Knockly that he was on loan from the US Navy to the British Navy in World War II conducting anti-submarine operations off of Scotland. He told Knockly how sad it was that he was shipped home before he could collect the bonus. Knockly researched the story and found out that it was true. Knockly then came to Ida and Ignatius to ask them for how much money he should ask. Ida and Ignatius both did their own analysis and came up with widely different figures. How would you come up with the figure? Write a short letter to the current British Secretary of the Royal Navy, Lord Jones, asking for Uncle Knookleys money. Explain how you arrived at the figure. Send copies to Ida and Ignatius.

4) Isadora built the business on a relatively conservative platform. Like Mr. Bogle of Vanguard and unlike her younger siblings, Isadora was an early convert to the notion that markets are efficient. What does that mean? Isadora has two clients who recently came to her in order to invest some money. Mrs. OHagan is an old rich lady who wants to invest money in Trust for her great-niece Maureen. She wanted Maureen to have the money when she turned 30 as long as she did not marry a La Salle graduate. Isadora convinced her to lower the age to 25, but could not convince her to drop the La Salle clause. Mrs. OHagan is extremely conservative. She only dated one man in her entire life (a certain Moore Gray). She dumped him when he accidentally failed to open the car door for her one time. She is quite worried about the principal being lost. She only came to Isadora because of her stellar reputation. The second client is a certain Laddie OBrien. Laddie is a recent graduate of La Salle and Mrs. OHagans next-door neighbor. Laddie likes to have a good time in life, work as little as possible, and spend as much time as possible with his girlfriend Maureen. Laddie just found a bunch of money that fell out of the back of an armored truck. While Laddie is very into spending, he feels that some found money should be invested. He came to Isadora and said, Just go for it! Using the efficient frontier and indifference curves show how Isadora chose to invest her two clients monies. Explain the difference.

5) Little Ike was asked to speak recently at a college investment club meeting. He was asked to explain fundamental analysis to the group. How did he explain the top down approach to the group? One student raised her hand and said that while she appreciated Ikes presentation, though she had trouble seeing him from the back of the room, she could not understand why two firms in the same industry had different price to earnings ratios. Specifically, she showed Ike data that indicated that Firm I had a Price to Earnings ratio of 25 and firm II had a Price to Earnings ratio of 18. Using fundamentalist techniques recap what Ike told the young woman. In closing Ike, told the story about a client of his who had come to him on September 12^th desiring to choose to invest in one of two bonds. Though the client was conservative, Ike convinced him to try something risky. It worked and the client was quite grateful. What did Ike actually advise Mr. Gray to do? Why did it work?

I was recently talking to the Duewell family and told them what a bright and wonderful class you are. The Duewells told me to wish you all a wonderful holiday season and that they look forward to the challenge of competing with you in the near future.