Thursday, April 26, 2007
CNN/Fortune have a good interview with Lee Iacocca. In it he talks about why the Chrysler-Daimler merger failed, on his fear of private equity, and even on the workout habits of the 90 year old Kirk Kerkorian. "
While subprime lending has been under attack on all fronts of late, USA Today shows that it does have a good side as well: it gets more people into their own homes. Surprisingly to me, about 50% of home loans to minorities are so classified. However, the article also shows the problem with these loans (not everyone having access to the information) and cites an instance of a borrower expecting $1200 payments and getting $3000 payments.
In what will likely end up being the second largest takeover ever, ABN shareholders are demanding that managers take the highest bid (currently from Royal Bank) and not the slightly lower bid from Barclays. (I definitely see this one being used in classes!)
Want to run a hedge fund? You are not alone. Why? One big reason is the amount of money you can make. How does $240 million sound? For the record, DealBook also examines how much a second year IB can expect to make this year.
The NY Times governance story continues. Super short version: the Ochs-Sulzberger family owns a controlling interest and minority shareholders are upset but can't do much but complain, withhold their votes, or sell their shares.
MSNBC gives us an example of Porter's Buyer power and how it can negatively impact stock prices with an example of a small manufacturer who sells to Wal-Mart.
Backdating at Apple was back in the news as it now seems that the CFO had warned Steven Jobs that the firm might have to restate earnings if the options were backdated.
The Middle East Times reports that the money supply in Iran is growing at over 40% leading to high inflation.
Tyler at the Marginal Revolution reports that all is not as hoped at Jeffrey Sach's Millenium Villages.
And then a whole lot less seriously: The UnknownProfessor and the NY Times' Dealbook both point to the Columbia Business School's hilarious spoof of Sir Mix A Lot's "Baby Got Back" (which interesting is still played almost every night on Open House Party--yeah sort of scary that I know that!)
What they don't point you to however are some of the other hilarious videos that the Columbia Business School have done: a spoof of Brokeback Mountain, Harry Potter, last year's Every Breath You take Video, and my favorite a look at KKR's Henry Kravis as a fake South Park Episode. (Typical language appropriateness warnings are probably warranted).
Wednesday, April 25, 2007
In class last night I mentioned the following post. It is an an oldie but a goody. I originally wrote it back in December of 2004. I just reread it and still think it hits the main points very well. Read it. :)
And to the graduates, congratulations and thanks for a good semester!
FinanceClass: December 2004: "I am always nervous about the first and last classes of the year. So I wanted to write out some notes for today’s class. When I began typing I just wanted to recap what the semester. But that has been done before. So I guess these are either the some of the notes to the last class or to the first graduation address. Or both!
Congratulations. You have made it. Ok, so maybe it is not graduation time yet, but you are getting there. And minimally you have made it through all but the final from this class.
So I started out with the intent to write about what finance teaches us about life in general. But then I decided to open it up even further. So this entry is what have we learned in the business classes and how can that be incorporated into our every day lives? Consider it your first graduation address.
Accounting: In accounting classes we learned the importance of having checks and balances. We learned how to read a balance sheet and that every event has positive and negative aspects (i.e. you debit some accounts, while crediting others). We also learned (or should have learned) to keep score and periodically check to make sure we are where we think we are.
Statistics: From Stats classes we learn that few things in life are certain. Therefore, the best we can do is to “play the percentages.” We also learn to make informed decisions. We also learned that no matter how sure we are of a model, randomness does impact our models.
Economics: Arguably economics is the most all encompassing of any of the classes we have taken. Indeed Finance is just applied economics. So to list everything we learned would take a long time, but a few of the key things we learned: Specialization makes society better off. Free trade makes both sides better off. People maximize their own utility. Things at the margin matter!
Management: Management classes tend to fall into one of two camps. One stresses the interpersonal skills necessary to be a manager. The other camp is more number based—the so-called management science. We learn much from each. From the former we are reminded that leaders are important and that how we interact matters. From the latter, we learn to be efficient, to look for ways to continually improve, and that by basing decisions on quantifiable things we can do things much better.
Marketing: We learned that it is not just what you know, but how you come across. We learned that reputation matters and that psychology is important.
Business Information Systems: In BIS we learned that you have to be technologically competent. We learned that systems are only as good as what you put into them and that systems are only as good as their weakest link.
Finance: Finance is in many ways the key holding all of this together. Finance, in the terminology of economists, finance helps to aggregate all that we have learned in other classes. But finance is even more than that. In finance, we learned
- that compounding is very powerful. Let it work for you and not against you. This means to save early, save often, and save regularly.
- that taxes and transaction costs matter. Therefore take advantage of tax advantaged investment accounts and watch excessive fees and trading costs.
- that markets are pretty efficient (although maybe not perfectly so). This means that there is no free lunch so when things sound too good to be true, be skeptical.
- that too much debt is a bad thing. Financial distress does not just happen to firms. Be careful about borrowing. Used correctly, debt is a great tool. Used incorrectly, it leads to many problems.
- that governance matters. Just like by structuring contracts differently can influence a firms’ market value, so too our own governance influences our returns.
- that luck sometimes is good and sometimes bad. Plan for the worse, but hope for the best!
- that investment is important. So invest in your assets—all of your assets. Your assets include your investments (stocks, bonds, mutual funds, etc), tangible assets (real estate, baseball cards, car, etc), and intangible (reputation, goodwill, your friends, your health, your mind). What does this mean? It means that while you care for your bank balance, your real property, don’t forget your friends, your family, your health, and your reputation. Sure it may not always be fun—(driving to see a sick friend never is), but do it anyways! (see next item)
- to think long term. Not only is most of a stock’s value derived from long term growth, so too is our value. The Enrons, the Worldcoms, and others forgot this. Sure you may have to pass up some things you want, but in the long run you will be glad you did! (indeed, drug addicts have some of the lowest discount rates known: they discount the future for short-term gains.)
- Both diversification and specialization have their places. On one hand specialization allows us to be very good at something. However, in a constantly changing world, too much specialization can be very risky. Moreover, too much of anything will lead to staleness (and often is bad for your health too). So have varied interests, be willing to learn new things, and never stop learning.
- that there are many ways increase utility. Money is not the only thing that makes people happy. People are REMMs and care about all things. More money is good, but so too are more free time, a better standard of living, and a clean conscience. How you draw your indifference curves is a personal decision.
To these, I would also add the importance of
- staying confident—many of you sell yourselves short. Both collectively and individually. I am not sure if it is a function of going to a small school, or not. But you should not sell yourself short!!! IF YOU WANT IT TO BE, the education you get here is every bit as good as you could get at any school in the world. Too many of you use “it is too hard” or “no one else is doing it” or “I can’t do it” as an excuse. You can do it. You just have to want to do it!
- never get too worried about money. Yes, it is money. Yes, it matters, but only to a degree. I’ve seen too many people destroy themselves (physically and mentally) over money. Do not let it happen to you. This may mean some advanced planning and might mean you do not have the fanciest car, or the largest TV. But who cares? Along these lines, the best definition of wealth I have ever heard is Wealth = monetary wealth / wants.
- staying active. Both physically and mentally. It is way too easy to stop. Don’t stop! Learn something new every day. Read, risten, take classes. Do some physical activity every day. Run, bike, walk, you name it! But to quote Nike, JUST DO IT! You will be glad in the long run!
- having fun! Life is too short to not have fun! Find hobbies that you like doing. But also at work. Remember: Work should be enjoyable, not something you have to do!!! as Anthony Annuziado said in our class: find a job you love and you'll never have to work a day in yout life!
See, I told you finance was everything :) Good luck and keep in touch!!! jim
"Hayes was a principal contributor to the Harvard Islamic Investment Study and the author of seven books, including Islamic Law and Finance.
Hayes, the first speaker of the panel, explained basic concepts and principles of Islamic Finance to the audience. Islamic Finance refers to a system of finance or banking that is consistent with Islamic law (Shariah) principles. His 'Islamic Finance 101' started with the guiding principles of the Prophet Mohammed, the historical founder of Islam: 'Be fair with all others,' and 'one party cannot exploit the misfortune of others.'
As a result, usury (the collection and payment of interest), in addition to any forms of speculation trading in financial risk is prohibited because it is considered gambling, which is also forbidden. Hayes pointed out that Islamic finance places emphasis on a philosophy of investing which closely resembles the idea of 'socially responsible investing"
Tuesday, April 24, 2007
"The U.S. Securities and Exchange Commission filed a lawsuit against two former Apple Inc. top executives for their roles in backdating stock-option grants, including some made to Chief Executive Officer Steve Jobs.
Former Apple General Counsel Nancy Heinen's lawyers have said she'll fight the case. The SEC settled with former Chief Financial Officer Fred Anderson. He agreed to forfeit $3.5 million and pay a $150,000 fine to resolve claims he filed false financial reports and had inadequate accounting controls at the Cupertino, California-based company, the SEC said."
Monday, April 16, 2007
"A recent paper...attempts to answer this question—or, rather, it attempts to answer two questions. Does gold usually move in the same direction as shares or government bonds? (In other words, is it a hedge in normal times?) And does gold move in the opposite direction when shares or bonds are falling sharply? (Is it a safe haven in extreme times?)
The academics looked at a period from end-November 1995 to end-November 2005. They found....[that] It does well in the short term when shares fall; but if shares fall for long enough, investors start to liquidate their portfolios and gold suffers with all the rest....So those investors who want to buy gold are really making a commodity bet or a currency bet. They are not protecting themselves against a prolonged bear market in shares and bonds.
The academic paper is by Baur and Lucey:
“Is Gold a Hedge or a Safe Haven? An analysis of Stocks, Bonds, and Gold"
Thursday, April 12, 2007
"Section 404, which requires companies and their auditors to examine and report on the processes behind their financial reporting, quickly became the most expensive and hated provision of the act.The article in largely an interview with Oxley. Here are a few look-ins:
Today, Sarbox, and particularly 404, are under heavy attack, as are many of its accessory creations, most notably the Public Company Accounting Oversight Board"
Why did it start with AS2?and finally
Of the complaints you hear [about Sarbox], 99.9 percent are about 404. It was two paragraphs long, but by the time the PCAOB was done, it was 330 pages of regulations"
"What do you think of the groups that want to kill Sarbanes-Oxley altogether, arguing it was a bad idea?Interesting!!
....They don't appear to have a whole lot of traction. If you look at total market cap on July 30, 2002, for public companies and today, it is pretty hard to argue that Sox has been a detriment to growth and prosperity. It has provided a certain degree of comfort to the investing public and a confidence level in the investing public has been restored. Markets are more transparent. Accountability is built into the process. A lot of people overlook the requirement that insider deals must be reported in 48 hours. This provision is interesting in light of the backdating scandal. Virtually all cases took place before 2002. Before that, they had up to 90 days to report [stock trades]. I think the transparency will preclude nefarious activity. The statute does get credit for this."
"Microcredit is not new. It's been around in one form or another for hundreds of years. But in the Information Age, a San Francisco company has taken the idea of microfinance and upgraded it for the Web. Radio reporter Clark Boyd first reported about Kiva.org for Public Radio International's news program The World. He now travels to Uganda for FRONTLINE/World, where the first recipients of money collected through Kiva's Web site are building and expanding businesses.For some previous entries on Microcredit (or Microfinance) see here or here or from Harvard, here, and from PBS here.
Kiva, which means "agreement" or "unity" in Swahili, would allow people with a little bit of extra cash to use their credit card or the online money transfer company, PayPal, to lend directly to African entrepreneurs. Kiva got its start a little more than a year ago in Uganda, where it forged partnerships with local microfinance institutes so that each business would be vetted and approved before being posted on the site."
Wednesday, April 11, 2007
First a video:
(links to others of are videos are here)
And then the real reason for the post--We need volunteers!! So if you are in the WNY area, come on out! (of course if you are not and would like to donate, you can do that too ;) but we'd really rather have you come out and help!
From today's SBU notice board.
BonaResponds Local Service Day - Saturday, April 21
BonaResponds announces its Local Service Day on Saturday, April 21, at 9:30 a.m., on the St. Bonaventure University campus. Volunteers will be needed to help out local organizations in spring cleaning and other various tasks. Open to everyone! Students, Staff, Faculty, Alumni, and Community members. A FREE BARBECUE for all volunteers will be held after the work (about 4:30 p.m.)! If you are interested, contact BonaResponds at its email address, firstname.lastname@example.org, or visit www.bonaresponds.org , or simply join us on Saturday, April 21, in the Murphy Auditorium, at St. Bonaventure. Help make a difference to the SBU campus and the Olean/Allegany area!
Some of the jobs we have lined up include working on local parks, cleaning along trails, building new trails, painting at various sites in the area, helping to build class room space, and more. It will be a GREAT day!
Monday, April 09, 2007
I have pulled this information from AIM Trimark Investments, as they provide a good summary of the dos and don’ts of building your portfolio. Of course, each of the following can be explained in further detail.For the rest click here.
Top 10 tips for investors
1) Don’t try to time the market.
2) Keep tax consequences in mind.
3) Set up a regular contribution plan.
4) Start saving as early as possible...."