Are people really this clueless?

The Buffalo News: Business:

"Most Americans — regardless of gender — lack the basics they need to accumulate the money that will be essential for retirement, but more women than men are missing some of the nuts and bolts, according to research by Dartmouth College professor Annamaria Lusardi.

In surveys of individuals she found that only 55 percent of workers knew that government bonds provide a lower rate of return over 20 years than the stock market, on average.

Only 52 percent knew that holding a single stock was significantly more dangerous than investing in a stock mutual fund."

And only half of people over 50 understood two critical facts — that inflation undermines the buying power of a person’s savings, and that the compounding effect of your investment return (or interest rate) makes a tremendous difference in the money you will accumulate over many years."

Open-Source vs. Microsoft

Microsoft claims software like Linux violates its patents - May 28, 2007:

"...there's a shadow hanging over Linux and other free software, and it's being cast by Microsoft (Charts, Fortune 500). The Redmond behemoth asserts that one reason free software is of such high quality is that it violates more than 200 of Microsoft's patents. And as a mature company facing unfavorable market trends and fearsome competitors like Google (Charts, Fortune 500), Microsoft is pulling no punches: It wants royalties. If the company gets its way, free software won't be free anymore.

The conflict pits Microsoft and its dogged CEO, Steve Ballmer, against the 'free world' -"

SBU's Students in Money Management

WIth Steve Horan gone from SBU, I am taking this under my wings. Which is to say short sell now! But seriously, it will continue to be run by the students. I figured some of you might be interested in the new web site.

Students in Money Management:

"The St. Bonaventure University Students in Money Management Fund (the Fund) seeks to offer undergraduate students the opportunity to participate in all aspects of portfolio management by managing a portfolio consisting of donors’ pledges. The Fund also seeks to use a portion of its returns to promote student-affiliated service projects, to be nationally recognized, and to have one million dollars under management."

alfred Chandler

True he was not a finance professor, but he did study the history of finance and helped establish the importance of looking at business history.

Harvard's Alfred Chandler dead at 88:

"Alfred D. Chandler, Jr., the renowned Pulitzer Prize-winning Harvard Business School historian who founded the field of business history, died on Wednesday, May 9, at Youville Hospital in Cambridge, Mass., at the age of 88. In his long and legendary career, he chronicled and analyzed big businesses around the globe in a prolific and extraordinarily influential corpus of books and articles"

An exclusive conversation with Warren Buffett - Charlie Rose

An exclusive conversation with Warren Buffett - Charlie Rose

It doesn't get much more interesting than listening to Buffett talk.

Where are the shareholders' mansions? CEOs' home purchases, stock sales, and subsequent company performance - Knowledge@W. P. Carey

Short version: bigger house, smaller returns.

The "why" may still out there, but interesting finding!

Where are the shareholders' mansions? CEOs' home purchases, stock sales, and subsequent company performance - Knowledge@W. P. Carey:

"In a new study, W. P. Carey finance professor Crocker Liu, director of the school's Center for Real Estate Theory and Practice, and David Yermack, professor of finance at New York University, examined the size, cost, and financing of the primary residences of CEOs of the Standard & Poor's 500.

Liu and Yermack discovered important correlations with future company stock performance: The larger and more costly the home, the worse the stock performance. Also, when a CEO liquidates company shares or options to finance a home purchase, even if the sale represents a small share of the CEO's total holdings, it bodes poorly for future company performance."

Very interesting. Some confounding variables (for instance is it a wealth effect, timing effect, or merely loss of focus?) but really cool finding! BTW the authors go to great lengths (aerial photos, controlling for if it is a new house or not, distance from office etc) to control the confounding variables.

Assistant professor of Finance at Simon School and still in teens?

From the Australian:

"TWO Russian-born sisters are due to become assistant professors of finance in New York later this year, at the tender ages of 19 and 21, university officials said.Angela Kniazeva and her younger sister Diana were due to take up their new positions in September at the University of Rochester, where half of their students will likely be older than them.

The pair, who already have masters degrees in international policy from Stanford University in California, will pick up their doctorates from New York University's Stern business school after five years of study."

Gee, I feel old now.

Buffett: Index funds better for most investors | Reuters

Buffett: Index funds better for most investors | Reuters:

"Warren Buffett said on Sunday most investors are better off putting their money in low-cost index funds, though he believes he can still outperform major market indexes.

'A very low-cost index is going to beat a majority of the amateur-managed money or professionally-managed money,' Buffett said at a press conference, a day after the annual shareholder meeting for his Berkshire Hathaway Inc."

Interesting stat on Dow

CNNMoney.com Market Report - May. 4, 2007:

"The Dow has now risen in 23 of the last 26 sessions, marking its longest bull run since the summer of 1927, when the indicator ended higher in 24 of 27 sessions, according to Dow Jones."

Congratulations Eric Lie!

press-citizen.com | Local News:

"University of Iowa finance professor Erik Lie has been named one of the world's most influential people by Time magazine....In the overall list, Lie is included with other notables that include Oprah Winfrey, George Clooney, Roger Federer, Tony Dungy, Nancy Pelosi, Hillary Clinton, John Roberts, Pope Benedict XVI, Al Gore, Elizabeth Edwards, Condolezza Rice and Chien-ming Wang.

Lie was named to the list for his work in uncovering the stock options backdating scandal currently roiling corporate America"

Chavez threatens to nationalize banks, steel producer

He just does not get it. And he wonders why the economy is so messed up!

globeandmail.com: Chavez threatens to nationalize banks, steel producer:

"Venezuelan President Hugo Chavez on Thursday threatened to nationalize the country's banks and largest steel producer, accusing them of unscrupulous practices.

“Private banks have to give priority to financing the industrial sectors of Venezuela at low cost,” Mr. Chavez said. “If banks don't agree with this, it's better that they go, that they turn over the banks to me, that we nationalize them and get all the banks to work for the development of the country and not to speculate and produce huge profits.”"

Three Quick sports stories

Three sports stories of this week definitely had some overlap to business, economics, and Finance.

a. The first round of the NFL draft was the longest (measure by time) in history. Many announcers and reporters mentioned it but none (that I saw at least) correctly explained why-- you do not exercise an option early.

Why? Consider the following. Suppose you are drafting 12th and have your heart set on a running back from Cal. Your team in now on the clock meaning you have 15 minutes to select. Why wait until the last minute? Because some other team might make you a trade offer that is simply too good to pass up. If that offer does not come, you are still in the same position as you were. (In more academic speak waiting stochastically dominates selecting early).

b. By now I think the whole world has seen the NY Times story on white referees in the NBA calling more fouls in black ball players and vice versa (although more weakly). I'm Not really sure if it has much finance insight but it does use regression analysis and minimally is economic in the Freakonomics perspective. (in fact they have two articles about it!)

c. One tenet of labor markets is to reward good performance and punish bad performance. Thus it was with particular interest that I read that the Yankees fired their strength coach (presumably a fitness coach as I doubt he was hired merely to increase strength) after a string of injuries that have the Yankees floundering near the bottom of the AL East. While undoubtedly other things also played into their injuries, lifting at the expense of flexibility does seem to be something that might lead to these injuries. And from a personal perspective, I have to admit a bias as I do not think Joe Torre deserves to be fired.


back to proctoring an exam...

National Bankrutpcy debate?

Want to start a debate? Bring up the idea of national bankruptcy.

For instance James Kazoun writes over at ArabicNew.com that
Iraq and Lebanon should declare bankruptcy:

"I am not aware of any such bankruptcy laws for countries, but there should be one as well. But in such absence, setting precedence should do it. Now that Iraq supposedly have a democratic government, this government should declare bankruptcy and clear its citizens from all financial commitments they had no say in. Not doing so, would be highly irresponsible.

Such acts are usually discouraged by saying that a country reneging on its debts would not be able to get future loans from lenders. That is not likely to be the case, but if that is the case, that would be very healthy for Iraq."

The US experience aside (see Alexander Hamilton's arguments), the idea of a national bankruptcy does appear to make much economic sense and it is nothing new (for instance back in an old FinanceProfessor.com Newsletter the following was reported:

" The IMF endorsed a national bankruptcy law that would allow nations who are unable to make their debt payments the ability temporarily suspend their payments while they negotiate with creditors. (If you think about it, a bankruptcy is little different from a “time-out” in basketball-designed to allow the team to regroup). Several countries, most notably the US, is still opposed to the plan.
http://news.bbc.co.uk/2/hi/business/2638741.st"

Cheating at Duke

As a reminder to everyone doing finals, DON'T CHEAT!!

From Business Week:

"....school officials said that Duke is taking disciplinary action against 34 of the school's first-year MBA students—almost 10% of the school's 2008 class—for allegedly cheating on an open-book, take-home final in one of the school's required core classes. It is the largest episode of cheating in the school's history, officials said. "There is a great deal of concern. The honor code is a cornerstone for the culture that we have here, and we take a violation of it quite seriously," said Mike Hemmerich, Fuqua's associate dean for marketing and communications."

From NY Times:

"The final was an open-book test....But many students collaborated....School officials declined to identify the course, the professor or the students, citing confidentiality....

Nine of the students face expulsion, according to the ruling, which was distributed within the business school on Friday. Fifteen students were suspended for a year and given a failing grade in the course; nine were given a failing grade in the course, and one got a failing grade on the exam. Four students accused of cheating were exonerated."

Reminder, DO NOT CHEAT!