The Christian Finance Faculty Association

Remember a few weeks ago I uploaded a video from the new Christian Finance Faculty Association? Well now they not only have their new website up, but also have announced they will be having a session at the AFA conference in January. Stay tuned.

The new web site is: The Christian Finance Faculty Association:

"Next Meeting
AFA
Atlanta, Georgia

Informal breakfast meeting

Date, Time TBA

Contact: Shane Underwood
shaneunderwood@yahoo.com"

How To Trade In Stocks (1940 original)

How To Trade In Stocks (1940 original)

A true classic. Has value (no pun intended) from both an investment perspective and an historical one.

How To Trade In Stocks (1940 original)

Thanks to derekhernquist and FinanceTrends for this!

American Wages Are Out of Balance - NYTimes.com

A friend of mine would claim that there are no coincidences. Maybe she is right, but it sure seems it when two articles (one from the NY Times and an academic piece both come across my laptop within minutes of each other and each saying roughly the same thing: that the US work force (a group to which I am a part), better get ready for paycuts since currently the world economy is out of whack.

First from the academic paper: Why are We in a Recession? The Financial Crisis is the Symptom Not the Disease! by Jaganathan, Kapoor, and Schaumburg

"Globalization has brought a sharp increase in the developed world's labor supply. Labor in developing countries – countries with vast pools of underemployed people – can now more easily augment labor in the developed world, without having to relocate, in ways not thought possible only a few decades ago. We argue that the large increase in the developed world's labor supply, triggered by geo-political events and technological innovations, is the major underlying cause of the global macro economic imbalances that led to the great recession. The inability of existing institutions in the US and the rest of the world to cope with this shock set the stage for the great recession...."

then from the NY Times piece: Breakingviews.com - American Wages Are Out of Balance - NYTimes.com:

"One explanation for the attractive prices of imported goods is that American workers are paid too much relative to their foreign peers.

Global wage convergence is great for the poor but tough on the overpaid. It’s possible to run the numbers to show that American manufacturing workers should take average real wage cuts of as much as 20 percent to get into global balance.

....if American wages get stuck above global market-clearing levels, as in the 1930s, the result could well be something approaching Depression-era levels of unemployment."

Two points on the NY Times piece: I do not claim to know the exact details (as in how exactly do we measure productivity) but empirically, if manufacturing jobs are going overseas, there is a simple economic fact that US workers must be being paid too much. Which obviously is not going to be popular, but it is something that we have all known for years. And yes when it points this price disadvantage out, is does so on a productivity standardized metric, which is to say that US wages are too high for relative productivity advantages.

Minimum wage laws and unions are two things that could force American wages to "get stuck" at such high levels.


Thanks to Robert Bruner for pointing the first one out.

Update: a reader over at SeekingAlpha (which picked up the blog post) correctly pointed out that the falling US dollar is cutting our wages (and standard) of living.

Does overconfidence led to more firms being started?

Two somewhat competing papers were recently posted on SSRN. The Hayward, Shaperd, and Griffin paper suggests that hubris (overcondi

SSRN-A Hubris Theory of Entrepreneurship by Mathew Hayward, Dean Shepherd, Dale Griffin:

"Although data from the U.S. Census Bureau's Business Information Tracking Series show that 60 percent of the businesses launched between 1989 and 1992 did not survive six years, founders overconfidently believe that they can beat the odds of failure. The hubris theory offered here incorporates three separate psychological processes: overconfidence in knowledge, overconfidence in prediction, and overconfidence in personal abilities. A detailed discussion of the hubris theory leads to a series of propositions. According to the first two propositions, founders are most overconfident when faced with highly complex,dynamic tasks related to the new venture. Another proposition suggests that experienced firm founders become more overconfident when launching a firm that differs from previous ventures..."

On the other hand, Lowe and Ziedonis find little support for this:

"Following a discussion of recent studies of university technology licensing to entrepreneurial firms and the literature on managerial cognitive bias, it is hypothesized that entrepreneurial startups are less likely than established firms to terminate development efforts and to commercialize inventions successfully. The last hypothesis proposes that inventions licensed by startups generate lower economic returns than do inventions licensed by established firms. Data on 734 inventions disclosed to the University of California from 1981to 1999 and licensed exclusively to a firm are used to test the hypotheses. The data indicate that startups actually generate greater levels of licensing revenues for similar technologies than do established firms. However,entrepreneurs appear to hold on longer to technologies that do not achieve commercial success. The latter finding suggests entrepreneurs may be in denial about the unpromising futures of these inventions. As a whole, the results offer little support for the idea that excessive optimism is a driving force in the decision to found a firm"

Mishkin: It's Cool That The Fed Is Blowing Another Bubble Because This Kind Of Bubble Is Harmless

Mishkin: It's Cool That The Fed Is Blowing Another Bubble Because This Kind Of Bubble Is Harmless

While Mishkin is clearly a smart guy, I have to disagree with him on this. First of all you can argue that leverage (this time by governments and not individuals) is funding the bubble. Secondly (and probably more importantly), bubbles, of any type, lead to allocational errors (too much investment in industries that are overvalued, too little in those that are undervalued). And finally, bubbles, when burst, cause pain, just ask those who lost jobs in the dot.com burst.

Wolves have their own social security issues

Wolves Lose Their Predatory Edge In Mid-life, Study Shows:

"When older wolves can no longer hunt successfully, younger wolves share their kill with them, in what MacNulty describes as a lupine version of Social Security. While a high ratio of old-to-young wolves may benefit elk, it could strain the wolf population because there aren't enough workers to support retirees."

Identifying PTSD: Light Shed On Brain's Response To Distress, Unexpected Events

I wonder if the same holds true for portfolio losses? If so, then how do we get people to expect, or at least realize, that asset prices do take large price swings.

Identifying PTSD: Light Shed On Brain's Response To Distress, Unexpected Events:

"'When the noise is unexpected, the brain's response is larger,' said UAB psychologist David Knight, Ph.D., principal investigator on the study, which is currently in press online and will appear in the January 2010 issue of the journal NeuroImage. 'But when participants are able to predict when they are going to hear the unpleasant static noise, you can see the regions of the brain quiet down so that a smaller emotional response is produced.

'While past studies have looked at this startle phenomenon behaviorally, this is the first look at what is actually happening in these regions of the brain when someone is exposed to an unpleasant, unpredictable event,' Knight said."

Dr. Steve Horan talks about Portfolio Benchmarking - SBUBusinessTV on blip.tv

Dr. Steve Horan talks about Portfolio Benchmarking and measuring returns with cash inflows and outflows- SBUBusinessTV on blip.tv

This is the second part of the lecture Steve Horan gave to my students on Friday at the School of Business sponsored breakfast.

Q6 Fall 2009: Do you need a nudge?

Q6 Fall 2009: Do you need a nudge?:

"Richard Thaler outlines how principles from behavioral economics can help policymakers — and managers — achieve better outcomes.

Q: Could you explain some of the key ideas in Nudge: nudges, choice architecture, and libertarian paternalism?
'Libertarian paternalism' suggests that these two seemingly contradictory terms can actually define a non-contradictory and attractive policy alternative. ...So we would like to create environments where people are more likely to choose things that they, themselves, think are good for them."

The abover Thaler interview is part of an interesting series of articles in the Yale School of Management's Q6 which has a series of articles on behavioral aspects of economics and finance. For instance James Choi asks Are we good at making choices?, Christine Jolls tackles the question Can behavioral economics improve law?, Katleen D Vohs ponders Does money change your thinking? Andrew Lo questions whether Risk is Rational? and then the series concludes with What does a choice look like? which looks at brain scans to better understand decision making.

Dr. Steve Horan discusses Exchange Traded Funds - SBUBusinessTV on blip.tv

Dr. Steve Horan discusses Exchange Traded Funds - SBUBusinessTV on blip.tv

This is the first of three parts.

1. On ETFs
2. On calculating portfolio returns in and out cash flows
3. On the value of a CFA.

The Harvard Law School Forum on Corporate Governance and Financial Regulation » Is Delaware’s Antitakeover Statute Unconstitutional?

The Harvard Law School Forum on Corporate Governance and Financial Regulation » Is Delaware’s Antitakeover Statute Unconstitutional?:

"...no bidder in the past nineteen years has been able to achieve 85% in a hostile tender offer against a Delaware target. "

Which implies that it is possible that the super-majority provisions are in fact unconstitutional since the courts at the time (1988) said that the takeover laws must allow bidders a fighting chance (ok, in their words "'a meaningful opportunity for success."'

BonaResponds videos

Ok, so this was a mistake...I was trying to post it on the BonaResponds blog, but oh well....and who knows, maybe someone out there will like it and come volunteer with us. (I would rather you do that than donate money to us, but if you want to we do accept donations ;) )

YouTube - Machias video Nov 8:

"Video from our work with the Christian Youth Corps in Machias on the Eisenhardt project. The two boys (Dalton and Wyatt) have a rare genetic problem. But that does not stop them from helping us help them!"

Kraft Makes $16.3 Billion Hostile Bid for Cadbury - DealBook Blog - NYTimes.com

A week early for class, but close enough:

Kraft Makes $16.3 Billion Hostile Bid for Cadbury - DealBook Blog - NYTimes.com:

"Kraft on Monday formally made a £9.8 billion ($16.3 billion) hostile bid for Cadbury, making official its effort to create an international food giant. Cadbury quickly rejected the new proposal, setting up a potentially bruising fight for control of the British confectioner.

Kraft’s bid came just before a 5 p.m. deadline in London imposed by Britain’s Takeover Panel, which had given the American food company until Monday to make a formal offer. If Kraft did not do so, it would have been barred from making another bid for Cadbury for six months.

Now Kraft will take its proposal, comprised of 300 pence a share in cash and .2589 of a newly issued Kraft share for each Cadbury share, directly to the British company’s shareholders"

Steve Horan on ETFs, measuring returns, and importance of the CFA

Yesterday Steve Horan spoke to my classes. Here are the slides of his presentation. The video will be uploaded soon.

SBU CFA 1 From Steve