Conspicous consumption of Hedge Funds?

Do investors own hedge funds to brag and signal their wealth?  Maybe.  That is the view of " Meir Statman... the Glenn Klimek Professor of Finance at the Leavey School of Business, Santa Clara University and Visiting Professor at Tilburg University in the Netherlands."

More evidence that value stocks beat glamour

From the Financial Post:

More evidence that value stocks beat glamour:

"In a study that may be published in the Journal of Behavioral Finance, it found that when value and glamour stocks failed to live up to earnings expectations, glamour stocks fell while prices for value stocks rose. A value stock is one that trades lower than its fundamentals would suggest. A bargain, in short.

This occurs even when business fundamentals deteriorated and appears to contradict academic explanations of what accounts for the so-called 'value premium,' the Institute, a unit of San Diegobased Brandes Investment Partners LP, found.

Academics maintain the excess returns from value stocks arise as compensation for the extra risk inherent in value stocks. But Brandes argues it's behavioural biases like overoptimism, overreaction and anchoring that account for the value premium.

We spoke of this last week in Behavioral Finance. We will dive a bit deeper into it tonight. Especially the increased risk story (short version of classic economist view: our models are not capturing risk correctly. Which MAY be true, but it is hard to imagine the degree of difference being explained strictly from a risk adjustment.)

Blockbuster Files for Bankruptcy - NYTimes.com

Blockbuster Files for Bankruptcy - NYTimes.com:

"Blockbuster, the video rental chain, on Thursday filed for Chapter 11, hoping to slash its hefty debt load and retrench in the face of competition from rivals providing online and mail-based services.

Blockbuster has reached an agreement with its senior bondholders to cut its debt by roughly 90 percent, to about $100 million, by exchanging bonds for equity in the reorganized retailer.

Interestingly we were just talking in class yesterday about how Netflicks has performed so well. This serves as a good reminder of the "better mouse trap" theory.


Take a look at this chart comparing the two!

Buffett and JayZ on "Building Moats"

The next investment course to take: Psych 101

CTV News | The next investment course to take: Psych 101:

"A few years ago, Michael Shermer wrote an op-ed piece titled “Why people believe strange things about money,” which cites research indicating that more people would prefer to earn $50,000 a year while everyone else earned $25,000, as opposed to earning $100,000 a year while everyone else earned $250,000. This study assumes that the prices of goods are the same in both possible scenarios, although this may be a bit of a stretch. That being said, essentially, people would rather be relatively better off as opposed to absolutely better off. The math is simple: $100,000 is more than $50,000. But the psychological drivers at work guide the ultimate decision.

As we mentioned in class, few make financial decisions in a vacuum. More often than not, other people influence the decision, sometimes in ways that appear to an outsider as being irrational from a classic economic perspective, but rational when you consider the utility gained from "winning".

Emorationaity

Are rational? Emotional? or Both...

Read the full transcript:

"...thanks to brain imaging – you know, this technique that allows these beautiful, 3D images of the brain – we showed that basically, those so-called rational and emotional parts of the brain are exchanging information on a constant basis in a very interdependent fashion, and there is not such a dichotomy at the biological level. Hence we're more working along a more hybrid system that I coined emorationality – meaning that it's impossible at the biological level to make such a clear distinction."

Interesting piece.

Been a long time

Well that was not planned...but between BonaResponds taking up tons of time, classes starting, and losing a really good friend, I have been out of commission for several weeks.  But I hope my schedule has cleared some and I will be back to posting on a more regular basis.

MLB Confidential: The Financial Documents Baseball Doesn't Want You To See, Part 1

MLB Confidential: The Financial Documents Baseball Doesn't Want You To See, Part 1:

From Deadspin. A definite class assignment will be to value the various firms!

"...take a look at the documents below, paying close attention to the teams' operating income, their revenue-sharing figures, the size of their TV deals, and the amortization of player contracts (a neat trick of accounting pioneered by Bill Veeck that allows an owner to turn his team into a lucrative tax shelter). If there is a thread running through all of these financial statements, it is the incredible ability of baseball teams — whether they're winners or losers, big market or small, 'rich' or 'poor' — to make their owners a fat pile of money.

- Sent using Google Toolbar"

Beware of 'Independent' Investing Research - WSJ.com

Beware of 'Independent' Investing Research - WSJ.com:
First let me say no one has paid me to write. Secondly, it is unrealistic to think that the sponsorship would not influence authors, at least create a conflict of interest. From today's WSJ:

"In recent years, financial-services firms have found a new tool to help them drum up customers: the academic study. These papers are finding new life beyond the ivory tower, echoing the widely used—and controversial—medical research funded by pharmaceutical and other medical companies to back new drugs and devices. The studies cover the gamut of investing topics, including how best to pick mutual funds, set up a retirement plan or boost portfolio returns. The universities facilitating these studies and the professors writing them say they don't allow sponsors—which typically pay anywhere from $5,000 to $50,000 for research—to do any meddling, and that academic freedom is always maintained."

Weekend Essay by Jonah Lehrer: How Power Affects Us - WSJ.com

iorWeekend Essay by Jonah Lehrer: How Power Affects Us - WSJ.com:

"Psychologists refer to this as the paradox of power. The very traits that helped leaders accumulate control in the first place all but disappear once they rise to power. Instead of being polite, honest and outgoing, they become impulsive, reckless and rude. In some cases, these new habits can help a leader be more decisive and single-minded....Unchecked, however, these instincts can lead to a big fall"

Great behavioral corporate finance topic and a really good article....definitely recommended for class!

Can Money Buy Happiness?: Scientific American

Can Money Buy Happiness?: Scientific American:

The answer according to this study is No.

"American families who make over $300,000 a year donate to charity a mere 4 percent of their incomes. The statistic should not be surprising, as studies by University of Minnesota psychologist Kathleen Vohs and her collaborators have shown that merely glimpsing dollar bills makes people less generous and approachable, and more egocentric.

Now come a new set of studies that reveal yet another toll that money takes. An international team of researchers led by Jordi Quoidbach report in the August 2010 issue of Psychological Science that, although wealth may grant us opportunities to purchase many things, it simultaneously impairs our ability to enjoy those things."

The Psy-Fi Blog: Money Illusion

Image via Wikipedia

The Psy-Fi blog examines the Money Illusion today. It is right that this is one of the most common illusions. Rare is the day (and non-existent is the week) that I do not hear someone discussing views on either savings or cost of items while totally ignoring the value of money now vs. whatever time period they are discussing.



The Money Illusion from the Psi-Fi blog

"Money illusion is the trait that causes people to focus on the amount of money they possess rather than it’s worth to them. A hundred dollars a hundred years ago is obviously worth much more than a hundred dollars now: prices have inflated and the value of the hundred dollars is far less than it used to be. Measuring this exactly isn’t possible: what price would a businessman have paid for instant communication across the world a century ago compared to the peanuts we pay for the internet today?

In deciding to ignore the idea of money illusion economics was, for once, joining the mainstream, where most people happily ignore the fact that the value of the dollar in their pocket isn’t what it once was. This leads neatly to a world where there are more unemployed people than there should be, where central banks run around like puppy dogs chasing their tails trying to avoid the dreaded d-word and lots of people end up much, much poorer than they ought to be...."

Read the entire thing here.

Laurie Santos: A monkey economy as irrational as ours | Video on TED.com

Laurie Santos: A monkey economy as irrational as ours | Video on TED.com: "Laurie Santos studies primate psychology and monkeynomics -- testing problems in human psychology on primates, who (not so surprisingly) have many of the same predictable irrationalities we do."





HT to Todd Sullivan

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• Man as "Monkeys Wearing Pants": Why Humans Make Poor Money Choices (brainposts.blogspot.com)
• A monkey economy as irrational as ours: Laurie Santos on TED.com (ted.com)
• How can a smart species be so dumb? (cnn.com)
• The pattern behind self-deception: Michael Shermer on TED.com (ted.com)

Just Buy It: Impulsiveness Tied To Brain Chemical : NPR

avJust Buy It: Impulsiveness Tied To Brain Chemical : NPR:

"Joshua Buckholtz, a researcher at Vanderbilt University in Nashville, Tenn., thinks that the brains of impulsive people have too much dopamine. Dopamine is a chemical involved with many different brain functions, but in this case researchers are interested in drive. They believe high levels of dopamine are causing some individuals to behave rashly, perhaps by buying a food dehydrator they don't need.

And so it goes. Dopamine and Oxytocin seem to be at the root of nearly everything! (

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• Dopamine and Human Impulsivity (sciencemag.org)
• Impulsive, weak-willed or just too much dopamine? (eurekalert.org)