Forecast For Blogging: Light
So, blogging may be light for the next week or so.
The finance classroom meets the outside world (and vice-versa). Back away slowly from the computer with your hands up and your mind open, and with luck nobody gets hurt.
Sarah Lewis has a nice piece on tax-lien certificate investing. It's good, because she lays out both the advantages and disadvantages very well.As always, these aren't all the posts, just the ones that caught my eye. Look around, since your tastes are probably different from mine (if they don't, that's a very, very scary thought, and you should seek professional help - quickly.)
Political Calculations’Iron Man talks about a recent post by Barry Ritholtz that discusses the performance of various sectors (particularly energy). Iron Man's piece, titled how you look at it disagrees with Ritholtz, and that's good (not that I have anything against Ritholtz, but seeing an issue from multiple perspectives appeals to the academic in me).
I've mention this previously, but anything by Steve Bainbridge on insider trading is worth listening to. This time he discusses the Senator Frist/HCA Insider Trading Controversy.
Consumerism Commentary talks about Raising Your FICO (credit) score. Nuff said.
Barry Ritholtz from the Big Picture tells us There's No Inflation Except Inflation. Sounds like Barry's been watching The Matrix.
Patri Friedman of Catallarchy works at Google. He describes how Google's using internal prediction markets. It's a very clever application of how to use markets to extract information from a diverse (and dispersed) group.
Brian of Financial Reference gives advice on overcoming the fear of investing during recent market conditions.
Since it's not a week at Financial Rounds unless we mention SOX, George at Fat Pitch Financials focuses on the recent SEC vote allowing small companies more time to comply with Sarbanes-Oxley requirements. He talks about possible investment opportunities from firms going private to avoid SOX.
Business Week has a story titled What Did Frist Know---And When. Frist's stock was held in a "blind trust". However, as Inigo Montoya said in The Princess Bride, "You keep using that word. I do not think it means what you think it means."
Tigerhawk presents an interesting argument that Frist was doing the right thing with his actions. Warning- the comments following the post are pretty politically charged - not surprising given Tigerhawk's own strong views on things political.
Steve Bainbridge (who may know more about the legal aspects surrounding insider trading than anybody else around) makes an argument that even if Frist had material nonpublic information, he might not be liable under rule 10b-5 (the applicable statute).
...I break economic literacy into two components -- factual and conceptual. Alas, most well-educated Americans are illiterate in both areas.Kling goes on to ask his readers how they would devise a lesson to teach first-year Econ students how to understand the role of markets in addressing supply disruptions caused by Katrina. The commenters present some excellent and creative ideas.
...What is the essence of the economic way of thinking? A good starting point is Frederic Bastiat's idea that what is seen, the direct effect of a policy, is often just the beginning of its impact. Equally or more important is what is not seen. The world would be a better place if people understood that the intention of a policy (no price gouging after a hurricane, for example) does not capture the full effect on our well-being.
Ironman at Political Calculations blog presents Financial Markets in a Catastrophe. He has some interesting theories about why markets went up slightly during the week of the storm.As usual, look around. You and I probably have different tastes, so there's also other things you might enjoy that didn't quite do it for me.
Barry L. Ritholtz at The Big Picture presents Gas Futures -- but not retail prices -- Returns to Pre-Katrina Levels. His short explanation - it's your (the consumer's) fault.
THC at The Happy Capitalist presents Widgets and free credit reports. It's a good reminder - check your credit report regularly.
James Hamilton at Econbrowser has a nice piece on Who cares about core inflation?
Dan Melson at Searchlight Crusade presents Lender Discrimination and Shopping for a Home Loan. The article he bases his piece on has gotten a lot of credit. He gets one point right - credit scores differ a lot between people with the same income levels, and the study didn't correct for credit scores.
Brian at Financial Reference talks about how Dividends affect investment strategy.
Mike Landfair at Mover Mike talks at length on What's Wrong with Fiat Money? It looks like he's already getting some lively comments.
sixty-five percent of senior financial executives of public companies surveyed say it’s more difficult today to recruit corporate directors because of the three-year-old federal Sarbanes-Oxley corporate-disclosure law and concerns about higher director liability
....“Sarbanes-Oxley was a needed watershed event in corporate governance, but along with the greater protection of investors, there are increased time requirements for directors,” says Ed Nusbaum, Grant Thornton LLP chief executive officer. “But an even greater obstacle is the fear of litigation.”Click here for GT's press release.
...Indeed, many of us may have known, and possibly worked with, someone who fits the stereotype of the absent-minded professor -- the kind of person who can mentally calculate to three decimal points but seems unable to match her own socks. Talented thinkers with strange personalities often find a home in academe. On campuses, people are usually willing to overlook the odd behavior of their colleagues, or to accept it as part of the intellectual package; students generally find such characters quirky and lovable.
The absent-minded professor becomes more difficult to handle, however, when his behavior verges on the dysfunctional. All vocations attract certain personality types; academe appeals particularly to introspective, narcissistic, obsessive characters who occasionally suffer from mood disorders or other psychological problems. Often, these difficulties go untreated because they are closely tied to enhanced creativity, as can be the case with obsessive-compulsive disorder, major depression, bipolar disorder, and the kind of high-functioning autism known as Asperger's syndrome.
I'd have to agree that our "tribe" definitely has a higher concentration of quirky characters than found in the general public. The pool of of finance academics seems to actually be comprised of several sub-groups. The theoreticians are more like mathematicians. I recall one professor from grad school (probably the best theoretician I've ever met) that would regularly forget to put the cap back on his fountain pen before he put it back in his shirt pocket. More than once, it would be a couple of days before he noticed.
However, the empirical researchers are usually a bit more normal. Of course, since I'm in this camp, I might just be reflecting my biases. Because empiricists are by the nature of their work connected to the "real" world, they seem to be better grounded. There are exceptions to the rule, but at least in my experience it's been true.
However, I'd have add that many (not all, but more than a few) of the most successful academics exhibit what I call "intermittent minimal functional autism". By that, I mean the ability to shut out the external world and focus on the problem at hand with a sort of tunnel vision until they're done. I recall a couple of my grad school professors (one being the aforementioned "Dr. Fountain Pen"). If they were thinking about a problem, you could probably remove most of their furniture from under their nose and they wouldn't notice it until they came up for air. Of course, they have better publication records than me...
It reminds me of the old joke:
Q: How can you tell an extroverted finance professor?
A: He looks at YOUR shoes when he talks to you!
Brian Gongol at Gongol.com uses Hurrincane Katrina to examine cost-benefit analysis' evaluation methods. It points out some of the differences between expected-value and minimaz analyses.
Kim Snider at Kimmunications suggests five personal finance lessons the average person should learn from the aftermath of Hurricane Katrina. Read the comments, too.
As always, look around. Your tastes are probably different from mine.
The weekly difference between the average retail gasoline price published by automotive club AAA and gasoline futures on the New York Mercantile Exchange hit $1.078 Friday, the widest spread since January 2000, when the driving club began publishing data collected through the Oil Price Information Service, a New Jersey-based industry-research firm. Since then, the spread has averaged 62 cents, with the futures trading at a discount because they essentially represent a wholesale price that excludes taxes, transportation fees, service-station markups and other costs.Click here for the whole article (online subscription required).
Without records and someone to share them with it is too easy to convince yourself that you will write "tomorrow." But "tomorrow" never comes-or at least it doesn't come very often.There's lots of other good advice - click here for the whole thing.
The Real Returns has a chart that shows median house prices across the U.S. back to 1963.
Fat Pitch Financials talks about his experience with "special situation" investments".As usual, look around. You might find something else that strikes your fancy.
Finally, given the recent New Orleans tragedy, The Happy Capitalists talks about how to make sure you can get your hands on your important financial information in 10 minutes.
Here are a few highlights from the hottest Hollywood script you will most likely never see produced on a television or movie screen: • Abu, Ahmed, Musab and Salar, a cell of Islamic terrorists sent to Chicago by a nefarious network resembling Al Qaeda, are getting chewed out by their murderous boss, just in from Afghanistan. (They have been spending the organization’s money like crazy but haven’t blown anything up.) Just then, two deliverymen knock on the apartment door, bearing a huge flat-screen TV.HT: Scott Scheule at Cattallarchy.
Unfortunately, however, most students seem to emerge from introductory economics courses without having learned even the most important basic principles. According to one recent study, their ability to answer simple economic questions several months after leaving the course is not measurably different from that of people who never took a principles course.
What explains such abysmal performance? One problem is the encyclopedic range typical of introductory courses. As the Nobel laureate George J. Stigler wrote more than 40 years ago, "The brief exposure to each of a vast array of techniques and problems leaves the student no basic economic logic with which to analyze the economic questions he will face as a citizen." (emphasis mine)
Click here for the whole thing.
I see the same problem in the way finance is taught. In the introductory finance course at many schools, they cover something on the order of 14-15 chapters in a semester. When you ask why, they invariably say, "We simply HAVE to cover (fill in the blanks)". So, the students end up racing through all these topics, and understand very little. If you ask them, "did you cover portfolio variance", they'll answer in the affirmative, but if you ask them to calculate the variance of a portfolio, they can't. Likewise for most topics. I know - in my upper division course, I have to spend the first couple of weeks reteaching the basics of time value (the most important concept in finance). But, after all, they did "cover" all the topics...
At my alma mater, they taught the same class in a way that totally spoiled me for the purpose of working at most other schools. In a rare (for academia) fit of common sense, they realized that you can teach a lot of topics poorly, or a few topics very well. So, they limited the introductory course to a few critical concepts (like time value of money, how to read financial statements, how to value a security, etc...), but completely beat these topics to death.
Father Guido Sarducci used to do a routine where he talked about "Sarducci University". It went something like this:
"In the typical college, you go to school for 4 years. You might spend a whole year studying a couple of accounting classes. After you're done, what do you remember - "you gotta you debits, you gotta you credits". At Sarducci University, we only teach the basics -- "you gotta you debits, you gotta you credits". So you can get all your coursework done in one year instead of four. We got a beautiful campus on the beach. You tell your parents that it takes 4 years - $10,000 per year. You give us $30,000, and you keep $10,000. This way, you can spend three years on the beach, and at the end, you'll still know "you gotta you debits, you gotta you credits"
While humorous, it gets across an important point. Pick what you want people to remember. Then spend more time on those points and drill them home, over and over. The students won't be exposed to as many concepts, but they'll know those few things very well.
It works for classes, and it works for any presentation. Don't try to cover too many points, but if you think it's important, drive it home (over and over).