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Monday, December 31, 2007

It's Time For Prediction Markets Again

As the elections come closer, people one again start talking more about political prediction markets. In fact, they're well known enough that the the Wall Street Journal will now be featuring regular commentary on what the prediciton markets say about the various political candidates.

The pieces will be written by Wharton's Justin Wolfers. He's one of the sharpest young economists on the scene, and extremely well versed on the topic.

Click here to read his first piece.

1,000 Posts

I didn't realize it, but Financial Rounds just crossed the 1,000 post mark. That's a lot of time spent blogging.

The Sub Prime Crisis (From The Long Johns)

Here's a pretty good comedy piece on the Sub Prime Crisis


The Best line of the piece: "High Grade Structured Credit Enhanced Leveraged Fund!"

Where do I sign?

Saturday, December 29, 2007

Larry The Liquidator

I've started putting together my syllabus for the spring semester. I'll be teaching the advanced corporate finance class. I haven't taught this particular class for a couple of years, so I thought I'd change things around a bit this time. It's about 50/50 between lectures and cases, and this time around I think I'll play this clip from Other People's Money. It's the speech by Larry The Liquidator at the shareholders' meeting, and it's a pretty good representation of the PE/buyout/corporate selloff world's approach to things. It's also one of the best finance clips you'll find in any movie anywhere. .

Enjoy.

Friday, December 28, 2007

"Shocking" Economics Facts

I thought this short Youtube clip had some very interesting facts. They illustrate just how amazingly large our economy is relative to that of most countries. Let's just say that I'm glad to be living here.

Back to CFA studies.

Boys Day and Night

The Unknown Daughter is going for a sleepover tonight at her cousin's house (about 80 milkes away in an adjoining state). So, Unknown Wife is using the opportunity to take an overnight herself at her sister's house (she lives near where the sleepover is, and this'll save an additional trip).

That means Unknown Son and I temporarily have the house to ourselves. He gets to watch Pink Panther Cartoons most of the day (he got the 6 Disk complete set for Christmas) while I spend my time going over material for CFA level 2. I teach in a prep program starting in about four weeks, and I'm taking the exam myself this June (assuming I passed level 1), so it's a good opportunity to get a bit ahead.

He's been having intermittent fevers (on one day, off the next) for the last couple of weeks. We know he had pneumonia, and is almost done with his antibiotics. But maybe he caught another virus. Either way, he's content to sit around and watch classic cartoons.

I'll probably watch some too.

Plus, this means I get to watch the buildup tonight to tomorrow night's big UFC fight between Hughes and St. Pierre.

Monday, December 24, 2007

The Law Is An Asset Class

Here's a new asset class - investing in litigation. It's not yet legal in the US, but in other countires, it's possible to fund a lawsuit in exchange for a stake in the proceeds. This seems like a logical progression - there's already divorce settlement financing. This just extends the range of claims on litigation to equity stakes.

My guess is that the investment (if it ever catches on) would have pretty low covariance with most other asset classes, so it could be a good hedging mechanism.

What's next - derivatives on lawsuits?

HT: Marginal Revolution

Trunk Monkeys

I just recently figured out how to put videos on the blog (so I'm slow - sue me). When I was showing it to the Unknown Kids, they both agreed that the Trunk Monkey videos would have to be among the first to be posted. So by popular demand, here's a compilation of the first six installments:



For those who aren't familiar with the Trunk Monkey, it was a series of web videos put together a while back by Suburban Auto Group.

If you're interested, you can buy Trunk Monkey gear at their online store here. For a while (and much to the Unknown Wife's chagrin), we had a Trunk Monkey sticker in the back window of our van). She hated it, but the kids and I were mighty proud...

Sunday, December 23, 2007

A Great Christmas Video

I try to stay away from most political things on this blog. But this Christmas Video from Fred Thompson pretty much hits all the right notes.



Here's Wishing A Merry Christmas To All (and safety to our men and women in uniform) from the Unknown Family.

Saturday, December 22, 2007

All Hail The Mighty Excel For Grading

As a finance guy, I'm pretty good with Microsoft Excel. MOst of my immediate peers use it for grading. But if you do, here are a few functions that you might find useful:

1) The IF function is useful if you have two different weighting schemes. For example, to give the poorly performing students incentives to push hard in studying for the final, I often tell the students that I will grade them using two different weightings on their grades - in one I put greater weight on the exams and quizzes that take place throughout the cours, and in the other I put more weight on the final (I assign them the higher of the two grades).

Use the syntax =IF(Scheme1>=Scheme2, Scheme1, Scheme2) where Scheme1 and Scheme2 reference the cells containg the scores under the two weighting schemes, and you'll get the higher of the two cells.

2) The LARGE function is very helpful when you want to pick N out of K scores (for example, if you calculate the average of quizzes after trhrowing out the lowest N scores). The Syntax LARGE(A1:J1,2), will identify the 2nd highest score out of the 10 elements soted in the array from A1 to J1. To calculate the average of the 8 largest scores in the cells from A1 to J12, I'd use the following syntax:

=(SUM(A1:J1) - LARGE(A1:J1,10) - LARGE(A1:J1,9)) / 8

In other words, I calculate the sum of all ten, then subtract the two lowest scores,and then divide by eight (make sure you keep track of the parentheses).

I Vant To Be Left Alone!

Like almost any college, we have a few folks who get upset at from time to
time. I just got this email from one of my more collegial fellow finance faculty at Unknown University:
Unknown:

I would like to let you know that I have decided that I am no longer going to belong to the Finance area faculty. When you or any other Finance area faculty correspond to the Finance area faculty in the future, please remove my name from the list.

-Dr. Hothead
And they say academics get all bent out of shape. I forwarded the email to the Dean, and asked if this means we get to hire a new faculty member. He hasn't responded yet.

Friday, December 21, 2007

Stick A Fork In Me - I'm Done

I FINALLY finished my grading for the semester.

The hardest part was reading about 20 investment analysis projects that averaged 20-25 pages each (basically a full-blown analysts report on a company of my choosing). Some of my students did a surprisingly good job of it. As for others...

The "best of breed" comment was something to the effect of

"The stock market has historically been a very effective way of valuing companies".

Oh well, it reminds me of the far side cartoon showing a class of dinosaurs and the teacher saying

"I'm afraid some of you won't be evolving next year"

Thursday, December 20, 2007

Tis The Season To Be Phlegmmy

Unknown Son has had intermittent fevers for the last couple of weeks - one day he has one, the next he doesn't. Finally, we took him to his pediatrician.

Turns out he has a mild case of pneumonia. So, it's back on antibiotics (nasty tasting stuff, there) for a couple of weeks.

The good news it that I have yet another excuse to avoid grading my last few projects - I have to be home with my son.

Of course, I could have just taken the projects home with me, but that wouldn't be any fun...

On the bright side, I've just about finished reviewing the Quantitative Methods section of CFA Level 2. Good thing, since I teach it in a few weeks.

Wednesday, December 19, 2007

A Good End To The Semester

Teaching can be frustrating, but it has its moments. I just ran into one of my best students - 3.9 GPA, got a CFA scholarship, is doing an honors project, etc...

Since he's planning on taking the CFA Level 1 Exam in June, he had some questions about how best to get started on the material. So, we talked for about a half hour, and I lent him my study notes so he could get started over the break (he hasn't yet gotten his material from Schweser and CFA Institute).

I wouldn't be surprised if he has the Accounting and Ethics sections (and probably the Quantitative Methods) of the CFA material locked down before he gets back from Christmas break.

If only I had a classroom full of students like him. But that would be too easy.

Tuesday, December 18, 2007

Our Students Are Still Ahead - But Monkyes Are Closing The Gap

I often tell my students that giving an idiot a financial calculator merely gives you a faster idiot.

I also tell them setup is the key to solving problems - you can train a monkey to push buttons on a calculator - just give him a banana.

Now it turns out that my analogy wasn't fair - monkeys are surprisingly good at mental math.

Unfortunately, my students aren't - once you take away their calculators, they're in trouble.

Sunday, December 16, 2007

Head Wounds Are Always Bleeders

Growing up in a family of boys, you quickly learn that any cut above the neck (no matter how small) bleeds far out of proportion to the seriousness of the injury. After all, there're a lot of blood vessels in the skin in the face and head. Yesterday, Unknown Son and Unknown Daughter found out too.

Since it snowed two days ago, he went sliding with the neighborhood kids, and promptly slipped on an icy patch - right into a classic face plant. So, Unknown Daughter comes running in, and when I look out the bedroom window, I see U.S. lying on the snow on his back with a large red spot staining the snow beside him and several kids standing over him with worried looks.

I ran out with a handful of paper towels (rule #1 - always swab the blood away to see how bad it really is before panicking). Luckily, it was only a bloody nose. So, I picked up U.S. and carried him back to the house (he could walk, but if you can't get carried when you're covered in blood, you can't get caried any time), and we watched Tom and Jerry for a while. Bloody noses DO go better with slapstick old-school cartoons.

He was extremley impressed a few hours later when he pulled a huge clotted bloody booger from his nose. Of course, he just HAD to show it to Unknown Wife and Unknown Daughter - he is a boy child, after all.

More snow today - just spent an hour shoveling it off the driveway and drove to Dunkin Donuts for the traditional Unknown Household Snow Day Breakfast: powdered sugar for the kids and chocolate covered for She Who Must Be Obeyed. As for me, I'm not picky as long as I have coffee to wash it down with.

Winter wonder Land - feh.

Saturday, December 15, 2007

How Can Markets Be Effificent If People Are such Morons

The always enjoyable Megan McArdale has a great piece explaining the EMH with the above title in The Atlantic.com. There's also a pretty good snark-war in the comment section between a trader who insists markets are easily beatable and someone else who pretty much shoots him to pieces.

Read it, and give it to your students.

Another Crop Almost In

At the risk of sounding like Chauncy Gardner, teaching at the university level is a lot like farming - there's a definite rhythm to the semester that mimics the farming calendar. In the off season, you prepare the soil (make changes to the syllabus, do some reading for new materials in your classes, etc...). During the semester, there's planting (the first week or so), pruning and weed pulling (usually done with exams and quizzes), and finally, at the end of semester there's the harvest.

I gave my last final exam yesterday. So, the crop's almost in. Now all I have left to do is grade them (and the remaining class projects) and I'm done with teaching-related stuff for the semester.

No cracks about vegetables, please (or at least, not too many...).

But as for research in the "off season", there's a lot to do:
  • I just yesterday finished my part of the work on one revise and resubmit (I'll call it R&R-1), which involved a fair bit of empirical work, and SAS programming out the yazoo. Now I can turn everything over to my coauthors, who'll do the remaining writing, and deal with the rest of the referee's comments.
  • Since my part of R&R-1 is done, I now get to work on another R&R (R&R-2) where I get to do most of the writing (both coauthors are not native speakers of English). Unfortunately, the referee was extremely picky, so there's much to do.
  • There's a third R&R (R&R-3) for which a coauthor is doing the first draft on the revisions (it's all writing - no new empirical work is needed). Then, he'll pass it back to me for further editing (I'm the "senior" writer on this one - the coauthor was my student previously). With luck, I'll finish R&R-2 before this one comes back to me.
  • Then, there's a piece with a former colleague and a former Ph.D. student. It was sent out and soundly rejected previously. So, we (actually, the former Ph.D. student) did a lot of additional empirical work. Then the former colleague did a rewrite, and I'll get to do the final buffing and shining. Hopefully, it'll come back to me after R&R-2 is done and before R&R-3 comes back to me).
  • Somewhere in there, there's another piece that I'm trying to finish before the FMA submission deadline. It's with another former student - we'd previously done a pilot study with interesting results. Since then, we've expanded the data set to about 5x its original size, and then ran some additional tests. If the coauthor can finish his part of the data work (mostly the coding of governance data from about 500 proxies) soon, we can write up the new results and send it off.
  • There are a few other pieces in various stages, but I'll save discussion of them until they move out of the "vaporware" category.
Luckily, I have almost five weeks before the next "planting". Looks like it'll be a busy time. But that's what makes it fun.

Thursday, December 13, 2007

More Good News On the Cancer Front

As I've mentioned previously, the Unknown Son was diagnosed with neuroblastoma shortly after his 4th birthday. He was successfully treated at Children's Hospital of Philadelphia, Memorial Sloan Kettering in New York City, and Johns Hopkins Hospital in Baltimore. We believe he went into remission about 3 1/2 years ago (see this previous post for more details, and an explanation why we can't say exactly when). But, since there was still one spot on his leg that showed up faintly on the scans , we continued to go to back to CHOP for quarterly checkups. We were fairly sure that it was a ganglioneuroma rather than active cancer, but we still had to play it safe.

We just got back from the latest checkup. This time around, U.S. had his first totally clean scan. So, we can be a lot more confident now that he's in remission.

Nice to get an early Christmas present, eh?

Tuesday, December 11, 2007

Financial Rounds Gets Its 100,000th Hit

Sometime yesterday, Financial Rounds had its 100,000th hit. Man - that's a lot of people with too much time on their hands.

But seriously, it's been a great experience. Now on to the next 100,000.

Sunday, December 09, 2007

Another Online CFA Resource

A surprising number of folks find Financial Rounds when searching about CFA related information. So, whenever I find information that might be helpful to those making the slog towards the designation, I'll post it here.

I was looking through my Sitemeter log, and I came across a number of hits from people who'd recently visited AnalystForum.Com. So, I checked it out. If you're working towards your charter, it's definitely worth a look-see. They have a number of online forums - one for each exam level, and a general one for everything else. There's a lot of information there, and a very open group of folks who are extremely willing to answer questons. And it looks like a great way to get linked in to a community of like-minded folks (and networking is always useful).

Saturday, December 08, 2007

CFA At Unknown University

This seems to be the season for things CFA-related. I've just seen the pool of students who've applied for CFA scholarships from Unknown University. We had eight apply, and the weakest of the bunch has a 3.4 GPA (and there's one student who's a finance undergrad currently getting a Masters in Accounting - definitely a plus when dealing with all the Financial Statement Analysis/ Accounting material on the exam).

So, I think we'll be able to pick five extremely good candidates. We also just found out that the local CFA chapter has a few additional scholarships to award, and that they'll be happy to let us do the initial sorting for the scholarships.

I'm particularly happy that seven of the eight applicants for the scholarships are my current or former students (one took me for three separate classes). So, they actually listened to some of what I'd been saying all semester.

On a somewhat related note, this Wall Street Journal article details the lengths that CFA candidates go to take the exam in India. And here I was worried that I had to drive a couple of hours to take it myself.

Friday, December 07, 2007

Twas The Night Before Finals

I read the blog "Rate Your Students" on a daily basis - it's the electronic equivalent of the lounge where the faculty share stories about students among ourselves. Here's their latest offering - Twas The Week Before Finals

‘Twas the week before finals
And all through the U,
The students were yawning
And some drooling too.

While papers are now due
Students are at the mall,
With not one single fear
That their good grade might fall.

“I can write it all one night,”
Thinks the tattooed pierced girl,
“I’ll just peek at a Wiki
And give it a whirl.”

They don’t come to class
There is always a reason,
These vary quite little
From season to season.

“A cold” has the tall one,
“With me it’s the flu,”
“My sister’s in jail
And Grandma’s dead too”

“Hangover” “flat tire”
“My boyfriend dumped me,”
“Alarm didn’t go off”
“Had to play with my Wii

“This class ain’t important,
Many other things are.”
With an attitude like this
Frat boy’s sure to go far.

“I’m going to med school
Organic’s the crux,
Have to go over anatomy
With my buds at Starbucks.”

“After that comes my psych
And the math quiz I missed.
Your class is ‘bout tenth
On my priority list.”

Outside my office
There arose such a clatter.
A line of students?
Now what is the matter?

Here come the grubbers
The beggars and thieves,
With the crap that they’re dishing
I’m going to heave.

“This paper is all mine.
I never would fake,
That you found it on Google
Is just a mistake.”

“You’ll ruin my average
My perfect grade,
A ‘C’ isn’t part
Of the deal that we made.”

“I pay tuition
You give me an ‘A,’
Then everyone is happy
And I’m on my way.”

“Get lost all you losers!”
I wanted to shout,
But the tenure committee
Would then throw me out.

I brought out a six pack
Some pills and a noose
But settled down with exams
and a vodka and juice.

For many this season
Is chock full of cheer
But for profs, December
Requires much beer.

Let the games begin!

Tuesday, December 04, 2007

One Step Closer To Fine

It's that time of the semester - the last week of classes. Whether they're a student or faculty member, everybody is tired.

The students in my Student-Managed Investment Fund gave their end-of-semester presentation to the Board that oversees the fund. In addition to the Board members, there were a lot of heavy hitters there: Unknown University's VP of Advancement (that's what we call the guy who is in charge of hitting up the alumni for money), the head of the Alumni Association, two Associate Deans of the college, and (of course) the Dean. So, it was a high visibility event.

The students nailed it. Everyone was impressed. They exceeded every one's expectations, and they made some very nice connections -the Board has some venture capitalists, a couple of hedge fund managers, and some big-time analysts on it. With luck, they'll be able to put some of the students in touch with some very nice contacts.

So, that's one more thing I can cross off my plate for the month.

Now all I have to worry about is:
  • The exam I'm giving Thursday that I've yet to write (that's tomorrow's work in a nutshell)
  • The three revise-and-resubmits that I've got to get out
  • The rewrite of another paper that got thrashed at a journal recently - we've spent the last two months retooling it.
  • The final exam I give in a week or so.
  • The 15 investment analysis projects sitting on my desk that have to be graded by Friday.
But the good news is that there's only 10 days left until my last exam is done, done, done!

Saturday, December 01, 2007

CFA Level 1

I took the CFA level 1 exam today. It was an interesting experience, and the first exam I'd taken in ten years.

At one time or another, I'd taught approximately half of the material on the exam (Study Sessions 2, 3, 11, 12, 13,14, and 18). But unfortunately, I put off studying for the remaining parts until about 1 week and a half ago). And there is a LOT of material in the Accounting and Econ sections, much of which is pretty involved. Luckily, people from my "tribe" (Ph.D-holding , alpha-nerd types) are typically pretty good at processing and retaining large amounts of material, and quickly.

I think I did fairly well - of the 120 questions in each session, there were probably 10 for which I had no clue and another 10-15 for which I was able to eliminate two of the four answers. For what it's worth, I finished the morning session a half hour early, and the afternoon session about an hour early. And this includes checking answers (I've always worked fast on tests).

Now I just have to wait until January/February to get results.

Ironically, now that I'm back at the Unknown Household, the next thing on my plate is to write about a half-dozen recommendation letters for students who've applied for Unknown University's CFA Scholarships (I also sit on the committee that makes the decisions, BTW). We give out five, and the local CFA chapter also has a few to hand out. It's a great deal for the students - it cuts the effective cost for the first exam from almost a grand to about $200, and also allows them to get study guides from one of the major test-prep vendors for $100 versus the usual $500 cost.

Since it's fresh in my mind, here are a few study tips to those studying for the exam in June. Realize that the suggestions are free (and probably either fairly priced or even a bit overvalued):
  1. Start early - the material isn't that difficult, but there is a lot of it. A LOT.
  2. As much as is feasible, spend at least a little time studying every day. If you have a study guide (i.e. Schweser's or Stalla's), keep one of the books with you at all times and try to squeeze in a half hour here and there - these little sessions help. If you're diligent, you can probably get in 5 or so hours a week just by filling in the down time that comes with many people's days (i.e. lunch, commuting on the train, etc).
  3. Work as many of the problems as you can well in advance of the exam (See #1). Much of the material is algorithmic, and you only learn algorithmic material by working through problems.
  4. When you work a problem, first try it "cold" (after reading the relevent material, of course). If you don't have a clue, review the material and then try it.
  5. Don't cheat by looking at the solutions until you've worked the problem - you learn more by finding out WHY your answer was wrong than by seeing the correct answer first.
  6. As a final thought on working problems, don't try to study by memorizing practice problems. By all means work them, but mostly as diagnostics. Get the material down first, then work as many problems as possible, but memorizing solutions isn't going to cut it.
  7. Get a study guide - both Schweser and Stalla have good ones (IMHO, Schweser's is better).
  8. Plan your studying so that you finish all your preparation with a couple of weeks left before the exam.
  9. Realize that even if you plan to be ahead of the schedule (see #8), stuff happens. So try to arrange things so that you have the last week or two before the exam largely free for final cramming. No matter how much time you put in ahead of time, you'll need the last week or two for final preparations.
  10. Schweser has a great book called Secret Sauce that has a lot of helpful tips for that final polishing).
Hopefully, I'll pass this level and use these suggestions for the Level 2 exam in June.

Of course, when results are in, you'll be among the first to know.