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.
Thursday, February 28, 2008
Fun With The Tooth Fairy
We try to put as much humor and "magic" into the Unknown Children's lives as possible. One of the recurring jokes in our house is how the Tooth Fairy leaves very unusual notes whenever they have a tooth fall out. In fact, I recently set up a Gmail account for the Tooth fairy so that Unknown Daughter could write her an email (both Unknown Daughter and Unknown Son have email accounts, but only Unknown Wife and I have the passwords, so we can control access). So, UD sent the following email last night. BTW: In case you're wondering about the "Momma" reference, Unknown Daughter has recently gotten into the habit of calling the Unknown Wife "Momma", which irritates her to no end. So I thought I'd lend a hand:
Dear Tooth Fairy: I have a loose tooth - I can feel it wiggling. Do you think it'll fall out soon?
Love, The Unknown Daughter
She got an email back this morning:
Dear Unknown Daughter:
Your tooth will probably fall out sometime soon - in the next week or two (or three). You don't need to keep wiggling it - once it gets a bit looser your mommy (remember - she doesn't like to be called Momma) or daddy can get it out for you.
In case you're wondering how I know about you calling your mother "Momma", I heard it through my Spy Teeth Listeners. Most people don''t know this, but I can listen in to what's happening around anyone through their teeth.
Of course, if no one in a house has any teeth, it doesn't work. And false teeth don't count.
Love, The Tooth Fairy
We occasionally hear the Unknown Kids sharing these things with their friends - classic.
This was me tonight going over the intercorporate investments and M&A readings for CFA Level 2 Between this material, the beginning of a virus (the Unknown Wife had a fever of 101-102 earlier this week), and the nuclear strength cough medicine I'm taking (it's the good stuff - with codeine), I was doomed from the start. But then, Accounting by itself is usually enough to put me down...
For those of you who aren't academics, the publishing process (for "refereed" journals) goes like this:
You send a piece out to a journal
The editor reviews it to find one or more suitable referees (people who supposedly have some background in that area)
The referee goes over the piece with a fine-tooth comb. They make comments/suggestions about everything from the statistical methodology you've used to the writing style to the basic premises of the piece. Pretty much anything is fair game, stopping just short of "you dumb, you ugly, and yo momma dress you funny")
They write a referee report that can be either clear rejection (i.e. go away or we will taunt you again), revise and resubmit (make the following suggested changes and we'll look at it again) or accept (almost never done on the first round).
If it's a revise and resubmit, you attempt to make the changes (or at least address the issues raised in some way) and then resubmit it to the journal. The editor sends it back to the referee(s) for another look. Sometimes they even bring in a new referee.
Steps 4 and 5 can be repeated several times (the record I've heard at a finance journal is 4 rounds).
Most times, the referees' comments truly improve the paper (they should, since they're chosen ostensibly because they know the topic). But once in a while, you get a referee who seems like an idiot. Or alternately, you get two referees who ask you to do two things that are mutually exclusive. In that case, it can feel like this: HT: Mike Munger
My kids love tongue-twisters, and lately I've gotten them into watching reruns of Pinky and the Brain . So, they got a big kick out of this video. I figure it's working because the other day I heard Unknown Son ask Unknown Daughter what she wanted to do. She answered, "The same thing we do every day - try to take over the world".
"It might make more sense to have the sixth sick sheet sitter's son pick the plug if the sack pickers and the sock pluckers are behind the rubber baby buggy bumpers".
How do analysts make decisions (i.e. what information do they use, how does their environment affect them, etc...)
What is the nature of analysts expertise (i.e. how do you measure it, is there herding, etc...)
Information content (how informative are analysts forecasts, is there information in forecasts over an above other available information)
Market efficiency (how much is extant information reflected in forecasts, do stock prices reflect the info in forecasts, etc...)
What incentives or behavioral biases affect or are present in analyst forecasts
How does the regulatory environment affect the forecasting process
How statistically valid are analyst forecast studies?
All in all, it's a very thorough piece, and I suspect it'll end up being read and cited by quite academics. In particular, I'd recommend it to grad students who are trying to get up to speed on this very broad literature.
The IJF piece is for subscribers only, but there's an ungated version on SSRN here.
There's a recurring pattern in the Unknown Household: I read something that I think is split-my-sides funny. I share it with the Unknown Wife. Then, she give me the kind of exasperated, mildly disgusted look that shows once again that men and women are from different universes.
This piece by humorist Dave Barry is the latest installment in the continuing series. He describes the events up to and including his finally getting a colonoscopy at age 60. And since anything related to (as Barry puts is) "the behindular region" is fertile grounds for guy humor, I just have to share it with y'all. The funniest part (and the one that actually did get a chuckle out of the Unknown Wife) was his description of the laxative they gave him beforehand, called MoviPrep. We gave something similar (Called "GoLightly", which shows that the maker didn't believe in truth in advertising) to the Unknown Son before his surgery. So, we can relate. Here's the best part:
I don't want to be too graphic, here, but: Have you ever seen a space shuttle launch? This is pretty much the MoviPrep experience, with you as the shuttle. There are times when you wish the commode had a seat belt. You spend several hours pretty much confined to the bathroom, spurting violently. You eliminate everything. And then, when you figure you must be totally empty, you have to drink another liter of MoviPrep, at which point, as far as I can tell, your bowels travel into the future and start eliminating food that you have not even eaten yet.
It's been a month since I wrote that the Unknown Son had been diagnosed with cancer, so I thought an update was in order. It took a while to get everything straight, but we now have our answers, and a pretty good idea as to what the next few months will involve.
Unknown Son has a stage 3 Wilm's tumor, which is one of the "better" types of cancer to have (it has five year survival rate exceeding 90% for most variants). It might seem strange to put comparative terms like "better" with cancer, but compared to neuroblastoma (his cancer the first titme around), this is a relatively straightforward thing to treat. Here's what the treatment will involve:
A couple of weeks back, he had a surgical port installed, which makes getting chemo, blood draws, and other input/output pretty easy and relatively painless. It was accessed for the first time this last week for his first round of chemo, and it was probably the easiest injections he's had since we can remember - they numb the skin over the port with some analgesic cream and put a needle through the port into the vein, and he hardly noticed it).
He had his first round of chemo this week (more details below), and seemed to tolerate it pretty well. There was some nausea later on in the week, but much less than we'd expected.
He also had his first two doses of low-level radiation (again, without much problem).
Here's what's ahead for the little guy: He gets about 25 weeks of chemo, involving three drugs: Vincristine, Actinomycin, and Doxyrubicin. He gets the Vincristin every week, and will alternate the other two drugs (i.e. for every three week cycle he gets Vincristine and Actinimycin on week one,Vincristine and Doxyrubicin on week two, and Vincristine alone on week 3 ). They alternate the meds because some of them take a few weeks for the body to recover from.
He also receives low-level targeted radiation for six days. He had two doses last week (Thursday and Friday), and will have four this week.
So far, he's had a bit of nausea the last day or two, but a couple doses of Zophran appeared to control it pretty well. We really don't know if it's from the chemo or from the virus the Unknown Daughter has had this week. But either way, the meds seemed to work. He's also had some mouth sores, but the analgesic mouthwash they gave (it primarily contains lidocaine and benadryl) did the trick.
So looking ahead, he'll be getting radiation every day next week and then chemo once a week for the next six months or so. The chemo will typically be scheduled on an "off teaching" day (I teach on a TuTh schedule this semester), so I'll be able to make most of the chemo appointments.
I received a number of interesting comments on my last post on teaching broadly vs. deeply, and I thought a few follow up comments might be in order.
First off, it's important to keep the context of the video in mind - Dr. Frank is talking about his experiences in the introductory course in Economics (not the higher level ones). In the intro course, students (Supposedly) get exposed to the most important, fundamental principles of the topic. If they don't learn them there (or don't find them interesting), they likely never get to the more advanced courses.
There are a lot of parrallels to the intro finance course. It's often viewed by non-finance majors as the topughest course in the business school. In fact, I've heard (but not verified) that the nationwide "drop or fail" rate for the course is well in excess of 25%. At one of my previous schools, we called the class FINANCE301, and had a phenomenon called the "FINANCE301 Major". This label gave homage to the fact that some students took the class multiple times (the record was five attempts). Granted, some undergrads simply don't have what it takes to pass the class, but that number seems incredibly high to me.
More importantly, (and this is what I took as Franks' main point), the current "broad but shallow" approach to teaching the intro class results in the vast majority of students lacking a deep understanding of the critical concepts necessary to succeed in their latter courses. The instructors feel better abbout this approach, since they can say that they're "keeping standards up" and teaching a very broad and impressive list of topics. But the students suffer.
So what's the solution? One school I'm aware of takes exactly the right approach (and in fact, it's related to what was suggested by one of the commenters on my previous piece):
For the intro class, they cover only a very limited number of topics: financial statement analysis, time value (including its variations like bonds and stock valuation, cost of capital, and capital budgeting), and risk and return;
Since they're covering fewer topics, they can spend much more time on each one. For example, they spend 3+ weeks on time value alone (as opposed to the typical one or two). Spending so much time on Time Value get paid back pretty quickly, since topics like bond valuation go much more quickly (students quickly pick up that it's just time value).
Finally, they give a lot of assignments that make the students "put pen to paper". In other words, they assign a lot of take home problem sets, end-of-chapter assignments, etc...
This covers the introductory class. It works because non-finance majors won't be setting dividend policy, or making capital structure decisions. So, they really don't need to cover those topics. But they do need to understand that financial statements reflect real business decisions (the accounting classes usually don't do a very good job of getting this across IMO), that money now and money later can be compared, that all assets muct be financed, and that there's an opportunity cost to investing. So, the above approach beats these concepts into them.
But UP, you say, this only covers the non-finance majors. Aren't you shortchanginh the finance majors? The same school mentioned above has a solution.
Before finance students can take any additional finance classes, they are required to take a six credit class class (called Fundamentals of Valuation) that covers all the theoretical and conceptual parts of finance that come up again and again (like TVM-based security valuation, contingent claim valuation, portfolio risk and return, etc...). It's a bone-breaker of a class, requires a huge time committment from the students, and has a very high failure rate. But once the studens have gone through it, they have an outstanding grounding in the basics that all other finance classes use again and again. So. later classes can move at an accelerated pace (basically, it's a decision to invest in fixed assets to gain operating leverage). As an example, a class on fixed income doesn't have to teach students how to bootstrap a yield curve, and can instead focus on applying it.
The approach works, because students begin to see that many (and perhaps most) advanced topics in finance are just combinations of the same basic building blocks (i.e. option valuation is really just a present value calculation with a few adjustments, CAPM is just an application of covariance, duration is time value applied to bonds, atc...).
Once I get tenure and can start making noise, I hope we can implement some of this approach here at Unknown University. As it is, I try to use many of the principles in my classes, but I catch flack from folks that teach classes following mine in the curriculum. Ah well, I guess I'll have to wait until I rule the world (BWAHAHA!). On that note, here's a classic I'm trying to get DVDs of for my kids. Enough bloggery - back to work.
Google regularly brings in interesting people to give talks at their company headquarters (talk about a free cash flow problem.) It turns out that these talks can be sen online at YouTube (here's the link).
I just came across a talk by Robert Frank, author of "The Economic Naturalist." He talked about his book, and about the problem of why so many students don't retain key concepts from their classes. For example, on the first day of my security analysis class I typically ask students the question "What should determine the value of a security." The answer, of course, is "The amount, timing, and riskiness of the cash flows from owning the security." Fewer than 1/4 of the class knows the answer without prompting.
Frank's explanation for why students retain so little is that we simply try pack too much into our classes. This makes our syllabus seem impressive, but shortchanges the students. As an example, we might cover 14 chapters (and 15-20 concepts) in a 14 week semester, rather than covering half that many and really drilling the concepts in.
"But Unknown Professor", you say, "We HAVE to cover A, B, C, D, E, F, G, H, I, J, K, L, M, and in the introductory finance class or we're shortchanging the students." The problem with this approach is that a few months after the class is done, they don't remember anything about topics A-M except that they covered them sometime in class. Add they really don;t even have all that great a grasp of critical concepts such as the Time Value of Money.
In contrast, if you covered half as many topics, you could spend 3-4 weeks on Time Value rather than the usual week or two. This way, you could make them do about a hundred or so problems, and they'd really have it locked down.
In any event, here's Frank's Google Talk. Check it out. And teach fewer topics (but more deeply) in your classes.
I've linked to this Youtube clip before, but it bears repeating. My students are starting presentations this week for my Financial Strategy course. Since learning how to effectively present material is one of the things they should get out of the class, I point them to a couple of sites. One is Presentation Zen, which should be a must-read fo all undergraduate (and graduate) students. Here's another, titled "Life After Death By PowerPoint." It hits most of the high (and low) points in a pretty memorable (and humorous) manner:
Now here's some interesting research: Republicans are (generally) a happier bunch than Democrats:
A 2006 Pew Research poll found that 45 percent of Republicans describe themselves as "very happy," compared with only 30 percent of Democrats (and 29 percent of independents). This is a sizable gap and a remarkably consistent one, too. Republicans have been happier than Democrats every year since the General Social Survey, conducted biannually by the National Opinion Research Center at the University of Chicago, began asking about happiness in 1972.
What to make of this finding? Is there something about being a card-carrying member of the GOP that induces a warm, fuzzy feeling, a sort of political Prozac? Or does the river of causality flow in the other direction: Are happy people more likely to become Republicans than Democrats? Or maybe neither explanation holds water and it only appears as if Republicans are happier than Democrats.
The study controls for some of the obvious likely culprits, like income (i.e. maybe Republicans are richer, or have been in power more often than Democrats). But the "happiness gap" persists even after controlling for these factors, and it's over a pretty long time frame--the study has been conducted biannually since 1972.
Some of the factors that are associated with happiness are probably more likely to be seen with conservatives - like regular church attendance and a stable marriage.
But the study doesn't show that these factors cause happiness (although I tend to think they do). It could be that happiness leads to stable marriages and church attendance rather than the other way around.
But it's an interesting and though provoking piece either way.
Once you've read it, skip over to the Happiness Project, Getchen Rubin's journal of her year spent test-driving various principles that have been put forth as being the keys to happiness. It's one of the bette "attitude readjustment" sites out there. And definitely click on this piece she put together if you have kids.
Know someone who managed to cash out with big $$$ from taking a tech firm public? Maybe he's in this video. It's a pretty good parody of Billy Joel's "We Didn't Start The Fire", compliments of the Richter Scales.
I try to expose my students to the lingo of financial markets (both the "standard" terminology and the looser dialect used in practice). To that end, I think I'll play this piece by Jon Stewart next time around.
The other day I was discussing common anomalies like the Size, Market/Book, and Accurals effects with my investments class. The key point I was trying to make is that these proxies must be capturing some underlying risk factor (for example, the Mkt/Book effect is often explained by linking it to distress risk). In other words, if there's not greater risk of some kind associated with investing in low M/B stocks, then you'd be getting (just like the old Dire Straits song), Money For Nothing. In case you don't remember it, here's the video:
Now look at those professors—that’s the way you do it You do your research with your PhD That ain’t working—that’s the way you do it Money for talking and write for free
That ain’t working—that’s the way you do it Let me tell you those professors ain’t dumb Maybe get a blister on their typing fingers Maybe get a little blister on their tongues
They want to publish peer-reviewed papers They got the fire in the bel---ly They are movers and shakers Because they have that damned degree
See that rumpled fellow with the pipe and the tweed coat Granny glasses and the thinning hair? That rumpled fellow is a famous scholar That rumpled fellow is a luminaire
He wants to publish peer reviewed papers… (etc.)
Someday I’ll finish my dissertation I’ll write it up and I’ll turn it in Someday I’ll have me a tenure-track position Man, that’s when the fun begins I’ll teach class Tuesday and Thursday I’ll leave the research to my advisees I’ll criticize them in office hours I’ll give them all the third degree
They’ve got to publish peer reviewed papers… (etc.)
That ain’t working—that’s the way you do it They leave the research to their advisees That ain’t working—that’s the way you do it Money for talking and write for free"
According to the Wall Street Journal, the Bhut Jolokia pepper in India is 200x hotter than a jalapeno:
"When you eat it, it feels like dying," touts one online retailer. Even packaging the stuff is a pain. "Our workers wear goggles, face masks, head cover and protective clothing," says Ananta Saikia, whose firm is the pepper's sole exporter. "They look like astronauts." He and his wife have started shipping tons of dried bhut jolokia around the world, including Germany, England and the U.S. Annual sales, he says, are expected to jump 500% this year.
Read the whole thing here (online subscription may be required). And for a video of someone eating one, click here.
Court Marshalled For Using Weapon of Insufficient Caliber
This very un-PC story made my day:
An octagenerian retired Special Forces member was put on trial by his peers for shooting an intruder in his home who'd threatened him with a knife. Unfortunately he used a 22 caliber handgun, so he was charged with "failing to use a weapon of sufficient caliber."
It was all tongue in cheek - he was acquitted with a round of applause from the room.