It looks like we have an offer (and possibly) a contract on the house. We got the initial offer this morning, and it came in at just 5% under our listing price, and with a very short closing date (June 30). After a few rounds of back-and-forth, by this evening we seem to have settled on a price that's just about 2% below the listing price, with a closing date of 7/21.
All in all, not too bad for having it listed only a week (and over Memorial Day weekend yet).
The weirdest thing is that the negotiations have to go through TWO agents. I can understand why the agents want to do that, since it give them control, and sellers (and buyers) can do ill-considered and often irrational things. But it makes it very hard to negotiate, because there's very little flow of information. They make an offer, and we counter. Then they counter, and so on. Unfortunately, since all we get is doubly filtered, neither party can determine what the other party's key concerns are, so the negotiation comes down to price (and sometimes the closing date). It feels like two people shooting at each other in the dark blindfolded.
Now that this seems to be in order, all we have to do is find another place to live in. So, it's another 250 mile trip this Thursday round two of house shopping (round one was in April). We've got about nine or 10 that seem reasonable, so by this time next week we could have a new house under way.
Stay tuned!
Tuesday, May 30, 2006
This Week's Carnival Of The Capitalists
This week's COTC is up at Working Solo. As usual, there are far too many pieces to comment on them all, so here are a few that I thought were worthy of note (or at least that were in areas I found interesting):
Nickel at FiveCentNickel looks at taking a home office deduction.Once again, there are lots more posts in the carnival - these are just the ones that tripped my trigger. As always, your needs and interests are likely to be different from mine, so look around.
Bill at Ask Uncle Bill give us 10 career strategies for getting ahead. A must read for new graduates.
Josh Cohen of Multiple Mentality give us some of the "unintended consequences" from price capping in "About capping gas prices, and capping in general".
Scott Peterson at Red Cloud Research highlights the weaknesses in the international systems used to handle derivatives trades.
Henry at InsureBlog presents a post titled "Playing SOLItaire" where he asks "What if a stranger owned a life insurance policy on you? It's real, but is it dangerous?".
In two mortgage-related posts Dave Porter of Pacesetter Mortgage both asks and answers the question "Do I have to sign form 4506 at my mortgage closing?", and Dan Melson of Searchlight Crusade provides an analysis of the different available real estate loan types.
Monday, May 29, 2006
Memorial Day and The Boys of Pointe Du Hoc
Just a short note to honor all the brave men and women who have given their lives defending our country.
Peggy Noonan is one of my favorite writers, and Ronald Reagan one of my favorite speakers. Last night, I was skimming through her book "What I Saw at the Revolution" for about the twentieth time. I came across the section where she tells the story of the crafting of how Reagan's D-Day anniversary speech "The Boys of Pointe Du Hoc." I still think it's one of the most moving speeches I've ever heard. It honors the Ranger unit who scaled the cliffs at Normandy at great cost (losing almost 60% of their unit to casualties over a couple of short, brutal days).
In case you're interested, here's an audio clip of the speech, compliments of American Rhetoric.
Have a good Memorial Day.
Peggy Noonan is one of my favorite writers, and Ronald Reagan one of my favorite speakers. Last night, I was skimming through her book "What I Saw at the Revolution" for about the twentieth time. I came across the section where she tells the story of the crafting of how Reagan's D-Day anniversary speech "The Boys of Pointe Du Hoc." I still think it's one of the most moving speeches I've ever heard. It honors the Ranger unit who scaled the cliffs at Normandy at great cost (losing almost 60% of their unit to casualties over a couple of short, brutal days).
In case you're interested, here's an audio clip of the speech, compliments of American Rhetoric.
Have a good Memorial Day.
Thursday, May 25, 2006
The Enron Guilty Verdict
Not surprisingly, the verdict in the Lay/Skilling trial came back guilty (Skilling was acquitted on some of the insider trading counts, but got nailed on almost everything else). All in all, it's not that surprising, since Tradesports was predicting this outcome with 2-1 odds back in April.
Yes, they're dirtbags, and they took actions to mislead shareholders. But I have a bigger gripe with these two. Their actions gave politicians a veritable pinata to beat on (they could hit it from any number of directions and have something good come out) when pushing through regulations like Sarbanes-Oxley.
Far-reaching legislation like SOX has provided a lot of fodder for academics looking for research topics (in fact, I've done some). But it's also drastically changed the American capital markets, and I doubt for the better. The negative effects of SOX aren't limited to the drastically higher compliance costs they've foisted on public companies (particularly for smaller firms, when measured on a percentage basis). They also include the less obvious but still economically significant costs to our economy of decreased likelihood of entrepreneurs deciding to to go public (and the related trend of more public companies deciding to go private), increased incidence of foreign companies deciding not to list their stock on American stock exchanges (or delisting if they're already there), greater difficulties in attracting qualified board candidates because of increased time and liability costs, and overall greater conservativism as executives focus excessively on compliance rather than shareholder wealth creation.
If you want a flavor of what some of the more well-known commenters in the blogosphere have to say, here's a quick tour (to be updated as new posts of note occur):
Yes, they're dirtbags, and they took actions to mislead shareholders. But I have a bigger gripe with these two. Their actions gave politicians a veritable pinata to beat on (they could hit it from any number of directions and have something good come out) when pushing through regulations like Sarbanes-Oxley.
Far-reaching legislation like SOX has provided a lot of fodder for academics looking for research topics (in fact, I've done some). But it's also drastically changed the American capital markets, and I doubt for the better. The negative effects of SOX aren't limited to the drastically higher compliance costs they've foisted on public companies (particularly for smaller firms, when measured on a percentage basis). They also include the less obvious but still economically significant costs to our economy of decreased likelihood of entrepreneurs deciding to to go public (and the related trend of more public companies deciding to go private), increased incidence of foreign companies deciding not to list their stock on American stock exchanges (or delisting if they're already there), greater difficulties in attracting qualified board candidates because of increased time and liability costs, and overall greater conservativism as executives focus excessively on compliance rather than shareholder wealth creation.
If you want a flavor of what some of the more well-known commenters in the blogosphere have to say, here's a quick tour (to be updated as new posts of note occur):
- Professor Bainbridge, with thorough commentary and a nice link s as usual
- The WSJ Law Blog with some other links to video footage
- A diarist at Daily Kos wh0 (not surprisingly given the source) lays it all at the Bush's feet
- Larry Ribstein, who raises an interesting question about the insider trading verdict
- Professor Bainbridge again with an extended answer to Ribstein's question on insider trading.
- Barry Ritholtz, who has an Enron trivia question
Advice For Aspiring Economists from Greg Mankiw)
Greg Makniw has out some great advice together for aspiring economists. He gives advice to undergrads here. As expected, it's all right on target. I've summarized it here, with my comments following in italics :
- Take a lot of math and stat courses
- Choose your economics courses from professors who are passionate about the field and care about teaching.
- Use your summers to experience economics from different perspectives.
- Read economics for fun in your spare time. To get you started, here is a list of recommended readings.
- Follow economics news. The best weekly is The Economist. The best daily is the Wall Street Journal.
- If you are at a research university, attend the economic research seminars at your school about once a week.
- For math and states, try to take at least calculus (derivatives are everywhere in economics, and you'll find your share of integrals too), linear algebra (used often in econometrics) and real analysis (gets you used to doing proofs)
- Spending time around passionate teachers is a good way to ramp up your own enthusiasm (particularly if they're good teachers)
- The remaining suggestions boil down to "immerse yourself in your field." If you want to be an economist (or a finance person, or whatever), spend as much time either doing it or reading it as you can.
Wednesday, May 24, 2006
Auction Theory (from Economic Principals)
Economic Principals has an article summarizing some of the successes of Auction theory over the last few decades. They highlight its role in the privatization of Eastern European government assets, the FCC wireless spectrum auction, and even eBay.
Read the whole thing Here.
Although not mentioned in the article, auctions have also made significant inroads in finance. Dutch auctions have been used for years in stock repurchases, and auctions are even being used (albeit infrequently) for issuing stock in an IPO.
Read the whole thing Here.
Although not mentioned in the article, auctions have also made significant inroads in finance. Dutch auctions have been used for years in stock repurchases, and auctions are even being used (albeit infrequently) for issuing stock in an IPO.
The Aplia Econ Blog
I just recently came across a new site called The Aplia Econ Blog. It's a group blog, and is intended as: "a place to explore current events that relate to your econ classes."
It looks promising, so check it out.
It looks promising, so check it out.
Calling on Students In Class (And Putting Them On The Spot)
Calling on students in class makes for better student performance? Who'da thunk it? Of course, the study cited in this article was based on high school students. However, it makes a huge difference even in college classes.
I try to make it clear from day one in my class that I cold call on a regular basis. I add one twist, however. I tell them that if they try to fake it, I'll probably roast them a bit (gently mind you, but I still tweak them a bit). But, I give them a way out.
The movie "Stand and Deliver" is one of my all time favorites. It's about Jaime Escalante (played by Edward James Olmos), a high school math teacher in a troubled a high that takes a group of underperforming students and coaches them to pass the Calculus AP exam. In one scene, Angel Guzman (played by a young Lou Diamond Philips) comes into class late. Escalante asks him if he has his homework, and Guzman says he doesn't. Then, Escalante says one of the best lines of the movie: "Ju ain't got ju ticket. Ju can't get into the show without ju ticket" (it was said in an exaggerated Hispanic accent - English translation is "You ain't got You ticket. You can't get into the show without You ticket").
This is how I use it. After I tell them the scene (complete with exaggerated Hispanic accent) I explain that there's an easy way off the hot seat. If they aren't prepared, and they try to fake it, the roasting continues. But all they have to say to get off "easy" is "I didn't bring my ticket". You might think that it lets them off too easy by just letting them admit they're unprepared, but I've been told by many students that it's more of a motivation than most other things their professors do. I'm one of the few professors they have that actually makes them ADMIT they're not doing their job. How intrusive.
On a humorous note, I'll occasionally run into a string of two or three unprepared students in a row, and they'll start saying "I brought my ticket, but it's for the wrong show", "I'm not even near the theater", and so on.
HT: Joanne Jacobs
I try to make it clear from day one in my class that I cold call on a regular basis. I add one twist, however. I tell them that if they try to fake it, I'll probably roast them a bit (gently mind you, but I still tweak them a bit). But, I give them a way out.
The movie "Stand and Deliver" is one of my all time favorites. It's about Jaime Escalante (played by Edward James Olmos), a high school math teacher in a troubled a high that takes a group of underperforming students and coaches them to pass the Calculus AP exam. In one scene, Angel Guzman (played by a young Lou Diamond Philips) comes into class late. Escalante asks him if he has his homework, and Guzman says he doesn't. Then, Escalante says one of the best lines of the movie: "Ju ain't got ju ticket. Ju can't get into the show without ju ticket" (it was said in an exaggerated Hispanic accent - English translation is "You ain't got You ticket. You can't get into the show without You ticket").
This is how I use it. After I tell them the scene (complete with exaggerated Hispanic accent) I explain that there's an easy way off the hot seat. If they aren't prepared, and they try to fake it, the roasting continues. But all they have to say to get off "easy" is "I didn't bring my ticket". You might think that it lets them off too easy by just letting them admit they're unprepared, but I've been told by many students that it's more of a motivation than most other things their professors do. I'm one of the few professors they have that actually makes them ADMIT they're not doing their job. How intrusive.
On a humorous note, I'll occasionally run into a string of two or three unprepared students in a row, and they'll start saying "I brought my ticket, but it's for the wrong show", "I'm not even near the theater", and so on.
HT: Joanne Jacobs
Tuesday, May 23, 2006
The First Showings of Our House (woo hoo!)
Our house hit the multiple listing service late yesterday. Today we had the realtor's photographer come and take some pictures (both regular and the "virtual tour" variety). This afternoon, we had our first two showings to potential buyers - both were generated by realtors from our agent's office, so they're definitely working it.
Of course, we're trying not to get our hopes up too much, since it can take some time to sell a house (even when it's priced correctly). Nevertheless, it's nice to see some traffic this early. And since we worked so hard to get the house ready for the pictures, it looks GOOD!
A house will typically get a good number of showings in the period shortly after it lists (that is, if it's been priced correctly). This happens because most realtors have an "inventory" of potential buyers. When they (the realtors) get a new potential buyer, they show them all the houses that meet their criteria. If a purchase doesn't take place, they wait until new houses appear (like ours). So, when a new house shows up, the realtors scramble to show it to all the clients in their inventories.
Once they've worked through their inventories, the new showings occur only when a new potential buyer shows up. So, we're looking forward to some activity in the next week or so (particularly this weekend).
Of course, we're trying not to get our hopes up too much, since it can take some time to sell a house (even when it's priced correctly). Nevertheless, it's nice to see some traffic this early. And since we worked so hard to get the house ready for the pictures, it looks GOOD!
A house will typically get a good number of showings in the period shortly after it lists (that is, if it's been priced correctly). This happens because most realtors have an "inventory" of potential buyers. When they (the realtors) get a new potential buyer, they show them all the houses that meet their criteria. If a purchase doesn't take place, they wait until new houses appear (like ours). So, when a new house shows up, the realtors scramble to show it to all the clients in their inventories.
Once they've worked through their inventories, the new showings occur only when a new potential buyer shows up. So, we're looking forward to some activity in the next week or so (particularly this weekend).
Options For Financing Real Estate
Dan Melson of Searchlight Crusade has a great overview and explanation of the main options for financing a home purchase (or refinancing an existing loan). In the last ten years or so, there's been a phenomenal amount of innovation in the real-estate financing market. So, if you haven't taken a loan out (or refinanced one) recently, you might not be aware of all the different ways you can go. If so, this piece would be a good place to start.
And while you're there, be sure to spend some time reading through some of the other material Dan's put up. It's really an impressive array of stuff. While he's also got other consumer and personal-finance pieces up, his information on real-estate really shines. I'd reckon that there are few (if any) other sites that have as much depth and breadth of material in that area.
And while you're there, be sure to spend some time reading through some of the other material Dan's put up. It's really an impressive array of stuff. While he's also got other consumer and personal-finance pieces up, his information on real-estate really shines. I'd reckon that there are few (if any) other sites that have as much depth and breadth of material in that area.
Monday, May 22, 2006
Blogger Blackmail
Equity Private recently received an email from someone. They threatened to extort money from EP in exchange for not being outed. Here's EP's response, with a quick primer on extortion:
Hint: People who work in private equity are generally pretty smart, comfortable with conflict, have access to lawyers, and are very good at researching things. All in all, probably not a good group to try to blackmail.
Thanks for the chuckle, EP. I always love a good slapdown.
To wit, 18 U.S.C. 875(d) "Interstate communications" provides in part
Read the whole thing here.Whoever, with intent to extort from any person, firm, association, or corporation, any money or other thing of value, transmits in interstate or foreign commerce any communication containing any threat to injure the property or reputation of the addressee or of another or the reputation of a deceased person or any threat to accuse the addressee or any other person of a crime, shall be fined under this title or imprisoned not more than two years, or both.
Since the threat was made over email and probably crossed state lines there's probably a federal wire fraud charge for an eager prosecutor to dig up as well.
Hint: People who work in private equity are generally pretty smart, comfortable with conflict, have access to lawyers, and are very good at researching things. All in all, probably not a good group to try to blackmail.
Thanks for the chuckle, EP. I always love a good slapdown.
This Week's Carnival Of The Capitalists
It's Monday, so it must be Carnival Time. This week's COTC is up at The Integrative Stream. There were quite a few good posts, but as usual, I'll highlight the few that particularly caught my eye from this week's group:
Steve Bainbridge at ProfessorBainbridge.com analyzes Meetings and Dominance Rituals: Implications for Corporate Governance.As always, my tastes are probably different from yours, so look around to see what the rests of the posts are - there are always a lot of pieces on a wide variety of topics at the Carnival, and some that didn't tickly my fancy might be right up your alley.
Leon Gettler of Sox First gives us The SEC and the Jargon Maze, where he tees off on companies' inability to speak in plain english.
Tom Rants lists a few cases where it he feels it might be o.k. to mess with markets.
David A. Porter relays some advice about Mortgage “Rescue” Firms - beware!
Sunday, May 21, 2006
The House Is On The Market
We finally cleared a major hurdle and put our house on the market. It took longer than we expected because we wanted to make it "purty" before listing it. For all we know, we could have potential buyers any day now.
The good news about doing it "right" is that we've already packed up a lot of stuff and thrown out a lot of junk. That, combined with the fact that I'm not teaching this summer, should make our eventual move (sometime in July, hopefully) a lot smoother.
I've even cleaned out most of my office at school. I can get the rest out in about 3 boxes (two of books, one of paper stuff). At this rate I may even get some research done this summer.
Anybdy want to buy a house?
The good news about doing it "right" is that we've already packed up a lot of stuff and thrown out a lot of junk. That, combined with the fact that I'm not teaching this summer, should make our eventual move (sometime in July, hopefully) a lot smoother.
I've even cleaned out most of my office at school. I can get the rest out in about 3 boxes (two of books, one of paper stuff). At this rate I may even get some research done this summer.
Anybdy want to buy a house?
Saturday, May 20, 2006
This Week's Carnival of The Capitalists
I'm a bit late to the party, but this week's COTC is up at The Virtual Handshake. Among the pieces I found interesting are some on SOX, corporate debt, ROI an equity growth, the return to various types of home improvement, and strategies for rapid learning. For more detail, the posts of note include:
Steve Bainbridge asks the question "Is SOX Dragging Down the US Economy?" He answers in the affirmative, and discusses new legislation that might ease Section 404 requirements for entrepreneurs.As usual, look around, since the things I don't find interesting might be just the ticket for your needs.
David Foster notes that Corporate Debt Financing Is on the Rise. He also discusses whether this is a good thing or not.
Investorgeeks explains two commonly used indicators: Return on Capital & Equity Growth.
Stock Market Beat gives an overview and a template for keeping track of a company's fundamentals in Keep an Eye on the Fundies.
If you're selling your house, this is a must read: Personal Finance Advice has a list of ten Home Improvement Investments that offer the highest Return On Investment (ROI).
Paul's Tips has some great strategies for quickly learning new dry/difficult material in Six Steps for Learning Difficult Subjects Quickly.
Friday, May 19, 2006
Stick A Fork In Me! I'm Done With Grading For The Year!
I just handed in my grades for the semester, which means I am done with my official duties at Unknown University. Woo Hoo!
Now I wait for the emails from students wondering why they got the grades they did. Maybe I'll just point them to this piece by the Angry Professor at A Gentleman's C.
However, there's still lots to keep me busy in the next few weeks. We list our house with the realtor tomorrow, and we still have about another 3 hours of primping the house up to make it look better than it ever did in the normal course of our lives. After that, our lives becomes much less stressful and simpler.
After we meet with the realtor tomorrow and list the house, I get to take the Unknown Wife our to celebrate her birthday (dinner and a movie - we're not that exciting). Luckily, the Unknown Kids' favorite babysitter is back from college, so they can't wait for us to leave them with her.
In addition, I still have a few "paperworky" type things to take care of at my current school, but that shouldn't take too long (a reimbursement form or two).
I'll also be meeting regularly over the next month or two (or whenever we leave for greener and more expensive pastures) with two grad students. They're working on projects with me that we hope will be ready to submit to a conference by late fall. The data they'll collect will eventually be used in their dissertations in some form or other (and I'll be sitting on their committees as an outside member), so they're eager to get set up nd on the way before I leave town.
Now I wait for the emails from students wondering why they got the grades they did. Maybe I'll just point them to this piece by the Angry Professor at A Gentleman's C.
However, there's still lots to keep me busy in the next few weeks. We list our house with the realtor tomorrow, and we still have about another 3 hours of primping the house up to make it look better than it ever did in the normal course of our lives. After that, our lives becomes much less stressful and simpler.
After we meet with the realtor tomorrow and list the house, I get to take the Unknown Wife our to celebrate her birthday (dinner and a movie - we're not that exciting). Luckily, the Unknown Kids' favorite babysitter is back from college, so they can't wait for us to leave them with her.
In addition, I still have a few "paperworky" type things to take care of at my current school, but that shouldn't take too long (a reimbursement form or two).
I'll also be meeting regularly over the next month or two (or whenever we leave for greener and more expensive pastures) with two grad students. They're working on projects with me that we hope will be ready to submit to a conference by late fall. The data they'll collect will eventually be used in their dissertations in some form or other (and I'll be sitting on their committees as an outside member), so they're eager to get set up nd on the way before I leave town.
SOX, Boards, Auditors, and CEO Pay
Here are a couple of governance related pieces batched up in one post:
Jim Mahar at FinanceProfessor.com highlights a New York Times article on the easing of SOX-related audit rules for smaller companies. From the article:
He also links back to a very nice scholarly article by Linck, Netter, and Yang (which he highlighted back in September): "Effects and Unintended Consequences of the Sarbanes-Oxley Act on Corporate Boards" (available on the SSRN) that provides one of the better analyses of post-SOX governance changes:
Next, Tyler Cowen over at Marginal Revolution provides a different perspective on whether American CEOs are overpaid. He refers to his recent NYT column (nice writing gig, there Tyler) and cites work by Gabaix and Landier, titled "Why Has C.E.O. Pay Increased So Much?"
The "take-away" (at least for me) of this work is that "the six fold increase of CEO pay between 1980 and 1990 can be fully attributed to the six-fold increase in market capitalization of large US companies.
Nice to see contrary evidence. It gieve me some food for though (and ammunition for arguments when discussing "eeeevillll" CEOs).
Update( 5/21): Marginal Utility's Tom Bozzo provides some counter arguments that CEOs ARE Overpaid.
Jim Mahar at FinanceProfessor.com highlights a New York Times article on the easing of SOX-related audit rules for smaller companies. From the article:
"The Securities and Exchange Commission moved yesterday to make audit rules that have angered many companies easier and less expensive to apply. But despite political pressure, the commission said smaller companies would eventually have to comply with rules governing their internal controls."Like many, I'd have preferred exemptions to easing of the regulations, but half a loaf is better than none.
He also links back to a very nice scholarly article by Linck, Netter, and Yang (which he highlighted back in September): "Effects and Unintended Consequences of the Sarbanes-Oxley Act on Corporate Boards" (available on the SSRN) that provides one of the better analyses of post-SOX governance changes:
"We provide the first comprehensive study on the impact of the Sarbanes-Oxley Act (SOX) on corporate boards using broad sample evidence from more than 7,000 public companies as well as detailed analysis of smaller subsamples. Post-SOX boards are larger and more independent. Director workload and risk increased: audit committees meet more than twice as often post SOX as they did pre SOX, and Director and Officer (D&O) insurance premiums more than doubled. SOX also had a dramatic affect on the makeup of the corporate director pool: more post-SOX directors are lawyers/consultants, financial experts and retired executives, and fewer are current executives. These changes drove a large increase in the cost of the board, particularly for small firms. For example, small firms paid $3.19 in director fees per $1,000 of net sales in 2004, which is $0.84 more than they paid in 2001 and $1.21 more than in 1998. In contrast, large firms paid $0.32 in director fees per $1,000 of net sales in 2004, seven cents more than they paid in 2001 and ten cents more than in 1998. Overall, our evidence suggests that SOX had a dramatic impact on corporate boards and the cost thereof."The Linck et. al. piece came out of Yang's dissertation, and she's done other work in the givernance area . She has a second paper out of her dissertation (also with Linck and Netter) titled "The Determinants of Board Structure" which is very much worth reading. I wouldn't be surprised to see both of these pieces in top-tier academic journals in the recent future.
Next, Tyler Cowen over at Marginal Revolution provides a different perspective on whether American CEOs are overpaid. He refers to his recent NYT column (nice writing gig, there Tyler) and cites work by Gabaix and Landier, titled "Why Has C.E.O. Pay Increased So Much?"
The "take-away" (at least for me) of this work is that "the six fold increase of CEO pay between 1980 and 1990 can be fully attributed to the six-fold increase in market capitalization of large US companies.
Nice to see contrary evidence. It gieve me some food for though (and ammunition for arguments when discussing "eeeevillll" CEOs).
Update( 5/21): Marginal Utility's Tom Bozzo provides some counter arguments that CEOs ARE Overpaid.
Wednesday, May 17, 2006
Pretty Little Bunnies Committing Suicide
This is one of the strangest (and funniest) sites I've seen in a while.
I can understand if it were cats. But bunnies? That's just wrong.
Funny, but wrong.
HT: The Conglomerate Blog
I can understand if it were cats. But bunnies? That's just wrong.
Funny, but wrong.
HT: The Conglomerate Blog
Tuesday, May 16, 2006
Bogle Has a Blog
John Bogle has probably done more for the average investor than most people realize. As THE early booster of index funds, he's more responsible for the current popularity of these investments than anyone else.
Now he has a blog, and it's definitely worth a look see. One feature that promises to be interesting is that he'll select five questions each month from readers to answer at length.
HT: Barry Barnitz at Financial Page
Now he has a blog, and it's definitely worth a look see. One feature that promises to be interesting is that he'll select five questions each month from readers to answer at length.
HT: Barry Barnitz at Financial Page
Buying Cheap Toys For The Kids
I was just looking for something for the Unknown Yard Apes (i.e. my children). Then someone reminded me about Archie McFee - the company that has more fun stuff than any three barrels of monkeys. If you have some time to waste (or even if you don't), go to their website.
I ended up gettting them a water rocket - cuz a summer without water rockets just aint right!
Feel free to vote on your favorite McFee product.
I ended up gettting them a water rocket - cuz a summer without water rockets just aint right!
Feel free to vote on your favorite McFee product.
Sunday, May 14, 2006
Your "Real" APR May Be Much Higher Than You Think
Sifting through the different options in the mortgage market can be very confusing, and the wrong choice can cost someone thousands of dollars.
So, to make the decision more manageable, most people focus on the Annual Percentage Rate, or APR. This number presents the annual cost of the mortgage based on standardized assumptions. Unfortunately, these assumptions are probably not correct for most borrowers in today's world, and can actually lead to the wrong (and extremely more costly) choice.
Dan Melson at Searchlight Crusade explains how this can occur in a recent piece titled why the lowest APR loan isn't necessarily the best. In it he gives some of the background and history behind the concept of APR, and works through a typical case where a loan with a higher APR but lower up-front costs turns out to be significantly better than a higher-cost but lower-APR alternative.
What drives Melson's example is the way APR is calculated -- based on the assumption that the borrower would keep the loan for its full term. In effect, this means that APR assumes that the up-front costs of the loan are amortized out over 30 ears for a typical loan.
But in today's market, the usual loan is either paid off or refinanced about every two or three years. If APR were to be calculated under that assumption, a loan with up-front costs such as points would end up with a significantly higher "effective" APR.
The bottom line - paying up-front costs on a loan could significantly increase your "real" APR (relative to the "Stated" APR) unless you plan on keeping your loan to term, which is highly unlikely for most people today.
And the next time I teach about mortgages, I'll have my students calculate the "effective" APR as an assignment.
So, to make the decision more manageable, most people focus on the Annual Percentage Rate, or APR. This number presents the annual cost of the mortgage based on standardized assumptions. Unfortunately, these assumptions are probably not correct for most borrowers in today's world, and can actually lead to the wrong (and extremely more costly) choice.
Dan Melson at Searchlight Crusade explains how this can occur in a recent piece titled why the lowest APR loan isn't necessarily the best. In it he gives some of the background and history behind the concept of APR, and works through a typical case where a loan with a higher APR but lower up-front costs turns out to be significantly better than a higher-cost but lower-APR alternative.
What drives Melson's example is the way APR is calculated -- based on the assumption that the borrower would keep the loan for its full term. In effect, this means that APR assumes that the up-front costs of the loan are amortized out over 30 ears for a typical loan.
But in today's market, the usual loan is either paid off or refinanced about every two or three years. If APR were to be calculated under that assumption, a loan with up-front costs such as points would end up with a significantly higher "effective" APR.
The bottom line - paying up-front costs on a loan could significantly increase your "real" APR (relative to the "Stated" APR) unless you plan on keeping your loan to term, which is highly unlikely for most people today.
And the next time I teach about mortgages, I'll have my students calculate the "effective" APR as an assignment.
It's the End Of The Semester, So Let the Begging Begin!
It's the end of the semester at Unknown University, so it's time for the begging and bargaining to begin!
Now that students have handed in all their assignments and taken their exams (with the exception of one onWednesday), they now switch to bargaining and begging mode. I used run a pool on how many emails we'd get telling us "but I really need to pass this class to graduate" (I get about three a semester, which is a bit on the low side).
In the last few years, I've become much more proactive in getting the message out.
To forestall the after-the-fact bargaining, I've started stressing the "no bargaining" rule from the first day of class, and have even included it in my syllabus. I tell them they would be rightly upset if I were to lower their grade "because they didn't need a such a high grade". SO, why should they be given a higher grade if they "do need it"?
To further reinforce the point, I announce before the first assignment is due that it is collected in the first 5 minutes of class and that it won't be accepted late. Someone invariably comes in 10 minutes after the start of class, and I accept the assignment with a comment that I'll be happy to correct it, but that thy receive a grade of zero on the assignment. I then remind them that they will be allowed to drop one or more of their assignment grades before I calculate the take-home assignment portion of their grade.
So, being seen as a bit of a stickler early on has its advantages.
The hardest cases are when the student's grade is near the cutoff (e.g. they have a final grade of 89 when the cutoff for an "A" is 90). To deal with this, I've changed the scale on which they're graded from 100 too 500 points. For example, in my Managerial Finance class, I give 4 exams (worth 100 points each) and a series of assignments and quizzes (the quiz assignment grade also counts for 100 points). So, the student needs 450 for an "A", 400 for a "B" and so on.
The difference is amazing - far fewer students argue over a 5 point difference (out of 500 points) that would over a 1 point difference out of a hundred.
Of course, the easiest thing is not to answer email for a week after the grades are in. But that would be wrong.
Now that students have handed in all their assignments and taken their exams (with the exception of one onWednesday), they now switch to bargaining and begging mode. I used run a pool on how many emails we'd get telling us "but I really need to pass this class to graduate" (I get about three a semester, which is a bit on the low side).
In the last few years, I've become much more proactive in getting the message out.
To forestall the after-the-fact bargaining, I've started stressing the "no bargaining" rule from the first day of class, and have even included it in my syllabus. I tell them they would be rightly upset if I were to lower their grade "because they didn't need a such a high grade". SO, why should they be given a higher grade if they "do need it"?
To further reinforce the point, I announce before the first assignment is due that it is collected in the first 5 minutes of class and that it won't be accepted late. Someone invariably comes in 10 minutes after the start of class, and I accept the assignment with a comment that I'll be happy to correct it, but that thy receive a grade of zero on the assignment. I then remind them that they will be allowed to drop one or more of their assignment grades before I calculate the take-home assignment portion of their grade.
So, being seen as a bit of a stickler early on has its advantages.
The hardest cases are when the student's grade is near the cutoff (e.g. they have a final grade of 89 when the cutoff for an "A" is 90). To deal with this, I've changed the scale on which they're graded from 100 too 500 points. For example, in my Managerial Finance class, I give 4 exams (worth 100 points each) and a series of assignments and quizzes (the quiz assignment grade also counts for 100 points). So, the student needs 450 for an "A", 400 for a "B" and so on.
The difference is amazing - far fewer students argue over a 5 point difference (out of 500 points) that would over a 1 point difference out of a hundred.
Of course, the easiest thing is not to answer email for a week after the grades are in. But that would be wrong.
Saturday, May 13, 2006
7 Deadly Sins of Professors (and Students)
'Tis the time stidents to start complaining/begging/bargaining for their grades. So, it's easy to get very jaundiced about the state of the student body at this time of the semester.
A bit back, Thomas Benton wrote an article for the Chronicls of Higher Education, titled 7 Deadly Sins of Students were he takes down the wasys students exhibit the "7 Deadly Sin" (sloth, greed, anger, lust, gluttony, envy, and pride).
Then, just this friday he returns the favor and focuses his observations on the faculty in 7 Deadly Sins of Professors. Both are well worth the time reading. Benton doesn't break any new ground in either piece, but he does go over old ground extremely well.
HT: SCSU Scholars
A bit back, Thomas Benton wrote an article for the Chronicls of Higher Education, titled 7 Deadly Sins of Students were he takes down the wasys students exhibit the "7 Deadly Sin" (sloth, greed, anger, lust, gluttony, envy, and pride).
Then, just this friday he returns the favor and focuses his observations on the faculty in 7 Deadly Sins of Professors. Both are well worth the time reading. Benton doesn't break any new ground in either piece, but he does go over old ground extremely well.
HT: SCSU Scholars
Writing Covered Call Options
Every once in a while, I come across advertisements for "covered call writing" programs, where the indivdual selling the program makes it out to be the best thing since sliced bread. So do my students. In fact, one of them just asked me about this article (dated 4/29) in the Wall Street Journal titled "Buy-Write Strategy Could Help in Sideways Market" (online subscription required).
For those of you who aren't familiar with the term, let me give a little background. A call option is a contract that gives the holder the right to purchase a share of stock at a given price (known as the exercise, or strike price) for a certain term. The price paid for the option is known as the premium, and is received by the individual who grants (i.e. "writes") the option.
The option has value if the underlying stock has some chance of exceeding the strike price within the given time frame. For example, let's assume you had an option with a strike price of $30. If the stock price at the exercise date is $35, the option holder gets a payoff of $5 (i.e. they get to buy something valued at $35 for a price of $30). If the underlying stock is worth less than $30 at the expiration date, the option holder's payoff is $0, since the option remains unexercised.
Options are more valuable when there is more volatility in the price of the underlying stock, when the exercise price is closer to the current stock price, and when the term of the option is longer. The reason for the poitive relationships between the option premium (i.e. the prive or value of the option) and these characteristics is that they make it more likely that the stock price will be above the exercise price.
By writing call options on a stock you hold (known as a "covered call"), you are granting the option holder the right to purchase the stock from you in exchange for the premium on the option. So, in essence, you are trading away some of your future potential for appreciation in exchange for money now.
If you want to visualize the distribution of your expected returns from this strategy, start with the distribution of expected returns on a common stock. While I know it's stock returns aren't normally distributed, just use the typical bell shaped curve as a starting point. Writing the call option is equivalent to chopping off the right tail of the distribution (the "high return" states of the world) at the exercise price. However, since you receive the call premium up front, it also shifts the distribution a bit to the right.
So, like always, there's no free lunch in this strategy. If write options that give you a high premium (i.e. higher current income), you only get the income by giving up a greater amount of potential appreciation.
If you're interested in learning more about options, there's a pretty good primer at investopedia.com
For those of you who aren't familiar with the term, let me give a little background. A call option is a contract that gives the holder the right to purchase a share of stock at a given price (known as the exercise, or strike price) for a certain term. The price paid for the option is known as the premium, and is received by the individual who grants (i.e. "writes") the option.
The option has value if the underlying stock has some chance of exceeding the strike price within the given time frame. For example, let's assume you had an option with a strike price of $30. If the stock price at the exercise date is $35, the option holder gets a payoff of $5 (i.e. they get to buy something valued at $35 for a price of $30). If the underlying stock is worth less than $30 at the expiration date, the option holder's payoff is $0, since the option remains unexercised.
Options are more valuable when there is more volatility in the price of the underlying stock, when the exercise price is closer to the current stock price, and when the term of the option is longer. The reason for the poitive relationships between the option premium (i.e. the prive or value of the option) and these characteristics is that they make it more likely that the stock price will be above the exercise price.
By writing call options on a stock you hold (known as a "covered call"), you are granting the option holder the right to purchase the stock from you in exchange for the premium on the option. So, in essence, you are trading away some of your future potential for appreciation in exchange for money now.
If you want to visualize the distribution of your expected returns from this strategy, start with the distribution of expected returns on a common stock. While I know it's stock returns aren't normally distributed, just use the typical bell shaped curve as a starting point. Writing the call option is equivalent to chopping off the right tail of the distribution (the "high return" states of the world) at the exercise price. However, since you receive the call premium up front, it also shifts the distribution a bit to the right.
So, like always, there's no free lunch in this strategy. If write options that give you a high premium (i.e. higher current income), you only get the income by giving up a greater amount of potential appreciation.
If you're interested in learning more about options, there's a pretty good primer at investopedia.com
Financial Models in Excel
I spend a fair bit of time surfing the Web (like that's news). As a result, I come across a lot of stuff that I'll eventually use in class. One of the reasons I started this blog was to have a place to keep track of all those things.
Matt Evans (a financial consultant located in Arlington, VA) has put together a truly impressive colletion of spreadsheet models. A lot of them are valuation based (i.e. models for valuing a firm based on Free Cash Flow, valuation of Synergy in a merger, etc...). However, he's also got a good assortment on other topics, like valuing options using Black-Scholes, lease-vs-buy analysis, and others. If you're a finance prof (or student), check them out - you'll almost certainly find something you can use.
HT: Jim Mahar at Financeprofessor.com
Matt Evans (a financial consultant located in Arlington, VA) has put together a truly impressive colletion of spreadsheet models. A lot of them are valuation based (i.e. models for valuing a firm based on Free Cash Flow, valuation of Synergy in a merger, etc...). However, he's also got a good assortment on other topics, like valuing options using Black-Scholes, lease-vs-buy analysis, and others. If you're a finance prof (or student), check them out - you'll almost certainly find something you can use.
HT: Jim Mahar at Financeprofessor.com
Thursday, May 11, 2006
Teachers Who are Hot (or Not)
Jim Felton, a Finance prof at Central Michigan did a study of student ratings of faculty on ratemyprofessor.com.
He found students' evaluations of their professors was pretty highly correlated with how easy the prof was perceived as being (correlation of 0.62).
However, begin percieved as "hot" (physically attractive) was even more highly correlated with their evaluations (correlation of 0.64).
Click here for the Inside Higher Ed piece that brought this to my attention and here for a copy of the paper. The comments from the IHE piece are (not surprisingly) generally aghast at the study.
I try to work my students as hard as possible, and I'm far from a stud muffin (but I did go 18 miles on the bike last night in under an hour, so there!) So I guess that means that if I get good evaluations, they're for real.
High-Powered Incentives (from An Economist in Paradise)
Yes, it's been a while, and I've been terrible about posting. I still have a couple of exams to grade, and all the "taking leave" stuff that goes with changing schools. Hopefully, by next week everything will be graded, my paperwork will be done, my huse will be on the market, and I'll be able to catch up on my blogging.
In the meantime, I've been saving stuff for later usage. Here's one from the recent archives: a very nice piece by Fazeer Sheik Rahim of An Economist in Paradise. In it, he explains how the principal-agent model and incentives explain a number of things he saw on his recent vacation:
Click here for the whole thing - in one short piece he touches on doctors, windsurfing instructors, executive compensation, and samosas. Very nice. I just came across his blog, but it looks promising, and definitely worth a further look.
In the meantime, I've been saving stuff for later usage. Here's one from the recent archives: a very nice piece by Fazeer Sheik Rahim of An Economist in Paradise. In it, he explains how the principal-agent model and incentives explain a number of things he saw on his recent vacation:
I was determined to leave my econ hat behind on my first ever week-end in a five-star hotel in Mauritius. I forced myself not to try to explain why the samosas were not quite as good as those in the Quatre-Bornes market. I tried hard not to think of the reasons why Mauritian residents pay subtantially less than tourists for the night. But when I realised that my waterski instructor was more interested in selling me kitesurfing and snorkelling packages (operated by his freelance mate) rather than actually teaching me how to waterski (included in my hotel package), I gave up. The principal-agent model is key to understanding the problem of incentives.
Reading List For Economic Historians
Want to read some of the "classics" of economic thought? The Austrian Economist has put together an excellent reading list for aspiring economic historians.
Friday, May 05, 2006
I'm Not Sure What To Do With This Story
Every once in a while you come across someting you just have to share (maybe even in class):
A former accountant for a heart-disease research foundation was sentenced to two to six years in prison for embezzling more than $237,000 to pay for such things as the services of a dominatrix, according to press reports.Abraham Alexander, of East Meadow, N.Y. had earlier pleaded guilty to embezzlement of funds from the Cardiovascular Research Foundation partly to pay for sessions with Lady Sage, an Ohio dominatrix, as well as for other personal expenses, Reuters reported.
Read the whole thing here at CFO.com.
Thursday, May 04, 2006
SSRN Ranks Business Schools
Here's yet another ranking of business schools. The Social Science Research Network (SSRN) has put together a ranking of business schools (subscription may be required). It's a bit different from other rankings since it focuses entirely on a measure of research output - the total number of downloads of papers written by anyone affiliated with a given school. It has some drawbacks, since not all authors are listed (for instance, I'm not listed at my current school). But, it's still interesting, and ranks the "heavyweights" pretty much in line with what I'd expect (based on the last 12 mon ths' downloads):
Once I change my affiliation to the new Unknown University, they'll inherit all my downloads, which should bump them up a bit (a couple of thousand, since I'm pretty small fry in the larger research world). But, every little bit helps.
HT: Division of Labour
- Harvard
- University of Chicago
- University of Pennsylvania
- Yale
- NYU
- MIT
- University of Michigan
- Columbia
- Dartmouth
- Rochester
Once I change my affiliation to the new Unknown University, they'll inherit all my downloads, which should bump them up a bit (a couple of thousand, since I'm pretty small fry in the larger research world). But, every little bit helps.
HT: Division of Labour
Subscribe to:
Posts (Atom)