• Planning for Retirement

    According to this CNNMoney video, "Most Americans spend more time planning their vacations than planning their retirement."

    The secret to a happy retirement is indeed planning:

    1. Decide how much you need to have saved up (8x your ending salary = 25 years of retirement, according to Fidelity)

    2. Start small

    3. Save more than you're saving right now

     

    For discussion:

    How much to you need to have saved in so that you can retire comfortably? What changes can you make right now to achieve this?

  • What Does a Rate Hike Mean For You?

    The market is expecting the Fed to raise rates this year, and if the Fed does not raise rates, that might be worse news than if they do raise rates.

    The real questions are not whether the Fed will raise rates. The question are, rather:

    1. What language will accompany the rate hikes
    2. How long will the rate hikes continue?
    3. Where will rates end up?

    For discussion:

    Based on the discussion in this Bloomberg video, why have the low interest rates not encouraged the level of investment that the Fed was hoping for?

     

     

  • What's the Six Million Dollar Man Worth Today?

    The popular TV series, The Six-Million Dollar Man, is being upgraded in a remake starring Mark Wahlberg. The upcoming movie will be The Six-Billion Dollar Man and is expected to be released in 2016.

    This tongue-in-cheek episode on NPR shows that, based on inflation, the $6 million dollars back then can be anywhere from $12,000 to $33 million, if you consider the declining cost of technology or the rising cost of medical care. No matter how you slice it, however, $6 billion is a stretch.

    According to the Federal Reserve:

    Inflation occurs when the prices of goods and services increase over time. Inflation cannot be measured by an increase in the cost of one product or service, or even several products or services. Rather, inflation is a general increase in the overall price level of the goods and services in the economy.

    [read more here]

    So what do you think?

    What is the $6 million dollar man worth today? What factors should be considered in evaluating the value of his bionics in today's economy?

  • How Do Rich People Make Financial Decisions?

    Thin people eat differently than those who struggle with their weight. They make choices about what to eat, how often to eat, and when to exercise. Likewise, rich people save and spend differently from those who struggle with their finances. They make choices about what to buy, when to save, and how to invest. The rest of us can learn some of these lessons, and perhaps make better choices in the future.

    This infographic from BankRate lists some observations from financial advisors about their wealthy clients.

    For discussion:

    What are some other wise spending and saving habits you've observed that you can add to this list?

  • How Much Does A Disney Ticket Cost?

    Sixty years ago, entry to Disney World cost $1. Now the entry ticket has reached $100, and people keep buying. To be fair, the original Disney entry fee did not include rides, and each ride had a cost as well. But even so, the inflation rate of a Disney ticket is extraordinary.

    For discussion:

    If you are an investment analyst considering recommending Disney stock, what factors would you consider as you make your recommendation? What sources of information would you rely on?

    In your opinion, is Disney stock a wise investment?

  • The Power of Compound Interest

    Albert Einstein is often credited with having called compounding the most powerful force in the world. And while there is doubt as to whether he actually said that, it's still true that compound interest is powerful. Especially if you start early.

    This infographic from Bankrate describes what happens when you start saving money early.

  • Currency Volatility Hits the Film Industry

    Making movies is not just about spotting talent. Sometimes it's about cash and access to capital.

    According to the Hollywood Reporter (Blair, 23 March 2015)

    For American companies selling content, the strength of the greenback can be an excuse for buyers to offer less money in negotiations, as well as slow down the process, reported Jeff Goldman of Burbank-based Cardinal XD, which has a number of titles at the market, including Checkmate, starring Danny Glover and Vinnie Jones.

    For discussion:

    What are the factors affecting access to capital in the film industry? How do fluctuating exchange rates impact the business of movies?

  • Investing in Picasso


    Image of Christie's New York Rockefeller Center by David Shankbone via Wikipedia

     

    In 1955, Pablo Picasso completed a large painting of women in Algiers for his friend, Henri Matisse. Matisse had died in 1954. The painting, "Les femmes d'alger" was last sold for $31.9 million in 1997 and has been in private hands ever since.

    According to CNN Money (Rooney, 10 May 2015):

    The masterwork, "Les femmes d'Alger (Version "O")," goes under the hammer Monday at Christie's in New York.

    The auction house estimates it will sell for $140 million. However, Picasso's most famous paintings are in high demand and usually sell for a much higher price than the estimate.

    The Picasso is the centerpiece of a highly-anticipated sale of contemporary art on Monday and Wednesday. All told, up to $2.5 billion worth of art is expected to be sold, according to Philip Hoffman, chief executive of the Fine Art Fund Group, a global art investment house.

    [read the full article here]

    For discussion:

    What would the painting need to sell for at the upcoming auction for the current owner to earn the same return as he/she would have earned had the investment been in the S&P 500 in 1997 instead?

  • Investing Attitudes Across Cultures

    In the U.S., high school students compete in stock market games and enter college comfortable with the notion of investing. In countries where uncertainty avoidance is more prominent, neither high school students nor their parents are comfortable investing in the stock market, but rather prefer to save money the old fashioned way: in the bank or in real assets like property.

    This video shows how popular investing is in Asia, particularly in Hong Kong and China.

    For discussion:

    Talk with students from a country different from your own. How comfortable does he/she feel about investing in the stock market? How comfortable does he/she feel about saving money in the bank? What factors explain the cultural differences in investing attitudes?

  • The Rising Cost of Summer

    Inflation is often measured using the Consumer Price Index (CPI). According to the Bank for International Settlements (BIS):

    The Consumer Price Index (CPI) is a measure of the average change in price over time in a fixed market basket of goods and services bought by consumers for day-to-day living. The All Items CPI for the U.S. is the broadest, most comprehensive index, and is often quoted as the source for the "rate of inflation". The CPI for All Items less Food and Energy (also sometimes referred to as the "core" or " underlying" CPI) excludes volatile food and energy prices. Some analysts use this index to track long-term trends in prices.

    This infographic gives us a taste of summer and shows what inflation looks like:

    *The Bureau of Labor Statistics inflation calculator covers 1913 through the present. These pre-1913 prices were adjusted for inflation using different government data that include 1800 through 2013. Check out the inflation calculator.

  • Behavioral Challenges: Understanding Our Money Mistakes

    Do you know people who insure their iPhones but do not have adequate life insurance?

    Do you know people who buy lottery tickets, but really can't afford to?

    Do you know people who have purchased more house than they should?

    This TED talk by Shlomo Benartzi addresses the behavioral challenges to saving. One behavioral challenge is the "present bias" that leads people to spend today even though they are resolved to save in the future. Inertia is another challenge to saving; if the default is that you must check a box to save in a 401K, then default will be no action which means no savings.

    For discussion:

    What is loss aversion and why does it lead to reduced savings?

    What are the behavioral solutions suggested in this video?

  • Finance and Society by Janet Yellen


    Financial institutions are a benefit to society. But when incentives get distorted, financial institutions can inflict great harm. Without financial institutions, spending would languish and businesses would be financially strapped. However, with great power comes great responsibility.

    From a recent speech by Fed Chair, Janet Yellen:

    The financial sector is vital to the economy.  A well-functioning financial sector promotes job creation, innovation, and inclusive economic growth. But when the incentives facing financial firms are distorted, these firms may act in ways that can harm society. Appropriate regulation, coupled with vigilant supervision, is essential to address these issues.

    Unfortunately, in the years preceding the financial crisis, all too many firms took on risks they could neither measure nor manage. Leverage, interconnectedness, and maturity and liquidity transformation escalated to dangerous levels across the financial system. The result was the most severe financial crisis and economic downturn since the Great Depression. Almost 9 million Americans lost their jobs, roughly twice as many lost their homes, and all too many households ended up underwater on their mortgages and overburdened with debt. To be sure, some individuals and families borrowed unwisely, but too often financial institutions encouraged the behavior that resulted in such excessive debt.

    [read the full speech here]

    For discussion:

    According to Chairwoman Yellen, what factors led to excessive leverage?

  • Failure to Deliver: Short Selling

    Shorting a stock doesn't make sense. How can someone sell something that he or she doesn't own?

    In most short sales, the seller borrows the asset from the dealer and makes a delivery. However, there are some short sales where the seller fails to deliver. These are called "naked" short sales.\

    From a recent New York Post article:

    In a naked short, the trade, almost always done by a market maker for itself or for a large client, involves selling stock that it does not own and is not borrowing from someone else. Here it owes the shorted shares to the buyer, but “fails to deliver.”

    ... “While we do not advocate tolerance for fails to deliver (FTD) tied to manipulative episodes, we find no evidence indicating that FTDs, in aggregate, systematically and manipulatively precipitated price declines, even in the extreme situation of the 2008 financial crisis,” Raman told The Post.

    [read the article here]

     

    For discussion:

    According to the article, why would FTDs be blamed for the fall of Lehman Brothers?

    Image Provided By: www.StockMonkeys.com

  • Trading at the Speed of Light

    In the world of machines and cables and data, the fastest computer program wins. Machines show their power in a market where time is measured in nanoseconds and the human brain cannot process information fast enough to compete.

    This TEDx talk describes the world of algorithmic trading and a subset called high-frequency trading.

    For discussion:

    What are examples of algorithmic trading strategies?

    In your opinion, is high-frequency trading ethical?

  • Mortgages: Your Rights As A Borrower

    Loans, especially mortgage loans, can be confusing. Many people don't know what they are getting into when they sign their loan documents. And they often don't know what their rights are when it comes to the lender's treatment. This infographic explains the rights you have as a borrower.

    Angel man: © BoBaa22/Shutterstock.com, clipboard pen: © 6gasix/Shutterstock.com, Man with chart: © ardent/Shutterstock.com, Guy holding umbrella: © ardent/Shutterstock.com, scales: © Bennyartist/Shutterstock.com, phone: © Dooder/Shutterstock.com, Man carrying papers: © Ingka D. Jiw/Shutterstock.com, Grave stone: © tereez/Shutterstock.com, calendar: © tovovan/Shutterstock.com

  • Active Managers Continue to Underperform

    For years, finance literature has told us that on average, most investors are average. So active investment managers are naturally going to underperform because average performance coupled with high management fees equals low returns.

    And that's what this recent MarketWatch article says:

    86% of large-cap fund managers underperformed the S&P 500 Index SPX. Additionally, 66% of midcap managers underperformed the S&P 400 Mid-Cap Index and 73% of small-cap managers underperformed the S&P 600 Small-Cap Index last year. These disappointing results weren't limited to 2014. Over the last 10 years, 82% of large-cap funds, 90% of midcap funds and 88% of small-cap funds underperformed their benchmark indexes. These numbers represent pretax returns. The post-tax relative performance was worse for investors who held actively managed funds in taxable accounts.

    The myth persists that foreign markets are less efficient than our domestic stock market and provide active managers an excellent venue in which to display their stock-picking skills. But in the past decade, 84% of international stock funds, 58% of international small-cap stock funds and 90% of emerging market stock funds underperformed their benchmark S&P indexes.

    [read the full article here]

    For discussion:

    Why is the fact that many funds no longer exist an important fact in this discussion of whether active management is successful?

    What are the 3 reasons given by the author that investors continue to invest in active managers?

  • What Drives the German 10-Year Bond

    Tom Keene asks whether the German 10-year bond yield fell because of the activity of some big investors, or whether it was other forces. He concludes that it was indeed other forces.

    In this video, Bloomberg's Tom Keene describes that price matters just as much as yield. That is, even though the yield change might be small, the price change might be very large. In finance, we call the sensitivity of prices to changes in yields "duration." He is describing the fact that duration on the 10-year bond is large and therefore the bond's price is quite sensitive to very small changes in rates.

    For discussion:

    In the video, Tom Keene mentions that bond price is especially sensitive to changing rates at our currently low interest rates. In your own words, describe how duration is affected by the interest rate environment.