• Art Vault

    The value of an investment can be determined several different ways:

    1. Comparing the investment with similar investments that have recently changed hands
    2. Determining what it would cost to replace the item
    3. Adding up the costs of all the components used to create the asset

    In some markets, one method is more appropriate than another. For example, in real estate, method #1 above is most popular. The downside, of course, is that comparable investments must be easily identified and they must have changed hands recently. Otherwise, there's no way to identify the proper appraisal value. In other markets, building the asset from the ground up is the only way to identify its value.

    The video below discusses the market for some valuable works of art.

    For discussion:

    • How would you determine the value of a unique piece of art?
    • What resources would you use?
    • Would you invest in art if you had the money?
    • How would you determine it was worth investing?

  • The Value of Human Capital

    This infographics shows the value of human capital by explaining how long it takes to earn $1 million by education level. Of course, these numbers are averages. An entrepreneur with a high school diploma can become a multi-millionaire while someone with a graduate degree never manages to earn enough to pay off college debt. Still, college pays off on average because most high paying jobs require high levels of skill and training.

    For discussion:

    1. How would you determine the value of a college education? What numerical problem can you devise and solve to show the NPV of a college degree?

    2. In your opinion, is college worth the investment?

    Source: FRB Atlanta

  • Why the Weakening US Dollar?

    This Financial Times video shows that the US dollar (USD) has been declining significantly this year, but the reason for the decline is not straightforward. The video offers one possible reason for the weak dollar: the Fed's low probability of raising interest rates.

    From Reuters:

    The dollar plumbed its lows of the day after the release of the Fed’s November meeting minutes showed policymakers were concerned about inflation, which has remained subdued.

    “Some people in the market obviously took that as a sign of dovishness on some policymakers (behalf),” said Thierry Wizman, global interest rates and currencies strategist at Macquarie Limited.

    (read the full article here)

    For discussion:

    The video also shows that the weak dollar is moving in tandem with the price of gold. Why would that be the case?

  • Cost of The Thanksgiving Feast

    A lot of food was consumed in the U.S. yesterday. Turkey, gravy, potatoes, stuffing, green beans. The infographic below shows the sales associated with Thanksgiving meals in the U.S.

     You will find more statistics at Statista

    From Investopedia:

    The American Farm Bureau Federation has found that the average cost of this year's home-cooked Thanksgiving meal for 10 is $49.12, a 75-cent decrease from last year's average. Adjusting for inflation, the cost of dinner is $20.54, the lowest it has been in five years.

    “For the second consecutive year, the overall cost of Thanksgiving dinner has declined,” AFBF Director of Market Intelligence Dr. John Newton said. “Even as America’s family farmers and ranchers continue to face economic challenges, they remain committed to providing a safe, abundant and affordable food supply for consumers at Thanksgiving and throughout the year.” 

  • Impact of Rising Rates on Financial Markets

    We've been in a low interest rate environment for so long that we aren't really sure what to expect when rates do finally start to rise. This infographic shows the historical impact of rising rates on stock and bond markets.

    For discussion:

    1. What do investors typically expect will be the response in stock markets when rates start to rise? What about for bond markets?

    2. What does this infographic suggest regarding the response by stock and bond markets?

    impact of raising interest rates

    Source: OptionAlpha

  • Nobel Laureate Richard Thaler on Nudges, Shoves, and Risk Management

    Richard Thaler is the winner of the 2017 Nobel Prize in Economics.

    From the NY Times (Oct 9, 2017):

    Richard H. Thaler, whose work has persuaded many economists to pay more attention to human behavior, and many governments to pay more attention to economics, was awarded the Nobel Memorial Prize in Economic Sciences on Monday.

    Professor Thaler is the rare economist to win a measure of fame before winning the prize. He is an author of a best-selling book, “Nudge,” about helping people to make better decisions. He also appeared in the 2015 film “The Big Short,” delivering what is surely one of the most widely viewed tutorials in the history of economics, on the causes of the 2008 financial crisis.

    For discussion:

    How can nudges be used to manage risk and help people save more?

  • Managing Accounts Payable with Machine Learning

    Managing the day to day cash flows can impact a business in significant ways. Take accounts payable, for example. This part of working capital management can be managed more efficiently to save thousands of dollars every year. One area of growth has been the use of artificial intelligence in managing accounts payable.

    From TG Daily (17 Nov 2017):

    There’s no doubt that automation has had a strong impact on the Accounts Payable process. Regimented approval workflows, Optical Character Recognition (OCR) technology, and automated invoice processing have removed many manual aspects of the job. However, due to the nature of their implementation, they are essentially static solutions. Once implementation is complete, the workflows are in place, and AP staff are trained on the process, the solution has reached its highest potential for improving business operations. And for many companies, that is just not good enough.

    Accounts Payable software that incorporates machine learning is capable of learning the structure of your invoices, and the patterns of manual data entry. The beauty of machine learning is that the logic and suggestions improve as you go. This eliminates the lengthy implementation project required by automation solutions.

    For discussion:

    In what other ways can machine learning help a business?

    How Are Cutting Edge Companies Managing Accounts Payable?

    Source: Infographic archive

  • What Investment Bankers Seek in Job Candidates

    What do employers look for? School performance is important, but that is just the minimum hurdle. Employers are looking for more than just grades.

    Watch this video to see what Goldman Sachs looks for in job candidates:

  • What Makes Markets Tick: The Rules of Adam Smith

    This Financial Times video reviews the rules of Adam Smith and what makes markets successful

    Rule #1. Markets work best when as many people as possible are involved

    Rule #2. Markets are most efficient when prices are transparent to many participants

    Rule #3. Managers must have a stake in the business and bear responsibility if something goes wrong

    Rule #4. Money is embedded in morality and social relations

    For discussion

    How have these rules been violated in modern financial markets?

    Why would some of these rules be easier to follow in markets dominated by small business than in markets dominated by large corporations?

    How does the complexity of modern financial markets make these four rules difficult to follow?

  • Safety in Safety Stocks

    When investors seek a safe investment, many think of bonds. Fixed coupons and stable prices are attractive to highly risk averse investors. 

    As an alternatives to bonds, some investors buy so-called "safety" stocks, such as utility stocks and real estate investment trusts (REITs). 

    For discussion:

    1. What is attractive about safety stocks in this environment?

    2. Why would rising interest rates make safety stocks LESS attractive?

    3. Would you buy utilities and REITs right now?

  • Contrarian and Momentum Investing

    No one knows when a stock market crash will come, though some investors believe they can time the market. Followers of technical analysis believe that they can use historic trends in prices and volumes to buy and sell and outperform the market. These technical analysts believe that the Efficient Market Hypothesis--the theory that stock prices already capture all information--does not hold. In particular, they believe that the Weak-Form of the Efficient Market Hypothesis does not hold.

    Some investment strategies have been shown to outperform markets, and so there is some evidence of violations to the Efficient Market Hypothesis. Examples of such investment strategies include:

    • Contrarian Investing. Followers of this strategy buy when prices fall and sell when prices rise contrary to the general trend of the market.
    • Momentum Investing. Followers of this strategy sell as prices fall and buy when prices rise to participate in the existing trend of the market.

    Below is an infographic of historic declines in the U.S. stock market. If you had been a contrarian investor at those points of time, would you have been profitable? What if you had been a momentum investor?

    Source: Infographics Archive

  • What is a Futures Contract

    A futures contract is an agreement between two parties to buy or sell some asset at a pre-specified price on a future settlement date. The video below provides a little more detail about what goes into a futures contract.

    For discussion

    1. What is the difference between a futures contract and a forward contract?

    2. What is the difference between a futures or forward contract and a spot contract?

    3. What does it mean to be LONG or SHORT a futures contract?

    4. How do you get out of a futures contract if you no longer want to be long or short?

    5. How are futures contracts settled at expiration?

  • Getting Hired in Investment Banking

    This video explains how candidates get hired into entry level positions at investment banks like Goldman Sachs. While a big ticket investment banking job on Wall Street isn't for everyone, there are a few lessons that all finance grads can take away:

    1. Internships matter. According to this video, the internship program is the main "feeder" program for their full-time entry level program.
    2. Grades matter. Networking is important, but so is your classroom performance. Paying attention in class and earning good grades is important.
    3. Timing matters. Many offers are awarded by the middle of fall semester for starting employment in June. Waiting until you're just about to graduate may reduce the number of available positions.

  • NPV of a College Degree

    College is an investment of time as well as money, and families should consider the return on that investment as they weigh the options. Weighing any investment requires considering the following:

    1. What is the initial investment cost? Are there ongoing costs required?

    2. Are the costs sunk costs or incremental costs?

    3. What is the opportunity costs--i.e. what do you give up by investing in college?

    4. What are the benefits? Are they monetary or non-monetary?

    5. Does the investment offer you the option to make a change in the future, i.e. a change that otherwise won't be available if you don't go to college? (In other words, are there any REAL OPTIONS associated with this investment?)

    6. What is the appropriate risk-adjusted discount rate to use to value this investment?

    7. What is the timing of all the cash flows?

    8. Can you calculate a net present value (NPV)? Is the investment worth it?


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