The Finance Professionals' Post

A Call for Volunteers

The New York Society of Security Analysts (NYSSA) will be working with the Sanford I. Weill Institute in order help locate volunteers to teach high school students basic information about finance and business. The Sanford I. Weill Institute, sponsored largely by Citi Foundation, is embedded into the normal school day at the High School of Economics & Finance and runs on Wednesdays from 1:24 p.m. to 2:24 p.m., starting April 28th through June 9th. 

The Great Divide: Talking to Lee Cooperman

Leon G. Cooperman, CFA, is uniquely situated to discuss the gulf between Wall Street’s buy and sell sides. Cooperman has presided as founder and chairman over the hedge fund Omega Advisors, Inc., since he left Goldman Sachs & Company in late 1991. He was a general partner at Goldman for 15 of his 25 years there, and he spent more than two decades as the partner-in-charge of the research department. For nine straight years he won honors as the top portfolio strategist in the Institutional Investor All-America Research Team survey. In 1989, he founded Goldman Sachs Asset Management, serving as its chairman, its chief executive officer, and the chief investment officer of its equity products. He is the former president of the New York Society of Security Analysts, Inc.

Entrepreneurial Tip Corner: Establishing a Budget

How many small- to medium-sized businesses have a written budget in place? Most small to medium-sized businesses are so busy putting out their daily fires and are in crisis management mode that they simply don’t have the time or the discipline to do proper business planning. Part of the process of business planning is to establish a budget.

Book Review: The Masters of Private Equity and Venture Capital

Ten successful operators in private equity and venture capital explain how they created wealth in Robert A. Finkel’s The Masters of Private Equity and Venture Capital (McGraw Hill, 2010). They have both vision and imagination as well as financial and management discipline.

Entrepreneurial Tip Corner: Will Your Business Be Able To Outlive You?

Many of us feel like we will be around forever and want to keep our businesses for that long, because we enjoy them so much. Others wouldn’t mind selling their business and either retiring or doing something else tomorrow. Either way, business succession planning is critical to assure that you are prepared for either eventuality.

Google as an Income Play? Huh?

Especially in today’s fast-changing market, it doesn’t matter whether you are a value investor, momentum investor, research analyst or manager of a long/short portfolio. Having the ability to objectively validate, contextualize and compare the expectations and risk that drive a stock’s price are crucial for maintaining consistently strong investment performance. Click here to try the Market Topographer^TM web-based stock analysis platform and see for yourself.

What do you think would happen if tomorrow, Google’s management announced that its days of exceptional growth were coming to an end? That looking out beyond the next couple of years, it no longer saw opportunities to sustain 17%+ growth due to the competitive environment and its sheer size. Instead it was looking at a long term sustainable growth rate of 10% going forward.

Currency Indexing: The Forward Rate Bias as an Alternative Beta

Although currency is often referred to as an asset class, the arguments to treat it as such have not been compelling enough to draw serious attention from the global institutional investor community. One possible reason for this is the absence of a universal view on the “beta” or market return available from currency investment.

Added Transparency in Securities Lending

The recent financial crisis heightened awareness of the securities lending market; however, as an over-the-counter, historically opaque area of the financial markets, relatively little information about the securities lending market is publicly available. With the launch of the S&P Securities Lending Indices, S&P Indices has created a useful tool for a variety of analytical purposes including the identification of potential new trading, hedging, and investment opportunities. 

Click here to read the white paper.

Book Review: The Billion Dollar Mistake

Most accounts of legendary investing focus on the successes of the investor. In The Billion Dollar Mistake (John Wiley & Sons, 2009), Stephen Weiss has taken a different approach by writing about their mistakes, some of which are striking considering the amount of money lost. One example is David Bonderman’s multi billion-dollar loss in Washington Mutual in which “seven billion dollars evaporated in less than six months.”

A Centralized Solution: Securitization, Rating Agencies, and the Path to Meaningful Reform

The financial crisis has brought to the fore, and indeed accentuated, the inadequacy of both regulatory bodies and our efforts to measure and mitigate risk throughout the financial system—particularly within the realm of structured finance, or securitization. While it is easy to criticize the performance of various market participants, it would be more productive to contemplate the underlying themes that emerged in the wake of this recent crisis. If we can accurately identify the root causes of the problems, we will be better positioned to resolve them.

A Comparison of the Returns Performance for Reported and Revised Measures of Cash Flow

Traditional measures of cash flow are typically based on GAAP-defined calculations of operating cash flow. However, as documented extensively in Financial Warnings (Mulford and Comiskey, 1996), The Financial Numbers Game: Detecting Creative Accounting Practices (Mulford and Comiskey, 2002), and especially, Creative Cash Flow Reporting: Uncovering Sustainable Financial Performance (Mulford and Comiskey, 2005), cash flow measures based on GAAP are easily open to manipulation and, because they exclude the implied cash effects of non-cash transactions, are often misleading. 

Investment Opportunities for a Low Carbon World

As markets globally struggle with recession, a core part of the message from many political leaders to their citizens is that economic growth can be stimulated in part by investment in the technologies, infrastructure and services that will enable the transition to a low carbon economy.

Stand Out by Researching Prospective Employers

You've been out of work for weeks and now you've landed an interview with an reputedly good company for a job that fits your skills and salary needs. Now's the time to find out what the recruiter and job ad isn't telling you: the company's real culture, whether or not its profitable, and if the CEO is a good and effective leader.

Are Growth Stocks Experiencing Déjà Vu All Over Again? Don’t be Fooled This Time!

Especially in today’s fast-changing market, it doesn’t matter whether you are a value investor, momentum investor, research analyst or manager of a long/short portfolio. Having the ability to objectively validate, contextualize and compare the expectations and risk that drive a stock’s price are crucial for maintaining consistently strong investment performance. Click here for a free trial of the Market Topographer^TM web-based stock analysis platform and see for yourself. 

Proven Strategies To Help You When You Need a Job

It is common knowledge that many smart companies handle economic downturns by laying off more people than necessary to allow them to go bargain hunting for high-performing talent.

The veracity of this strategy is undeniable. What good company wouldn’t want to fill their cubes with high-performing employees at cut rates? For the job seeker, this strategy provides a conundrum that isn’t easily managed. In this economy you as the job seeker are faced with cut salaries and few opportunities. But, this doesn’t mean you should let yourself be taken advantage of at the negotiation table. Below are some proven strategies from colleagues and research that can help you avoid being taken advantage of when you NEED a job.

Added Transparency in Securities Lending

The recent financial crisis heightened awareness of the securities lending market; however, as an over-the-counter, historically opaque area of the financial markets, relatively little information about the securities lending market is publicly available. With the launch of the S&P Securities Lending Indices, S&P Indices has created a useful tool for a variety of analytical purposes including the identification of potential new trading, hedging, and investment opportunities. 

Click here to read the white paper.

Entrepreneurial Tip Corner: Business Planning and Management Made Easy

What is a business plan?

A business plan is a comprehensive vision of the future goals and objectives of the business, and a roadmap of how such goals will be achieved.

Why should my business have a plan?

Have you ever heard of an NFL coach being interviewed just before an important game say that he doesn’t have a game plan? In order to win the game, he must have specific strategies ready to be utilized and backup plans ready to be deployed if the primary strategy fails. Remember: Failing to plan results in planning to fail.

ASSET4 Helps Investors Navigate “The New Normal” Economy

“The new normal” is a term used frequently by the sustainable investing community to define an emerging economic landscape characterized by greater regulation and investor scrutiny of corporate environmental, governance, and social behavior. This, in turn, is requiring corporations to internalize or address what were once the external costs of doing business. Those costs are showing up with increasing impact in the corporate bottom line. At a recent breakfast seminar hosted at NYSSA headquarters, representatives of ASSET4, a provider of environmental, social and governance (ESG) data and analytics, discussed the services the organization provides to corporations and investors who seek to compete in this “new normal” economy.

Mending the Seams: International Regulatory Reform

As the global economy begins to find its way back from the brink following the financial crisis, the impetus is shifting from the day-to-day efforts to keep the system afloat to the long-term fixes that are needed to maintain and increase its stability and flexibility. All eyes are on the national governments and regulators who continue to shape a structure that either will be up to the task of managing an increasingly globalized economy or will fall short of the mark, resulting in the lack of a sustainable recovery, further crises, or both.

Our Take: Reciprocal Gestures Mold Bankers' Future Pay Deals

The olive branch President Obama just handed Wall Street on compensation opens a new phase in a painful effort to reconcile the legitimate expectations of hard-working financial services professionals with the harsh dictates of public opinion.

If you work in a firm considered systemically important, the size and shape of your pay package is at stake no matter where you stand on the title ladder. That's why I believe it's worth watching where the political dust settles from the president's controversial interview published in the current issue of BusinessWeek.

Book Review: The Flaw of Averages

In the summer of 2003, Red Lobster launched the infamous “Endless Crab” campaign, touted as “a celebration of all the hot, steaming snow crab legs you can eat.” It turned into one of the most highly publicized statistical miscalculations in recent memory. Red Lobster executives grossly underestimated the average American’s appetite for crab legs. “It wasn’t the second helping, it was the third one that hurt,” recounted chief executive Joe Lee. Company executives also failed to account for a rise in wholesale crab prices, which eroded the company’s profit margin as the promotion drove up demand for crab nationwide. This incident and many others are richly described in Sam Savage’s aptly titled volume The Flaw of Averages: Why We Underestimate Risk in the Face of Uncertainty.

A Beta for Sentiment?

The interaction of human emotion and asset pricing has been the focus of much behavioral finance research. Sentiment indicators, which seek to quantify the emotional states of market participants, play an important role in understanding and guiding action based upon this dynamic. In response to the lack of a tradable sentiment index, S&P Indices proposes a frequently-calculated, tradable Sentiment Beta index composed of six metrics of sentiment.

Click here to read the paper. 

Revisiting StoneRidge: Congress Could Restore Aiders' and Abettors' Liability

A bill introduced to Congress this past summer, and subsequently handed over to a Senate subcommittee for further consideration and/or revisions, could reverse a hotly debated January 2008 US Supreme Court decision. That decision, Stone-Ridge Investment Partners LLC v. Scientific-Atlanta Inc., upheld a lower appeals court’s April 2006 decision that secondary participants in a corporate fraud cannot be held legally liable for their behind-the-scenes participation in the scheme. Their actions, the high court reasoned, were simply too far removed from and could not have been known by investors.

Anchoring Valuation of U.S. Stocks in a Fast-Changing Marketplace

Relatively early in the financial crisis and before the most severe market dislocations were to occur, Federal Reserve Chairman Ben Bernanke was asked while speaking at a luncheon at the Economic Club of New York, what information he would find most useful in developing a strategy to navigate the financial crisis? He said “I’d like to know what those damn things are worth”, referring to the toxic assets and complex derivatives which were valued based on black box algorithms. Given the uncertainty and rapid change that have enveloped the equity markets over the past two years, the same could be safely said about the valuation of common stocks as well.

Trends in Free Cash Margin

In the current study, Dr. Charles W. Mulford, CPA, looks at trends in free cash margin for U.S. nonfinancials using a series of rolling twelve-month measurement periods over a time frame that includes two recessions. 

Click here to read the article. 

For more information on free cash margin and Cash Flow Analytics’ other proprietary metrics, please go to www.cashflowanalytics.com/register.php and register to learn more about Cash Flow Analytics’ quantitative and qualitative investment research and analysis solutions.

Entrepreneurial Tip Corner: Is Your Business Ready for an Economic Upturn?

During the better part of the past two years, we have been in a pretty deep recession. That’s not a revelation for employers from Wall Street to Main Street who have managed to live through it, with major cutbacks and layoffs. Firms have downsized or become “right-sized” to be able to hunker down and survive this difficult period. Many economists are forecasting our emergence from this recession. Some say it has already begun and others are predicting an upturn in the economy during the first or second quarters of next year. Ask yourselves one simple question: Will my business be ready to service the anticipated new level of business? If the answer to that question is “No” or “I’m not sure”, then I suggest you make some definitive plans to “stay ahead of the curve” and make sure you are in the best position possible to capitalize on the comeback expected in the economy.

Entrepreneurial Tip Corner: Ethics is the Cornerstone Principle for All Professionals

Someone once remarked, after seeing a long putt of mine barely drop into the hole for a birdie, “Gravity, not just a good idea, it’s the LAW”. Yes, this was a corny remark, but it certainly can be related to ethics within the professions. Ethics is not just a good idea; it’s the LAW for CFA® charterholders and the CPA profession, as well as many other professions.

Hottest Skill Areas For 2010

With financial institutions' hiring widely expected to pick up early in 2010, it's worth thinking about which skill areas are most in demand in the post-crisis landscape. The following rundown is based on my off-the-cuff impressions, gleaned through speaking with headhunters and professional colleagues and keeping tabs on news and rumors about sell-side and buy-side recruiting plans.

Book Review: The Greatest Trade Ever

In the recent financial crisis and meltdown, one person stands out for making a fortune from the collapse of housing prices, subprime mortgages, and related derivatives. In 2007 Paulson & Co made $15 billion, of which John Paulson got $4 billion; the figures for 2008 were $5 billion, and $2 billion. In The Greatest Trade Ever (Random House, 2009) Gregory Zuckerman, a Wall Street Journal senior reporter, tells how Paulson did it. His new book is detailed, engrossing, and reads like a suspense novel.

Keeping Up With Styles

While there is no universally accepted definition of “growth” or “value,” and there is much debate about the merit of adhering to style boxes, style benchmarks serve important benchmarking, risk management, and asset allocation needs by measuring style box movements in a manner congruent with broadly accepted definitions of style factors. Periodic reviews and incremental adjustments at intervals of 5 to 10 years provide a basis for style benchmarks to stay relevant through time. 

Click here to find a case study on the periodic recalibration of style benchmark factors.

Committee Spotlight: Derivatives Committee

The Derivatives Committee provides a forum for investment professionals to learn more about the use and intricacies of derivatives. It offers content to both specialists in the derivatives markets and those professionals who are not currently involved but who wish to learn more. The Derivatives Committee seeks to educate and keep its membership informed on all aspects of derivatives and derivatives markets. As the use and importance of derivatives is increasing, the Committee is committed to educating and making derivatives markets more accessible to those with little or no direct experience.

Entrepreneurial Tip Corner: It’s High Time for Time Management

In this high-tech age we live in, where we are often subjected to information overload, it is crucial to learn new techniques for managing our time, which I would argue is our most scarce resource. How many of us have said to ourselves or coworkers, “there’s just not enough time in the day”, or “I wish the week had eight days”? What’s the best way to deal with all of the voicemails, e-mails, snail-mail, phone calls and endless meetings we are summoned to? During my 30-year career, I have seen many changes in technology, almost all for the better. However, one downside is that customers, clients and colleagues are all looking for faster responses, turnaround times and almost instant gratification. There are many techniques for managing your time more effectively and I would like to share some that have worked for me.

Copenhagen Climate Change Conference Sets Stage For Growth of Ecosystem Services Market

Deforestation is currently responsible for about 20% of global greenhouse gas emissions and that percentage is likely to increase if serious efforts are not undertaken to decelerate the rate at which forests are being destroyed and degraded. If anything substantive came out of the December Copenhagen Climate Change Conference it was an almost universal recognition of the critical need to reduce emissions from deforestation and to provide positive financial incentives to encourage reforestation and forest preservation. 

New Member Benefit: Invitation to SumZero

NYSSA has partnered with SumZero, an invitation-only online networking site designed to link buy-side analysts. SumZero currently consists of more than 2,300 analysts/PMs and membership is by invitation-only. Almost every well-known hedge fund, private equity fund, and mutual fund is represented in the user base. 

Islamic Finance Poised For Recovery

Global financial recovery is boosting the near-term outlook for Islamic banking and investment, a niche whose rapid growth took a breather last year. That bodes well both for experienced Islamic-finance professionals and conventional bankers who seek to broaden their skills and client base.

Investing in Healthcare Information Technology

For more information on healthcare information technology, please go to www.morningstar.com/goto/NYSSA for a subscription to the Healthcare Observer, where our lead healthcare information technology analyst, Patrick Dunn, provides a detailed overview of the industry.

Over the past couple of decades, medical groups have increasingly looked to healthcare information technology as a way to improve efficiency and profitability. The growing interest in new healthcare software combined with the Obama administration’s budget of $19 billion for healthcare information technology should spark industry growth. However, the healthcare technology industry remains highly fragmented and in a relatively early phase of its development, which increases the challenge of investing in the favorable secular trends.

Consulting Opportunities for NYSSA Members

Members of the NYSSA have the opportunity to join the GLG CouncilsSM, the world’s leading expert network, and to participate in paid consultations with Gerson Lehrman Group® (GLG) clients. This no-cost opportunity provides NYSSA members with the ability to earn consulting fees, work with savvy industry professionals, network with industry leaders, and consult at their own convenience. GLG Council MembersSM set their own consulting rates and are free to accept or decline any projects.

Interview: Stephen Harbeck and Irving Picard on the Lehman and Madoff Cases

The SIPC® (Securities Investor Protection Corporation), the organization created by Congress and empowered to protect customers when a broker-dealer goes belly up, is facing two of the most challenging proceedings in its 39-year history. It was called in to protect the holdings of brokerage customers of both Lehman Brothers and Bernard L. Madoff Investment Securities LLC. Lehman Brothers filed for Chapter 11 in mid-September 2008, while Madoff’s multibillion-dollar house of cards began to tumble in December.

Why SEMI?: A Former SEMI Participant Discusses the Experience

Like most finance and investments undergraduate students in Baruch College’s Zicklin School of Business, I was preparing to land a job at one of the major financial firms. But virtually no one anticipated the global financial meltdown that began in the summer of 2007 and led to the demise of many of the world’s largest financial firms. This made an already competitive job market more competitive.

Federal Grant Money Available for CFA® and Professional Development Courses

If you are registered as an unemployed NYSSA member and were employed by one of the 31 companies below, you may qualify to have your tuition for a NYSSA professional development and/or CFA preparatory course paid by the National Emergency Grant (NEG) through the New York State Department of Labor. 

Best Practices in Hedge Fund Management

With so much uncertainty and a great deal at stake regarding the future of hedge funds and what constitutes “best practices” in management, NYSSA’s Alternative Investments and Institutional Asset Management Committees recently held an event to address such issues, bringing together representatives from every corner of the industry.

Committee Spotlight: Institutional Asset Management Committee

The Institutional Asset Management Committee provides a forum for discussion on current issues of interest to investment professionals engaged in or contributing to asset management. Our rapidly changing investment climate offers an abundance of topical issues worthy of C-level, portfolio manager, and analyst attention as both specialists and management in the asset management field, in addition to those professionals who are not currently involved but who wish to be.

Real Estate Portfolio Allocation and Today’s Marketplace: While Private Real Estate Struggles, Listed Real Estate Begins to Rebound

After a rocky end to 2008 and a tumultuous market environment through first quarter 2009, individual and institutional investors worldwide are closely examining their portfolios—assessing losses, identifying opportunities, and looking for signals from the marketplace as to what may be next. Despite the looming credit crisis, equity markets have improved, and there have been optimistic whispers that the worst may be behind us. But what is going on in the real estate market?

Where to Place Resume Keywords

Keywords are important in online resumes. A resume that lacks the proper keywords will yield little chance of an interview if it’s evaluated in digital form. The trickier question is: Where is the best place to put the keywords in your resume?

The Competitive Dynamics along the Drug Supply Chain

For more information on the drug supply chain and related companies, please go to http://healthcare.morningstar.com/ for a subscription to the Healthcare Observer, where our health-care team presents a detailed analysis of which industries in the drug supply chain hold the strongest position.

What is the Drug Supply Chain?

Surprisingly, drugs change hands several times from the original manufacturers to the patients. Along this path, several industries serve as middlemen offering both physical distribution and financing for the drugs. The major players include drug companies, distributors, retail pharmacies, pharmacy benefit managers (PBMs), payors and patients. Each of these players strives to negotiate deals from suppliers and customers in order to maximize their profits.

Islamic Finance: A Student's Review of the New NYSSA Course

Michael McMillen’s recent course on Islamic Finance was more than just an introduction to this niche market of structured finance—it was a colorful exploration of Islamic history and culture, which included a memorable overview of the anatomy of camels. Despite the lack of industry news coverage in the U.S. as compared to Europe and Asia Pacific, I was amazed to learn that there have been hundreds of Islamic financings done in the U.S. In fact, as McMillen pointed out, the U.S. is the easiest place in the world to structure such transactions and while it is still a niche market, demand for these products continues to grow.

Beat the Resume-Screen Algorithm

It's one thing to learn the employer offered someone else the job you were hot for. It's another to learn you never even made the cut … because a purveyor of "artificial intelligence" screened out your resume.

In a world where seas of resumes are initially sorted by screening software, it's still possible to outsmart the machine on your way to the top of the heap. It just means a little more … well, thinking, on your part.

Book Review: The Myth of the Rational Market

The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street (HarperCollins, 2009) is a history and analysis of the rational market theory which dates back to 1920s economist Irving Fisher which developed with the application of science to traded securities markets. A lot of now famous names made contributions along the way including Harry Markowitz, Franco Modigliani, Merton Miller, Myron Scholes. This academic work moved into the Wall Street mainstream. Much of what is now accepted parts of modern markets—quantitative research, technical analysis, options and derivatives strategies—comes out of the rational and efficient market thesis.

Book Review: Making Sense of the Dollar

The possible impact of our escalating budget deficits, heavily financed by overseas money, has created concern about the future of the dollar. This concern has not been matched by education and knowledge on foreign exchange, even among financial professionals. In Making Sense of the Dollar (Bloomberg Press, 2009), author Marc Chandler debunks the myth that the dollar is no longer considered the finest currency. Chandler is well qualified to educate us on this subject matter as he is chief foreign exchange strategist at Brown Brothers Harriman. 

NYSSA Welcomes FTSE to Leadership Circle

NYSSA is proud to welcome FTSE into the Leadership Circle as a Silver Sponsor. 

FTSE is a world leader in the creation and management of indexes. With offices in Milan, Beijing, London, Frankfurt, Hong Kong, Madrid, New York, Paris, San Francisco, Sydney, Shanghai and Tokyo, FTSE works with investors in 77 countries globally. It calculates and manages a comprehensive range of equity, fixed income, real estate and investment strategy indices, on both a standard and custom basis. The company has collaborative arrangements with a number of stock exchanges, trade bodies and asset class specialists around the world.