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12 posts from October 2012


Book Review: Red Ink

Red-InkThe federal budget is one of the key focal points for the presidential election. The candidates have their proposals to reduce the budget deficit, however, political claims seem to make the subject more confusing than clear. In addition, there are increasing worries about the "fiscal cliff, " the tax increases and automatic spending cut coming in January if Congress fails to act. Moody's has just threatened to downgrade the US triple-A rating if Congress doesn't come up with a budget deal. The opposing political parties have indicated little, if any, inclination to compromise. For those seeking an objective picture of the federal budget, David Wessel's new book will be welcome.

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Video: Similarity as a Tool of Influence in the Workplace

According to Executive Coach Alisa Cohn, there are six major tools to gain influence: likability, similarity, reciprocity, social proof, scarcity, and authority. In this video, Cohn discusses the first point: likeability. Simply put, by establishing similarities or commonground one can gain influence in the workplace.

On finding similarities:

  • Our minds are programmed to sort out "friend" or "foe." In a corporate environment, this means that we naturally seek out like-minded people.
  • A proactive way to find similarities is through small talk. Think of it as a business way to "grease the skids" or establish rapport before starting something.
  • Initially, try to avoid bringing attention to dissimilarity, as this can create a wedge that hinders establishing similarity.
  • When people are in sync, they unconsciously mirror mannerisms and pace. This can be used to create a level of comfort.


Ethics Is Important

CFA Exam Prep

Core to the mission of CFA Institute is promoting high standards of ethics, integrity, and professional excellence. Those pursuing their charter are introduced to this early, as committing to the CFA Institute Code of Ethics and Standards of Professional Conduct is a requirement to enter the program. Furthermore, CFA Institute warns that this commitment should not be taken lightly.

That’s good advice.

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Presenting Your Investment Research: Six Elements of an Expert Presentation

We have covered writing your research report, but what about presenting it orally to an audience? No matter what the occasion, successful analysts know how to persuade a room full of clients and/or colleagues that the insights in the written report are a must-read. Here are the elements of an expert presentation:

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The Social Impact Bond: A Private Sector Funding Mechanism to Address Social Ills

Cash-strapped municipal and state governments across the country are increasingly looking for novel ways to access private capital to finance what were once taxpayer funded initiatives, including those that address intractable social ills. One such innovation, the social impact bond (SIB), is structured to transfer the risk of investing in a given preventative social program from taxpayers to private investors through its “pay for success” feature. SIBs will potentially provide funding for exemplary social services programs that might not otherwise be implemented. It is hoped that they will also create more rigor in the measurement of program outcomes. Yet some critics worry that SIBs may have other, more problematic unintended outcomes, if they result in the transfer of the responsibility for addressing social ills from the public and not-for-profit, to the for-profit sector.

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McDonald's and the New Franchising Paradigm

Credit: Wikimedia Commons

If you were to ask for the name of world’s largest real estate developer and property management firm, you may be surprised by the answer: McDonald’s. Aside from being the largest purveyor of food in the world, the company controls the real estate in 33,000 restaurant locations in 119 countries and territories.


The founders of McDonald’s—Richard and Maurice McDonald—did not start out by selling hamburgers.

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The Anniversary Celebration of Important Global Companies Auction

The Museum of American Finance on Wall Street will commemorate its 25th anniversary on October 19th, 2012. Other companies reaching milestone anniversaries will also be celebrated this weekend. "The First Anniversary Celebration of Important Global Companies" is a special feature of the second annual Wall Street Bourse which will take place October 18-20 at the museum at 48 Wall Street. This event is a first of this magnitude and early reactions to the new concept have been very enthusiastic and gratifying according to event coordinators. The Celebration and Live Auction will begin in the museum gallery at 10am on Saturday. Admission is free for the entire Bourse weekend.

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Recent Research: Highlights from October 2012

"Integration of Structured Finance Exposures in Basel II Model: Analytical Results"
The Journal of Fixed Income (Fall 2012)
Kilian Plank

For efficiency reasons or because of a lack of detailed data, financial institutions frequently treat structured finance securities similar to conventional fixed-income products such as bonds or loans, which are characterized by rating, correlation, and loss-given default. Structured finance securities, however, have a specific risk profile. They tend to concentrate losses in adverse states of the systematic risk factor. This fact implies that simply adopting risk parameters of conventional bonds or loans is an inappropriate technique. The author shows that, under the Basel II framework, tranches have to be modeled with an increased factor loading. They derive an analytical calibration procedure for the Basel II model that appropriately captures the risk profile of tranches. This finding not only allows for seamless integration of structured and conventional exposures in a portfolio model, but also offers insights into the concentration effects of tranches.

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More than the Mainstream: Mish’s Global

More than the Mainstream

Last month, the Dow, S&P 500, and Russell 2000 were all up 4-6%. After that round of QE, everyone in the financial markets and mainstream media seemingly cheered.

“It’s clear that the global leaders are doing all they can to combat the slow economy…we look forward to a strong year-end rally,” Ryan Detrick, chief technical strategist at Schaeffer’s Investment Research said on CNBC.

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Hedge Fund Due Diligence: A Source of Alpha in a Hedge Fund Portfolio Strategy


Due diligence is an important source of alpha in a well-designed hedge fund portfolio strategy. It is generally understood that the high returns possible in investing in hedge funds are somewhat offset by the relative lack of transparency on operational issues. The performance of a diversified hedge fund portfolio can be enhanced by excluding those funds likely to do poorly—or fail—due to operational risk concerns. However, effective due diligence is an expensive concern. This implies that there is a strong competitive advantage to those funds of funds sufficiently large to absorb this fixed and necessary cost. The consequent economies of scale that we document in funds of funds are quite substantial and support the proposition that due diligence is a source of alpha in hedge fund investment.

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Social Feedback

Last month, Robert Frank began his column in the New York Times with this sentence: “There may be no topic that more reliably divides liberals and conservatives than the relationship between success and luck.” The first few paragraphs of the piece—and the last few—had a political flavor to them. Like an Oreo cookie, the good stuff was in between.

I suppose you might find it hard to believe that the “good stuff” was academic research by three sociologists. The researchers had participants in their study rate the quality of songs that they previously had not heard. The bottom line: Their judgments were distinctly different depending on whether they received information about how others had already rated a particular song.

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What You Need to Know before You Sign That Employment Contract


Finding a great job in this economy is hard work. Which is why you don’t want to put off a hiring manager by asking for too much. But you also don’t want to jeopardize your future by signing a legally binding document that puts you in a precarious position.

Understanding the terms and nuances of an employment contract could make the difference between job security and being out on the streets.

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