< The Finance Professionals' Post: February 2015

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12 posts from February 2015

02/25/2015

Shavers, Sharks and Payday Lenders

Westerners have long harbored a love-hate relationship with lenders, and their ambivalence shows no sign of abating anytime soon. What has changed over time is the perception of what constitutes “bad” types of lenders or loans. In various times and places, it was illegal/immoral to charge any interest at all, to exact interest from kinsfolk, to charge rates considered too high or to use violent collection methods. Today, it is lawful, and even somewhat morally acceptable, to charge any rate of interest to anybody willing to pay it. Reformers, however, want to protect borrowers from being cajoled, forced or tricked into borrowing at high rates for long periods.

The King James version of Exodus (22:25) states that “If thou lend money to my people poor by thee, thou shalt not be to him as a usurer, neither shalt thou lay upon him usury.” Usury here is usually taken to mean taking any interest whatsoever, though at least one recent translation reads instead: “If you lend money to one of my people among you who is needy, do not treat it like a business deal; charge no interest.” If the traditional interpretation is correct, perhaps early Jews lamented lost profit opportunities because Deuteronomy (23:19–20) clearly allows some lending at interest: “Unto a stranger thou mayest lend upon usury; but unto thy brother thou shalt not lend upon usury.”

Continue reading "Shavers, Sharks and Payday Lenders" »

02/23/2015

What Happened to the U.S. Constitution? Effects of Changing Interpretations on International Debt and Banking—Part II

In Part I of my article, I described how the decision of an obscure federal judge promises to transform world debt markets. I planned in Part II to describe the Argentinean debt deal, but in the interim Bloomberg published an article that elucidates this matter in sufficient detail (Levine 2014). Furthermore, the document describing the debt settlement is available online (Securities and Exchange Commission 2005). I cannot claim to have read the entire document—219 pages of prospectus and approximately 150 pages of supplement—but I gleaned enough by browsing. It contains interesting information on how international debt is settled, and if I were to teach international finance, I would make a case study out of it.

Continue reading "What Happened to the U.S. Constitution? Effects of Changing Interpretations on International Debt and Banking—Part II" »

Mongolia Investment Outlook

Mongolia is one of the world's fastest growing economies, with a year-on-year real growth rate of 7% in 2014. Recent growth has been primarily driven by development of new mining projects, growth in the real estate and agriculture sector, and an expansionary fiscal and monetary policy.

Mongolia's economy is highly dependent on trade with China. Economic growth has been negatively affected by a slowdown in the Chinese economy, which accounted for 94.1% of Mongolia's exports in 2013. In addition, Mongolia is dependent on Russia for all of its fuel and some of its energy needs, which makes Mongolia vulnerable to price pressure from Russia.

Continue reading "Mongolia Investment Outlook" »

02/17/2015

Recent Research: Highlights from February 2015

"On the Holy Grail of “Upside Participation and Downside Protection"
The Journal of Portfolio Management (Winter 2015)
Edward Qian

Upside participation and downside protection” is a popular motto for many investors. It has taken on much more significance in recent years, in the wake of the global financial crisis. But how do we define and evaluate strategies from the perspective of “upside participation and downside protection”? In this article, the authors present an analytic framework in which they provide a quantitative definition of upside and downside participation ratio, define participation ratio difference as a goodness measure for defensive strategies, and prove a relationship between the participation ratio difference and traditional alpha. As an illustration, they apply this new analysis to the S&P 500 Index and its 10 sectors and show that defensive, low-beta sectors tend to have positive participation ratio differences, while cyclical, high-beta sectors tend to have negative participation ratio differences. This finding is consistent with the low-beta/volatility anomaly and provides another explanation for the popularity of low-beta/volatility strategies.

Continue reading "Recent Research: Highlights from February 2015" »

02/16/2015

Life After the CFA Charter

I still remember the feeling of happiness, relief, and complete sense of accomplishment when I received a congratulatory email from CFA Institute on August 6, 2013 letting me know that I passed the Level III CFA exam.  I officially became a CFA Charterholder in November 2013. The certificate is very big, and I feel proud every time I look at it.  It reminds me that hard work and determination will help me overcome any challenges that I am currently facing, or will face in the future, as they did when I embarked on the CFA journey.

Continue reading "Life After the CFA Charter" »

02/11/2015

Eight Leading Indicators That Your Banking Job Is Killing You

Efinancial-logo

Is your banking job doing you in?

Your banking job may be boring. It may be exhausting, stressful, all-consuming, and fraught with the sort of political machinations better suited to an episode of Question Time, but does it have serious implications for your mortality? Researchers at Stanford Business School and Harvard University have come up with a helpful checklist of workplace stressors which suggest that it might.

Continue reading "Eight Leading Indicators That Your Banking Job Is Killing You" »

Book Review: Dead Companies Walking

Dead-companies-walkingScott Fearon's Dead Companies Walking: How A Hedge Fund Manager Finds Opportunity in Unexpected Places opens with an excellent summarization of his book. He begins, "My specialty is identifying what I call 'dead companies walking' which is what I call businesses on their way to bankruptcy and a zero-out share price." Fearon is no stranger to the task, having been doing this since he started his hedge fund in 1991. Since its founding, the fund has had only one down year.

Continue reading "Book Review: Dead Companies Walking" »

02/09/2015

The Human Element in Investment Decisions

Excerpt

Zshapira_article

Making strategic investment decisions is not a task that should be taken haphazardly. Managers and MBA students spend time studying appropriate decision criteria such as net present value (NPV) to aid in making profit-maximizing decisions. However, in discussing investment decisions with practicing managers over the years, we sensed that managers often systematically deviated from profit maximization. In particular, we noticed that managers often equate changes in scaled profit measures (e.g., changes in return on investment [ROI]) with changes in total profits (i.e., marginal profits). This causes them to deviate systematically from profit maximization with respect to strategic investment decisions (e.g., research and development [R&D] investments, capital investments, acquisitions) by avoiding investments that increase total profits yet are less profitable than their average current investment. In other words, current levels of average profit create an anchor by which investments are assessed. This decision-making behavior, subtle but critical, was recently demonstrated by NYU Stern Management Professor Zur Shapira.

Professor Shapira, along with Carlson School of Management Professor J. Myles Shaver, devised studies that teased out this counter-productive pattern and described it in “Confounding Changes in Averages With Marginal Effects: How Anchoring Can Destroy Economic Value In Strategic Investment Assessments.”

Read the full paper here.


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02/04/2015

10 Phrases which Subtly Suggest You’re Powerless at Work

Efinancial-logo

You have the job title, you have the Ferragamo loafers. You like to stand with your hands on your hips and your legs apart. You often invade other people’s personal space and you talk in the sort of high pitched voice with tonal modulations which is said to convey authority at work. But what you say also matters. However powerful your general demeanor, it will all be to no avail if you say things like, “He really did very well at this task.”

In a new article published in the International Journal of English Studies, Academics at the University of Murcia have helpfully assembled a list of phrases that indicate workplace powerlessness.

Continue reading "10 Phrases which Subtly Suggest You’re Powerless at Work" »

02/03/2015

The Body Language That’s Making You Unemployable

Efinancial-logo

Why have you been to multiple job interviews and had no job offers? Why do your interviewers look at you as if you're Nigel Farage? Why do they stare out the window while you explain your motivation for working there?

If you’re interviewing for a job in an investment bank, your lack of success may be because banks are conducting purely "informational interviews" —namely interviews with the sole intention of extracting market intelligence from unsuspecting candidates. Then again, it may also be because your body language during job interviews is a big turn-off.

Continue reading "The Body Language That’s Making You Unemployable" »

How the CFA Charter Helped Me Find A Job

Most of us took up CFA exams for career advancement and development opportunities—so did I back in 2009, amongst other reasons

Upon scraping through the last Level III battle and obtaining the elusive CFA charter, I embarked on a job search, not because I wasn't happy with my current role at that time, but it was in response to my boss' comment during my year-end review and salary negotiation that prompted me to look around to "benchmark my market value." It was an interesting exercise as there wasn't a strong pressure to leave per se (i.e., I didn't hate my job/work environment), but I was also incentivized to secure a real offer, as that serves as a true measure of my market worth (plus it was always interesting, to me at least, to find out what other roles there are). 

Good practice for interviews? Definitely. Stressful? Certainly (the goal is still to secure a job offer!). Useful? Very, because I also got a good sense of employers' view of the CFA charter. Here's my attempt to provide a qualitative assessment of the CFA qualification on my job hunting process. 

Overview

Here's a subjective account of my job search experiences upon obtaining my CFA charter a few years ago, right in the midst of the financial crisis. The purpose is to qualitatively assess the impact of having the CFA charter on my job hunting endeavours. I view the job search process as three separate stages:

  • Job applications - the number of relevant jobs for which I could apply, and am interested in;
  • Response rate - the number of positive feedback or calls for interviews I had as a percentage of number of job applications made;
  • Interview rounds - the final stage, certainly the trickier bit (but not impossible) to master

Of course, my experience is by no means a definitive guide to what will happen to every charterholder (as they are many varying characteristics between my situation and theirs, as caveated below), but I believe there are things that we all can do, and learn, in order to improve your chances to get the job you want. No one has provided a detailed account of their life post as a CFA charterholder so I thought I'd get the ball rolling!

Continue reading "How the CFA Charter Helped Me Find A Job" »

02/02/2015

Book Review: Millennial Money

Millennial-Money

This easy-to-read book encourages millennials to invest in the global stock market for wealth accumulation. It provides the reasons why they should invest, strategies they can follow, and behavioral pitfalls they should avoid.

Millennials have gone through a lot in the last two decades.1 They experienced recessions in 2001 and 2008, with the latter leading to the global financial crisis (GFC). For most millennials, their chosen careers have been a roller coaster ride, and some have already moved on to second careers, mostly because of the GFC’s severe effects on employers. Millennials have seen the life savings of their parents and others dwindle over a relatively short time. Consequently, they are skeptical about investing their hard-earned money in equity markets. In Millennial Money: How Young Investors Can Build a Fortune, Patrick O’Shaughnessy encourages millennials to overcome their skepticism and benefit from the process of wealth creation.

Millennial Money is an easy read that instills high doses of confidence through its analysis of historical data to explain why investing in risky assets is essential. O’Shaughnessy highlights the fact that the millennials’ greatest advantage is their youth and shows how compounding helps them in the long run. One dollar invested today could be worth $15 by the time a millennial retires in 40 years. If one waited 10 years to start investing, however, that dollar would be worth only $7.50 at the same rate of return. In short, postponing investment has a huge impact on one’s retirement lifestyle.

Continue reading "Book Review: Millennial Money" »

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