< The Finance Professionals' Post: November 2015

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5 posts from November 2015

11/19/2015

Water Megatrend Creates Compelling Backdrop for Investors

Despite water covering 70.0% of the earth’s surface, only 3.0% is fresh, and just 0.5% accessible to humanity. Presently, 2.5 billion people, almost 40.0% of the world’s grain production, and approximately 25.0% of global GDP are at risk because of non‐sustainable water use1. The problems of water scarcity, contamination, and uneven distribution of the resource are becoming increasing prevalent around the world, as water use has grown at more than twice the rate of last century’s rise in population2. Consequently, pressure is mounting on the demand side as the global population increases while the availability of potable water dwindles and lessens supply. The supply and demand imbalance also increases pressure on food and energy security around the globe. As a result, according to Ladenburg Thalmann Senior Water Equity Research Analyst, Richard Verdi, water will be the resource to define the next several decades via a substantial increase in its value.

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11/17/2015

Donald Trump, grade level, and your financial writing

TrumpDonald Trump’s appeal has surprised many observers of presidential elections. Love him or hate him, you can’t ignore his presence. Part of his appeal rests on his use of plain language, according to a recent article. That’s something financial professionals should note because of its implications for your writing.

Trump speaks at a fourth-grade level, according to “For presidential hopefuls, simpler language resonates,” which appeared in The Boston Globe. The newspaper calculated the grade level of presidential candidates’ announcement speeches. Lower grade levels use fewer characters and syllables per word, as well as shorter sentence lengths.

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Three Critical Steps for Extracting Great Insights (Step 2: Calm Their Concerns)

Meditate“I can’t believe you would be so insensitive!”

“How could you say something like that?”

Have you ever heard these statements directed at you? What was your initial reaction? A voice in your head probably said, “Be very, very careful what you say next.” It’s human nature to raise our defenses when we feel attacked, which is an important concept for equity research analysts to internalize when interviewing or emailing information sources (including management of the stocks under coverage).

In a prior post, I made the case that by using best practices found in journalism and the legal and law enforcement professions, analysts can elicit more thorough answers from their information sources.  Using my ICE™ framework, I discussed the “I” for identifying parameters as the first step for success. In this post I cover the “C” to calm their concerns.

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The Great Mismatch: Addressing Barriers to Global Capital Flows (Part III)

PART III: The Barriers to Efficient Capital Flows (continued)

Efficient cross-border capital flows—allowing investors to search for reliable returns, and in the process, meet legitimate capital needs wherever they are—would be a more effective way to finance the global economy than today’s system. In theory, few dispute this. In practice, many barriers have been erected that hamper efficient flows. The deliberate or inadvertent barriers to efficient global capital flows have been erected by a unique combination of regulators, governments, historical conventions and path-dependencies, investor mindsets and capital-seekers themselves (see below exhibit).

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Mastering ’Metrics: The Path from Cause to Effect

The authors provide an easy-to-read overview of key concepts in econometrics for anyone desiring a strong intuitive description of how to conduct analysis using simple techniques. Covering a limited number of topics with practical examples of each, they offer a useful framework for conducting fundamental econometric analysis. Although the book does not directly discuss financial issues, it provides a good foundational review for the financial empiricist who wishes to better structure econometric tests.

Statistics is second only to accounting among the technical skills necessary for engaging in modern finance and is fundamental for anyone who considers quantitative work a core element of finance. Unfortunately, practitioners’ actual statistical and econometric knowledge and intuition may be more limited than their level of academic exposure would suggest. No one willingly reads a book on econometrics to close this knowledge gap, so technical skills atrophy rather than advance with money management experience.

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