Thursday, July 17, 2014

Finance research summarized for non-academics

Check out this new online journal/magazine that reproduces summaries of top finance research targeted at a broader audience.   This is an excellent idea and the first two issues contain some really good papers.

It comes at a time when some people are questioning whether academic research in business is a positive NPV project. 

Friday, June 27, 2014

More on Dark Pools - fascinating stuff.

A 45 minute radio program from NPR.   Well worth a listen if you want to understand why stock trading is now dominated by professional insiders who are able to game the operations of markets to exploit other traders.

However, when the other traders are large institutions, it isn't clear that anything wrong is going on here.  These are big multi-billion dollar companies playing in a big market.   What is clear is that individual investors should steer clear (and index)!

Thursday, June 26, 2014

Picking Pockets in Dark Pools

Josh Brown has a fascinating bit on how Barclays allegedly set up a dark pool so that informed traders to make money of the institutions suckered into trading there.

At this stage these are just allegations, but still.

Sunday, June 8, 2014

An Uber valuation

Uber, the "find a taxi" app, has been priced at around $18bn based on a recent funding deal.  Now, while I have an awful track record for pricing the latest internet fad, $18 bn does seem a little steep for a company that will, perhaps, earn $200 million in a good year.

Using the flawed Price/Sales ratio as a valuation metric, Uber's valuation is about 90 times revenue.   To put this in perspective, Facebook and LinkedIn are around 12 times.  

It will be entertaining to see how this one plays out.

Thursday, May 15, 2014

The folly of market timing the pension fund

Almost a year ago, the NC Treasurer was pushing a bill to expand alternatives in the pension fund.   At the time, she, and the bill's sponsors argued that interest rates were likely to rise and the bond market would get crushed.   

Sen. Hise, the bill's sponsor said: "I firmly believe the riskiest thing we could be (invested) in right now is the bond market" in the N&O

And in september, Janet Cowell stated stated that "The North Carolina pension fund has always been a big investor in bonds, and that has served us really well, but we're at the end of that runway," on WRAL TV 

I'm not knocking Sen Hise, or Treasurer Cowell's ability to forecast interest rates - they had a 50/50 chance of being correct, and indeed, they may still end up being correct that rates will rise.  Or they may not.

The point here is that basing asset allocation decisions on forecasts of interest rates is a poor way to manage $85 billion.  Anyone who thinks that they can reliably forecast interest rates is either is misleading themselves, or the people that they are talking to.  It just cannot be done.  Interest rates will rise and fall, but a diversified portfolio of low cost investments, will, in the long run do OK.

HT:Ron for the heads up on interest rates.