CFA Challenge

If you are an MBA student at NCSU graduating in spring 2013 or later and interested in finance, I invite you to apply to be on the the CFA challenge team that we are putting together for next year's competition (starting fall 2012).   Details are here.

Last year's team (our first year entering) placed in the finals.

Do equities always outperform in the long run?

An interesting overview of the equity risk premium from the psy-fi blog.

A couple of key takeaways:

First a quote from Buffet:

Warren Buffett, as usual, looks at this differently. Taking a hindsight view of the twentieth century in US markets:

“To break things down another way, we had three huge, secular bull markets that covered about 44 years, during which the Dow gained more than 11,000 points. And we had three periods of stagnation, covering some 56 years. During those 56 years the country made major economic progress and yet the Dow actually lost 292 points.”

And:

So, do stocks always outperform (in the long run)? No, they don’t. And don’t expect long-run market returns in excess of 7% going forward. It might happen, but it probably won’t.

A point I try to drive home in my classes is that the assumption that stocks will earn their historic average return is very optimistic.  I think investors should assume a 2% real return and plan accordingly - which in most cases means saving more.

Google public data sets

New to me at least - and really cool.  Tons of data on google.

For example - lending interest rates for US vs Iceland.

Why the IPO is broken.

Most firms that do IPOs now don't really need the money - they are just forced to go public.   Excellent article in Wired.

Facebook paying 1.1% underwriting fee

Apparently Facebook has cut a sweet deal on underwriting services for its upcoming IPO and is only paying 1.1%.  This is in contrast to the typical fee which is around 7%.[link to a pdf].

HT: Thomas (a student in the Advance Analytics program at NCSU).

An interview with a CDS bond trader

Well worth watching.

Interestingly, it turns out that the CDS contracts on Greek debt may not pay out because they didn't specifically define a principal reduction as a credit event.   This is the inherent problem with CDS contracts - they have to explicitly define what constitutes a credit event before the event occurs.

Felix opines on Apple's dividend.

Felix Salmon, talks about Apple's dividend.  I usually agree with what Felix says - he's a smart, insightful guy, but I think he's off base here on a couple of points.

First he argues that Apple has no control over the level of the dividend yield (D/P) because Apple can't set its stock price.  This is plain wrong.  Sure, Apple can't control its stock price, but it should at least think about the level of the dividend that it is paying relative to the stock price.   Personally, I think that the 1.8% yield is pretty healthy.

Second, Felix doesn't think that the firm should issue debt.  He says - what would the firm do with the cash?   Well, the firm could buy back stock.   As any finance students knows, the firm's cost of capital is based on its WACC.  Debt is tax deductible, and for a firm that is so crazy profitable as Apple, any sort of tax deduction would seem like a good idea.  This would involve a lot of stock buying back, but so what?

Still an interesting post and worth reading.