More on the perpetual hand-ringing of whether business education is relevant.
From the Financial Times.
and a few from Craig Newmark.
Wednesday, April 27, 2011
Doing nothing is an option
Real options are common in business - they represent the value of being able to choose to do something in the future. An example of a real option is the option to expand production of a product if initial sales look good.
But real options can also include the option to not do something, as in the case of not drilling for oil when it might be more profitable to wait. Unfortunately, the Federal Government doesn't understand real options and Felix has the story.
But real options can also include the option to not do something, as in the case of not drilling for oil when it might be more profitable to wait. Unfortunately, the Federal Government doesn't understand real options and Felix has the story.
Does beta predict returns?
Fama and French answer the age old question: do high beta stocks outperform low beta stocks? Their answer is yes, but not by as much as they should.
Why analysts hate to give sell ratings
Felix Salmon discusses why analysts don't like to give sell recommendations. As I've said in class, analyst stock recommendations are largely useless.
Tuesday, April 19, 2011
Diversification by Omission?
Ken French talks about the effect of omission on diversification.
Key point - its not just all about correlations. Raw variances matter too.
The idea of bets by omission is a really important one and something I recently talked about with Ron Elmer who is the author of "The 401K Cook Book". Ron's point is that many portfolio managers who are benchmarked against the S&P 500 hold only a fraction of the 500 stocks in the index. Perhaps the stocks that they hold are the ones that they feel most strongly about. Or perhaps they just don't have the man power to examine all 500 stocks. Either way, the stocks that they don't hold actually represent a bet against those stocks. In effect they are underweight those stocks.
We should be very careful to think about what we are not including in our portfolios because these "omissions" actually represent unintended bets against those securities.
Key point - its not just all about correlations. Raw variances matter too.
The idea of bets by omission is a really important one and something I recently talked about with Ron Elmer who is the author of "The 401K Cook Book". Ron's point is that many portfolio managers who are benchmarked against the S&P 500 hold only a fraction of the 500 stocks in the index. Perhaps the stocks that they hold are the ones that they feel most strongly about. Or perhaps they just don't have the man power to examine all 500 stocks. Either way, the stocks that they don't hold actually represent a bet against those stocks. In effect they are underweight those stocks.
We should be very careful to think about what we are not including in our portfolios because these "omissions" actually represent unintended bets against those securities.
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