Well this was sent to me, it is not to as a means of saying so and so gets too much, merely to report that it really is a different world. This is from the University of Illinois.
The News-Gazette.com:Top salaries continue to rise as UI competes for talent :
"As of fall 2006, the average salary for a full-time professor at the UI was $95,700, up $13,400 or 16 percent since 2002. When comparing that average salary to those at the 21 institutions, the UI ranks third from the bottom, behind Michigan, Texas and North Carolina but ahead of Washington and Wisconsin....In recent years, as turnovers have occurred in high-level positions at the university, salaries for new employees have often risen well above the predecessor's pay. Four years ago, the UI's vice president for technology and economic development, David Chicoine, earned $262,500. UI College of Business Dean Avijit Ghosh will assume that post in January and earn $339,000....Of the more than 100 people who earn $200,000 or more at the UI, many are in the business and law schools. And many hold endowed chairs, meaning some of the salary is funded by a donor.Such top faculty earners include finance Professor Jeff Brown, who has the title of William Karnes Professor of Mergers and Acquisitions, and a salary of $245,000;"
This does show how much salaries can vary. At small schools (such as SBU) it may take the sum of four years to make that much. :( Oh well...having traveled to mid Ohio, Orlando, and NYC in the last three weeks, I can definitely say I would not want to trade places.
Monday, October 29, 2007
Saturday, October 27, 2007
Do Finance Profs practice what they preach?
Sometimes the most important finding of an article is not played up while lesser items (especially those that appear to more exciting or controversial) are given more play. For instance from SmartMoney:
Finance Profs Reveal How They Invest Own Money (The Pro Shop) | SmartMoney.com:
"Colby Wright, assistant professor of finance at Central Michigan University and James Doran, finance professor at Florida State University, [survey] ... finance professors. After all, they're arguably the most educated and well-informed people when it comes to understanding the mysteries behind stock price movements. [I think the article somehow left out 'best looking", funniest, and "nicest" as well.] So Wright and Doran set out to survey all the professors of finance in the U.S. and ask what's most important to them when investing their own money. The survey resulted in 642 usable responses. They published their results earlier this year in a paper titled 'What Really Matters When Buying and Selling Stocks?"
The findings were not exactly what we would think. For instance the survey suggests that PE ratios, market multiples, and momentum investing are among the keys and not CAPM, efficient markets and the market risk factors.
"Out of 43 variables given, the most important were a company's price/earnings ratio and how close a stock is to its 52-week high to low. Considering the material most finance professors teach their students as a way of explaining stock price movements — like the capital asset pricing model and discounted cash flows — Wright calls the findings surprising"
Which is true to a degree, but virtually all finance classes also cover market multiples, such as PE ratios, in some format. For instance in my classes I harp on the fact that both Discounted CAsh Flow analysis and multiples are really doing something very similar just in a different way and there is a place for both. In fact, we generally say that the time to perform a DCF projection is often not worth it for small investments.
Had that been the entire story it MIGHT have been blog worthy. However, after reading the actual article it screamed "Blog me!"
It could be argued that the main finding of the paper was not the reported use of mutliples and momentum investing, but that "...over two-thirds of the sample are passive investors, and not because they don’t have the time to invest."
Thus, the headline grabbing headlines were not from the entire sample but only a small subsample of active investors.
Which to my biased reading suggests that the majority of finance professors do appear to practice what they preach!
Finance Profs Reveal How They Invest Own Money (The Pro Shop) | SmartMoney.com:
"Colby Wright, assistant professor of finance at Central Michigan University and James Doran, finance professor at Florida State University, [survey] ... finance professors. After all, they're arguably the most educated and well-informed people when it comes to understanding the mysteries behind stock price movements. [I think the article somehow left out 'best looking", funniest, and "nicest" as well.] So Wright and Doran set out to survey all the professors of finance in the U.S. and ask what's most important to them when investing their own money. The survey resulted in 642 usable responses. They published their results earlier this year in a paper titled 'What Really Matters When Buying and Selling Stocks?"
The findings were not exactly what we would think. For instance the survey suggests that PE ratios, market multiples, and momentum investing are among the keys and not CAPM, efficient markets and the market risk factors.
"Out of 43 variables given, the most important were a company's price/earnings ratio and how close a stock is to its 52-week high to low. Considering the material most finance professors teach their students as a way of explaining stock price movements — like the capital asset pricing model and discounted cash flows — Wright calls the findings surprising"
Which is true to a degree, but virtually all finance classes also cover market multiples, such as PE ratios, in some format. For instance in my classes I harp on the fact that both Discounted CAsh Flow analysis and multiples are really doing something very similar just in a different way and there is a place for both. In fact, we generally say that the time to perform a DCF projection is often not worth it for small investments.
Had that been the entire story it MIGHT have been blog worthy. However, after reading the actual article it screamed "Blog me!"
It could be argued that the main finding of the paper was not the reported use of mutliples and momentum investing, but that "...over two-thirds of the sample are passive investors, and not because they don’t have the time to invest."
Thus, the headline grabbing headlines were not from the entire sample but only a small subsample of active investors.
Which to my biased reading suggests that the majority of finance professors do appear to practice what they preach!
Thursday, September 13, 2007
Hedge funds lure business school profs
Hedge funds lure business school profs:
"The growing and lightly regulated hedge fund industry is attracting new players -- business school professors eager to test their theories in a field known for big risks and occasionally bigger rewards. Hedge funds are becoming a tempting tool for faculty members looking to sharpen research and giving a Wall Street perspective to their students, all while making some extra money."
"The growing and lightly regulated hedge fund industry is attracting new players -- business school professors eager to test their theories in a field known for big risks and occasionally bigger rewards. Hedge funds are becoming a tempting tool for faculty members looking to sharpen research and giving a Wall Street perspective to their students, all while making some extra money."
Sunday, September 2, 2007
Private lives of CEOs tied to profit, loss
For a news paper article, this one is great! It is a series of summaries that basically show that CEO's personal life impacts the firm.
Private lives of CEOs tied to profit, loss:
"Should shareholders in a company care if the chief executive's child dies? What if the mother-in-law passes away?.....slid by about one-fifth, on average, in the two years after the death of a CEO's child, and by about 15 percent after the death of a spouse. As for an executive's mother-in-law, the old jokes seem to hold: The researchers found that profitability, on average, rose slightly after her demise."
Private lives of CEOs tied to profit, loss:
"Should shareholders in a company care if the chief executive's child dies? What if the mother-in-law passes away?.....slid by about one-fifth, on average, in the two years after the death of a CEO's child, and by about 15 percent after the death of a spouse. As for an executive's mother-in-law, the old jokes seem to hold: The researchers found that profitability, on average, rose slightly after her demise."
Wednesday, June 27, 2007
More on Bear, Regulation, and transparency
Mark Gilbert writing for Bloomberg has a well done piece on the implications of the hedge fund problems at Bear Stearns.
Bloomberg.com: Opinion:
Two lookins:
"The most stunning aspect of the demise of two hedge funds belonging to Bear Stearns Cos. is the almost total absence of transparency surrounding the bailout.
The debacle may finally provoke regulators, who have long suspected that buying derivatives is akin to running through a fireworks factory with a lighted blowtorch in each hand."
And later:
"The unraveling of the Bear Stearns hedge funds has pulled back one corner of the curtain shielding the activities of hedge funds and their investments in derivatives, giving a glimpse of who is on the hook if the bets sour.
It seems that the skin in the game isn't from other hedge funds, Asian central banks, or widows and orphans. Instead, step forward the usual Wall Street suspects: Merrill Lynch & Co., Lehman Brothers Holdings Inc., Bank of America Corp. and their investment-banking peers."
Bloomberg.com: Opinion:
Two lookins:
"The most stunning aspect of the demise of two hedge funds belonging to Bear Stearns Cos. is the almost total absence of transparency surrounding the bailout.
The debacle may finally provoke regulators, who have long suspected that buying derivatives is akin to running through a fireworks factory with a lighted blowtorch in each hand."
And later:
"The unraveling of the Bear Stearns hedge funds has pulled back one corner of the curtain shielding the activities of hedge funds and their investments in derivatives, giving a glimpse of who is on the hook if the bets sour.
It seems that the skin in the game isn't from other hedge funds, Asian central banks, or widows and orphans. Instead, step forward the usual Wall Street suspects: Merrill Lynch & Co., Lehman Brothers Holdings Inc., Bank of America Corp. and their investment-banking peers."
Monday, June 25, 2007
Bear lends $3.2b to its troubled hedge fund
In what will no doubt be talked about in finance classes for years to come, the big news story today is that Bear Stearns has agreed to lend $3.2 Billion (about 25% (I did not verify this reported number) of its overall capital) to one of its troubled hedge funds.
First the reports:
Bear Stearns to Bail Out Troubled Fund - New York Times:
"Bear Stearns, the investment bank, said today that it would provide a secured loan of up to $3.2 billion to one of two troubled hedge funds operated by its asset-management business, in an effort to placate lenders and investors.
The move comes two weeks after banks that lent billions to the hedge fund, the Bear Stearns High-Grade Structured Credit Fund, demanded that it put up more money to make up for the losses in its portfolio of complex and hard-to-sell mortgage-related securities."
From Bloomberg:
"The funds speculated in highly-rated CDOs -- securities backed by bonds, loans, derivatives and other CDOs -- that were hurt in March and April as defaults on subprime mortgages to people with poor or limited credit histories increased. The fund also lost on opposite bets against home-loan bonds, which backed many of its CDOs.
As the funds faltered, Merrill [and others] sought to protect itself by seizing the assets that were used as collateral for its loans."
But had very limited success as there were few willing to buy at the prices being asked.
Keep it simple: So what happened? In as simple of terms possible, the hedge funds borrowed to buy "bonds" that subsequently went down in value. The collateral for this debt was the the bonds. Hence some borrowers demanded repayment and tried to sell the assets to raise cash. Fearing a fire sale Bear agreed to lend the fund $3.2 Billion to the fund in order to give it time to sell assets or for them to recover.
Is it catchy? The real question of course is whether this will lead to a contagion problem where other firms get in trouble and the possibly lead to a melt down. While it is impossible to say so soon, early guesses are that the problem is not very contagious and any major meltdown is highly unlikely. Why? For one thing almost everyone who has been paying any attention in the past few weeks(months?) has seen it coming.
If you think back to Long Term Capital Management, this was the big issue there as well and led to the Fed arranged bail out of that troubled fund. In many ways, the same thing will likely happen now. Assets will be sold in a more orderly fashion and in due time the fund will be closed.
Yes the risk does still exist (and always will), but it does not appear to be a catastrophic event this time. For one, there are many more hedge funds and private equity investments. thus, through diversification, the impact will be less. Moreover, while highly levered, first reports have leverage less than at LTCM.
What risk is Bear taking on in extending the loan? According to Bear CFO Sam Molinaro (who incidentally is an SBU grad) not much since the assets pledged against the loan are worth more than the loan. (Which of course is hard to say with certainty as evidenced by ML's difficulty in selling off the $850M in assets and getting bids as low as 30 cents on the dollar.
So what will happen? Most likely the funds will sell off their assets and eventually be shut down. But the loan from Bear will give the funds time to do so in an orderly fashion and not at 30 cents on the dollar the WSJ reported this morning that some universities were bidding for the debt.
First the reports:
Bear Stearns to Bail Out Troubled Fund - New York Times:
"Bear Stearns, the investment bank, said today that it would provide a secured loan of up to $3.2 billion to one of two troubled hedge funds operated by its asset-management business, in an effort to placate lenders and investors.
The move comes two weeks after banks that lent billions to the hedge fund, the Bear Stearns High-Grade Structured Credit Fund, demanded that it put up more money to make up for the losses in its portfolio of complex and hard-to-sell mortgage-related securities."
From Bloomberg:
"The funds speculated in highly-rated CDOs -- securities backed by bonds, loans, derivatives and other CDOs -- that were hurt in March and April as defaults on subprime mortgages to people with poor or limited credit histories increased. The fund also lost on opposite bets against home-loan bonds, which backed many of its CDOs.
As the funds faltered, Merrill [and others] sought to protect itself by seizing the assets that were used as collateral for its loans."
But had very limited success as there were few willing to buy at the prices being asked.
Keep it simple: So what happened? In as simple of terms possible, the hedge funds borrowed to buy "bonds" that subsequently went down in value. The collateral for this debt was the the bonds. Hence some borrowers demanded repayment and tried to sell the assets to raise cash. Fearing a fire sale Bear agreed to lend the fund $3.2 Billion to the fund in order to give it time to sell assets or for them to recover.
Is it catchy? The real question of course is whether this will lead to a contagion problem where other firms get in trouble and the possibly lead to a melt down. While it is impossible to say so soon, early guesses are that the problem is not very contagious and any major meltdown is highly unlikely. Why? For one thing almost everyone who has been paying any attention in the past few weeks(months?) has seen it coming.
If you think back to Long Term Capital Management, this was the big issue there as well and led to the Fed arranged bail out of that troubled fund. In many ways, the same thing will likely happen now. Assets will be sold in a more orderly fashion and in due time the fund will be closed.
Yes the risk does still exist (and always will), but it does not appear to be a catastrophic event this time. For one, there are many more hedge funds and private equity investments. thus, through diversification, the impact will be less. Moreover, while highly levered, first reports have leverage less than at LTCM.
What risk is Bear taking on in extending the loan? According to Bear CFO Sam Molinaro (who incidentally is an SBU grad) not much since the assets pledged against the loan are worth more than the loan. (Which of course is hard to say with certainty as evidenced by ML's difficulty in selling off the $850M in assets and getting bids as low as 30 cents on the dollar.
So what will happen? Most likely the funds will sell off their assets and eventually be shut down. But the loan from Bear will give the funds time to do so in an orderly fashion and not at 30 cents on the dollar the WSJ reported this morning that some universities were bidding for the debt.
Tuesday, April 24, 2007
Bloomberg.com: Worldwide
Bloomberg.com: Worldwide:
"The U.S. Securities and Exchange Commission filed a lawsuit against two former Apple Inc. top executives for their roles in backdating stock-option grants, including some made to Chief Executive Officer Steve Jobs.
Former Apple General Counsel Nancy Heinen's lawyers have said she'll fight the case. The SEC settled with former Chief Financial Officer Fred Anderson. He agreed to forfeit $3.5 million and pay a $150,000 fine to resolve claims he filed false financial reports and had inadequate accounting controls at the Cupertino, California-based company, the SEC said."
"The U.S. Securities and Exchange Commission filed a lawsuit against two former Apple Inc. top executives for their roles in backdating stock-option grants, including some made to Chief Executive Officer Steve Jobs.
Former Apple General Counsel Nancy Heinen's lawyers have said she'll fight the case. The SEC settled with former Chief Financial Officer Fred Anderson. He agreed to forfeit $3.5 million and pay a $150,000 fine to resolve claims he filed false financial reports and had inadequate accounting controls at the Cupertino, California-based company, the SEC said."
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