An Airline Shrugs at Oil Prices - New York Times:
"Southwest owns long-term contracts to buy most of its fuel through 2009 for what it would cost if oil were $51 a barrel. The value of those hedges soared as oil raced above $90 a barrel, and they are now worth more than $2 billion. Those gains will mostly be realized over the next two years. Other major airlines passed on buying all but the shortest-term insurance against high fuel prices..."
That other airlines were not hedging (or at least not hedging long-term) has been one of my pet peeves going back as far as the newsletter days. Sure it costs money to hedge, and sure is not without some risks (see for instance this story on what happened when oil prices fell), but hedging makes too much sense not to do.
How does hedging work? Why? The best explanation I have ever seen comes from an old Corporate text book I once used by Rao (do not think it is still in print and I can not find my copy). In it he described how hedging allows management to worry about what they do well and can control (service, pricing, safety etc) and not what they can not control (oil prices in this case).
An other view (the two views are definitely NOT mutually exclusive) is that hedgers have both better access to capital markets and less need to go when the asset (oil) moves in teh 'wrong' direction. My favorite paper in this area has long been Carter, Rogers, and Simkins.
Of course that said, all of the good I can say about hedging goes out the window if firms use the same derivatives to speculate.
Thanks to Felix over at Conde Nast's Porfolio.com for the heads-up on this one.
Friday, November 30, 2007
An Airline Shrugs at Oil Prices - New York Times
An Airline Shrugs at Oil Prices - New York Times:
"Southwest owns long-term contracts to buy most of its fuel through 2009 for what it would cost if oil were $51 a barrel. The value of those hedges soared as oil raced above $90 a barrel, and they are now worth more than $2 billion. Those gains will mostly be realized over the next two years. Other major airlines passed on buying all but the shortest-term insurance against high fuel prices..."
That other airlines were not hedging (or at least not hedging long-term) has been one of my pet peeves going back as far as the newsletter days. Sure it costs money to hedge, and sure is not without some risks (see for instance this story on what happened when oil prices fell), but hedging makes too much sense not to do.
How does hedging work? Why? The best explanation I have ever seen comes from an old Corporate text book I once used by Rao (do not think it is still in print and I can not find my copy). In it he described how hedging allows management to worry about what they do well and can control (service, pricing, safety etc) and not what they can not control (oil prices in this case).
An other view (the two views are definitely NOT mutually exclusive) is that hedgers have both better access to capital markets and less need to go when the asset (oil) moves in teh 'wrong' direction. My favorite paper in this area has long been Carter, Rogers, and Simkins.
Of course that said, all of the good I can say about hedging goes out the window if firms use the same derivatives to speculate.
Thanks to Felix over at Conde Nast's Porfolio.com for the heads-up on this one.
"Southwest owns long-term contracts to buy most of its fuel through 2009 for what it would cost if oil were $51 a barrel. The value of those hedges soared as oil raced above $90 a barrel, and they are now worth more than $2 billion. Those gains will mostly be realized over the next two years. Other major airlines passed on buying all but the shortest-term insurance against high fuel prices..."
That other airlines were not hedging (or at least not hedging long-term) has been one of my pet peeves going back as far as the newsletter days. Sure it costs money to hedge, and sure is not without some risks (see for instance this story on what happened when oil prices fell), but hedging makes too much sense not to do.
How does hedging work? Why? The best explanation I have ever seen comes from an old Corporate text book I once used by Rao (do not think it is still in print and I can not find my copy). In it he described how hedging allows management to worry about what they do well and can control (service, pricing, safety etc) and not what they can not control (oil prices in this case).
An other view (the two views are definitely NOT mutually exclusive) is that hedgers have both better access to capital markets and less need to go when the asset (oil) moves in teh 'wrong' direction. My favorite paper in this area has long been Carter, Rogers, and Simkins.
Of course that said, all of the good I can say about hedging goes out the window if firms use the same derivatives to speculate.
Thanks to Felix over at Conde Nast's Porfolio.com for the heads-up on this one.
Monday, October 29, 2007
The News-Gazette.com:Top salaries continue to rise as UI competes for talent
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.
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.
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."
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