Listen Now

A class introduction (no numbers) to the Racism topic.  Frankly, I don't think it is great, but for such an important topic it did need an introduction.    Short version: racism is really bad, but still here, and in this section we will look at the psychology of racism and what we need to do to overcome biases.   

Most work in the field of behavioral finance focuses on the investment side of the fence.  That is unfortunate as managers are people too and they fall prey to many of the same biases that investors do. In this section of the course we will look at how overconfident managers will take bigger risks than more rational managers.  

WHen most people think of behavioral finance, they think of the material we will cover in this section. It is a look at how biases can impact investor returns.   We will look at bubbles, excessive trading (and risk taking), and the social aspects of investing.  

From Marketing to politics., from Healthcare to Education,  from International Development to treating addictions, the things we learned in Behavioral Finance and Economics can be used to help make the world a better place.    

This episode gives a short introduction into the two concepts covered in this part class:The concept of Scarcity as described in Mullainathan and Shafer's great book: Scarcity: The New Science of Having Less and How It Defines Our Lives.  How having too little (or alternatively having too much stress) can impact brain development and rational decision making.  PS: this may be my favorite part of the class.  I see it constantly in my own life, but also in those of many of the people that BonaResponds helps.  

While this is not a science class, we do need to have an understanding of the various parts of the brain, how we look at the brain, and how what we do (or don't do) can influence the brain and our decisions.  We also look some at addiction as it gives us insights into how the brain works, and also in the context of being "addicted to risk".   

This is an introduction to behavioral biases.   The short version: thinking is hard.  It can take time and effort.  So we have evolved to come up with shortcuts and biases that do not always help us when it comes to financial decisions (or other kinds of decisions either).This material is central to the whole course.  So be sure to understand it as you go through the various topics covered.  A few of the links we will be covering in class are:  Wikipedia, but very well done: https://en.wikipedia.org/wiki/List_of_cognitive_biasesDaniel Kahneman - Your Mind and Your MoDaniel Kahneman - Thinking, Fast and SlowDaniel Kahneman - Masters in BusinessDaniel Kahneman - Thinking, Fast and Slow Animated Book ReviewFightMediocrity - Priming, Halo Effect, Hindsight Bias - Thinking, Fast and Slow (Part 3)Hidden Brain - I’m Right, You’re WrongBig Think - Your Brain is so JudgementalLong Luong - Loss Aversion and The Endowment EffectBehavioral Finance and Market BehaviorMeir Statman - Interview with Meir Statman: Masters in Business (Audio)Laurie Santos -  A Monkey Economy as Irrational as Ours

 An Introduction to Behavioral Finance and Behavioral Economics at St. Bonaventure University.  It is tailored to MBA 639 but can be listened to by anyone.  Not sure what happened to the audio quality.  Sounds like I was in a tunnel.  Which I assure you I was not.  But I recorded it twice and it sounded the same.  So, here we go!:Here are some notes for those who are interested: My presentation on it:https://www.dropbox.com/s/tqzxaxzaujtiyrs/Presentation%20for%20Behavioral%20Science%20and%20Teaching%20Paper%20%281%29.pptx?dl=0 What is Behavioral Economics?https://vimeo.com/38663941 What is Behavioral Finance? http://www.ted.com/talks/dan_ariely_asks_are_we_in_control_of_our_own_decisionsGame Theory:http://www.cdam.lse.ac.uk/Reports/Files/cdam-2001-09.pdf If you want more, stay tuned!  Or better, sign up for my class :) 

Hostile takeover defenses.  Takeover waves.  Still no voice, but a little better.  how to fight acquisitions Pre-bid defenses:Maximize Shareholder value!Shark repellentsSuper majority: For a takeover, you need more than 51% of votesFair Price Amendments: any takeover must be for more than some “fair price”Staggered Boards: Board members not all up for election at the same timePoison Pills (AKA Shareholder rights plans)Shop around clause: give you the right to shop around for a better dealDual classes of shares where managers/insiders hold multiple votes per share Post offer (i.e. you are in play!)Asset restructuringselling crown's jewels (divestiture, carve-out, spin-off)one-time dividend (this is also a Financial Restructuring)Financial RestructuringBuyback--possibly greenmailIncrease debtone-time dividend (this is also an asset restructuring)Litigation-sue everyoneMake it political: take it to the press etcPac-man Defense (make a counter bid on acquirer)White Knights- Find someone to come and take you over on more friendly terms. 

In an attempt to wrap up MBA 610, I made a list of things on the horizon.  It was a tough list to make.  A few things that were really close: FinTech, raising interest rates, the role of government in markets, and more.   The list: Income and Wealth inequalityThe Anti-globalization movement (a blip or a longer term thing?)AI and the coming machinesLiving longer and slower population growthHealth Care CostsGlobal WarmingThe bottom billionBig Data and online secrecyConfirmation bias and “us vs them”The changing of Wall Street: Passive and FinTech

First, let me apologize, I lost my voice for much of this week and this is definitely not the best audio quality.  I am happy with the content however and I edited out most of my coughs :)The merger and acquisition market is part of the market for corporate control includes mergers and acquisitions, proxy fights,  divestitures, spin-offs, carve-outs.  Some of these deals are driven by tax reduction strategies, some by restructurings, some by a desire to retire, and others are pure valuation plays.  But whatever the reason, the market is a big player (creating large fees for investment bankers as well) in the world of business.Why is the market for corporate control so important?  It creates value by getting assets to higher valued users.It disciplines poor managers.It pressures managers (and boards) to keep stock prices high and to look out for shareholders.It allows firms to quickly bring products to marketIt is a part of tax reduction strategies.How a merger can create valueEconomies of scale--this allows fixed costs to be spread over higher revenues.Economies of vertical integration (lower Transaction costs)Combining complementary assets (drug company and sales force) leads to increased revenuesSynergy: the idea that assets work better together (1+1=3)Marketing or distributionMarket power--Esp with horizontal mergersElimination of poor managementAccess to a. materials    b. customers, c. capitalLower taxesCost cutting

Shareholders' payoff looks like that of a call holder.  Calls appreciate with volatility.  So why do firms hedge?  There are many reasons (at least theoretically):  It makes contracting easier, it makes it easier to hire people, lowers the cost of debt, lowers expected bankruptcy costs, and lowers expected taxes.  

IPOs tend to be underpriced in short-run.  That is to say, they go up on the first day of trading.  In the longer-term (3-5 years) they tend up underperform their control groups. 

I don't dive in super deep here but rather give you an overview/primer to the basic building blocks and option pricing models.  It should be used in addition to the textbook and class notes, not instead of! :)  

Market efficiency is not a Binary YES/NO variable.  Rather it is a continuum from not so efficient to very very efficient.  NOTE . market efficiency does not imply perfection! :)  Links I mention:  https://helpified.com/paths/technically-not-passiveand Wisdom of Crowds (short and funny)  https://www.youtube.com/watch?v=r-FonWBEb0o On Warren Buffett's bet: http://fortune.com/2017/02/25/warren-buffett-scorches-the-hedge-funds/  

A fast look at capital budgeting.   Capital budgeting is deciding which assets you want on your balance sheet.  The key point it to compare costs and benefits.  This is EXACTLY what NPV does which is why I suggest you use NPV whenever possible.We end with a short discussion of Real Options

This is to accompany a look at the specs of a corn futures contract: http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/corn_contract_specifications.html is what we will focus on.  

A short look at/introduction to stock market indexes.  We discuss both price-weighted indexes (such as the DOW) and value-weighted (such as the S&P 500).  

This is a quick look at capital structure.  Capital structure questions (how much debt to use) center on the tradeoff between tax savings and risk.   

An introduction to the cost of equity and CAPM  I should stress, that equity is not free.  Investors want a return.  That return is a cost to the firm.  (even though it does not appear on the income statement).  CAPM is a common way to estimate the cost.  REMEMBER, THIS IS AN INTRODUCTION.  It is meant to go with your textbook and class notes.