Friday, December 18, 2009

Book Review: When Genius Failed: The Rise and Fall of Long-Term Capital Management

Here's how to lose billions of dollars over your next vacation.

In the mid 1990s, some of the brightest stars of the investing and academic universe came together to found Long Term Capital Management - the ultimate low-risk hedge fund. This was the death knell for the shoot from the hip investment broker type. Wall Street was now in the hands of the quants (people who believed in quantitative analysis to the exclusion of everything else).

Or so they thought. Using data from decades of Wall Street futures, options and equity prices, LTCM deceived themselves into thinking they had discovered immutable laws of the universe. If a price deviated from the historical norm, LTCM rushed in to make up the difference. After all, wouldn't the market eventually come to its senses, thereby benefiting the hedge fund?

The trouble with the universe, is that it is always evolving and developing new norms. LTCM began life with stellar performance. But over-reliance on mathematical models that were fundamentally incomplete ultimately spurred fantastic losses. Billions of dollars went up in smoke.

This experience in the late 1990s completely changed Wall Street. Gone were hubristic, mathematical Rube Goldberg-esque models of the universe, backed to the hilt with ridiculous amounts of leverage. Well actually, that didn't happen.

When Genius Failed, The Rise and Fall of Long-Term Capital Management is gifted financial writer Roger Lowenstein's account of the big electronic money bonfire that was LTCM.

Read it for a critique of quantitative analysis as well as deepening your sense of Wall Street history. You'll be less likely to fall for the latest thing.

Monday, November 23, 2009

Rankings of Global Competiveness


The World Economic Forum is one of those nebulous organization that publishes information and lists like this (most competiveness economies). They have a mysterious compound in Switzerland. One halfway expects to see armed guards milling around as the top of the building opens and a death ray machine pops up....

Here's a good link to more detailed country information and how they made the list. In between sipping Tokay and dispatching Number Two to a sauna in the English countryside.

Nevertheless the snark, take a look at the list because it will give you some ideas about what makes a good economy and how to sift different factors in the information soup.

FWIW. Reading other people's analyses will help you with your own.

Friday, November 13, 2009

LIBOR Rate

Ever hear of LIBOR (the London Inter Bank Offer Rate)? It's the rate for banks borrowing unsecured funds from each other in the London money market. It has international significance, even for banks not using the London market.

Here's my favorite way to get LIBOR - on Bloomberg.

Oh right, we also have it in ECONOMAGIC. This link contains different currencies and time horizons.

Friday, November 6, 2009

Book Review: How To Lie With Statistics

This is a classic little book that summarizes basic rules of probabilities and statistics and how they are often misused to produce official sounding statistics.

I love the humorous and accessible writing in this book. It's a greatest hits of statistical sleights of hand and snake oil medicine.
You may already know concepts like median, mean and mode, but I'll wager that your statistics professor didn't spend too much time on how they are misused in the real world.
And folks, these tricks, get used over and over again, year-in and year-out. After reading this book, I can spot this stuff in the news everyday.
One of my favorite bits: the section on typical graph tricks (you'll have to check it out!)

Friday, October 23, 2009

Origin of Focus Groups

I am going to order this for the library, but check out this excerpt from Century of The Self.

This is an acclaimed BBC series about the development of modern marketing based on psychological principles.

The excerpt above covers the origin of the focus group format and the psychological methods used to prompt people to buy products.

Go beyond your assignments and learn the real story behind marketing.

Friday, October 16, 2009

400 Richest Americans

An after-dinner mint of information: Forbes's 400 Richest Americans.

There is a cool way to search by industry and state.

Wednesday, October 14, 2009

Measuring Short Interest in a Company's Shares

Let's say you need to know the short selling interest in a stock. Short selling means that you sell borrowed shares at today's prices before you have to pay for them. Which means you can make money in a declining market.

The easiest way to do this is to check the NASDAQ (EVEN FOR STOCKS THAT ARE NYSE-LISTED) website.

In NASDAQ, put in the name of your company, and then look at the left hand side of the screen. You should see short interest listed there.



If you are interested in long and short interest in commodities, check out the official Commitment of Traders link here.


Tuesday, October 13, 2009

Book Review: Against the Gods: The Remarkable Story of Risk

These books are the kind of thing that can put you over the top in business, school and life.

So let's do another one.

Peter Bernstein's Against the Gods, The Remarkable Story of Risk.

Here's what Publishers Weekly said about this title:

Risk management, which assumes that future risks can be understood, measured and to some extent predicted, is the focus of this solid, thoroughgoing history. Probability theory, pioneered by 17th-century French mathematicians Blaise Pascal and Pierre de Fermat, has made possible the design of great bridges, electric power utilities and insurance policies.

The statistical sampling methods invented by dour Swiss scientist Jacob Bernoulli undergird diverse activities such as the testing of new drugs, stock-picking and wine tasting. Bernstein (Capital Ideas) animates his narrative with a colorful cast of risk-analyzers, including gambling addict Girolamo Cardano, 16th-century Italian physician to the Pope; and John Maynard Keynes, whose concerns over economic uncertainty compelled him to recommend an active, interventionist role for government.

Bernstein also traces the development of business forecasting, game theory, insurance and derivatives, and surveys recent advances in risk forecasting made possible through chaos theory and by the development of neural networks.


Tuesday, October 6, 2009

Candlestick Charts in Stock Analysis

Candlestick chart analysis is an amazingly visceral way to represent technical analysis in stocks. It actually comes from Japan and originated in rice futures trading.

The resemblance to candlesticks gives this method its name. Seen together on a chart, the candlesticks reveal the same information - and sometimes more - that Western technical analysis does. It's quicker visually to grasp and the patterns have great names like "gravestone," "shooting star," and "spinning tops."

Candlestick charting is great for determining market direction and particularly useful to short-term traders.

I have ordered more candlestick charting books, but here's a link to our current holdings.

Friday, October 2, 2009

How Much Does A Company Spend on Research and Development?

Do you need to find out how much a company spends on Research and Development?

My favorite way to do this is through the Mergent database. Find your company, select financials and then choose income statement (see below):

By the way, the above example is Apple.

Business Classic: Barbarians at the Gate


The 1980s are the prototypical Wall Street decade. The country had emerged from a lengthy slumber marked by stagnant growth and a bear market.

Many of the high profile deals of the 1980s were in fact part of a massive industrial reorganization of America. It was the age of the junk bond, leveraged buy-outs and hostile takeovers.

Barbarians at the Gate covers one aspect of that story: the machinations surrounding the massive 1988 RJR Nabsico leveraged buy-out. It's a titanic struggle of egos between CEOs and corporate raiders as both sides want to take the company private and line their pockets as well.

Read this book to better understand corporate finance, learn about the origins of modern Wall Street dealmaking, and read a business book you will be expected to know. Plus, it's a good time with classic real-life Wall Street sleazeballs!


Thursday, October 1, 2009

Reference USA Database and Your Entrepreneur/Start-up Project

Reference USA is my preferred way of looking up all the current and new businesses in your selected industries. There are geographic limiters - city, county, zip code and radius that you may use as well.




video

Wednesday, September 30, 2009

Book Review: Liar's Poker

Liar's Poker is an account of the high pressure deals on Wall Street during the 1980s. The author, Michael Lewis, was a bright and very young recent college graduate who suddenly found himself making insane amounts of money trading bonds on the floor of Salomon Brothers.

Lewis recounts his adventures in learning to trade the market, the profane culture of the brokerage, and playing Machiavellian office politics. It's pretty dramatic, with lots of high stakes deals, backbiting and secret alliances, and the stench of greed. It's also how the financial world operates.

Read this book if you want to understand the mentality of trading, the culture of Wall Street, and learn about how money flows in the financial world.

Friday, September 25, 2009

Quickly Identify a Country's Imports

The Database Europa allows you to quickly identify a country's general imports and exports.

The Steps:

1. Go To Europa. 2. Select Country 3. Country Statistics 4. External Trade



Far greater detail and up-to-the-minute data is available in Faostat and Usa Trade Online (UTO is unfortunately accessible only on the 4th floor of the library). I'll post on those another time.

But Europa is a quick way to find general numbers.

Friday, September 18, 2009

Municipal Code for Small Business/Entrepreneurs

The nitty gritty regulations that cover your small business are found in the municipal code for a city.

These are regulations like how many parking spaces per resident your apartment complex must have, keeping animals, and environmental regulations.

San Marcos Municipal Code LINK

Or, search for the code of your preferred city.

Tuesday, September 15, 2009

New Beige Book is Out

The Fed Reserve has released its current edition of the Beige Book. Editions come out eight times a year. The actual title is Summary of Commentary on Current Economic Conditions.

This is the book that summarizes current economic conditions in different areas of the country. It's a little general in content, but it's often referred to by economic commentators.

The Baby-Sitting Co-Op Economics Article


Heard about the baby sitting article yet?

Like the book reviews, I will sometimes include thought pieces here that give you context, meaning, and fodder for your imagination.

So today's food-for-thought piece is a famous academic journal article about a group of young families in need of a babysitter. They made coupons that could be redeemed for one night of baby sitting, and....then something unexpected happened.

Nobody wanted to go out (because they wanted to save up the scarce coupons) and therefore people weren't earning coupons for spending. Without coupons, they couldn't go out. What's the solution? In other words, this problem is about demand, money supply, and deflation. Sound familiar?

And this is what people are talking about when they mention "the baby-sitting article."

Thursday, September 3, 2009

Book Review of The Black Swan

From this book review:

Taleb is concerned with black swans, i.e., unpredictable and improbable events that have great impact. Among the examples of these he cites are the rapid spread of the Internet and the 9/11 attacks.

People endeavor to explain black swans after they occur, but they cannot do so in advance. Despite the crucial effects of these events, economists and other supposed experts in prediction fail to allow for them; indeed, their theories often deny their possibility.

Because of this failure, Taleb maintains that much business forecasting is useless. To him, only a few economists, e.g., Friedrich Hayek, grasp the vital importance of uncertainty and escape condemnation. Taleb extends his indictment of conventional approaches to risk, contending that the bell curve, a key tool of many standard theories, often fails to fit the actual world. He further posits that people tend not to cope with a black swan properly, tailoring their response to specific details of the incident rather than generalizing their response.

Wednesday, September 2, 2009

Wake Up Everyday to the Wall Street Journal or Other Business News

Want to automatically receive daily news from the Wall Street Journal, Forbes, Barron's or many, many other business titles? You can create an RSS feed that sends you a link to the daily news to your email, Google account, or other RSS readers.

Go to ABI Inform and click on publications. Browse or find the exact title you want. If there's a RSS icon next to the publication title, you can create a RSS feed for that title.

After the RSS is created, click on the URL and you will see several options for receiving the feed.



FYI: A lotta other databases allow you to create alerts or RSS feeds. Look for the option.

Update: Hmmm....there might be a one day delay on the Wall Street Journal RSS feed....but it's still cool.

Sunday, August 30, 2009

Book review of Predictably Irrational

This is a neat book about the subjective way people make decisions. It fits into a recent rash of books that argue that people don't make logical judgements based on perfect information. And there is an economic emphasis to the book.

LOTS ABOUT PRICING, CONSUMERS AND MARKETING.


I'll include an excerpt of the New Yorker review below:

When they examined how people deal with uncertainty, Tversky and Kahneman found that there were consistent biases to the responses, and that these biases could be traced to mental shortcuts, or what they called "heuristics." Some of these heuristics were pretty obvious -- people tend to make inferences from their own experiences, so if they've recently seen a traffic accident they will overestimate the danger of dying in a car crash -- but others were more surprising, even downright wacky.

When you walk into Starbucks, the prices on the board are supposed to have been determined by the supply of, say, Double Chocolaty Frappuccinos, on the one hand, and the demand for them, on the other. But what if the numbers on the board are influencing your sense of what a Double Chocolaty Frappuccino is worth? In that case, price is not being determined by the interplay of supply and demand; price is, in a sense, determining itself.

Wednesday, August 12, 2009

Match Your Consumer to A Community

If you've figured out who buys your product, now match your consumer to a community or vice versa.

Here's how to find out this kind of information:

Our Simply Map and Local Market Analyst databases give you consumer information about local populations.

Here are some print options in the library:

County Demographics, the Rand McNally Marketing Atlas and Zip Code Demographics.

Web:

Finally, you could go online and use government census data from American Factfinder.

Who Buys Your Product?

Who is the typical consumer for your product?

Lotta different ways to research this one. (update: watch the overall training video here. )

There is a great series called Who's Buying (just about anything). Most of these are located behind the reference desk.

Can't miss the Best Customers book.

Library Databases:

Local Market Analyst is a good source.

Simply Map is a good source for seeing how consumers in your geographic area behave. Tutorial here.

MRI+ breaks this down. Watch the training video. This is a way to get some online data from a reliable source.

Another Thing:

Don't forget to get the macropicture of your industry with industry surveys.

Monday, July 27, 2009

Weblink to Niall Ferguson Explaining Financial Crisis Background

Niall Ferguson is a popular historian that's hosting an excellent series on PBS entitled The Ascent of Money.

Lotsa cool stuff about the role of money and credit in shaping society and Niall makes it easy to follow. Recommended for you to get a sense of how this stuff works in real life.

You can watch the entire 4 part series on the official PBS web site here.

Part Four is dedicated to the current financialization crisis.

Thursday, July 16, 2009

Thinktanks: Learn How Reality is Made

Thinktanks are research institutions that produce analyses of current or future societal issues. Housing policy, income taxes, debt, credit and international trade are just some of the issues you'll see covered by these research institutions.

Some thinktanks have a political agenda while others are nonpolitical.

I have collected a list of some of the best-regarded thinktanks here. Usually, there's an emphasis on economics.

Learn how to use statistics and make arguments. Or learn to criticize their use in an argument!

Can you use thinktank papers in your project? It depends on the professor. The real point, as stated above, is to get you to see how arguments on contemporary issues are constructed.

Wednesday, June 24, 2009

Review of David Einhorn's Fooling Some of the People All of The Time

This is the start of a new feature for me. I'll pick a business related book and post a short review.

David Einhorn: Fooling Some of the People All Of The Time (2008)

David Einhorn is a very well-regarded hedge fund manager. After finding irregularities in a company called Allied Capital's financial statements, Einhorn went short the stock. Einhorn discussed his position that Allied Capital was in trouble at public forums. Then the nightmare began. Allied Capital waged a personal war against Einhorn that involves issues of Einhorn's free speech and the perception of short selling as wrong and injurious to capitalism (it's nothing of the kind IMO).

The Securities and Exchange Commission (SEC) eventually caught up to Allied Capital (which has still not admitted to wrongdoing). This book is about the right to be unpopular and the integrity of the financial system.

Einhorn gives many colorful examples of his thought process in identifying accounting sleights of hand. The examples range over several different companies and decades. It's an eye opener for most of us.

Friday, June 19, 2009

Federal Reserve Websites Are A Good Source of Information

One interesting place to find economic data and thought pieces with an economic slant are the websites of the Federal Reserve regional banks. I've learned about Texas exports, infrastructure, economic dimensions of social policy and of course, the housing crisis.

So there's always a lot about forecasting and analysis of current conditions on these sites, but also some interesting, learned papers about various topics. Keep your eyes peeled for economists writing about cutting edge issues that haven't received a lot of information yet.