I highly recommend this Freakonomics podcast (and transcript) about passive versus actively managed investment strategies. It provides historical context for the development of some of the most important ideas in finance (e.g., the efficient market hypothesis) and the implications of these ideas for investing in the long run. Along the way, you get to “virtually” meet with many of the best, brightest and most influential academic and professional finance thinkers who played important roles in shaping this history.
Prior to listening to this podcast, I was not aware of how a quip in a 1974 Journal of Portfolio Management article authored by the MIT economist Paul Samuelson inspired Vanguard founder Jack Bogle to launch the world’s first index fund in late 1975. Samuelson suggested that, “at the least, some large foundation should set up an in-house portfolio that tracks the S&P 500 Index — if only for the purpose of setting up a naive model against which their in-house gunslingers can measure their prowess.” (source: “Challenge to Judgment”, available from http://www.iijournals.com/doi/abs/10.3905/jpm.1974.408496).
It is rare when I actually take the time to read Baylor’s student newspaper, the Baylor Lariat, and even rarer when I post a critical response to a Lariat article. However, I couldn’t resist commenting on an editorial from earlier this month entitled, “Baylor should implement class to ready students for real world”. In this editorial, the members of the Lariat editorial board opine that Baylor should require a one-hour credit “Life Skills” course in lieu of a basic math course such as “Ideas in Mathematics”. Basically, such a course would be designed to cover very basic personal finance principles, such as budgeting, paying off student loans, buying insurance, saving for retirement, etc. I think this is a manifestly bad idea; let me explain why.
While I am not aware of an empirical literature concerning mandated personal finance courses at colleges and universities, many states have experimented with personal finance and minimum math requirements at the high school level. A recent (2014) Harvard Business School working paper entitled “High School Curriculum and Financial Outcomes: The Impact of Mandated Personal Finance and Mathematics Courses” provides a thorough empirical analysis of personal finance and minimum math requirements and finds that mandated personal finance courses at the high school level do little to improve outcomes that are generally associated with financial literacy (e.g., such as building wealth through asset accumulation, prudent credit management, etc.), whereas “… individuals who were exposed to greater math requirements in high school are more likely to accumulate assets, have more real estate equity, are less likely to be delinquent on their loans, and are less likely to undergo foreclosure.”
The Bank of Japan’s (somewhat counterintuitive) stated goal for implementing it’s new (negative interest rate) policy is “…to push down borrowing costs to stimulate inflation”. While I certainly do not claim or pretend to be a monetary economist, a policy that punishes savers and rewards borrowers doesn’t seem like a particularly good script for long-term economic success. I think it’s a tacit acknowledgment that the Japanese economy is struggling with deflation. See https://www.boj.or.jp/en/announcements/release_2016/k160129a.pdf for the official policy statement issued by BOJ…
Tip of the hat to Free Enterprise at The Baugh Center for posting this video of Dr. Brooks’ April 21 talk at Baylor University entitled “Capitalism Without Attachment: Creating a prosperous society without losing our souls”:
Free Enterprise at The Baugh Center for posting this video of Dr. Brooks’ April 21 talk at Baylor University entitled “Capitalism Without Attachment: Creating a prosperous society without losing our souls”:
I never thought that I would ever live to see the day when interest rates turned negative, creating a world where investors pay for the opportunity to lose money over time and banks pay interest to borrowers…
“As Euribor, a key benchmark used to set interest rates, seems to sliding toward zero and below, banks in some European countries are looking at previously inconceivable problem: They may soon have to pay interest to customers who borrow from them.”
Steven Levitt’s nearly 1 hour long talk entitled “Thinking Differently about Big Data“ is quite exceptional; Professor Levitt gave this talk as part of the National Academy of Sciences “Drawing Causal Inference from Big Data” colloquium in Washington, D.C. on March 26, 2015.
In his January 2, 2015 Wall Street Journal essay, columnist Holman Jenkins makes a compelling case for the principle of shareholder value maximization by noting that owners seeking to maximize the value of their businesses end up doing a pretty decent job of satisfying customer and employees along the way. Think of this essay as a 2015 sequel to Milton Friedman’s famous New York Times Magazine essay (published September 13, 1970) entitled “The Social Responsibility of Business is to Increase its Profits” (see http://bit.ly/Social_Responsibility_of_Business for Friedman’s essay; Thomas Coleman provides important context in his recent (2013) essay about Friedman entitled “Corporate Social Responsibility: Friedman’s View @ http://bfi.uchicago.edu/feature-story/corporate-social-responsibilty-friedmans-view)…