A good financial innovation

I just read this weekend on the FT about a new UK listed-fund whose goal is give money to cancer research, called BACIT: Battle Against Cancer Investment Trust

The idea to have a plain-vanilla fund-of-funds that will allocate investors' money in 28 other money managersbacking the fund. The interesting twise is that  is that the "... two dozen prominent property, private equity, bond and hedge funds backing the vehicle have also agreed to waive their fees – in full, and in perpetuity – to maximise returns for the scheme."

BACIT will donate 1% of its assets to charity every year. Half of all the proceeds will automatically go to the Institute of Cancer Research, one of the world’s leading cancer drug laboratories, and the remainder will be allocated to charities chosen from a list by shareholders themselves.

That's a nice idea, hope it works. Just departing from the usual 2-20 model should be more than enough to make investors interested.

 

 

The End of Alpha?

Interesting article on the FT about the end of alpha. While beaten up badly in the past 5-10 years, this is the kind of result that supports the efficient markets theory.

Given the amount of money currently chasing anomalies combined with the increase in the availability of information it will become more and more difficult to beat the benchmark.

A colleague of mine told that once he heard about a candidate for a sales position saying that he "could sell beta like it was alpha". I guess they will have to do it more and more over time...

Back to Work - Some Cartoons to Brighten the Mood

Summer is soon going to end. Keeping up the good mood, this post is about my favorite business and academia-related (though not always) cartoon sites.

Now, let's get back to work!

The first one is http://www.despair.com/, which has the one below. I hope that none of the clients to each I have worked as a consultant before thought that!

The second is http://phdcomics.com that always has funny things (at least if you have gone through a PhD)

The final one is http://xkcd.com. It has lots of Seinfeld-kind of jokes that sometimes takes time for you to understand :)

Steve Jobs' Biography

I have finally managed to read Steve Jobs' biography by Walter Isaacson and I highly recommend it to everyone. Here are some thoughts that came to my mind:

i) How geniuses often have nasty personalities. Maybe there is some reversion-to-mean going on here: we all have qualities and flaws, but those with extraordinary abilities often have extraordinary flaws. I think that being a perfectionist also made Jobs highly critical of everything (both people and objects) and is personal life seems to have suffered a lot because of it.

ii) Most of us can actually own a masterpiece made by a reputed genius (at least in terms of design and innovation at the time. I guess this is a first in the history of mankind.

iii) On a corporate strategy level, the book highlights how dividing firms by divisions can really hamper innovation and cooperation. One of the reasons that Apple is what it is arises because all products are developed and marketed by the company as a whole. Focusing on creating just a few excellent products also helps. I guess that if you are good enough to concentrate your bets on a few products can give you a big advantage over competitors.

 

Ah, and one more thing...

iv) How luck plays a huge part in anything we succeed in life. Humans are very good at rationalizing successes and failures but many things turn out the way they do by pure chance (or fate if you are religious). Given his peculiar personality Jobs could easily have put himself into a deep hole that he wouldn't be able to get out of.

Thoughts?

Why Brazil Won't Take Off

Today the FT has a story on Brazil's growth pains that starts with Corinthians, the second most popular Brazilian team, fielding a Chinese player to help it sales in China

The player in question, Chen Zhizhao, neatly summarizes why Brazil still has a long way to go if the country really wants to take off:

“In China, not much people [are] interested in football. The children are studying too much.”

Given the current state of Brazilian education, awful at all levels, there is no way the country can ever compete in human capital-intensive industries. All that is left is being good as a primary goods exporter. Even at that, we also need to get serious about infrastructure.

I wish I could be more optimistic about my own country...

Upcoming AFA meetings

Nice, the upcoming American Finance Association meetings will be held in nice cities for at least the next 5 years. Shame they never arrange something in Hawaii...

January 4-6, 2013 (Friday, Saturday, & Sunday)....San Diego, CA
January, 3-5, 2014 (Friday, Saturday, & Sunday).....Philadelphia, PA
January, 3-5, 2015 (Saturday, Sunday & Monday)....Boston, MA
January 3-5, 2016 (Sunday, Monday & Tuesday) San Francisco, CA
January 6-8, 2017 (Friday, Saturday, & Sunday) Chicago, IL  

If you can't be part of the solution...

The UK is trying hard to be part of the problem...

Often I wonder why UK politicians are so much against their current EU deal (not the Euro). As my mother used to say, if you can't be part of the solution, at least don't be part of the problem...

http://www.bbc.co.uk/news/uk-politics-18669230

Working with family

Just read an interesting article on working with family on today's FT.

My parents had a business together for more than 10 years (after a good run it went bust in 92 following yet another failure of a stabilization plan) and I totaly relate to the 100% work-mode that it becomes.

"Working with a sibling or spouse can be heaven or hell, depending on the pairing. Luke Johnson has some words of wisdom and warning..."

Read the full article at: http://www.ft.com/cms/s/0/3bdd8672-a8ee-11e1-b085-00144feabdc0.html

Online Cheating

Read this interesting article on cheating in online courses. I've never really been a believer in online education. I think we are still far away from being able to create the same engagement that a good teacher can generate in class.

Evaluation is even more difficult online, especially because student numbers are usually very high. Cheating among MBAs is usually much less of a problem but it does happen more often than you think.

Flight to Safety is Not a Good Sign

It looks like it will soon be crunch time for Greece (and the Euro)...

From Business Insider:

• The yield on the US 10-year bond has just fallen below 1.7%. UPDATE: the yield has just hit 1.6713%, a brand new record low.
• In Germany, the 10-year has fallen to a new record of 1.33%.
• UK borrowing costs have hit a record low of 1.73%.
• In Finland, the yield on the 10-year is 1.624%. You guessed it, that's a record low.
• Sweden: The 10-year yields 1.405%. Same deal.
• In Australia, the 10-year has dropped close to a record low of 3.061%.
• Canadian 10-year yields at 1.87% are close to a record low.
• Japan's 10-year: 0.85%.
• Swiss 10-year: 0.59%.

"Get the point?
All around the world, people are clamoring for the safety of government debt..."

More on Facebook

This is a long but interesting article on the story behind Facebook's IPO. His view is even more pessimistic than mine but the P/E analysis is quite interesting. Anyway, the stock is currently trading at $32 / share, almost 20% below the offer price.

FB may still surprise investors with a new source of explosive growth that nobody, but that is lot to count on to justify paying 60x multiples.

A while ago I posted about my bearishness of the Brazilian stock market. Putting my money where my mouth is (was), I bought two securities in February and the other day somebody at work asked me how did it go.

I closed the trade almost two months ago (way before the current turmoil) and made money itself on the position, but after the transaction costs (wasn't investing a lot since I don't have much!) I just broke even.

Here are the details of the two securities and their current price (could have made LOTS of money if I had stayed put):

1) The first was an Ultra-short ETF on the Brazilian index (in US$)

Bought it @ 13.43 on 16-Feb 

Sold it     @ 15.15 on 13-Mar. (12% profit)

Since then it has gone up 70% if we take today's price.

2) The other was a put option on the MSCI Brazil ETF, with strike 50 and maturity in Jan/2013.

Bought it @ 3.15 on 16-Feb 

Sold it     @ 2.9 on 13-Mar. Total (8% loss)

Current price @ 5.8 17-May (100% increase) The underlying is now around 51.5.

Major lessons learned: if you trust your trade, stay put and let it develop. Be VERY careful with bid-ask spreads and commissions.

I think there has been some panic selling in the past few days. Maybe it's time to buy another lottery ticket again! :)

Facebook Valuation: Worth $100bi?

I was just reading in the FT that Facebook has raised its price range before the IPO. If they get what they want, the company will be valued between $93bn and $104bn.

The final project of the Corporate Finance course I taught earlier this year at Cambridge asked students (split in groups) to value Facebook. The highest valuations were around $80bi and that, often, involved some heroic growth assumptions.

Aswath Damodaran has a nice blog post with his valuation of the company, with a figure aroun $71bi. People from FT's Lex column also has an interesting calculator that you can play out with on your own (not sure if it open to non-subscribers).

At $100 billion, if I could I would surely short Facebook from the second day of trading. It will be interesting to see what the first-day price change will look like.

Either people are true believers that Zuckerberg will pull out another magic cash-flow rabbit out of his hat or....

New Journal and more on "Publish or Perish"

Following an earlier post on the "Publish or Perish" pressure in academia today I received an email about a new journal in Finance, the Critical Finance Review, edited by Ivo Welch.

In line with Matt Spiegel's comments, the editorial line of the new journal is to give more chance to controversial papers and "non-result" ones. I believe that the profession benefits from both. Hope the journal catches on and becomes a force among Finance research outlets.

Double standards (as usual)

This week the Brazilian president visited the U.S. and kept on complaining about the "monetary tsunami" caused by the lax monetary policy followed by developed countries' Central Banks.

I'm always amazed by how she forgets that this same easy money helped to pump up growth rates in emerging markets not such a long time ago.

Useless...