FinanceProfessor.com

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Learn about what is going on in the Financial World. Sign up for FinanceProfessor's free newsletter!

 Don't understand something?  Try Investopedia's Online Glossary!  It is REALLY good!!!
 
 

*   Have you ever had a difficult time explaining how incentives are destroyed when dealers are 
     allowed to pay for order flow? One way of explaining it is to talk about Wal-Mart's policy 
     of matching other competitors’ ad prices. The purpose of the ad is to get people into the 
     store, but if it doesn’t serve that purpose, the smaller stores might be tempted to not put as 
     good of deals on sale. The same holds true with dealers. If they cut the spread and do not
     get any more trades, why should they bother cutting the price. Thus, each guarantee to give 
     the best price creates a scenario where the customer (investor) may pay more for the 
     product (stock) than in the absence of the “order flow” arrangement. Have a cool way to 
     teach a difficult topic? Email me and I will include it in upcoming newsletters and you will be 
     famous! Well, maybe not really famous, but at least I will know you then ;-) also check out 
     some of my ideas:
     http://www.financeprofessor.com/teaching/Forteachers.html 
 

*   Many times students have problems with concepts that they can not personalize. For 
     example the weighted average cost of capital. One way to understand this is to teach it in a 
     portfolio context. Discuss various investments (T-Bills, Bonds, Stocks) and then show how
     to calculate the expected return. This is the same idea as the WACC. Moreover it is useful 
     in showing why WACC should not be used in capital budgeting: no one would accept the 
     same expected return on T-bills as on venture capital, so why should companies use the 
     same hurdle rate for all projects? Two requests for information came to me this week and I 
     am passing them on to you for help. John Nofsinger is looking for “famous Blunders” (For 
     example when the Fidelity Magellan fun went into bonds just prior to the big run-up in 
     equities). As a personal note to John, I would definitely check out the case section at 
     erisk.com http://www.erisk.com/reference/ref_case.asp The second request is for a web site 
     that tracks all stock buybacks. This is for more academic as well as professional research  
     but the school does not have access to CRSP etc. Suggestions for either will be passed on 
     with you getting full credit.
 

*  One thing that I do when teaching a case class that seems to work is to have a "debriefing" 
     immediately after group presentations. Each group is taken aside and the notes that I took 
     during the presentation are gone over. Both the good and the bad are covered in 
     sometimes-painful detail. This debriefing stresses both finance and the presentation itself. The 
     method seems to work quite well and fit in nicely with the material covered at the seminar. 
     From student comments they generally view this immediate grading more valuable than the 
     comments on the corrected paper. Have a teaching idea you would like to share? Why not 
     use the FinanceProfessor.com Web Board or email me and I will be sure to include in an 
     upcoming newsletter. Also we are still waiting for responses to the following: John Nofsinger 
     is still looking for “Famous Blunders” (For example when the Fidelity Magellan fun went into 
     bonds just prior to the big run-up in equities). As a personal note to John, I would definitely 
     check out the case section at erisk.com http://www.erisk.com/reference/ref_case.asp The 
     second request is for a web site that tracks all stock buybacks. This is for more academic as 
     well as professional research but the school does not have access to CRSP etc. Suggestions 
     for either will be passed on with you getting full credit. 
 

*   Make the answers to all end of chapter problems available to the students. This can be done 
     by taping them to the door or by putting them on reserve in the library. Most students do not 
     use them, but the ones that do appreciate it and it makes your life easier.--submitted by 
     Jonathan Godbey From James Madison. If you have a teaching tip, please email me and I 
     will include it in an upcoming newsletter. 
 
 

     Copyright FinanceProfessor.com  2001.
     Permission granted for in class use.