An Overconfident Donald

One of the biases often discussed in behavioral finance is overconfidence, that is the belief your abilities are better than they are. Further, many people actually have overconfidence in individuals who tell everyone how good they are. Take Donald Trump. Although his wealth is estimated by Forbes at $4.1 billion, he recently stated that he was worth $10 billion as a self-made man (who started with his father’s millions.) And while his companies have filed bankruptcy four times, The Donald will tell you how good of an investor he is. Unfortunately, a recent article disputes this statement. If The Donald had taken his stated wealth of $500 million in 1982 and invested in the S&P 500, he would now have $20 billion, twice his stated worth. We hope you note a couple of important points. First, as we discuss in the textbook, the power of compounding greatly increases the value of a portfolio over time. Second, don’t always believe the hype of self-styled investment gurus.

International Corporate Ethics

It often seems that many people believe corporate ethics problems are limited to U.S. companies. Unfortunately, ethical problems are a worldwide problem. Toshiba, which is base in Japan, just announced that it had overstated profits by ¥151.8 billion ($1.22 billion) over the past several years. The CEO of Toshiba, Hisao Tanaka, and his predecessor Norio Sasaki, were both apparently aware of the accounting fraud. It is believed that both men, along with the board, will be replaced.

Venture Capital On The Rise

Aided by several "unicorns," including Uber and Airbnb, venture capital investment reached $35.9 billion in the first half of 2015, more than was invested during 2013. Although VC investment is growing, it is still well short of the record $85 billion in 2000. During the second quarter, there were 1,034 deals, a slight decline from the same period in 2014.

Spirit Grows To Grow

In its recent quarterly report, Spirit Airlines reported poor results. In a sharp criticism of company management, an analyst notes “growth for growth’s sake will not be rewarded in this environment.” Evidently, Spirit has yet to figure out that growth is only good if the new projects are positive NPV projects. In Spirit's case, the industry is experiencing weakening prices, yet Spirit continues to expand, with an announced capacity growth of more than 20 percent in 2016.

Crowdfunding Greece

The Greek debt crisis reached a new level when Greek Prime Minister Alexis Tsipras claimed that the international bailout deal was blackmail. However, one optimistic Londoner has decided that the Greek debt crisis can be resolved through crowdfunding. The Greek Bailout Fund, which was started on Indiegogo by Thom Feeney, is a an effort to raise the €1.6 billion necessary to repay the Greek national debt. As this is written, the campaign has raised about €1.2 million, or less than one percent of the necessary amount.

The Stock Market's Bad Breadth

While we aren't big believers in technical analysis, many of our students are interested in the the topic. So, another technical tool we don't mention in the textbook is market breadth. Breadth is measured by a ratio of stock that are at a 52-week high minus the numbers of stocks. (As with any ratio, the calculation can be different. In this case, another calculation is the number of highs divided by the number of lows.) The idea behind market breadth is that the stock market is stronger when more stocks are increasing in value. A market with bad (low) breadth can be an indication of a weak market. A recent article discusses this point further in that although the stock market is increasing, the market breadth is relatively low, a possible indication of market weakness.

A Discussion Of Markets

Alvin Roth, the co-recipient of the 2012 Nobel Prize in Economics, is an expert on markets. In a recent interview, he discusses stock market, as well as other markets such as Amazon and eBay. The interview touches many topics, including more inefficient markets such as the real estate market.