Thursday, September 17

Those who cant, teach

Having grown up in a family which has had teachers back tens of generations, I naturally grew up venerating teachers and became one myself. There are also cultural factors which cause me to venerate teachers. So it was quite a shock when I came to the west and heard the adage, “those who can’t, teach”. In fact, one of the government campaigns to get teachers into the profession takes off on this, by calling it as “those who can, teach” like below:

So when I came across this paper, it was very interesting. I teach finance and I also invest in the markets. My style can be said to be the following. Active investment, 60% in blue chip stocks which are underpriced / undervalued according to P/E ratio’s (anything less than 6 is dramatically undervalued, anything over 20 is overvalued etc. etc.), 10 year investment horizon at the moment, 20% in emerging markets and 20% in cash or cash equivalents. Doing reasonably well, 20-25% average returns although some investments have been stinkers (Woolworths, Cattles..). Firmly believe in market efficiency with some eddies but that over the long run, you revert back to mean reversion to efficient frontier. So what do other finance professors think? I quote the abstract:

We identify finance professors’ opinions on the efficiency of the stock markets in the United States and assess whether their views on efficiency influence their investing behavior. Employing a survey distributed to over 4,000 professors, we obtain four main results. First, most professors believe the market is weak to semi-strong efficient. Second, twice as many professors passively invest than actively invest. Third, our respondents’ perceptions regarding market efficiency are almost entirely unrelated to their trading behavior. Fourth, the investment objectives of professors are, instead, largely driven by the same behavioral factor as for amateur investors – one's confidence in his own abilities to beat the market, independent of his opinion of market efficiency.

Seems like the finance professors dont adapt their investment decisions to their beliefs and studies about the market efficiency but instead rely on self confidence. So when these teachers teach students about finance, we seem to have a bit of a dichotomy in answers…

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