Ross M. Miller
Miller Risk Advisors
August 8, 2011
This month I will begin the eighth year of my second incarnation as a
finance professor, the first being from 1979 to 1989. I have become the
Gilligan of finance, what started as a one-year appointment taking over
the acting dean's teaching slots has now lasted much longer than the
Minnow's prime-time run. For the past five years I have almost exclusively
taught introductory graduate finance to a broad array of students,
including many from outside the business school.
I have known many practitioners who claimed that they had learned
absolutely nothing from their graduate finance classes, so I tried to make
finance more useful than the usual stuff found in textbooks. Finance is so
complicated that it is impossible in a single course (or even in several
years of university study) to have students learn everything that matters
in finance, especially because real-world experience often trumps anything
that can be offered in the classroom. Nonetheless, it is possible to cover
enough in a semester to give students a good push into the world of
finance, certainly enough for them to make sense of much of what is on
CNBC (at least those parts that do make sense).
The key to my approach is to focus on the investment topics to the
virtual exclusion of traditional topics in corporate finance, such as how
to create spreadsheets that can make any project appear to be profitable.
This seems to have worked thus far because no one ever complains about not
learning that you may have to assume that your resort hotel will have an
112% occupancy rate in order to secure funding from a Kuwaiti syndicate,
which is an only slightly disguised version of something I once witnessed
the now-defunct commercial real estate unit at a major brokerage house do
during my first incarnation as a finance professor.
One of my projects this summer has been to overhaul my finance course,
something I had been meaning to do during the last three summers but
something else always came up. One problem with the old version of the
course was that it was based around financial instruments and worked its
way up from less complex to more complex financial instruments over the
course of the semester. Unfortunately, less complex instruments, such as
T-bills, are boring, and common stocks did not make the scene until the
seventh week of the course (and for the first few years I taught the
course they did not appear until the eighth week). While I personally
appreciated the nice logical progression of the course, I doubt any of my
students did. In the new version of the course, stocks are there from Day
One and are the sole focus on the course for the first five weeks.
Moreover, while I used to have a single "pet stock" for the
entire class--Google, Green Mountain Coffee Roasters, Bank of America, and
Tesla Motors were the pets over the seven years--now there are four pet
stocks: LinkedIn, Johnson & Johnson, Netflix, and Bank of America.
Other pets will follow, including pet ETFs, currencies, and mutual funds.
Pets are useful for making the course real-time, rather than use canned
examples from a textbook or case study; most examples involve the
appropriate pet and its current situation. While textbook examples are
based on showing how financial theory works, my pets often demonstrate
when happens when it does not.
Having been an academic for too much of my life, I tend to make things
more complicated than they have to be. Up until now I divided the course
content in "Weeks" and in the fall I had to cover an entire
"Week" in a single three-hour evening class. My guiding
principle for the course material this time around is "more and
shorter." The course is still divided by weeks to make it easier to
arrange the PowerPoint slides, readings, spreadsheets, etc., but now each
week is further divided into five or six shorter modules. Each module
addressed a specific point, such as the value of diversification, and is
designed to be as self-contained as possible. I started with a list of 72
potential modules and then winnowed them down to 60 modules. Even with
this reduced list I am able to dedicate several modules to futures and
options, topics that had received short shrift in the past. Only once I
had all modules figured out did I collect them into logical weekly
bundles. Although it may take a year or two for each module to evolve into
its final form, I envision them each as being like an 18-minute TED
talk about finance, but with audience participation. If I get really
ambitious, I may YouTubefy some of these modules, but I do not see that
happening until next academic year at the earliest.
One thing that will not change is that the course will be dynamic.
Seven years ago there was not a word in the class about credit default
swaps, now it is a major topic complete with frightening slides from the
CMA division of the CME Group. Over time, new modules will enter the
course and old, obsolete ones will exit it.
Textbooks have always been a minor part of my finance courses because
none of them are very good. At best, they serve as a security blanket so
that students have somewhere to go to see something worked out in more
detail than I have time for in class. For the last six years I have used a
"custom textbook" from McGraw-Hill that provides students with
around ten key chapters from their top textbooks for about a third of the
$200+ price of a standard finance textbook. This semester I am going with
a textbook that it not only free
online, but also has many chapters available in PDF form so that I can
insert sticky notes providing my editorial remarks about the textbook.
Even though some of the finance textbooks are written by the top minds in
the field, the brilliance of these authors does not shine through the
pages of the textbook. Finance textbooks are designed so that a fresh
Ph.D. can teach from them without having too many students complain to his
or her department chair or write particularly snarky things on course
There is one major change to the course that I decided against after
playing around with it for a few weeks. That was making Wolfram's Mathematica
a central part of the course. Mathematica has
direct access to financial data built into the program, which means
you can do some amazing stuff with it; however, the learning curve for
what I wanted to do with it is so steep that I would have caused my
students (and ultimately myself) endless grief. Even something as simple
as printing out a document in the same format as it appears on the scene
is a major undertaking. (To save paper, but default Mathematica
prints everything really tiny and overriding the defaults is a tedious
affair akin to customizing Firefox.) Using Mathematica as
inspiration, however, I am doing a lot more with spreadsheets than I had
in the past, but I am still not using them to push questionable real
estate on unsuspecting investors.
The financial world is falling apart (again) as I write this. Unless I
have something amazing to write about in September, my next commentary
will appear in October on a topic to be determined.
Copyright 2011 by Miller Risk Advisors. Permission granted to
forward by electronic means and to excerpt or broadcast 250 words or less
provided a citation is made to www.millerrisk.com.