Lessons Learned from Week 9 of Fall Quarter

Ethics

• Duties of fiduciary
  
• Loyalty (no self-dealing)
  
• Care (reasonable study, judgment)
  
• Candor/disclosure (have to tell what you know, can't hold back for yourself)
  
• Foreign Corrupt Practices Act
  
• Bribes vs. grease payments
  
• Must be authorized and booked properly
• Professional codes of ethics: CYA codes (not about morality)
• Business experience, societal norms, values
• Trust, integrity, fairness, caring/compassion
• Normative ethics (I'm ok, you're ok, based on society at time)
  
• Kantien ethics (rigid, rules-based for what required for being considered human race; never can lie)
  
• Utilitarianism (greatest good for greatest number; leaves some people out)
  
• Social justice
  
• Religion
  
• Insurance value of average American dying in airplane (based on average age, earnings power): $1.2 million
  
• Insurance value of average Portuguese fisherman dying in airplane (based on average age, earnings power): $60K
  
• Is one worth more than other?
  
• 4 ways of reading Dante
• Surface level: plot
• Allegorical: myths and heroes
  
• Moral: custom and law
  
• Deep: spiritual, ethical

Behavioral finance

• Trading biases or How not to lose money in financial markets
  
• People tend to sell their winners too quickly and hold on to losers too long.
  
• Experts overconfident too; attribute success to effort not luck
  
• People take too much credit for their own success.
  
• Don't confuse brains with a bull market.
  
• Overconfidence leads to excessive trading.
  
• Trading is hazardous to your wealth.
  
• High portfolio turnover => low return
  
• Transaction fees kill.
  
• Women have less turnover in portfolios and do better than men.
  
• Marital status doesn't matter.
  
• Marriage helps make men better traders, but hurts women.
  
• Psychology: men need marriage, but not very good for women
  
• Single man has nothing to do (an idle man is the devil's workshop)
  
• Study of online trading
  
• People performed well before going online
  
• Accelerate trading after going online
  
• Trade more speculatively after going online
  
• Perform poorly after going online
  
• Self-attribution bias: take too much credit for successes, little blame for failures
  
• Illusion of knowledge (knowing vs. knowing the relevant, useful issues)
  
• Illusion of control (people prefer to roll their own dice)
  
• Individuals prefer stocks w/ high skewness and volatility (institutions prefer opposite)
  
• People with more speeding tickets and greater overconfidence in personality profile trade more.
  

Doing deals

• Oaktree: Real estate and CMBS deals
  
• Focus more on risk than reward in this type of asset management
  
• Don't lose others' money
  
• When market up, want average results
  
• When market down, want to beat others by not going down as much
  
• Responsibility to others, relationship
  
• Some properties can fetch ego buyers.
• Don't always destroy competitors; help them and be "go to" option that others turn to in time of need.