Tuesday, August 25, 2015

Comments on the Global Stock Market Chaos by Dr. David Krause, AIM Program Director, Marquette University

Relax – we’ve been here before. We are not in the midst of a financial crisis or global recession – what I believe we are witnessing is the result of an inefficient stock market in China coming back to earth. As most of my students over the years have learned, I do not believe that technical analysis is a sound method to invest in common stocks.

What is technical analysis? It is the use of stock price charting patterns and is a common form of analysis utilized by a particularly large number of Chinese retail traders and investors. Very few academics and equity portfolio managers utilize technical analysis for their long-term investment decisions. Fundamental analysis of the economy, industries and individual companies is predominantly used by institutional investment professionals to select over- and under-valued stocks – and it is the methodology that economic theory and empirical evidence support.

The Chinese stock market is largely driven by unsophisticated retail traders, who believe that charting or technical analysis is the best method to select stocks. The truth is that it is an ineffective and unreliable basis for investment decision making. It is mainly responsible for the large swings in the Chinese stock market during the past year.

There is overwhelming, robust empirical evidence from reputable peer-reviewed studies that support my contention that technical analysis is unreliable and likely to lead to irrational market movements and losses for the majority of investors who use it. And that helps explain the ridiculous and crazy movements of the Chinese stock market over the past year. The fear of a Chinese economic slowdown – which could lead to contagion into the developed economies (i.e. United States, Germany, Japan, United Kingdom, etc.), is overblown and the stock markets in the major countries will soon return to normalcy.

Academic research has consistently shown that individual investors managing or trade their own money lose on a relative basis approximately 50 basis points (1/2%) per month in raw returns plus an additional cost of 20 basis points due to higher turnover. These 70 basis points of total costs per month is a significant under-performance compared to other investors who utilize stock market indexes (ETFs) and mutual funds.

The situation is worse for those individual "investors" who use technical analysis. The cost of using technical analysis for high turnover traders has been estimated to be 140 basis points per month plus an extra cost of about 30 basis points due to additional transaction costs associated with technical analysis generating more trades. That can amount to net returns being 20% below the market averages over the course of one year.

The current market selloff started with concerns about global growth forecasts, especially in China and oil exporting countries. Evidence does exist that points to a slowing of economic prospects for China and other countries in the emerging world, along with weak growth in Western Europe and Japan. Fundamental factors, such as earnings and capital investment, do point to a global slowdown, but not a global recession. U.S. growth will remain below 3% annually, a lower than normal rate, but decent compared to Western Europe and Japan.

The selloff in China was accelerated by retail investors, who primarily employ technical analysis, fleeing the market. Pundits can talk about Chinese government policy makers not able to respond quickly enough; however, markets eventually find their equilibrium levels
I believe that the U.S. markets will be fine and that investors should not panic – and above all, not sell at the market bottom. I believe that China and some of the emerging markets will still be in for a bumpy ride, but that ultimately the stock prices will catch up with the fundamentals and they will stabilize.
The lesson for retail investors across the globe should be to avoid technical analysis and focus on long-term fundamental based investing. And if you don’t have enough time to do your own analysis, then by all means utilize mutual funds or ETFs, and remain focused on the long-term. The current  stock market chaos will soon disappear and we’ll be back talking about Donald Trump and the upcoming football season!

 

 

Sunday, August 23, 2015

Watch the introduction to Dr. Krause's new course: BUAD 2930 - The Investment Industry


Starting this fall a new online course focusing on the investment industry will be offered at Marquette University. Dr. David Krause has created a non-quantitative course with the objective of providing a clear understanding of investment industry fundamentals. He said, "The curriculum is aimed at non-finance students who have an interest in investments, including those who wish to enter the financial services industry, as well as those who are already working within it."

The underlying curriculum, known as the Claritas Program (http://www.cfainstitute.org/programs/claritas), was developed the CFA Institute® with the goal of helping to shape a more trustworthy financial industry by setting new standards for investment education and ethics.

You can watch the introduction to the course on YouTube at: https://www.youtube.com/watch?v=vm9FhGJ_J50 or by clicking on the video below.



Offered online, this is a non-quantitative course provides an overview of the essentials of the investment industry. Topics include the types and characteristics of financial securities, investment industry structure and controls, and ethics and regulation. The material covered includes an introduction to the essential business areas of accounting, macroeconomics, microeconomics, international trade, and statistics. It has been designed to prepare students to sit for the Claritas® Investment Certificate exam. Not offered as a business course for credit for business majors. Grading: Satisfactory/Unsatisfactory. Prerequisites: Sophomore standing.

Contact Dr. Krause for more information:

David S. Krause, PhD
Director, Applied Investment Management Program
Marquette University
College of Business Administration, Department of Finance
436 Straz Hall, PO Box 1881
Milwaukee, WI  53201-1881
Telephone: (414) 288-1457     Fax: (414) 288-5756

New course this fall: BUAD 2930 Special Topics in Business: The Investment Industry (3 credits)

Image result for marquette university logo
Dr. David Krause has created a new course that will be offered this fall at Marquette University. The course is: BUAD 2930 - Special Topics in Business: The Investment Industry (3 credits). 

Class#  Subj.#                  Title 

6301      BUAD 2930-101  The Investment Industry

This is a non-quantitative survey course of the investment industry with the objective of providing a clear understanding of investment industry fundamentals. The curriculum is aimed at non-business students who have an interest in investments, including those who may wish to enter the financial services industry and those who are already working within it. The underlying curriculum, known as the Claritas Program®  (http://www.cfainstitute.org/programs/claritas), was developed the CFA Institute® with the goal of helping to shape a more trustworthy financial industry by setting new standards for investment education and ethics.
Image result for claritas investment program
Offered online, this is a non-quantitative course provides an overview of the essentials of the investment industry. Topics include the types and characteristics of financial securities, investment industry structure and controls, and ethics and regulation. Includes an introduction to the essential business areas of accounting, macroeconomics, microeconomics, international trade, and statistics. Designed to prepare students to sit for the Claritas® Investment Certificate exam. Not offered as a business course for credit for business majors. Grading: Satisfactory/Unsatisfactory. Prerequisites: Sophomore standing.


For additional information, please contact the instructor:

David S. Krause, PhD
Director, Applied Investment Management Program
Marquette University

College of Business Administration, Department of Finance

436 Straz Hall

Milwaukee, WI  53201-1881

Telephone: (414) 288-1457  

Tuesday, July 21, 2015

AIM Class of 2017 Applications Due on Friday, September 11

#AIMAPPLY
Attention Marquette University's finance students class of 2017!
Applications for AIM are now live!

The following provides a brief description of the AIM program's application process. Completed applications and all required information are due by Friday, September 11th.  NOTE:  Students studying abroad must submit their application two weeks prior to their international study schedule. Interviews for students studying abroad will be set-up in person this summer or telephonically during the fall semester of the student’s junior year.  Notification of acceptance for all students applying to the program will occur before the fall advising session. 

Acceptance into the AIM program will be based on the following:
* Grades earned up to the beginning of the fall semester of the junior year (minimum GPA of 3.0 required)
* Electronic application form (found at AIM website like below)
* MU Graduation checklist (upload with application form)
* Resume (upload with application form)
* Application essay (upload with application form)
* Two letters of recommendation (sent by recommendor via mail, email or fax)
* Interview with Dr. Krause (scheduled week of 9/21-25) as first come first serve, after you submit completed application information)
A successful AIM applicant will have a strong intellect, an active curiosity about business and the finance industry, a demonstrated record of academic achievement, a well-conceived plan for their future, and good communication and analytical skills.  Candidates will have the opportunity to demonstrate these traits through their academic record, resume, essay, letters of recommendation, and an interview.

The application process is completely electronic (except the letters of recommendations).  To find out more about applying to AIM, visit the website at: marquette.edu/aim.


Important Dates of Interest (** 3 required dates below)

* Friday, September 4th, AIM Open House 2:00-3:00
** Friday, September 11th, Application Info Due
** Interview with Dr. Krause (date range September 21-5 one 15 minute interview)
** Saturday, October 3rd, AIM Super Saturday,
     8:00 am-Noon AIM Interviews
      (plan on entire morning)


Friday, June 5, 2015

Krause's Belmont Stakes Picks for 2015

This is it --- our first Triple Crown winner in nearly 40 years! I successfully called for American Pharoah (AP) to win the Kentucky Derby and the Preakness Stakes – and now I believe he is going to finish the deal. It won’t be easy because the 3-year olds this year are stronger than past years. AP also has history against him as (by my count) twelve horses since the last Triple Crown winner (Affirmed in 1978) have won the first two legs, only to lose at Belmont.

Winning the Belmont Stakes is difficult because of the long distance (1 ½ miles), the timing of the race (only three weeks after the Preakness), and the crowd (NYC races fans are loud, boisterous, aggressive and right in the horses' faces --- just like you’d expect from New Yorkers). I do think that AP’s trainer, Bob Baffert, and jockey, Victor Espinoza, are up to the challenge to achieve horse racing immortality. Despite Espinoza falling short of the Triple Crown twice (on War Emblem and California Chrome), he talks with confidence about American Pharoah’s poise and determination.

This is a strong field – and not a sure thing for AP (despite the ridiculously low odds) – so enjoy the Belmont and I believe you’ll be witnessing history or Saturday afternoon.

  

Best of the Field:  #5 American Pharoah (3-5 odds)  
As I wrote for my Kentucky Derby and Preakness articles, this is the cream of the crop.  I believe that this horse has the heart of Seattle Slew (1977 Triple Crown winner) and will do whatever it takes to win. He won’t set records (like Secretariat’s 31 length win at Belmont in 1973 as he won the Triple Crown), but he knows how to win. The odds are not favorable, so you might have a souvenir with your $2 win ticket, but you need to include American Pharoah at the top of your exotics. (Baffert and Espinoza finally get their Triple Crown).



Value Horses:  # Frosted (5:1 odds) and # 8 Materiality (6:1 odds). I had both of these horses as ones to watch during the Kentucky Derby --- and I feel the same way about them in the Belmont Stakes. Frosted finished a charging fourth and didn’t race in the Preakness – he should be fresh. He’s a NY horse who is familiar with the track --- and he won this year’s Wood Memorial at Aqueduct in NY. Frosted is jockeyed by Joel Rosario (a proven winner), who knows the horse and will keep him back early in the race. Watch for him to come on strong down the long home stretch – he could make it close! Rosario knows how to win the big races.

Starting in the 8th position, Materiality, trained by Todd Pletcher and ridden by John Velazquez could also be in the money. This is the horse that didn’t race last year; however, he got off to a great start this year (and with huge speed figures) and finished a respectable sixth in the Derby. He has tons of speed and could run hard at the beginning – forcing American Pharoah into an uncomfortable pace. He also skipped the Preakness. He has one of the top trainers and a great jockey --- if there were to be a wire-to-wire winner in the Belmont (which is rare), this would be the horse.

Betting: Pairing up the horses above into an Exacta box could be a nice play or keying American Pharoah with the other two horses in a Trifecta bet could provide an attractive ROI.  In any case, bet responsibly and enjoy watching history being made at this year’s Belmont Stakes. I'll be cheering on American Pharoah.

Tuesday, May 19, 2015

Marquette University's AIM Class of 2015 Graduated on Sunday, May 17, 2015

Education is the best provision for old age.
-Aristotle

I have never let my schooling interfere with my education.

-Mark Twain

If you aren’t fired with enthusiasm, you will be fired with enthusiasm.

-Vince Lombardi


AIM Class of 2015

The AIM Class of 2015 will always be a special one --- it was the ‘bubble’ class and it also had 10 international students. Two years ago a record number of 67 students applied to the program and on Sunday more than 40 AIM students participated in Marquette University’s graduation ceremonies (with several others scheduled to graduate in August or December). This group of students is the tenth class to graduate from the AIM program; a significant milestone.

By all measures this has been another successful year. The students in the AIM Class of 2015 had meaningful internship experiences and they soon will be starting their careers at various financial firms across the globe.  Also, many of them are busy preparing to take the Chartered Financial Analysts (CFA) Level I exam on the first Saturday in June. Like all of the other AIM classes before them, I know they will do well – and I have truly enjoyed working with them.


The students in the Class of 2015 inherited three investment portfolios: the small cap domestic equity; international equity; and fixed income fund. These students worked hard and generated good results in the three funds they managed. The students encountered unique challenges as the financial markets continued to rebound from the Great Recession – with the international stocks especially tricky to manage during the past year. Nevertheless, they maintained their composure and managed the AIM Funds as true professionals.


As always, it has been a rewarding year for me working with the students in the AIM program. In addition to being intellectually curious and hardworking, the Class of 2015 was deeply committed to the responsibilities associated with administering the student-managed funds. Despite the ongoing uncertainty of the global investment climate, we are confident that the AIM Funds will continue to provide invaluable opportunities for learning as students in future classes apply their hand to managing a portion of Marquette’s endowment funds.


Marquette University Commencement 2015 

Congratulations to the students who graduated at Marquette's Commencement on Sunday, May 17, 2015. We wish not only to recognize the achievements of our graduates, but also to acknowledge parents and others for their cooperation and support.

This was a highly talented group of students who worked hard right up until the end of their senior year. While some of these students received significant honors and awards, all of them are special and have unique talents. They worked exceedingly hard during the past two years since they were admitted to the AIM program and we wish them all best of luck. 


The following table contains information about the AIM students in the Class of 2015. 
 
 
AIM Class of 2015HonorsGraduation
Dan Alon May
Richard Bernard December
Brandon Cloete December
Thomas Desmond May
Thomas Dickinson May
Patrick Doyle May
Haney Fam May
Vanessa Foltinger December
Patrick HartCum Laude,  * May
Joe Hodes May
Charles Houser * December
Dustin Hwang December
Alaa IbrahimCum LaudeMay
Alex Isken December
Cole JohnsonSumma Cum Laude,  * May
Berent Kowarick May
Kevin LaneCum LaudeMay
Kyle Lawrence May
Jing Liu August
Patrick Lonzo * December
Mary McNellisMagna Cum Laude,  * May
Mark Messier May
Andrew NorthMagna Cum Laude,  * May
Jeremy Poppe May
Monica RacitiMagna Cum LaudeMay
Jaime RehmCum Laude,  * May
Mariano SanzCum LaudeMay
Alex SchmidtCum LaudeMay
John  Schneider May
Jordan Schumacher May
Rushi  Shah May
Connor Showalter May
Joe Simonelli May
Michael StankovskyMagna Cum Laude,  * May
James Stark May
Jack SullivanMagna Cum LaudeMay
Chris Swanson May
Christopher Swift December
Mitchell Swirth May
Hendrik van der Zandt May
Zhe WangCum LaudeMay
Blake Weir August
Anne Wiesman * December
Autsin WilsonMagna Cum LaudeMay
Kurt WittmeyerCum LaudeMay
Wen YangCum Laude,  * May
Stefanie YordanCum LaudeMay
Jiajun ZhouCum Laude,  * May
 * Membership in Beta Gamma Sigma