Tiger's Bogey

So everyone has been talking about Tiger Woods this holiday season. One of the most widely known icons in the sports world has had his image severely damaged in such a short period of time. Tiger confessed betraying his wife and family. Hopefully, he will learn from these mistakes and not make the same mistakes again. What is interesting though is that Tiger is still the best golf player despite having numerous women on the side. How does Tiger do this?

Woods holds the record for most career earnings for the PGA. As of December 2009, he has made more than $92 million in earnings. In addition to his earnings Tiger had numerous endorsement deals that were worth around $100 million per year. Around October 2009, Tiger hit the $1 billion mark (not bad for someone who went to Stanford trying to get an economics degree) Not only has he made himself a lot of money he has also increased the wealth of Nike. In particular, Nike Golf which was basically unheard of before Tiger came onto the golfing scene is now a $600 million business. So how could the man that had money, fame, and power succumb to the power of one-night stands?

In a interview from 1998 with Larry King when asked about dating Tiger’s response was something along the lines of “Well I am busy so often playing golf so I really don’t have enough time to get to know someone really well”. If you were an international super athlete how much time would you have available to your family, friends, and loved ones? What seems obvious are trade-offs in life. There are trade-offs to everything in life. In this case, Tiger seemed to value other women more importantly than his family and wife. Now it seems as if Tiger is paying the price for his infidelities. It seems as if Tiger has more than an 18 whole course ahead of him.

Markets in Everything: Hair Loss

Over the past year or I have become interested in the market for hair loss. Looking at old pictures of family members and noticing some slight hair loss I wondered if I would have the hair loss gene as well. Millions of Americans lose their hair every year. Around 40 million men are affected by male pattern baldness. Male pattern baldness is what people typically think of a receding hair line. In addition to this, there can be loss of hair in the crown (also known as the vertex area).
Two people that have really influence my thinking are Dr. Sam Lam and Dr. William Rassman. Both are board certified hair transplant surgeons and take hair transplantation very seriously. Dr. Lam has posted numerous videos on YouTube, educating people on hair loss and hair transplantation, and does an exceptional job at taking complex ideas and turning them into simple understandable videos. From his videos Dr. Lam stresses the importance of education on the patient side. I completely agree with his approach. Why should you pay for anyone’s services unless you truly understand the value they are providing? Remember knowledge is power. Dr. Rassman maintains a daily journal for hair loss (BaldingBlog) with close to 8,000 entries that answer hair loss questions. I commend both gentlemen for educating not only me but thousands of others. What I have learned from my research is that hair loss occurs primarily due to DHT(Dihydrotestosterone). Genetics also plays a factor as well. From what I understand DHT plays a significant role in hair loss. The hair follicles start out as thick terminal hairs and then overtime miniaturize to the point where they can’t be seen anymore. Dr. Rassman stresses mapping out the miniaturization process. Individuals can look at their own individual miniaturization by purchasing a handheld digital microscope. The microscope allows the user to take magnify the hairs and take pictures which can be stored to the computer. This could be helpful in tracking hair loss over time.
Drugs such as Propecia and Rogaine try to slow down or reverse the miniaturization process. I should point out that both drugs were discovered by accident (Rogaine through blood pressure medication and Propecia through prostate medication). Although, there is no cure for hair loss Propecia and Rogaine are the only proven medical treatments to preserve hair. The patent for Propecia expires November 2013 which will help bring down the price. Avodart a drug commonly used for men with an enlarged prostate has seemed to show promise for hair loss in clinical trials. However, it should be pointed out that sterility was an issue in the trials. Avodart is currently not approved for hair loss treatment. What would be interesting though is if Avodart can help with BPH (enlarged prostate), hair loss, and increase sterility (less likely to have kids) wouldn’t it be the blockbuster drug for men over 50? I did a little research and wondered if DHT was a problem why not find a drug that greatly reduces DHT? A drug called acyline strongly reduces DHT to very low levels. Although, this approach might be extreme acyline is currently being studied for prostate cancer and as a contraceptive. Aside from medical intervention hair transplantation is also another way to restore hair. Hairs are transplanted from the back of the head (genetically programmed not to be lost) and individually placed into the balding areas. The process can take hours and is very labor intensive. There is actually a voluntary group of hair transplant surgeons known as the International Society of Hair Restoration Surgery. These surgeons are well trained and knowledgeable in performing hair transplants. I think it’s interesting how there is can be markets many things including hair loss. This industry still is most likely in the growing stage, and has made significant strides in such a short period of time. Perhaps one day hair loss will be a thing of the past.

Below are the links for Dr. Lam and Dr. Rassman
http://www.hairtx.com/
http://www.baldingblog.com/

NCAA: It's In The Game

College football is a big deal. Every Saturday afternoon thousands across the nation flock the stands to see their favorite college team play. While many more watch their favorite team on television it is pretty obvious that college football is a big deal. The NCAA is a voluntary organization that involves over 1,281 institutions. In essence the NCAA sets rules for colleges to follow in regards to sports athletic programs. For instance players that are going to be recruited to play college sports can’t take gifts or money from booster clubs or schools. Two movies that illustrate this are “Blue Chips” and “Johnny Be Good”. College sports are a big business. In 2008, the total revenue generated by the FBS (Division 1 schools for football) was over $41 million. Clearly, this is as much as some publicly traded companies make. Although this seems like a lot on average each school loses around $2.46 million dollars. Right now there are 120 Division 1 schools. No one really talks about this though. In a way it could be seen as the darker side of the NCAA. I wonder why no one talks about this darker side of college sports. It should be pointed out that large schools such as the University of Texas and Ohio State are the only few that produce a large revenue stream for their schools. Most of the revenue comes from licensing and merchandising.

The general viewpoint is this romantic notion that college athletes go to these “football factories” and somehow get an education while at the same time supporting their school on the field with their displayed skills and talents. In addition to this, college players receive very little compensation for their work. Yes, these players get scholarships and maybe room and board but aren’t they providing something of value to consumers. For instance, people pay to see minor league baseball teams and players get part of that in the form of their contract. College players however don’t get paid for their performance even though the minor league players and college players are similar. While the college might provide scholarships and room and board to star players the marginal cost to the school is close to zero. Why not have a market for college players to compete and get paid for their services? Paying players would also reduce the number of scandals in recruiting. If players could sign contract with colleges they would have less incentive to take bribes from booster clubs or school officials. Also many of these players don’t go on to a professional career (even if a player gets drafted a very small minority turn out to be good). Under a contract system players could get paid and save up money to prepare for life after football. The book “Friday Night Lights” shows what happens to student athletes after high school. One of the main characters” Boobie” Miles is one of the most sought after high school players in the country. Unfortunately, Boobie gets injured and tears his ACL and blows his dreams of playing college football. In addition to Boobie, most of the players in the book really didn’t think about life after high school football (Brian Chavez is the expectation who goes to Harvard). These players are only left with the highlights their glorious playing days and really don’t have limited options regarding life after high school. If college contracts were possible it might give these student athletes more of an incentive to go to school.

Although, it would be nice to see the NCAA give high school athletes contracts I doubt it would ever happen given the NCAA would like to believe that their players are on the field to get an education and support their school. If anyone looks at history though clearly this is not true given the scandals in college sports. The biggest example of this was SMU and the payola scandal in the 1980’s which forced the NCAA to give them the death penalty (not allowing SMU to compete for the 1987 football season). I don’t know how many programs engage in this behavior but I believe the NCAA underestimates the amount of side deals that are made because college players aren’t allowed to sign contracts.

Flying the Friendly Skies

Today I just got back from Houston for Thanksgiving break. I took a plane because I felt a 17 hour car trip would seem a little too long. Instead of driving I took a plane (Southwest) first from Houston to Dallas then from Dallas to Lubbock. There were some light showers and there was some turbulence. For some reason in the air I didn’t feel as safe as if I was in the car. I suppose many other people feel the same way. I saw an article recently that showed that airplanes are 7 times safer in 2008 than in 1989 (1.4 fatal accidents per million as opposed to .2 fatal accidents per million). Technology, regulations, and more experience in the air have made all of this possible. When I was walking off the plane I peeked into the cockpit to see what type of instruments the pilots used. I kid you not the dash area and whole cockpit area looked as if it was a little laboratory with all kinds of dials, switches, and display screens. Pilots now have technology and safety features that the Wright Brothers could only dream of!

With this said, people like myself and others sometimes feel a little unsafe when flying the shear evidence that flying is the safest form of transportation. My theory on why this may be true is that people have some kind of bias to where they believe even though the statistics say one thing events occur often more than they really do. An example of this would be to ask people how often they believe an airplane crashes. It should also be pointed out that anyone who watches the news or reads the newspaper might be lead to believe that airplane crashes happen occur more often than when they do. What people fail to realize is how unsafe other forms of transportation are such as driving, riding a bike, or even walking. More people die from these accidents than from fatal airplane accidents. Although, it might be hard to convince people that flying is safer than walking.

Another reason I think people tend to be fearful of flying is that they are not in control of the airplane. Pilots are delegated this duty and passengers are just along for the ride. Individual passengers really have no say in how the pilots fly which takes some of the control away from the passenger. One question that comes to mind however is that since people know that not all pilots have the skills and experience why not have differential pricing for different pilots? In practical terms this would be hard to carry out. First off pilots do basically the same thing which is to get you to your final destination. Second, crashes or accidents happen so infrequently it would be hard to quantify this through price. Also factors such as the weather could have a major influence on how people perceive their pilot even though pilots only have so much control. I would file this under 99% theoretical and 1% practical.

People should be aware that flight safety has greatly improved over the past 20 years and it will continue become more advanced. As the number of flights increase airline companies, researchers, and plane manufactures will be able to make safer planes. Next time you are in the airplane just remember if you were able to survive the trip to the airport you will survive the plane ride.

Source:
http://www.livescience.com/culture/090601-air-crashes.html

One of My Heros

I use to believe that the minimum wage could actually help people until I took economics. I use to believe that politicians were good people and did everything that helped everyone. I use to think many things until I was introduced to Dr. Walter E Williams. Dr. Williams is a professor of economics at George Mason University. Although, I have never met Dr. Williams I have been influenced by his ideas along with other intellectuals. Dr. Williams's excellence comes from the fact that he is able to take complex ideas and explain them in a way that anyone can understand. One of his professors Armen Alchian (an economist from UCLA) explained that the true way you know if you really know something is if you can "explain it to someone who doesn't know a darn thing about it". This concept is clearly shown in his weekly syndicated column and through other writings of his.

The first time I saw Dr. Williams as on Friday February 9, 2007 on Kudlow and Company. I remember listening to him and thinking this is a smart man. Sure enough I did some searching online and I found an interview with him via Wikipedia. From this point on I began reading his work and became introduced to other intellectuals such as Milton Friedman, Thomas Sowell, along with many others. Clearly, this one man introduced me not only to economics but to a different way of thinking. I would regard Friedman and Williams as libertarians and Sowell as a conservative. Although, Sowell does favor some libertarian ideas. Williams did a one hour podcast interview on EconTalk (excellent program) hosted by Russ Roberts where he talked about starting out as an economist and why he truly believes what he believes. I posted the link to that interview below. The only critique I have with Dr. Williams is that he tends to repeat the same ideas over and over. This in a way is good because he is consistent and doesn’t flip flop on his ideas but can get old at some points. Still I truly regard him as an important person in shaping my intellectual journey. My point is that it is interesting how one person can lead you down a path of different ideas and people.

Williams on EconTalk:
http://www.econtalk.org/archives/2006/10/walter_williams.html

The Poor Getting Richer

While many people like to show how the poor are getting poorer and the rich are getting richer this clearly is not the case. Often times people complain of how the poor can't make ends meet. My response might be what ends are they trying to meet? Data from the Census bureau confirms that the poor have improved their quality of living over time. For instance only 3.4% of people below the poverty line in 1984 were able to afford VCR's by 2005 more than 92.2% of the people below the poverty line had a VCR. Technology, innovation, and competition brought down the price of VCR's and other goods so everyone including the poor could afford them. In addition to this the "poor" now almost all have telephones, refrigerators, stoves, and air conditioners. Another point to consider is if you asked a poor person what country they would live in I would be willing to bet money that a majority of them would say the United States. This of course doesn't say that the United States or capitalism is perfect. However, people must understand that in a world of scarce resources there are alternatives. Believing that there is some perfect system or utopian world is nonsense. Many times people complain of companies such as Nike or Wal-Mart participating in child labor. While this is an unpleasant situation people don't realize that people in these countries have very few alternatives. Employers have very little incentive to pay these people nothing given the employee some options in their employment. Some factories are flooded with so many applications that it takes months to hire people because so many people are trying to apply to these sweatshop jobs. My point however is that capitalism does help even the poor people even though you will hear how the poor or worse off and the rich are getting richer.

Lawyering

Since the recession began millions of people have lost their jobs. Many people are looking for work while others are trying to see if they can gain a competitive advantage amongst their peers by going back to school and getting an advanced degree. Also many people who are in ready to graduate from an undergraduate program are looking to alternatives such as going to some graduate program since the job market has been so miserable.

It seems as if the number of people who want to attend law school is on the rise. The number of people who have taken the LSAT is gradually rising. From 2000-2008 the number of people taking the LSAT increased by around 28%. In October of 2009 the number of people that took LSAT increased 19.8% year over year. I highly doubt that the number of applicants offered admission into law school has also increased by these amounts. It should be pointed out though that just because someone takes the LSAT doesn’t necessarily mean they go to law school. In fact, there are actually more people in law school today then practicing lawyers.

This story caught my eye because it beautifully illustrates the concept of supply and demand. Since it appears everyone wants to go to law school and law schools can only accept so many applicants wouldn’t it seem as if there is a supply-demand problem? Currently there are around 200 ABA accredited law schools. However, in 1963 there were only 135 accredited law schools. It seems as if the number of law schools has only increased 32.5% over a 45 year period. This is a problem when the number of applicants increases 28% in an 8 year time period.

Another question would do lawyers contribute to society. Most people are familiar with trial lawyers but are unfamiliar with other types of lawyers such as: tax attorneys, estate planners, patent lawyers. My question how are trial lawyers adding value to society. Clearly, trial lawyers redistribute wealth from the party that committed a tort (wrong) to the plaintiff. Decisions in trials are made by a judge and jury who can base their decisions off emotions rather than rational thinking. What is even more interesting is in some counties judges have a political representation (republican or democrat) and get a large proportion of their contributions from local lawyers who could possibly influence their decision. Shouldn’t judges use their judgment based off the law and past precedents? However, I will contend that not all lawyers are bad. For instance, lawyers that deal with contracts and have to work on various business deals provide value for corporations in analyzing if a contract is valid and if it makes financial sense to the company. There are other groups of lawyers that provided value as well.

With the number of LSAT applicants increasing and the number of law schools staying the same getting into law school will become even more competitive. A similar situation has occurred in the field of medicine as well (look for an upcoming blog about that). I would argue that we should have more doctors instead of lawyers.

Botax?

Today in the news I saw a story on possibly placing a 5% tax on cosmetic surgery. A few things come to mind when I heard this. First, why would Congress want to place a tax on a service that does so much good for society? Cosmetic surgery, is a positive thing that can not only increase self-confidence and appearance, but can produce benefits to the people affiliated with the patient. For example, if Susan feels uncomfortable about her crooked nose and decides to get a nose job not only does Susan benefit but her friends benefit in a small way by not having to glance at crooked nose. The same thing can be said for Susan’s spouse who although doesn’t mind the appearance of her nose believes Susan looks much better after her surgery. In addition to looking better, Susan’s husband notices she has more self confidence and is not as self conscious about her body like she use to be. Clearly, not only does Susan benefit but possibly her friends, significant other, and family might reap small benefits as well. In economics, this is known as a positive externality. In 2008, 12.1 million cosmetic procedures were performed (American Society of Plastic Surgeons). As I mentioned before not only are the people getting surgery benefitting spouses, boyfriends, girlfriends, and family members are benefitting from these procedures.

Taxing any good or service will always result in getting less of that good of service. Often government policies try to curb bad behavior. This is the reason taxes on products such as alcohol and cigarettes are so high. However, in this case there is no reason to tax cosmetic surgery.

In addition to this people always have to be aware of the law of unintended consequences. So let’s suppose Congress institutes a 5% tax on “cosmetic procedures”. Couldn’t doctors simply change the name from “cosmetic procedures” to “luxury procedures”? Wouldn’t a price increase lead consumers to seek out cheaper alternatives (doctors that were not board certified)? Since there would be a price increase couldn’t it lead surgeons to not perform as many surgeries which could lead to long lag times between surgeries which could potentially hurt their quality since I would imagine surgeons are at their best when they perform surgeries without a lot of lag time? By lag time I mean going weeks without performing an operation not a few hours. I think some of these questions need to be considered before anyone votes on this.

What's Going on With TCU?

TCU has seemed to have an incredible season thus far. With a record of 10-0 TCU is currently ranked number 4 in the BCS and the AP Poll. This is exciting news not only for the football team but the TCU community. Attending TCU from 2005-2009 I noticed a new shift in the football tradition at TCU. Starting my freshman year TCU has consistently won and been bowl eligible every year. I give credit to coach Gary Patterson who turned the football program from a second rate team to a nationally recognized team. This is not only exciting for TCU fans but the TCU community. I hope the recent success will draw more attention to the school and academics instead of simply being known as a "football factory". TCU is always ranked within the top 100 schools in the U.S. News and World Report and has an outstanding business program (I should know I graduated from it). The thing I miss about TCU is the small classes and getting to know professors. At larger schools this simply doesn't happen. For instance, a school might have Nobel Prize winning professors but good luck trying to get office hours with them. Hopefully, TCU will win its last two games and be eligible for a BCS bowl. I can truly say I am proud to be a Horn Frog.

Healthcare

Recently, the House and Senate have been voting on various bills for healthcare. Many people are for universal healthcare because they believe every has the “right” to healthcare access no matter if they live in the Hamptons or the South of the Bronx. While well intentioned politicians want to do the best for society there are obviously costs associated with giving healthcare coverage to everyone.

According to many sources 46 million Americans don’t have healthcare insurance. This number can be a little misleading. Many of these people can afford healthcare yet don’t purchase it either because they believe they are healthy and don’t need healthcare or don’t want to be burdened with the cost. Another large proportion of this 46 million can get healthcare through Medicare or Medicaid yet choose not to. With so many people without healthcare what should America do?

Health care costs have been increasing at a rapid rate for many decades. Healthcare costs have increased more than education, transportation, and even housing. Part of the problem is the way the system is set up. Currently, if you have healthcare insurance and go to your doctor most likely you will only pay the co-pay (relatively cheap). In cases of catastrophic events the insurance company will cover the majority of your costs while you only have to pay a small percentage of the actual cost. The problem however is that healthcare insurance covers too many things. For instance, if you get a small cold and go to the doctor insurance will cover that when in reality the cold will most likely go away on its own. People also have an incentive to overuse healthcare since their employer is not paying for it and they aren’t. To say healthcare insurance is based on capitalism would not be entirely true. State governments heavily regulate insurance companies which make it illegal to cross state lines to purchase health insurance. If consumers were able to purchase their own healthcare there would be much more competition which would led to insurance companies competing for customers based off price and the type of coverage.

Competition could apply to the people that couldn’t afford healthcare insurance as well. These people could receive vouchers so they could purchase healthcare from where ever they would like which would create competition between doctors and healthcare providers. I think it’s interesting that I can go online and search the price for a plasma TV, stereo system, or DVD player but I can’t research what the cost of a MRI scan. Health insurance needs capitalism and not the current system of having employers pay for employees for which decisions are made by a third party.

Markets in Everything: Hair Loss

Over the past year or I have become interested in the market for hair loss. Looking at old pictures of family members and noticing some slight hair loss I wondered if I would have the hair loss gene as well. Millions of Americans lose their hair every year. Around 40 million men are affected by male pattern baldness. Male pattern baldness is what people typically think of a receding hair line. In addition to this, there can be loss of hair in the crown (also known as the vertex area).

Two people that have really influence my thinking are Dr. Sam Lam and Dr. William Rassman. Both are board certified hair transplant surgeons and take hair transplantation very seriously. Dr. Lam has posted numerous videos on YouTube, educating people on hair loss and hair transplantation, and does an exceptional job at taking complex ideas and turning them into simple understandable videos. From his videos Dr. Lam stresses the importance of education on the patient side. I completely agree with his approach. Why should you pay for anyone’s services unless you truly understand the value that you are getting? Remember knowledge is power. Dr. Rassman maintains a daily journal for hair loss (BaldingBlog) with close to 8,000 entries that answer hair loss questions. I commend both gentlemen for educating not only me but thousands of others.

What I have learned from my research is that hair loss occurs is primarily due to (Dihydrotestosterone). Genetics also plays a factor as well. From what I understand DHT plays a significant role in hair loss. The hair follicles shrink to a point where they can't be seen anymore. In essence, the hair follicles go through a miniaturization process where they can't be seen anymore. Dr. Rassman stresses mapping out the miniaturization process. Individuals can look at their own individual miniaturization process by purchasing a handheld digital microscope. Drugs such as Propecia and Rogaine try to slow down or reverse the miniaturization process. I should point out that both drugs were discovered by accident (Rogaine through blood pressure medication and Propecia through prostate medication). Although, there is no cure for hair loss Propecia and Rogaine are the only known proven methods that seem to preserve hair. The patent for Propecia expires November 2013 which should significantly decrease the cost. Avodart a drug commonly used for prostate problems has seemed to show promise in clinical trials. However, it should be pointed out that sterility was an issue in the trials for Avodart the drug currently not approved for hair loss treatment. What would be interesting though is if Avodart can help with BPH (enlarged prostate), hair loss, and increase sterility (less likely to have kids) wouldn’t it be the blockbuster drug for men over 50? I did a little research and wondered if DHT was a problem why not find a drug that greatly reduces DHT? A drug called acyline strongly reduces DHT to very low levels. Although, this approach might be extreme acyline is currently being studied for prostate cancer and sterility.

Aside from medical intervention hair transplantation is also another way to restore hair. Hairs are transplanted from the back of the head (genetically programmed not to be lost) and individually placed into the balding areas. The process can take hours and is very labor intensive. There is actually a voluntary group of hair transplant surgeons known as the International Society of Hair Restoration Surgery. These surgeons are well trained and knowledgeable in performing hair transplants.

I think it’s interesting how there is can be markets many things including hair loss. This industry still seems to be in a growing stage and has advanced so far in such a short period of time. Perhaps one day hair loss will be a thing of the past.

Below are the links for Dr. Lam and Dr. Rassman
www.hairtx.com
www.baldingblog.com

Organ Donation

While working out this evening I heard a very interesting podcast with Richard Epstein. Richard is teaches law at the University of Chicago and will be teaching at NYU next semester. Epstein is able to talk in whole paragraphs which is quite impressive. He clearly is an academic intellect and is a brilliant man. I sometimes think of him as a genius on steroids.

I was listening to an old EconTalk podcast dated June 5, 2006 where Russ Roberts (host) was asking Epstein his thoughts on the market of organ donation. Epstein pointed out that it really is a tragedy that people have to go on dialysis for many years waiting to receive a kidney transplant. Current laws prohibit people from selling their own kidneys. I believe this is a tragedy given so many people die each year waiting for kidneys. Also it should be noted that dialysis cost around $100,000 a year which obviously is not a cheap solution. The podcast discussed how people have some negative connotation to permanently dismembering their body and giving it away. Epstein quickly points out that people give away blood and sperm. Some type of system where people could pay for kidneys and trade them freely would be beneficial. People always claim that people would get taken advantage of if there were a free market for kidneys. Clearly, this is nonsense given it would be voluntary transaction. Currently, a black market exists for kidneys. Black markets only exist when markets are not working.

Nobel Prize winning economist Gary Becker has done work on this subject and suggests that, “according to Ortner (2005), the average cost of a liver transplant is about $335,000 in the United States.” Becker and the other author suggest that “a value well over $500,000 per person transplanted immediately after netting out total cost of kidney transplants, which include pay to donors”. If this were possible a market could be started for kidney transplant which inevitably would decrease the risk of death and risk associated with this type of procedure. If the government were to allow the transaction of kidneys doctors continually increasing the quality in addition to decreasing risk (think scales of economies). Isn’t it immoral to have tens of thousands of people dying every year when there clearly could be a market that could save lives and increase the wealth of certain donors?

Link to Becker’s work:
http://home.uchicago.edu/~gbecker/MarketforLiveandCadavericOrganDonations_Becker_Elias.pdf

Happy Halloween

I hope everyone enjoys their Halloween Weekend. I suspect the candy levels for children will increase this weekend from all those treats they will be getting. Speaking of candy here is my top 5 list for candy bars:

1) Hershey (original)
2) Milky Way Midnight
3) Snickers
4) Crunch
5) Tootsie Roll

Investing for The Individual Investor

Investing can be a great thing. Although, in recent times the market has taken quite a fall investing over a long period of time will not leave the individual investor disappointed. If I were to recommend any two books for the individual investor they would be "A Random Walk Down Wall-Street" by Burton Malkiel and "Stocks for The Long Run" by Jeremy Siegel. I should note these books are not just fads but have stood the test of times when it comes to investing. In Random Walk Malkiel discusses the Efficient Market Hypothesis which simply states that no one can beat the expected returns of the market year after year consistently. Malkiel recommends that the individual investor invest a wide variety of mutual funds to diversify. Diversification is a great idea because instead of putting all your eggs into one basket your risk is spread across many different investments. Siegel talks about how stocks are actually one of the safest forms of investing when looking at performance compared to risk and inflation. Siegel describes how over 30 year holding periods stocks have statically done better then bonds, Treasury bills, or CD's.

The recent market meltdown has given a bad name to the financial services industry. This industry does serve the public a very important function. I wanted to take some time to discuss the different groups within the industry. When you see commercials for Charles Schwab or Merrill Lynch these types of companies are known as broker-dealers. Broker-dealers usually have millions of accounts with hundreds of brokers trying to sell individuals different financial products. Brokers make their living selling you different insurance policies or mutual funds. The SEC regulates broker-dealers to make sure they are not doing anything illegal or unethical. The problem I see with broker- dealers is they have an incentive to sell the individual investor products instead of actually looking at the whole financial picture. Think of a broker as a doctor who keeps prescribing you different medication. Each time you get prescribed medication it costs you money which over time will affect your performance. On the other hand there are Registered Investment Advisors. This group is smaller than broker-dealers but they are bound by the SEC to put the client's financial interests above their own. When it comes to designations there are so many within the financial industry below I talk about the differences between them:

CFP (Certified Financial Planner)- CFP’s look at everything at the whole financial perspective of a person and most likely do a financial plan for them. These people are educated in investments, insurance, estate planning, retirement planning, and tax implications. To become a CFP one must take 5 individual tests along with a 10 hour comprehensive exam. Study time is around 300 or more hours.

CFA (Certified Financial Analyst)- This designation is for either investment professionals or sometimes people in corporate finance. Many times investment banks look for this designation in prospective hires. The CFA is much more technical then the CFP. One CFA summed it up quite well, "CFP is the shotgun approach, while the CFA is a sniper approach to investing". CFA focuses on statistics, equity evaluation, economics, and financial analysis. To become a CFA one must take 3 (6 hour) tests in order to become designated. The average study time for each exam is around 300 hours for each exam.

CPA- most people know what this designation is. These people are well versed in accounting and pretty good when it comes to taxes. Although, CPA's are usually not very focused on the investing side they can save people money with tax strategies and tips.

Series 7- general test in order to become a stockbroker

Using any professional with one of these designations will leave you better than getting a brother in law or someone you know when it comes to your financial matters. Also be weary of broker-dealers since they have their own incentives for you to switch products or buy insurance policies that you may not need.

Most Underappreciated Man in Music

Most of my music tastes are from the 1980's. The 80's were known for big hair, synthesizers, and MTV. During this time a artist named Richard Marx made in debut in the late 1987. He did had hits such as "Right Here Waiting", "Hold On To The Nights", “Endless Summer Nights”, and "Angelia". I recently was looking to see what he has done since the 1980's and found a few songs that he has done. He had a new album Emotional Remains which was not bad. My favorite song is "Through My Veins". When listening to these old recordings it seems clear that the music stills holds the test of time. Marx has sold over 30 million records. What really people don't know about Marx is how many songs he has written for other people. In 1999, he wrote "This I Promise You" for N*Sync and won a Grammy for "Dance My Father" with the late Luther Vandross. Clearly this singer-songwriter has talent. Although, I would argue most of his talent is from his songwriting/producing. My question how does he look so young?

Who Wrote That Song?

I was searching around the internet and found this cool search engine to look up basically any artist to see what songs they themselves have written. ASCAP provides this. ASCAP is an organization to make sure artist are fairly paid for their music. For example, every time you go to a restaurant or store and hear music ASCAP makes sure that the vendor has a license to play that music and makes sure that the artists collect royalties every time the song is played.

http://www.ascap.com/ace/search.cfm?mode=search

What Should I Major In?

While I was at Texas Christian University I had the opportunity to mentor younger business students in a program called Neeley Mentors. The most frequent question I got asked was, "What concentration should I do?" Below is a summary of all the majors most undergraduate business programs offer.

Accounting- although this major is usually associated with a lot of math it really isn't. The most complicated form of math you have to do is add, subtract, multiply, and divide. The hard part is figuring out what rules apply to what. For instance an example might be: Do we include or exclude this cost into the financial statements. What is really interesting is many accounting majors go to law school since accounting and the law are pretty much based upon rules

Marketing- this major is usually for people that are pretty creative and enjoy working in teams to get ideas across. Even though I call marketing the tom-foolery of business they serve an important roll in educating consumers about products and their benefits. My only problem is that if a product is good won't it sell itself? Nevertheless, they do inform consumers about what they can offer.

Finance- Since I majored in this I can tell you all you need to know. Finance deals with not only understanding risk and corporations but the core idea of finance is the relationship between risk and reward. This is interesting because it can be applied to many different places. For example, if you are thinking about eating your favorite dessert shouldn't also think about the costs associated with that dessert? By costs I don't mean money prices I mean what you give up for eating your favorite dessert. Would you incur more calories possibly leading to weight gain? Could you get a stomach ache after you eat it? There is a risk/reward relationship that we encounter in our daily lives. In addition to this, finance can show people how to invest their own personal money (personal finance) or show individuals how to evaluate how financial stable a company is (important if you are looking for a job). Finance majors usually have to take a bunch of accounting courses so they can understand the difference between a: balance sheet, income statement, and cash flow statements

E-business- this major is pretty interesting. When I was younger I was really into computer technology. These people are really good with information technology and can make sure a company's software program is running properly. A misconception is that these majors have to program computers. From my understanding there really isn't any programming. The nuts and bolts of the major is understanding how a business can use information technology to improve their website, fix information technology problems, and possibly benchmark their technology versus competitors.

Supply Chain- A lot of people have no clue what supply chain management is. Supply chain management is about understanding the most efficient way of delivering goods to their point of destination (think FedEx). Although, most of it seems like common sense (and it really is) there are a lot of programs and technology that these majors use to find the most efficient delivery path for products. Next time you get a package you can thank supply chain majors for making it possible!

Management- these majors are really good in bringing out the best in people. You especially want these people in any type of conflict situation. Getting along with people and being able to communicate is not only important in the business world but also important in live as well.

Current Thoughts on The Economy

Many I tell people that I majored in finance they immediately believe I am a skillful accountant as well. While finance and accounting are similar they are not exactly the same. Finance has to deal with risk, reward, understanding the right mix of corporate financing (example how much stock or bonds should the company sell). On the other hand accounting deals with understanding financial statements, how companies collect money from individuals, and auditing the books to make sure financial statements are correct. I would say that economics and finance are more closely related in the sense that one must understand economics before they can understand finance. My macroeconomics professor Dr. Harvey summed it up quite well. He basically said that the difference between economics and finance was policy. I agree with this statement. Economics generally look at the overall economy and how to make society better off economically while finance looks at how to make individuals and corporations well off. This distinction is important because it helps us understand the current financial crisis.

Many people have blamed greed Wall-Street executives for the current crisis. I agree somewhat with this. Yes, these executives did take excessive risks and money from shareholders to take these risks. However, companies had an incentive to take risks since history has shown that the government has a tendency to bail companies out. Examples of this can be seen in late 1980's and early 1990's, with auto companies (GM, Chrysler), and throughout history. Bailouts create the notion that companies in the future can be bailed out. An analogy to this might be the following: Let's say that you have a friend who has a little bit of an alcohol problem and constantly gets into fights and causes trouble. Every time he gets into a brawl you (the loyal good friend) are there for him and try to help in anyway. A few times your friend ended up in jail and you paid his bail money to make sure it wouldn't happen again. If your friend believes you will keep bailing him out doesn't he have every incentive to continue the same behavior? The similar logic can be applied to the current economic situation. The government is bailing out your friend and millions of his friends. Clearly, this is not a good situation. This situation is known as moral hazard. It would be important to give your friend incentives to try to limit his alcohol and try to get him to sober up. Moreover, the government could stop the "bailout" problem by simply not bailout out future companies. Companies knowing that they couldn't get money from the government or bailed out if they went bankrupt would have different incentives to make sure they didn't do anything foolish. The basic of economic is incentives and giving people the right incentives can go a long way.

I do believe that the economy will pick back up. I don't like how the media and everyone seem to compare recession to the Great Depression. Looking at historical data the recession the current economy looks most comparable to the 1990-1991 recession. In past year, businesses have fired millions of workers and millions more are trying to find jobs. However, the silver lining here is that businesses will increase their productivity (same amount of work/less workers). Although, it make take time businesses will once again reap the same profits they did before the recession. The recession can't continue forever! The business cycle shows that firms dip into recession and then bounce back over time. The $64,000 question is when. No economist really knows this answer. From the current situation I can only see the economy improving and not getting any worse.

Welcome to My Blog!

Well I decided to start blogging since I thought it would be good to get my ideas out there/have some form of digital diary over time. I must start by saying I have been inspired by many bloggers/writers. In a way I think of blogging as improv writing. Bloggers should be able to be able to really write about anything on any topic and be able to provide a logical yet meaningful. The point of my blog is to really talk about a bunch of different topics. Although, most of the writing might be focused on finance, economics, current events from time to time you will find me going into different subjects. Comments are of course welcome. I will moderate the comments to make sure they are appropriate. My mission will be to be consistent with my blogging as much as possible. I welcome any comments or questions.