0:16

Hi, I'm Scott Weisbenner,

a professor of finance at the University of Illinois.
This is my online course on investments.
So, you may naturally be wondering who am I,
meant I am Professor of Finance,
I've actually been here since 2000.
So, when I first arrived,
I could blend in very well with at least like the MBA students,
but I've been here now about 15 years as of the summer of 2015,
so I'm not blending in as well as I used to.
I teach courses to several students,
one of the benefits of teaching in our executive MBA program in Chicago,
is now I'm closer in age to the students again.
So, I enjoy that by teaching in all of our programs,
a lot of our graduate programs,
executive MBA, MBA, master's in finance and teaching a wide array of courses,
investment finance, corporate finance,
and then behavioral finance.
Where we look at psychological motivations for financial decisions.
So, I think this gives me a good background to put together to
offer this online course on investments.
Besides being a professor at Illinois,
I'm also a research associate at the National Bureau of Economic Research.
In particular, my research interests are in studying
the financial decisions of individuals and
various motivations for their portfolio allocations
and I also do research on various topics in corporate finance.
Before I came to the University of Illinois,
I worked at the Federal Reserve Board in Washington DC,
when Alan Greenspan was chairman and I was in
the capital market section actually in a very interesting time,
I was there during that time period when
technology valuations were getting to this high point in 1999.
Then left to come to the University of Illinois in 2000,
right when the technology valuation started to crash.
So, I got to see the up and down of the market in my time,
it's the Federal Reserve.
Then I got my training as an economist,
I got a PhD in economics at the Massachusetts Institute of Technology, MIT in Boston.
In fact, a little fun fact about me,
first time I ever flew on a plane or rode on a subway,
it was actually my trip out to Boston to visit MIT,
to decide if I wanted to go there as a graduate student.
So, if you want to find out a little more about me in terms of my teaching,
other credentials or my research projects I've been engaged with,
feel free to visit my website.
Here you can see this interesting,
looks like a before and after like photo here.
Most of the time I'm known as Scott Weisbenner,
but I also have a Chinese name, [inaudible].
So, I'm told that translates to knowledgeable mind,
but part of me thinks it might mean drunken donkey.
So, maybe our Chinese friends out there can join in on getting
the actual translation of that name here.
What I like about this online teaching,
is it combines two of my passions.
One is, I like my job as a professor,
I like communicating, teaching.
My grandmother taught in one room school house,
I'm keeping on the family tradition,
but take it to a much different medium.
So, teaching is one of the passions.
Another is travel.
Given I was raised in a rural environment,
I didn't travel much, but since then,
you can see I've been to about 35 countries here.
Reasonable coverage except I see some big holes particularly in South America.
So, I was impressed with my travel,
but then I saw the coverage of students for the course and that was very humbling for me.
Particularly when I look at this map,
this is a number the countries with at least 100 students
registered for the course as of May of 2015.
I look at this map, go back to my,
I see I still have a lot of work to do of interesting places in the globe to explore.
But this international representation of course is very exciting for me.
So, why should take this course?
Why care about investments?
I think there's at least three reasons.
For one, investments is like a formal way
to judge past performance and set benchmarks for the future.
So, if we want to evaluate a mutual fund manager,
we want to look at the performance of firms,
we want to set objectives,
hurdle rates for the firm in the future,
you need to have some model from
which to do that and investments provides us with those tools.
From a personal perspective,
our wealth accumulation and then our consumption smoothing after retirement,
is determined by saving and borrowing decision.
So, we need to have a sense of the return to risk tradeoffs offered
by different assets and that also informs our decision of given we do save,
how should we spread our savings out across various assets?
Which are our asset allocation be?
Then finally, from a broader economy wide or firm perspective,
we need the tools from investments to come up with a way to assess
the required return or hurdle rate firms should have for their project.
So, for example, is it better for a firm to take money it's made and invest internally?
Or should the firm take the money it's made and return it to shareholders?
To evaluate that tradeoff,
we need to come up on what would be the required return of
hurdle rate investors need the firm to achieve for it to hold its stock,
and that comes from the knowledge of investments.
How do we judge the performance of different assets,
different firms, different stocks?
That's really key to the investments course key to this one as well.
Historically, certain assets have certainly yielded higher returns than others.
Key question that investments can offer some insight,
as to why do some assets yield higher returns than others?
Does it represent compensation for different levels of risk?
You probably heard the phrase "higher return, higher risk".
So, are the higher returns due to some assets being riskier than others?
What investments does, is formally define what we mean by risk.
Or does the difference in return not represent differences in underlying risk,
but instead just represent that some assets have performed better than others,
and those that have hold those assets have earned
abnormal risk adjusted profits that are positive.
So, what do we think about looking at different assets and looking
at their difference in returns over the last 40 years here.
So, I threw all five possible investment strategies you could have
had from the beginning of 1975 through the end of 2014.
Let's say you start out investing $1 at the beginning of this period,
you held this asset for 40 years.
So, what are these possible strategies?
One, the under the mattress strategy and it is you just take the dollar,
put it under the mattress.
A second investing and a very safe asset,
one month US treasury bill.
So, think about this is like
the short term certificate of deposit you can get in your bank,
what would that strategy have yielded?
What would have grown to over the 40 year period?
Investing in the broad US stock market,
investing in the stocks of small US firms on the bottom 10%.
So, investing in the stocks of firms who are the
smallest in terms of the overall market value of their equity.
Then the fifth strategy is investing a combination of small firms,
but firms are also known as value stocks.
So, these are firms that have a lot of tangible assets.
Think about your cement company being more than value stock is
opposed to the startup Internet company which would be more of the growth stock.
So, here are the five strategies.
What difference in of returns have we observed from these over the last 40 years?
So, the under the mattress strategy is easy.
So, it happens to be a nice coincidence that $1 is equal to one-foot under the mattress.
That $1 could fast forward at 2014,
still a dollar in 2014.
Now, how about if we go from the under
the mattress strategy to investing in US treasury bills.
Over 1975 to 2014,
this $1 in under the mattress,
that grows by a factor of almost seven as you know it's $6.90.
So, that's basically like going from the cat under the mattress,
now going to the height of LeBron James.
Sorry I have a photo here and you know kind of Miami heat,
we need to update this and get a Cleveland Cavalier.
So, as opposed to under the mattress,
the treasury bills at
the end of the 40 years it's yielded wealth that's about seven times higher.
Like going from under the mattress to going to the height of LeBron James.
How about instead of investing in treasury bills,
we're investing in the US stock market?
Well, now, instead of having $6.90 at the end of the 40 year period,
we have over a $100 kind of a difference of a factor of 16.
So, that's like very small height of LeBron James.
Why is it so small?
Because that's the equivalent of growing from the height of LeBron James to going
to the Christ Redeemer overlooking Rio de Janeiro on Brazil.
So, that gives you the sense of the differences at wealth
generate over these 40 years going from treasury bills,
to the US stock market.
How about if we go from instead investing in US stocks to investing in the smallest?
The stock of the smallest firms in the US.
Will the stocks of the small firms have grown from
a dollar $253 over this 40 year period as opposed to 111 for the overall stock market?
So, that's like going from the Christ Redeemer statue,
to a 747 jet.
Here we're doing a shout out to Quantas and our friends in Australia here.
Then the final strategy,
not just investing in small stocks,
but investing in small stocks that also have a value characteristic to the firm.
So, we'll talk later about what do we mean value growth,
think of value of firms being firms with a lot of tangible assets,
think of the cement company as opposed to
the opposite that the growth companies with a lot of intangible assets,
think of the Internet startup.
So, if we had focused on this simple strategy of investing in
small value stocks and held that strategy over this 40 year period,
our initial $1 would have grown to a little over $1,000.
So, that's like going from the 747 jet up to the height of the Eiffel Tower.
So, this raises a question,
should we all just go to Paris and like it usually what's wrong?
I'm happy to sign up for a trip to Paris,
taken back to investments.
Why do stocks offer higher returns is US treasury bills?
Why have the stocks of small and value firms outperformed the stock market as a whole?
This is where the investment comes in,
is a way to quantify these differences in returns,
these differences and performance,
how much of these differences are due,
are attributable to differences in risk of this strategy?
How much is this just represent outperformance,
that's a profit opportunity?
So, key in investments course is allowing us to do
a risk adjusted comparison of the performance of different securities,
of different firms, of different mutual fund managers.
So, what's the game plan for this course,
broken down into four modules.
Module one, the investments too kit,
basics on portfolio formation.
So, topics include looking at the historical pattern in returns,
will past necessarily be the future?
Who knows but at least it's useful as a starting point to understand
the return patterns in the past and then basics on portfolio formation.
How to form efficient portfolios of risky assets?
Given you have a certain level of volatility you're willing to take,
how do you combine a portfolio?
How do you construct a portfolio of assets to give you the highest return
subject to that volatility in performance you're willing to undertake?
Also talk about how to avoid certain dominated assets.
My advice on certain securities that should never be in your portfolio.
Module two it's all about the capital asset pricing model here, the CAPM.
So, in this module,
we'll talk about the motivation for this,
implementing this model actually using it
to run regressions to analyze the performance of
of returns and then interpreting
the two key parameters that come out of the capital asset pricing model,
beta sensitivity of a securities performance of the overall state economy,
to the market and then alpha whether this security
has over performed or under performed on a risk adjusted basis.
Capital asset pricing model has a nice insight that it's
not the total volatility of the firm that should be reflected in returns or price,
it's actually only the risk of the firm that's tied to movements in the overall economy.
So, the key factor that should predict returns should be this beta.
Module three then, given there the use of the capital asset pricing model
in the real world given it's development led to multiple prices in nobel economics.
Module three is all about how well does capital asset pricing model ultimately
perform the development of other models,
multifactor model beyond the CAPM that take into account
the return patterns we observe in
the data such as small stocks outperforming large stocks,
value stocks outperforming growth stocks,
momentum, affects and return.
We talk about those in the development of multifactor models in module three.
We also talk about market efficiency and its implication for
understanding patterns in returns and what the notion of
market efficiency means in the world of money management.
What is efficient markets world?
What's the value of active portfolio management?
What's nice about modules two and module
three is we'll get plenty of practical experience.
I've designed several excel spreadsheets where we'll go and get our hands
dirty doing analyses to look at
and evaluate the performance of various securities and firms.
Then finally, fourth topic take our investment finance knowledge,
apply it to firm valuation techniques.
In a particular look at two valuation techniques
taking market multiples like price earnings ratio,
market to book ratio of similar firms to us,
take their market value data,
apply it to our accounting data to get a market estimate for our firm value.
That's a market multiple approach and then the textbook
discounted cash flow analysis where we make certain assumptions about
cash flows growth rate and the riskiness of those cash flows to
value the firm with the old textbook and a way of doing it,
the value the firm is just the discount FEMA cash flows it generates.
So, when you're thinking about this course,
do you have similar questions to any of these folks?
I was wondering what determines the return
a project needs to earn for the firm to proceed with it.
Also why do firms have such a different price to earnings ratios?
Scott, can you help me?
I get these statements from
my financial adviser and mutual funds give me my account balance when I really have
no sense whether my manager is doing a good job or
a bad job or even what types of stock my manager is investing in.
Scott, can you help me?
I'm tired of feeling lost while I'm in meeting with my finance colleagues.
A while, I read The Wall Street Journal.
Well, I hear worth like Beta,
Alpha or sharp ratio.
I start to tune out.
Scott, can you help me?
I want to know whether the stock market would go up or down tomorrow.
Scott, can you please help me?
So, I can definitely help the first three,
but in response to the fourth person,
whether stock markets are going to go up or down in the future,
your guess is as good as mine.
In fact, if you're an advocate of efficient markets,
you'd say it's pointless for any of us to guess because all the information
to predict stock prices that's publicly know is already embedded in the stock price.
So, it's hard to predict if markets are going to go up or down from this point.
So, I can't help the first three,
but the fourth, not so much.
That actually brings up an interesting point.
It's useful to highlight what this course is not.
We talk about well-being of the course,
what this course is not.
As I just talked about,
I'm not offering predictions of the stock market go up or down.
We'll go into what are determinants of returns,
ways to evaluate past performance whether it's
been good or bad accounting for the risk of their investment strategies.
Ways to project hurdle rates or
discount rate benchmarks that should be set
for firms or investment strategies in the future.
But it's not about offering predictions should the market go up or down,
will the Federal Reserve raise interest rates or not,
that's not what we're doing in this course.
I'm also not trying to sell you a textbook or promote my own research.
Throughout the course, I will highlight some academic research.
I think is state of the art and adds a lot of value to the underlying lesson.
Occasionally, that might be research of myself,
but the point of this course is not to sell you
a textbook or not to promote my own research.
Then finally, I want to point out that this is not meant to be
a fall semester course equivalent on investment.
It's meant to be the first half of an MBA style investments course,
first half of a two part sequence.
Okay, so this is the first half that
I'll be offering online to be followed by the second component.
So stay tuned, upcoming attraction,
Scott's second course on investments.
So, here are topics that will cover in the second course,
which means we're not going to cover them very much.
We may touch on them briefly,
but more coverage will be occurring in the second course.
Evaluate the performance of individual investors.
What are some behavioral biases that some individual investors seem to be prone to?
Institutional investors, are there any pockets of information that we see
embedded in the trades and positions of
some institutional investors like mutual funds or state pension plans?
Tax timing strategies, at least,
in the US there's a capital gains tax that investors have to pay,
but they only have to pay it when they sell the stock.
So, that leads to tax timing strategies that can be profitable for individual investors.
We also talk about the effect that taxes have on
returns and stock prices such as a January effect.
Study the reaction of the market to
various firm financial decisions and
accounting disclosures like the post earnings announcement dress strategy.
Then also talk about how options can be used to reduce risk or speculate.
So, these are all great topics not room to put everything in a half course,
so this is going the second course on investments

20:44
Hi, I'm an animation Scott.
You'll see a lot of me in Scott's second course investments two,
but I'm here to provide some occasional updates
and clarification to the material in investments one.
You can view me as a new and improved version of Scott.
Actually, a younger version although a better looking one.
My second course on investments ultimately did not delve
into options or market reactions to firm decisions.
Investments two: lessons in applications for investors,
instead focuses on the composition returns,
capital gains versus dividends,
investment decisions and pension plans.
The performance of individual investors and
the performance of mutual funds and the search for Alpha.
So, a lot of good stuff.
Check it out, and remember,
there will be plenty of animation Scott in the vestments two course.
We talked about for this course,
building the finance fundamentals is key to this course.
Motivating, using and interpreting popular asset pricing model.
So I've developed several Excel spreadsheets so we can go and do the regression
analysis,
evaluate the performance on our own.
So, I think the best way to learn is by doing and we'll be doing a lot in this course.
Discuss the meaning of market efficiency,
what its implications are for return patterns,
asset management industry, and as he talked about prior,
studying firm valuation techniques.
These are the topics that will be appearing in this course.
So, what you'll find in the course layout,
four modules each containing six to seven separate lessons not
counting the introduction and the conclusion to each lesson.
Each module will have an introduction that's going to
highlight what topics will be addressed,
and I'll also emphasize the practical skills and experiences that will be required.
For each lesson I put together,
I made an emphasis to think about what are going to be
the practical knowledge and experiences that you as a student would take away.
That was always at the top of my mind when I'm designing
these individual modules and the individual lessons,
imparting some practical takeaways from this material within each lesson.
So, each module has six to seven lessons.
Within each lesson, a clear marking of the path both at the beginning and end.
So, what are the objectives?
What do I hope you'll take away from the course?
Then, everyone's favorites there.
Maybe you'll become famous,
what have we learned?
That will always be clearly emphasized within each lesson.
You going to know where we plan to go and where we've been.
So, online course, does that mean easy of course?
I don't think so in my case.
So, this course represents, as I said,
the first half of an MBA-level investments course.
I packed a lot of material into the four course modules for you to do.
So, at the end of the day, it probably ends up being more than a standard half week,
which is University Illinois is like 15, 14,
15 weeks worth of course for a half course,
probably a little more material in that than half,
but online you're allowed to do that.
Important to be successful on this course is to have a knowledge of
both statistics and the spreadsheet program, Excel.
We'll be using Excel a lot,
I'm assuming you know terms like correlation, variance, average.
We'll do a quick review and I'll do a quick review of how to do certain things in Excel.
But it will be even better if you come into the course with that knowledge.
So, things to remember during the course,
Internet is a new medium for course delivery.
That's certainly the case.
At least, it's new for me.
But the basic role of academics still apply.
The course is only going to be fruitful if you are willing to put in the work.
So, during this investments course,
I've put together four assignments for you, four quizzes.
The quizzes are at the end of each module to
test that you get the basic point from each module.
I've put several in-lesson questions and exercises for you to
take a break during the lesson think about the concepts that we have developed.
I meant I've generated
several assignments and spreadsheets for you to do the assignment and in-class
exercises so you're dealing with real return data when you're doing these analyses.
The key thing is, I'm going to be there working with you.
Final things to remember while you're watching these videos.
Number one, green screen backdrops are new to me.
I'm not a weatherman,
I had no experience being a weatherman.
But after doing this course,
I have more appreciation for weatherman and their
being able to point to the different regions on the map.
I'm not using any teleprompter here,
I just have my slides, I talk through them.
Sometimes my explanation doesn't come out in
the most efficient ways so I'd have to do it again.
But this just makes it more like a real brick and mortar course here.
Number two, it's well known by people in
the TV business that being on video adds like 20 to 30 pounds to you,
makes you look 20 or 30 pounds heavier.
I think on my side,
it might be adding more like 30, 40 maybe 50.
So, keep that in mind.
It looks like I'm bolting out of this shirt here,
but live, it doesn't look as bad.
Then finally, I know during the course of this,
if there's going to be some attempts at humor that I make,
there oftentimes may seem like a little strain,
but then, I'm like trying too hard.
But believe me, if you were here live in the studio,
the people here are laughing a lot.
It's just the only problem is,
I don't know if they're laughing with me or if they're laughing at me.
I guess you could decide at home which is which here.
So are you ready for the course?
I know I am, let's get started.