Musings on Markets: The School Bell Rings: Time for Class!

Continuing an annual ritual of long standing, ahead of starting my spring teaching at NYU starting in a couple of weeks, I would like to invite you, if you are interested, to come along for the ride. I know! I know! Most of you are not enrolled at NYU, paying nosebleed prices, and that is prerequisite to be in the classroom, but thanks to technology and a loose reading of the rules that constrain me, you can get a close approximation of the classroom experience, wherever you are in the world, with broadband being your only constraint.

My Teaching Journey

   I am a product of my life experiences, and at the risk of boring you, I would like to give you a short history of the lucky breaks and choices that have led me to where I am today. I came to the United States in 1979, and having lived here much of my life, I feel nothing but gratitude for the kindness and opportunities that this country has offered me. I started in the MBA program at University of California at Los Angeles (UCLA) in 1979, at the tail-end of its basketball glory days, fully expecting to move on to a career in consulting or investment banking, when I was done. To ease my financial constraints, I became a teaching assistant in the second year of my MBA program, and in what I can only describe as a moment of grace, I realized that teaching was what I wanted to do with the rest of my life. 

    Recognizing the need for a doctorate as an entree into college teaching, I stayed on at UCLA to get my Phd. In 1984, I moved on to the University of California at Berkeley, as a visiting lecturer, teaching anything that needed to be taught. The six classes that I prepped for in those two years ranged from banking to investments to corporate finance, and while I have never worked harder, much of what I teach today came out of those classes. In 1986, I joined New York University’s business school as an assistant professor, and asked to teach Security Analysis, a class made legendary by Ben Graham, who taught it at Columbia University in the 1950s. By 1986, though, it was showing its age, more a collection of topics about institutions and types of securities, than a cohesive class. I balked at teaching this motley collection of topics and wanted to teach a class on valuation, but I was told that there was not enough stuff in valuation to fill a class. I learned early in my academic life that if you want to get anything done in an academic setting, it is better to do it subversively than it is to ask (and get) official permission. In the fall of 1986, I taught a valuation class in my security analyst slot, and with no cameras in the classroom or complaints from students, no one was any wiser. In spring 2024, I will be teaching valuation again to the MBAS, for the 59th time, and I have an identical class that I will delivering to undergraduates during the semester. 

    The very first class that I taught at Berkeley in 1984 was an introductory corporate finance class (BA 130, for those who are from Berkeley and remember the class codes) and I have continued to teach that class as well to the MBAs at Stern, usually in the first year of the program. Since many MBAs consider taking both my corporate finance and valuation classes, I am asked what the difference is between the classes, and my explanation is that in corporate finance, we look at first principles in finance from the inside of businesses, as owners or managers, whereas in valuation, you look at those same principles, as investors or potential investors in these companies, from the outside in. In the years that I have taught these two classes, I find myself using my corporate finance framework constantly, when valuing companies, and bringing my understanding of valuation into play, when examining how companies should make investing, financing and dividend decisions.

    In the 1990s, I was asked to pinch hit for a colleague and manage a semester-long class of sessions with outside speakers, all of whom were successful investors and portfolio managers. As I watched these investors come in and pitch their ideas about how markets worked and the best way to beat these markets to the students in the class, I noticed that while the speakers all shared success, they had very different perspectives about markets and divergent investment philosophies. At the end of that class, I put together a class on investment philosophies, not with the intent of picking the best one, but instead offering the entire menu, so that students could decide for themselves whether they wanted to be technical analysts, momentum trades, value investors, venture capitalists of market timers. 

Pre-Season Prep

    If you are new to finance or valuation, and especially if you have a non-quantitative background (a liberal arts major, a job in strategy or marketing, for example), I don’t blame you for feeling intimidated at the prospect of taking a corporate finance, valuation or investment philosophies class. Investment bankers, consultants and portfolio managers often speak in a language that is foreign to those not in the space, and create an aura of mystery and layers of complexity around what they do. In my view, much of this is smoke and mirrors, and there is nothing in finance that is beyond your reach, if you are willing to use common sense and commit to doing a little bit of work that is outside your comfort zone. In particular, there are three disciplines that can help you in any finance class or analysis, and the payoff to spending time on each of them is significant.

1. The Language of Finance: Much as I take issue with the rigidity of accounting rules and the incapacity of accounting to be imaginative, the data that we use in finance is expressed in accounting terms. If you really don’t understand the difference between operating earnings and net income, or know what accounting balance sheets can (and cannot) measure, you will have trouble doing any type of corporate financial analysis or valuation. That said, accounting classes are not only overkill but they also actively create perspectives that can get in the way of sensible financial analysis. A few years ago, I created my own version of an accounting class, reflecting my selfish interests in accounting data, and you can find this online, if your accounting is rusty:

If you are an accountant or have an accounting degree, you may find my treatment of accounting rules to be sacrilegious, but I have a very different end game.

2. The Building Blocks of Finance: Over the decades, finance has become specialized, but it is astonishing how much of finance is still build around basic building blocks. Since many of the students in my NYU finance classes come in with a foundational class in finance already under their belt, I used to take it for granted that they had mastered those building blocks. Over time, I have learned that this is not always true, and I have a short class on foundational finance, which includes discussions of  what risk is, and how to measure it, the time value of money and the basic macroeconomic drivers of interest rates and exchange rates.

If you are well versed in these areas already, you should skip this class and move on, but it cannot hurt to refresh the basics.

If you are a statistics maven, you will undoubtedly find my discussion of statistical topics to be simplistic and naive, but if you are not, I hope that this revisiting of statistical concepts helps.

Learning Choices

    If I have not already talked you out of taking my classes, and you are still interested, the classes exist in multiple formats, and you can make your choice, based upon time available, preferences and end games.

The Classes

    In the first section of this post, I described the history of the three classes that I teach – the corporate finance class that I first taught at Berkeley in 1984 and have taught every year since, the valuation class that I sneaked in, as a replacement for security analysis, into my NYU classroom in 1986, and my investment philosophies class, born out of my experience listening to great investors talk about how they make money. 

     I describe my corporate finance class as an applied, big-picture class. It is a big-picture class because it is really a class about how to run a business, from a financial principles perspective, and every decision that a business makes is ultimately a corporate finance decision. The class tries to answer three core questions that every business, small or large, public or private, faces – the investment question (of whether and how much to invest in new projects/assets, the financing question of how much to borrow and in what form and the dividend question of how much cash to return to shareholders, if at all:

It is an applied class, because I answer each of these questions for a mix of companies that range the spectrum from large to small, developed to emerging market and from public to private – Disney, Vale, Tara Motors, Baidu, Deutsche Bank and a privately owned bookstore in New York Since these are real businesses exposed to changes in real time, there will be surprises that they deliver during the next few months that will become fodder for discussion. 

    The corporate finance class ends with a valuation segment, where I link the decisions that companies make on the investing, financing and dividend dimension to value. I pick up on that segment in the valuation class, which I describe grandiosely as a class about valuing and pricing just about anything and from any perspective:

Rather than use case studies and abstractions, this class is built around valuing businesses in real time, and the companies that hit the news during the course of the next few months will find their way into my classroom versions of the valuation class. While it is offered to both undergraduates and MBAs, the class is identical in terms of content, and you can pick either to follow.

    The investment philosophies class covers the spectrum of investment philosophies, and I have classified them in the picture below, based upon whether they are built around value or pricing. If you find that contrast mystifying, tune in to the class, and I will clarify:

The end game with this class is not to sell you on the best investment philosophy, but the one that best fits you, based upon what you bring to the game.

Class Format

    My classes are available in three formats. The first is the classroom format, where you can watch recordings of my undergraduate and MBA classes at Stern this semesters, shortly after they are delivered in real time. In that format, you will also have access to all of the materials that I use in the classroom, including lectures notes and exams/quizzes, and if you really want to get close to classroom-experience, you can  do the project that everyone in class is required to do. You will not get credit or a grade, and you are not enrolled the class, but you don’t have to pay tuition. The second is a free online version that I have created for each class, with the lectures shrunk (in substance and time) to be more attuned to an online audience. You can access these online classes on my website, and as with the classroom classes, be able to download lecture notes and quizzes. The third is an online and paid version offered by NYU, where there are professional recordings of the online lectures, administered and grades quizzes and exams and virtual office hours. You will get an official certificate of course completion with this class, but NYU will extract its (financial) pound of flesh in the form of a tuition payment.

I want to emphasize that if you decide to follow the classroom or online versions of the class, it is entirely informal and that it has nothing to do with NYU. There is no registration, recording or access to NYU resources that come with taking these classes.  If you take the certificate class, you will have a more formal relationship with NYU. 

    In choosing between these alternatives (and I really am completely okay with any choice you make), here are some things to consider:

1. Financial constraints: If you are budget-constrained, your choice is a simple one. Since my NYU certificate classes are available, with almost nothing held back, for free on my webpage, why pay for these classes? The corollary to this proposition, however, is if you do choose to take the certificate class, please recognize that NYU sets the prices and complaining to me that the price is too high accomplishes nothing.
2. Time constraints: You have lives to live, work to do and families that you want to spend time with, and adding one of my classes to the list of things to do will eat into your time. The NYU certificate classes run on a semester clock, and if it looks like you will be busy for the next few months, you may find yourself unable to finish the class. Unlike some university-offered certificate classes, I do require those who take these certificate classes show me through a project and exams that they understand the material, and I don’t give free passes. The two free versions (classroom and free online) do not operate on a calendar. In short, you can start with the regular class in January 2024 and stretch out the class over 12 months or 18 months, if you want to.
3. End game: Much as we all like to buy into the notion that learning is what matters, the truth is that some of you may want to use proof of that learning as a ticket to improve your standing in life (get a different job, move up in the ranks). With the free versions, you may very well learn just as much as those taking the class in the classroom, but you will get no credit for the class. Of course, you will get the certificate if you take the NYU certificate version, but NYU will extract its pound of flesh.
4. Updating: You will  be watching recorded lectures in all three versions of the class, but the timing of these recordings will be different. With the classroom format, you will get an updated 2024 version and in real time, but with the online versions (free and certificate), the sessions will reflect when they were recorded. While my framework and fundamentals remain the same, the examples I will be using will reflect this updating (or lack of it).
5. Personal preferences: The online sessions (free and certificate) are shorter (10-20 minutes) and thus more easily amenable to online consumption. Watching an 80-minute session online is not easy, especially in a world of TikTok and short YouTube videos. You may want to try both formats, before you decide.

The links to all of the classes in their different formats is below:

Note that the certificate classes for the spring 2024 will be open for enrollment only until Sunday, January 14, 2024, and that the corporate finance certificate class is available only in the fall.

Sequencing

    I like all the classes I teach, and if you asked which one you should take, I would be unable to answer, partly because it depends on what you plan to do in the future. If your question is about sequence, i.e., which classes should be taken first, that too will depend on what your background is and your end game. To help you make these choices, I put together a flow chart:

In fact, you may short circuit this sequencing and take only a portion of a class. Thus, if you are involved in banking or project financing, you may choose to take only the capital structure part of the corporate finance class, and if you are a trader, your focus may be on the pricing portion of the valuation class. 

The Joy of Learning

    As I watch young children experience the joy of learning, it reinforces my belief that human beings love to learn and that the tragedy of education systems is that they seem to be designed to destroy that love. It would be hubris on my part to claim that I will make you rediscover that love, but I do know that one reason I teach is to expose people to how much I enjoy learning new things or relearning old lessons. I hope that you can see that joy and that some of it rubs off on you! 

YouTube Video