[SOUND] [MUSIC] Well, thank you so much for the opportunity to present this course on investments to you. I hope you find it useful in giving you a better understanding of the world of finance and maybe thinking about your own financial decision-making. Actually for me, teaching is following a family tradition. This photo here, early 1920s is my grandmother Weisbenner, taught in a one room school. If you look up here, this flag is actually a 48-star flag for the US. Here she is in the back with her 12 students here outside the school first to eighth grade all in one school house. I'm sure she would just be amazed that her grandson is teaching a course that has people taking it from, I think, over 160 countries. It's just kind of remarkable that almost 100 years later continuing the teaching tradition but in such a very, very kind of different, different way. Special thanks really go out to, I'm kind of just a small part of this, Grant- >> Czadzeck. >> Okay and I apologize if I didn't get that quite right. Amazing taking the videos, amazing productions. So much more than taking the videos. The creativity in all of these module intros. All the special effects of me zooming in and then zooming out. That's all 100% him. So the dedication is just kind of simply amazing, such talent bubbling to the surface here for my kind of benefit and your benefit in this course. Johnivan Darby as well. The work of animation. The animation, Scott. He did me a nice favor write that young animation, Scott was pretty good. All of these creative animations are coming from here. So kind of us three together is really, I think, amazing what we were able to kind of push out for this course. I'm extremely proud and definitely have to thank these two guys for sure. But when you're having all these thank yous, you know what it means, time to say goodbye. And this is a sad moment, always sad when you're saying goodbye. This is actually an artist rendition of the scene when I was leaving home in Rural, Wisconsin to go to graduate school in MIT. Little did I know when I'm starting on this journey is like over 1,000-mile walk. Everyone knows if you're going to walk 1,000 miles, you should at least bring two or three walking sticks. How foolish just to bring one, this one walking stick on this long walk to Boston. So remember, we had the snappy module in 60 segments to set the table for each of the modules? So I thought why don't we end the course with a recap of 30 pictures or slides or kind of favorites of mine throughout the course. So just go through these 30, kind of snappy 10, 15 seconds per slide to kind of give a recap of what we learned during the course, okay? And here in fact, we had a lot of pictures to choose from, right? So here, they're all kind of being driven to the studio. I went through all of these and picked what are the 30 best ones. Are you ready? Let's do it. Okay, so remember, dominated assets. And what's a clear, dominated asset? Think of a Standard and Poor's 500 index fund that has an expense ratio of 0.5% per year versus one that has 0.05% per year. If the mutual funds are the same, pick the one with the lowest expenses. CAPM might seem like magic but it's not that complicated. It's really saying assets that give you cash when everything else is falling apart should be valued more highly than assets that do well when everything else is doing well. But really kick you when you're down when the market is taking a downturn. So the CAPM's basically say assets have provide you some type of insurance or hedge should be valued more highly. And thus have a lower required return for you to invest in them. Remember this dog clearing the hurdle here? Well, we call that in the finance world, positive alpha performance, exceeded the benchmark. On the other hand, it looks like these racers here aren't going to clear the hurdle, this is what we referred to as a negative alpha performance. Two views of the world of finance, the world of asset management, okay? One view is this passive approach, index funds, efficient markets. No need to try to beat the market, because you can't do it in the efficient market. Don't try and find the needle in a haystack. Just think about asset allocation and low-cost index funds, okay? The other view of the world is this active management view of the world. Maybe it's not so hard to find the needle in a haystack. Maybe there's behavioral biases that cause distortion in prices that can cause smart investors to earn positive risk-adjusted returns, okay? Now, tax-timing strategy. So the US tax code actually gives incentives for people to sell assets that have losses to get the tax deduction and hold on to stocks as long as possible with gains to avoid paying taxes. So the type of return dividends versus capital gains matters, tax differently and you can think of with the realization based tax how to use that to minimize your tax bill. Avoid becoming prey to behavioral biases. You know that the Haast eagle, the moas have to make this kind of top 30 slide list. We don't want to be subject to these behavioral biases. We're going to push the Haast eagle away and also remember all three of these guys ultimately became extinct. We don't want that to happen to our retirement plan. Remember familiarity bias. So this is underestimating the risk of something that's just nearby. Like hey, do you really want the jaguar to be four inches from your throat here? Maybe not the best idea. When you're doubling down on background risk, or you're investing like in the stock of the company where you work, maybe because you think it's extra safe because of familiarity bias. This can lead to extreme outcomes. You could either turn into the monopoly man here, or you could have a not so desirable retirement here. So just remember, when you're investing like in the stock in the company where you work, you're setting yourself up for extreme win-win or lose-lose scenarios. Example of inertia. Of course, Max has to get featured in the final 30 here. Inertia can be good or bad. People don't seem to change their investment decisions much. So therefore, the default policy set by a firm can have big implications for retirement saving. If people are defaulted into saving in a balance fund, that's probably good. If they're defaulted into not saving or saving in a very safe asset like a money market fund, maybe not so good. Who does better trading stocks? Those that trade frequently, or those that are more buy and hold investors? Well, it turns out when we look at the evidence really, an individual investors generally don't seem to beat the market, which is consistent with efficient markets. But those that trade more, seem to do worse after fees. Because of all the trading costs, the brokerage house may be getting rich, but the investors on average aren't. Proxies for over confidence. So over confidence, think of someone who's trading a lot but doesn't have returns to show for it and we came up with two males. And there's actually some evidence that males seem to trade more than females. But yet don't have any better returns to show for it actually worse, once you've taken into account transactions cost and maybe height. So think of kind of George Washington here exhibiting both of these, no wonder he's the first President of the US. Your financial advisor. Do you want to go the psychopath route? Well if you do, just do all of your business over the phone. But the main point, remember that psychological science study we talked about is that getting emotion out of financial decisions can maybe lead to better performance. Makes sense, behavioral biases driven by emotion, get the emotion out of decisions, probably a better financial decision-making. Is bigger better when it comes to mutual fund fees? So usually, if you look to buy a TV, higher priced TV, better quality. Is the same true for mutual funds? If you're paying a higher mutual fund fee, do you get higher returns as a result? So remember this example, Weisbenner Son Funds here charged 1.5% management fee. Weisbenner Son Funds, now Weisbenner Sons Asset Management, both of these guys working hard, very studious. They're now charging a 2% fee. Question is do they earn it? Are they earning the extra fee they charge? People questioned the research methods here. Unfortunately, when you look at the studies, no, not on average. You see, mutual funds that charge higher fees don't, on average, get a higher return before fees to compensate for the higher fees. So sorry guys, it's not personal, it's just research. I just hope if they do go into money management industry, I hope I have the ability to go back and delete this video here. We talked about the search for alpha. And kind of various mechanisms to think about where you can maybe find some risk-adjusted returns. Maybe exploiting investor in attention, or looking at complicated firms, okay? Firms that have a lot of divisions, firms that have kind of sales overseas. Those firms may be a little harder to follow, maybe information isn't processed quite as efficiently as simpler firms. And when you find the returns from this strategy, you trumpet the result. One of my kind of favorite studies was a study looking at how important connections are in terms of kind of asset management industry and performance of mutual fund managers. And just remember, pay attention to your classmates. Remember, if there is an educational connection between the mutual fund and the executive leadership of the firm, the mutual fund was invested in, those holdings did very well. Those educational connections seemed to predict good mutual fund performance here. At least in those stocks where there were those connections. So pay attention to your classmates on Coursera, chat up your fellow learners. If you search for alpha, what happens if you find it? Remember, there's going to be economic factors that are working to dampen and dampen alpha, okay? Manager may respond by asking for higher fees. The flood of money coming in to the fund may keeping up this great performance difficult because there may be diseconomies of scale in the asset management industries. So all these factors are working to decrease alpha. And remember finally, time to go to Poland. Like hey, I'd love to see Warsaw, that's on my checklist of things to do. But while in Poland, I want to maybe manage some money, right? That 3 or 4% average fee charge by Polish mutual fund managers, wow. And remember, when you look at across countries, the mutual fund fees charged by the US relatively seem to relatively be lower than that charge in other countries. So that's it, we're turning that final page, the end. But we can't leave so quick. One more pause, think and answer. Le Penseur was here from the beginning. We have to end with Le Penseur. If you can indulge me one final question. And this is actually a poll question for you to fill out, okay? How was the sequel? Okay, did I kind of nail it with this kind of Darth Vader, Empire Strikes Back or was it a flop? Think Phantom Menace and kind of a buddy here, Jar Jar Binks, okay? So how did I do? But before you fill out the poll, and then after you fill out the poll, you can see what the cumulative vote total is kind of as of now. Before you do that though, I want you to see one final message. >> Remember at the end, I turned out good. I turned away from the dark side. But high mutual fund fees, they're rarely good. As always, thanks for watching. And remember, whether you are meeting with a financial advisor, or doing it on your own, let the force of my cause be with you. [SOUND] [SOUND]
