Poorly-Prepared Finance Professionals

I recently returned to teaching Investments in a graduate business program.

In an effort to make the coursework as relevant and hands-on as possible, I arranged for student access to a simulated stock trading platform, which allows participants to trade many stocks, along with some bonds, futures, and other financial instruments, in a realistic environment.

To my surprise, I discovered that over two thirds of the class had never traded a financial instrument before in their lives. While this may not be unusual for a randomly selected group of people, the course in question was Advanced Portfolio Management. Despite professed interest in business, completion of undergraduate programs in economics, commerce, and related disciplines, as well as a number of introductory and intermediate graduate level courses in finance, the majority of the students in the class had not been exposed to a very basic set of experiences.

In several months, these graduates would be taking their higher education credentials and joining the finance professionals community.

The point here is not to criticize students of finance, but rather to (anecdotally) highlight deficiencies in the system of education and to shed some light on how we got into this financial crisis: generations of MBA and Masters of Science in Finance graduates have been joining the work force with deep gaps in their knowledge.

Is it any wonder that the average financial markets professional lacks a complete understanding of his or her job, and is therefore unable to fully understand the implications of his or her mistakes?

More to the point of this blog: if the professionals are so ill-prepared, what hope is there for the average person on the street?

Insult to Injury

Rising unemployment, record level home foreclosures, and ever-shrinking 401Ks characterize our now gloomy economic state. Investment losses in the trillions of dollars have devastated many households. Adding insult to these injuries, some in the media, government, and business communities have implicated hapless consumers as willing and guilty participants in the debauchery that led us to this humble state.

The most common accusations are based on observations that many consumers willingly accepted loan amounts and loan terms that were well beyond their means, and/or made reckless investments without a proper understanding of underlying risks. In both cases, consumers laid the groundwork for their own financial destruction.

The painful fact is that these accusations are at least partly correct!

Many consumers contributed to their own financial problems through a combination of ignorance and greed. The good news is that the former is relatively easy to remedy. Evolution from ignorance to knowledge is the objective of this blogging platform.

This blog is intended as a first step to equipping the average consumer with a better understanding of:

1. financial markets
2. risk exposures
3. investment strategies

It is not about stock tips.

It is about education.

It is about taking back control of one's financial future and ensuring the mistakes of the past are not repeated.

This is meant to be the first of several mechanisms intended to improve financial literacy. It is expected that different approaches may be required in order to properly connect with people of different backgrounds and generations.

Please stay tuned for more, and share thoughts about how and what you'd like to learn.