Getting Ready

Next week marks the beginning of a new academic year here at UQ. I'm teaching two courses this semester -- an introductory finance course for business majors (over 850 students), and a personal finance course with no pre-requisites (over 100 students). If any of my students find their way here, do say hello in the comments.

So, what have I been up to since my last post? Well, I've been reading a lot. As I stated last time, I'm working my way through Fooled by Randomness by N. Taleb. I'm finding this book a frustrating and interesting read all at the same time. Interesting because Taleb has a unique perspective on risk that is quite instructive. Frustrating because it doesn't really offer an alternative.

In finance we teach that expected risk and return is the basis for sound financial decisions, then usually measure that expected risk and return by looking at historical numbers. Taleb rightly points out that historical returns are just one realization of the possible random paths that returns might have taken, and therefore may not reflect the random paths that returns might take in the future.

Over at Portfolio.com, Felix Salmon has posted a link to his very interesting article in Wired Magzine about the credit crisis. It points out, in a clear and entertaining fashion, how important it is to understand the model outputs that you use to make investment decisions.