It has been ~3 months since I last hit you all up with some posts. What’s my excuse? Other than my final financial planning courses, tons of projects, final exams, finding a job, and working to quench my never ending pizza hunger; I do not have any excuses. So let’s just carry on like the 3 month void never even happened.
With that said, I am happy to say that I did find an awesome job. Unfortunately, this probably means that we do not have much more time together. I do not believe that I can blog to you folks, and have the good ol’ SEC not throw a temper-tantrum. So I am going to enjoy these last few weeks with you, and I hope you all do as well.
End Soapbox rant. Let’s talk finance.
I’m Back Baby. May 19, 2015.
I’d like to touch on a few interesting topics that have arisen out of my plethora (yep, used it again) of projects I have completed this semester. The first is for you quant-heavy stock market geeks, which I admittedly am guilty of being from time to time. It’s called the small firm affect. In short (because if you’re still reading this and are interested, you probably already know what it is), Small-Cap firms’ stock outperform Large-Cap firms’ stock, or small companies do better than large ones. Yes, duh. You’ve heard it. But since the HBO show Silicon Valley is popular and hilarious, and because our project was killer: I wanted to share this with you. Yes, you.
What about before, during, and after a recession? That’s what one of my projects was dedicated towards. The way I like to describe it is that we looked at the small firm affect across market cycles. And our findings were interesting. We looked at monthly returns of small and large firms’ stocks. We measured outperformance 2 ways: the number of months small outperformed big, and the average monthly returns of small and large. Obviously we broke this down into pre, post, and during recessionary time periods. But for the sake of time, let’s skip to the bottom line shall we?
(Note that the numbers above refer to the period cycles, not months.)
Large-Cap stocks (from our findings) more frequently outperformed Small-Cap on a monthly basis. However, Small-Cap stocks return more during all (pre, during, post) recessionary periods. Meaning that when the little dudes outperform, they absolutely destroy the larger companies. But looking at the historical trends prior to 2008, Small-Cap outperformed Large the most both during and before recessions. However, the “Great Recession” experienced sort of a flip flop, where the little fellas outperformed Large more during and after the recession. We wanted to dive deeper, but unfortunately we ran out of time. Good stuff though.
The other topic I wanted to cover is the hullabaloo that’s happening overseas in terms of negative interest rates. My Dad asked me the other day, why in the world world would somebody pay a bank to lend it their own money? Which is essentially what negative interest rates mean. You aren’t getting any interest from your local European hometown bank, you’re basically paying them to lend out your money to others. Why not just keep it in your mattress?
Don’t even think about it….
Understand that this is currently occurring in other countries (who haven’t had the Bernanke-Yellen 1-2 punch), but it is more on the banking system’s side and deals individual banks’ liquidity. These transactions are more-so between banks in order meet more restrictive banking regulations for short-term bank deposit requirements. Also, quality bonds in Europe (and everywhere) are currently slim pickings. So to all of my European friends, don’t buy bonds and also don’t keep your money in your mattress. If I were European, I would invest it in Euro stocks, while your ECB homie, Mario Draghi, boosts the stock market with the European version of quantitative easing. But that’s just my opinion.
I’m done. Goodnight.
Note: the song featured is not my work. Although the singing is comparable to my American-Idol-Like skills, it is actually by Baby Bash and Akon.