Financial Markets: Outlook 2007
About the Lecture
There’s a lot of money to be made in the coming year, say these practitioners from different areas of finance, offering just a few notes of caution. They offer a grab bag of investment tips for average consumers and entrepreneurs in this annual Enterprise Forum event.
Frederick Lane sees the baby boomer generation accumulating capital, lugging around hefty pension plans and generally looking for good homes for their money. He says, “The greatest way to not make money is to go in the market and get out…. The truth is, the best thing is to stay in.” Investors “need to be cautious about when the top is the top.” He sees a healthy economy in general: “I don’t think we have a big problem in this country, because guess what, our standard of living keeps going up and up and up. Most of us could lose a few pounds, tighten our belts a bit, make do with fewer cars, fewer boats and vacation homes.”
Deborah Kuenstner doesn’t see “unbridled optimism, like the 1999 environment,” where everyone jumped into investing. This is a good thing, because it means “a broader and healthier market.” Indeed, she says, “For the economy to slow down this year, it’s not a bad thing.” She points to difficulties with actively managing a portfolio: “I don’t think the dynamic in marketplaces will change and active stock picking become easier until we have a clearer idea which way the Fed is going, and not living data point to data point.” She also notes that average “Americans have lots of challenges,” including a slowing housing market and slow wage growth.
“The party continues, and it looks good on most fronts,” says Benjamin Howe. He points out that index funds are “outperforming smart money managers across all metrics.” He’s worried by the fact that “consumers are pushing credit cards above historical levels,” and that “competition from certain countries will continue to accelerate.” The U.S. has lost on the manufacturing front, and India and other nations are moving into finance and technology in a big way. Valuations of overseas companies are growing fast. In the U.S., alternative energy is “where we’re seeing far more funds going — explosive companies doing advanced battery technology for cars, or energy management. There are massive amounts of dollars going into that.”
“There are many next big things,” says Axel Bichara, whose VC company “takes the long view.” While the “amount of capital being deployed is quite high,” Bichara doesn’t see this turning into “another bubble.” He views the whole digital media world, “the monumental changes in how content is produced and consumed,” offering “at least another five to 10 years of investment opportunity.” He perceives a strong entrepreneurial surge coming from India and China, which is a factor for the companies he invests in and who they partner with. “The conclusion we came to, our kids need to learn Mandarin, and not French.”
Ending Global Poverty
About the Lecture
Imagine a bank that loans money based on a borrower’s desperate circumstances — where, as Muhammad Yunus says, “the less you have, the higher priority you have.” Turning banking convention on its head has accomplished a world of good for millions of impoverished Bangladeshis, as the pioneering economist Yunus has demonstrated in the last three decades. What began as a modest academic experiment has become a personal crusade to end poverty. Yunus reminds us that for two-thirds of the world’s population, “financial institutions do not exist.” Yet, “we’ve created a world which goes around with money. If you don’t have the first dollar, you can’t catch the next dollar.” It was Yunus’ notion, in the face of harsh skepticism, to give the poorest of the poor their first dollar so they could become self-supporting. “We’re not talking about people who don’t know what to do with their lives….They’re as good, enterprising, as smart as anybody else.” His Grameen Bank spread from village to village as a lender of tiny amounts of money (microcredit), primarily to women. Yunus heard that “all women can do is raise chickens, or cows or make baskets. I said, ‘Don’t underestimate the talent of human beings.’ ” No collateral is required, nor paperwork—just an effort to make good and pay back the loan. Now the bank boasts 5 million borrowers, receiving half a billion dollars a year. It has branched out into student loans, health care coverage, and into other countries. Grameen has even created a mobile phone company to bring cell phones to Bangladeshi villages. Yunus envisions microcredit building a society where even poor people can open “the gift they have inside of them.”
Forced Labor in the Globalized World
About the Lecture
Before buying your next chocolate bar or sweatshirt, bear in mind its potential hidden cost: the forced labor of an impoverished worker. According to a recent International Labor Organization report, 12.3 million people from developing countries toil miserably to produce goods and services for industrialized nations. One after another, speakers on this panel reveal the astonishing pervasiveness of modern-day slavery, on which, it seems, the entire global economy now depends. Roger Plant makes clear that this is not a matter of low wages. “It’s when you enter a job or service against your freedom of will or choice and can’t get out without some penalty. Deception is a key aspect of forced labor.” Says Terry Collingsworth, “The brand names of the global economy are benefiting from forced labor. …You see children and young adults forced to work for them. I observed Walmart suppliers in China, where workers were told they’d get a job at a certain rate, who then found out they were in debt and couldn’t leave.” But it’s not just that developed countries and their corporations exploit these workers. Thomas Kochan says, “We’ve focused on globalization as products going across borders, and now we have people going across, and countries depending on those people to provide remittances back to families as a source of currency and income.” In recent times, Nike and Gap have begun to make their suppliers in developing nations adhere to codes of conduct, and activism in the West is making an impact. Regina Abrami says “Boardrooms are feeling the heat….But there’s fear that if someone does well, he will become less competitive. …If you don’t introduce government regulation that solves the problem of fair competition, you won’t solve the issue of corporations acting in less than virtuous ways.”
Angel Groups in Action: Funding Early Stage Innovation
About the Lecture
Ralph Waldo Emerson wrote, “Every man contemplates an angel in his future self.” Among these panelists, the aphorism might move more along these lines: “The experienced entrepreneur contemplates his future self as an angel investor.”
First, the overview: Whether acting within a group, or as an individual, the angel investor in 2004 was responsible for pumping $22.5 billion into 48,000 ventures, according to Jeffrey Sohl. This compares to the 3,000 or so venture capital (VC) deals made in the same year, totalling $20.9 billion. And while the angel investor “tends to operate in the $50,000 to $1 million range,” quite a bit less than the average VC deal, angels are essential for jumpstarting a new business. Angels are known for patience. That’s because “angels are experienced business people and know how long it takes to build a company to the point of tangible outcome,” says Ed Roberts. But it’s not just their early stage significance that counts, he says. Angels are “in business not solely for the sake of return on investment…They are people who want to participate in more than money. They want to get into the act of a close relationship with an entrepreneur.”
Jerry Schaufeld describes angel investors’ “ability and willingness to reach into the risk of an extraordinarily early deal,” and how this motivates them “to contribute their experience into running and building these companies. James Geshwiler, who runs a group of like-minded angel investors, says, “It’s hard to be an entrepreneur. To know that someone you respect and look up to in the industry says, ‘You’re doing something good enough for me to write you a check,’ that’s a huge psychological validation at a time when probably your friends, spouse and family are saying why are you doing this, why start a company?”
How Much Do We Differ From Others and When Do We Know it?
About the Lecture
Envy Shane Frederick’s Consumer Behavior students. They get to assign prices to such real but quirky products as jalapeno- and popcorn-flavored jelly beans, as well as to hypothetical products, like a pill that enables one to speak French instantly. More to the point, Frederick asks his student-confederates whether they would pay more or less than others for these goods. From classroom experiments and his own research in cognitive and social psychology and decision theory, Frederick has discovered a “false consensus” around our “willingness to pay for goods” (WPG). Individuals assume that whatever they would be willing to pay for an item, others would pay more. This applies to imaginary and actual products, as well as to such experiences as “spending time in a discomfort room.” And while Frederick’s research shows how firmly individuals differentiate themselves from others, at least around “WPG,” he remarks on an apparent paradox: people find common preferences when confronted with stimuli as disparate as Chinese ideograms, sachets, and even lines arrayed on a page. Frederick concludes that “a shared evolutionary and cultural history induces some degree of agreement about nearly everything,” so that our own beliefs are often “the best signal (we) have about others’ preferences.” Yet, don’t assume too much, because “humans have a widespread, mistaken belief that they value things less than others.” Frederick sees some relevance in these findings for marketing strategy as well as business practices.
