How do you choose to invest?

Dear reader,

Have you ever thought about how you take a decision before you invest in a project?

Risk investment

From an analytical perspective it is no longer possible to understand the erratic markets movements. To understand the underlying psychology of investments is therefore becoming a key element of day-to-day decision-making.

On June 11 and 12 you will gain an understanding of behavioral finance, and its implications on various risks.

Jeffrey Satinover is teaching behavioural finance on
11.06.2013 – 12.06.2013

Sign up for this 2-day course. One of our innovations is the modular structure. You can book each module of the master program individually. Should you start an Exc. MBA, the fee is reimbursed and the ETCS points will be credited.

Kind regards,
Peter Lorange

P.S.  Some time ago, Jeffrey gave us an inteview. You’ll find it here below. A german version of the interview is available here (as PDF download): Interview Jeffrey Satinover

Money is like water: it always takes a line of least resistance.  Where are the global capital assets flowing to?

I will be evasive: Global capital assets are for the most part NOT flowing, but, to continue the analogy, are being dammed by doubt. Corporations all over the world are sitting on huge cash hoards. The question is rather: To where will these assets flow once the dam bursts as financial dams always do? And–is there enough fundamental value whence it will flow to justify the influx, or will a new bubble be created? Most likely a mix of the two possibilities. However, regarding Switzerland, more capital is flowing into Switzerland than a country of 8 million can accommodate

Where do you see Switzerland in the shifting and changing financial markets?

Switzerland has an extraordinary opportunity–again this century as once before in the last–to benefit itself and the world economy both through its industries and because of its intact civil society. It can and should play a prominent role as a neutral haven for business–while being aware, and properly savvy about what a prize it is.

Switzerland has been under huge pressure by various countries, including the U.S. This has more to do with the tradition of American protectionism than with moral. America is protecting it’s own tax havens.

I doubt this has anything to do with “protectionism” in the political sense but–as I think you are getting at–simple self-interest. However, that self-interest, in my opinion, is being improperly calculated by both the present and prior US administration. The amount of tax revenue it has received from the pressure it has exerted is trivial. And it is not the Swiss who are hurt: It is also large numbers of “small” Americans who have never been involved in tax evasion.

Why should a country like Switzerland give up a competitive advantage like the banking secrecy. It protects predominantly the privacy of individuals from greedy fiscal authorities and not tax exiles.

It shouldn’t. But this has always been a tension in the nature of Switzerland: It is small, but because of its efficacy plays a disproportionately important role in economic affairs–a point of pride and of caution. It is subject to pressures from larger countries.

Let’s talk about investment banking. As a financial center, Switzerland must offer both, asset management and investment banking. Will regulations (Basel III and others) really “tame the beast”? And are these regulations really necessary from a banking and financial perspective?

The “beast” can never be tamed as it lies in the heart of man, as novels, fairytales and epic poetry so much more clearly explain than can regulators! Regulations necessarily limit previous excesses, not newly devised ones. I have written an essay with Didier Sornett about it (** “Taming Manias”).

Some investment banker lost huge amounts of money. Are they victims of the market or is it a sign that not even specialists have a clue how to handle the intricacies of the market?

Neither. These kind of trading frauds are remarkably common. The problem is that once “Risk Management” is quantified and automated–I say this teaching the subject myself at the Lorange Institute of Business!–the largest risks are commonly ignored: Human risk. Senior management should actually KNOW the people they have made responsible for billions of dollars of other people’s money. If they can’t know them, they should become smaller. Losing a huge amount of such money is simply the most painful route toward becoming smaller.

A final word about speculative operations on falling prices and economic downturns. This sounds very weird in the ears of ordinary people. Do you see a counter movement to this bad but widespread habit?

Speculating and short sales are not bad. They are a necessary and important part of how markets function. Remember: If regulations prohibit open speculation, clever investors will find indirect and hidden ways of accomplishing the same. Having said that, it is of course true that one may put in place regulations that mitigate the risks–for example, larger reserve requirements for investment banks under certain circumstances.

*Jeffrey Satinover, M.D., Ph.D., is the Managing Director of Quintium Analytics, LLC. He is responsible for the trading strategies employed by the firm’s advisees and partnerships. He was previously Director of Research at Von Kohorn Research and Advisory, Inc. in Westport, CT.

Dr. Satinover is Distinguished Professor of Science and Mathematics at The King’s College in New York. He is a Visiting Scientist at the Swiss Federal Institute of Technology, Department of Management, Technology and Economics in the Chair of Entrepreneurial Risk. He taught at Harvard, Yale and Princeton.

** Taming Manias. J.Satinover and D.Sornette. In Governance and Control of Financial Systems A Resilience Engineering Perspective. Edited by Gunilla Sundström, Deutsche Bank, Germany and Erik Hollnagel. Institute of Public Health. University of Southern Denmark. Denmark (Series : Ashgate Studies in Resilience Engineering)


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Why am I excited about the first quarter?

Dear reader

After a two week holiday break I am back to business. We are facing exciting weeks until the first day of spring.

Open Day

On January 16 we open our doors for all people interested. So, if you like to meet us in a relaxed atmosphere, come over and join us for the open day.

Finance

January 21 is the beginning of our 10-day finance module. You can book this seminar without being a student. ECTS points will be credited and the fees reimbursed in case you start our Executive MBA program.
One of our speakers is Nilanjan Sen. He is associate professor of the Division of Banking and Finance at the Nanyang Business School in Singapore. His primary research focus is on Corporate Governance, Control Issues and International Finance.

Shipping and Leadership

February 11/12 and Feb 18/19 are each two days for short and intensive seminars.
The first is the “Innovation in Shipping” seminar, the second is about leadership and called “Leading with Impact“, taught by Mario Castagnetta, founder and director of Synchronicity SA, an international Human Resources Consulting company based in Geneva and Paul Vanderbroeck whom we recently interviewed.

Social Media

On March 11 and 12, Dr. Peter Otto is the instructor of the 2-day-module on social media. He commented events at Hewlett Packard in this blog.

6th Zurich Business Forum

Height of the season is certainly our 6th Zurich Business Forum, taking place on March 15 and 16. It has a focus on business ethics and sustainability. Keynote speaker are (amongst many others) Claude Hauser, former chairman of the board Migros, Dr Gerhard Prätorius from Volkswagen Group and Joachim Strähle, CEO of Bank Sarasin & Co. Ltd.

I guess you can understand why I am excited about the weeks ahead of us. I hope you’re delighted as well and I am looking forward to seeing you soon.

Yours,
Peter Lorange

Bildschirmfoto 2013-01-08 um 16.38.38

Uli Veigel und Konrad Hummler am Zurich Business Forum

Liebe Leserinnen, liebe Leser

ich freue mich auf das 4. Zurich Business Forum am Freitag, 24. / Samstag 25. Februar. Es ist das erste von zwei Business Foren, die wir dieses Jahr am Lorange Institute of Business durchführen werden.

Das detaillierte Programm mit allen Referenten und allen Vorträgen und Workshops finden Sie hier:

 Programm Zurich Business Forum mit Konrad Hummler und Uli Veigel

Unsere beiden Gastreferenten sind dieses Mal Uli Veigel und Konrad Hummler.

Uli Veigel ist bei uns weniger bekannt als Konrad Hummler. Seit 2004 ist Uli Veigel CEO Advertising Agencies & Marketing Service Agencies der Düsseldorfer Werbeagentur “Grey”. Das deutsche Internetportal “Who’s who” schreibt über ihn:

 Uli Veigel, CEO Grey GmbH

“… er zählt zu den erfolgreichsten Vertretern der Werbewirtschaft. Bereits innerhalb der Agenturgruppe “Bates” vollzog er eine eindrucksvolle Karriere, die ihn binnen weniger Monate zum Geschäftsführer der Gesellschaft aufsteigen liess.”

Einen Namen machte er sich unter anderem schon in den 80er Jahren, als er für den Tabakwarenhersteller Reemtsma die Marken “West”, “R6” und “Launch R1” betreute.

Grey GmbH betreut internationale Kunden wie Toshiba oder Seat. Mehr über die Werbeagentur Grey unter www.grey.de

Konrad Hummler ist in unseren Breitengraden bereits bekannt als Partner der Bank Wegelin+Co. sowie als Verwaltungsratspräsident der NZZ Gruppe.

Konrad Hummler, Bank Wegelin, NZZ Verwaltungsratspräsident

Uli Veigel spricht am Samstag um 09.00, Konrad Hummler am Freitag um 14.00

Ich freue mich, Sie bei uns willkommen zu heissen.

Ihr,
Peter Lorange

Beginn der Zinswende in Europa?

In einem eben erschienenen online-Artikel kündigt die NZZ eine Trendwende in der europäischen Zinspolitik an. Sie schreibt, Marktteilnehmer gingen davon aus, dass “die Europäische Zentralbank (EZB) am Donnerstag in ihrer regulären Sitzung erstmals seit Mitte 2008 die Leitzinsen erhöhen wird – und zwar um 25 Basispunkte auf dann 1,25%. Das wäre gemessen an den Leitzinsen der Beginn der Zinswende in Europa. Sollten die Experten richtig liegen, wäre dies das erste Mal seit rund 40 Jahren, dass die EZB (bzw. zuvor die Deutsche Bundesbank) vor der US-Notenbank (Fed) nach einem Abschwung die Zinsen anhebt.” (Quelle: NZZ, http://bit.ly/gfexlm)

Nicht alle werden an diesem Entscheid ihre helle Freude haben, gilt doch eine Zinserhöhung in einer Phase des wirtschaftlilchen Aufschwungs als Bremse – andere bezeichnen sie sogar als Wachstumskiller.

Die deutsche Welt warnt jedenfalls: “Verteuert die EZB das Geld jedoch zu schnell und ungeschickt, könnten einige Länder der 17 Nationen umfassenden Währungsgemeinschaft wirtschaftlich auf der Strecke bleiben.” (Quelle: Welt Online, http://bit.ly/fRCmsD)

(Quelle: Handelszeitung)

Für den starken Schweizer Franken – und somit die Exportwirtschaft – könnte die Zinserhöung für Entlastung sorgen. Der Euro gilt als unterbewertet. Stärker steigende Zinsen in der Euro-Euro können Auslöser für eine langsame Angleichung sein.

Airbags for banks?

by Prof. Dr. Martin Hellmich *

THE NEWS

Credit Suisse Group has issued Sfr6bn ($6.2bn) of contingent convertible bonds (CoCo-Bonds).

WHAT ARE CoCo-BONDS?

Contingent convertible bonds are like normal bonds with an exception: they are converted into equity by a trigger event such as the event of a decline in the banks Tier 1 capital ratio to less than 7 per cent.

Such bonds are intended to bolster a lenders equity in a crunch through the commitments of private sector investors. This mechanism shall avoid scenarios rather where too-big-to-fail financial institutions must be saved with taxpayer money as in the recent crisis. By converting the bonds the lender would at once have solved two problems by having less debt and more equity.

An airbag for the finance industry?

As CoCos automatically become equity if a banks capital falls below a set level they will play in future a crucial role under the new Basel III requirements and especially by meeting Swiss regulators demands to hold almost double the amount of capital required under new Basel III rules.

BASEL III RULES

Basel III aims to improve and raise the quality of capital held by banks. Banks will be required to hold a greater amount of tangible common equity (minimum requirement for maintaining normal operations raised to 4.5% against the current 2% of risk weighted assets) which has the greatest loss-absorbing capacity.

What really counts in the end…

Common equity forms a part of Tier 1 Capital. There are also stricter criteria for other instruments that will be considered as part of Tier 1 Capital. These instruments must be able to absorb losses for the bank on a “going-concern” basis, i.e. it assumes that this capital will allow the bank to remain solvent.

THE IMPORTANCE FOR SWISS BANKS

Big Swiss banks UBS and Credit Suisse must hold almost twice as much capital as set out in the new international Basel III standards.

They must build their safety net to 19%, 10% of which are in the form of the safest and most liquid equity and 9% in CoCo bonds.

In this context CoCo-Bonds are playing a crucial rule in limiting the risk that a bank failure would drag down the economy and shifting the burden of protecting struggling banks from the taxpayer to the private sector.

Switzerland’s locomotives are Switzerland’s bulk risk

This instrument is of a specific high importance for a country like Switzerland where the worth of the banking sector in relation to the total economy is quite high and the capacity of the state and the tax payer would be massively overstrained in a situation where one of the two big players would be in an existential struggle.

*Martin Hellmich ist Managing Director der Brokerage Firma Cantor Fitzgerald Europe in London.

Er ist Fakultätsmitglied des Lorange Institute of Business sowie der Frankfurt School of Manangment and Finance.