Cooperative Investing

Back in elementary school, teachers taught us how to be fair, share, and cooperate with other children. The article How to Get the Rich to Share the Marbles of the New York Times discusses how when two children cooperate together and are fair in doing so, the marbles that they would collect are more likely to be shared equally among the two children. This is a human response to earning the output from the amount of input work. In the American economy, President Obama wants to instill more taxes on the rich so the poor can save more money because all of the rich people do not need so much money as they will be able to live with a great amount of satisfaction while the poor need every penny that they can get their hands on. However, nobody wants to get taxed more because they worked harder to get to where they are and as a result get punished for being more successful.

My sister and I received an inheritance from my grandparents when they both passed away. Being the economics major and having knowledge of financing, instead of investing the money separately, my sister and I are planning to invest the money together, and put in all of the money in one pot. Having more money means that we will have leverage. Let's say that we wanted to invest in Tesla which closed Friday at 235.24. Assume that I saw that there was a potential growth of the 64.76 in two years down the road and close at the end of the year at $300. If I invested in Tesla by myself and my sister was not confident in making this investment by herself because she didn't know about the potential of Tesla, I would not have double the amount of money to invest into this stock. When I put in $12,500 into Tesla by myself because you never want to invest more than 5% of your money into one investment, then I would make a profit of approximately $3550. On the other hand, when I explained to my sister why the stock will be a good investment based on my analysis and she agrees to invest in Tesla, we would end up making $7100. 

This profit would give us more leverage to invest in other stocks in the same manner. Both of us would only benefit from this strategy since there are two minds being put to use for investing a half-million dollars, as well as having leverage to put more money in a stock, especially the expensive ones. As long as we both were equally analyzing stocks and putting an equal amount of money into the stock, then there should be no discussion on why we would not split the profits or continue to do the same procedure for the rest of our lives. This example seems to correlate with the article How to Get the Rich to Share the Marbles of the New York Times.

Real World Preparation

Managing future income risk has been a part of my preparation for my future since high school. During high school, I took as many Advanced Placement courses so I can have more flexibility when I came to college. To be exact, I took seven Advanced Placement courses which gave me roughly 30 hours of college credit. Furthermore, I received a 35 on the English part of the ACT exam, which also got me credit for the introductory writing course here at the University of Illinois. When applying to schools, I wanted to go to a school which provided the greatest return on investment and at the same time a top nationally ranked university. There is data that is provided on the internet and in books regarding those two categories of the best ROI and best engineering school, and I went on to apply to the University of Illinois, University of Wisconsin, University of Texas, University of Michigan, and Georgia Tech. I was accepted to all of these schools, but chose to go to the University of Illinois because it is the cheapest out of the schools which fell into the two categories that I mentioned.

Once I arrived here, I chose my engineering major as electrical because it would provide me with the best chance to get a job and the greatest income in the short run. However, as time went on, I realized that I need to enjoy my coursework and the career that lies ahead of me. So I went to the college of business to switch my major to finance, but they said it was too late to switch my major, so I chose economics as my major with minors in mathematics and statistics. The reason I chose economics is because the potential salary is highly competitive in relation to other majors on campus; furthermore, I am interested in economics and applying it into the world of finance after graduating. Clearly I chose economics because it will lessen the risk of future income.

I will continue my education after I complete my economics degree by starting on my Master's in Statistics next semester. Since I want to start working immediately after I graduate, I will finish my M.S. Statistics part time online. This will further help lower the future income risk that every individual endures. Another continuing education route that I have been analyzing is the Certified Financial Analyst, otherwise known as the CFA. I would want to complete the CFA later on in my career when I work as a portfolio manager. Typically, a portfolio manager needs experience in the financial industry, so I will be patient in beginning my studies for this certification.

Aside from my education, I have put my economics and quantitative background to work during the past two summers. I interned with my father's company as a data analyst. I used a lot of statistics, particularly creating regression models based on consumer data. I enjoyed working there and it made me realize that I will want to use number everyday throughout my career. Last summer, I interned with Northwestern Mutual because I wanted to understand finances more. I also enjoyed this internship, and they both help me lower my future income risk because having internships help obtain an entry level job. Finally, my grandmother gave my sister and I an inheritance. My sister used some of it for her year long internship program in Boston and just obtained a full-time job but hasn't started working yet. She paid for the internship program and housing at Beth Israel Medical Hospital which is associated with Harvard Medical School, which tells me that her future income risk has been lowered because she can write that she is associated with Harvard. I have put my inheritance towards middle term and long term investments,  like mutual funds, stocks, bonds, my children's education, life insurance, and a retirement fund. It is always good to start early!

Illini Bucks

Using Illini Bucks as a method of transfer pricing would drastically change the economics at the University of Illinois. Timing is everything, and using Illini Bucks to save time for an individual’s priorities would benefit every student. This would benefit every student as different people set priorities differently. Currently, I am a senior with 12 hours of class. Consequently, I would use weigh the use of my Illini Bucks on recreational activities more than on educational activities. However, I could imagine that a majority of students would use their Illini Bucks on educational activities more than on recreational activities, as the purpose of college is to obtain a diploma or diplomas.

The pricing of the Illini Bucks would have to be priced just like a store prices their inventory, or like a restaurant prices the items on their menu. Every item would have to be analyzed by data analysts. The data analysts would look at trends regarding how many students are interested in a particular use of Illini Bucks. The Illini Bucks would be able to fluctuate just like interest and inflation rates fluctuate in the economy based on the current state of the economy.

With an easier schedule, I do not have to focus my time on education, especially when this is my final year in college and I will never have the opportunity to work less than the standard 40 hours per week. When I graduate, I hope to get into an investing career, and investors work long, hard hours. In conclusion, I would allocate 60% of my Illini Bucks towards recreational activities and 40% towards educational activities.

Furthermore, the 40% of the educational activities would be geared towards obtaining a full-time job. In using my Illini Bucks towards getting a full-time job, I would use them to cut the line at career fairs. Career fairs are the best way to obtain a job with iLink being next in line. Typically, a career fair will be run between the hours of 12-5. When at the career fair, the bigger and well-known companies will have long lines that may take a student 30 minutes to finally talk to the company; hence, the student will lose the opportunity to talk to all of the companies at the career fair. By using Illini Bucks, I would be able to talk to all of the corporations that I need to talk to, which is an insurmountable investment. I would also use the Illini Bucks to get my resume looked at first on iLink. By doing this, I would have the greatest opportunity to have a few options to choose from when graduating.

I am not concerned with using my Illini Bucks towards my schooling. I do not need to get priority for signing up for classes since I am a senior and am taking two different economics seminar classes that were not full, and I have hundreds of options in choosing my free electives. Apart from signing up for classes, there is no need to use my Illini Bucks on getting a good studying spot since I study in my room.

Finally, the other 60% of my Illini Bucks would be allocated towards recreational activities. This would include cutting the lines at the bar called Red Lion. Red Lion has very long lines, especially on Tuesday because of senior night, Thursday, and the weekend, since there are no classes on the weekend. Other students may use their Illini Bucks at different bars, but I prefer to go to Red Lion.  Also, when at the bar, I would use my Illini Bucks to be the first person to obtain a drink, since many times, it takes a few minutes to order drink. Aside from the bar scene, I would use my Illini Bucks at restaurants with long lines or restaurants that take awhile to serve. Everyone knows how long the line at Chipotle gets, so being able to get to the front of the line at Chipotle would benefit my craving for Chipotle.

Baseball Champions

When I was 11, I found myself watching the replay of our Little League World Series game on ESPN 2. This is after my team lost in the Great Lakes regional championship. However, our 12 and under baseball team was ranked 13th in the world. There are hundreds and maybe even thousands of little league teams in just the state of Illinois alone, and we were the Illinois champions. This is a consequence of a mix of great players chosen from great coaches to create a successful organization. At the end of the regular season of little league baseball, the director of the little league organization chooses the three best coaches based on their performance and coaching abilities in the regular season. Furthermore, these three coaches chose the twelve or thirteen best players based on their performance in the regular season.

A baseball team consists of eight starting position players and a starting pitcher. The rest of the players are either reserve players for the position players and relief pitchers for the starting pitcher. The position players are put in the field to play either left field, center field, right field, 1st base, 2nd base, shortstop, third base, or catcher. Within the little league baseball rules, the pitcher also has to hit, so all eight position players and the pitcher are put in the batting order to hit against the opposing pitcher when on offense.

In deciding on how to structure our baseball team's defensive setting, our coaches assessed our skills and abilities in a tryout for the positions after the coaches picked the players to be on the team. Typically, an outfielder has a strong arm to throw the baseball from great distances. The center fielder is the captain of the outfield who has priority to catch the ball when the baseball is in midair. Also, the right fielder will have a stronger arm than the left fielder because the right fielder has a further distance to throw to third base than the left fielder. In the infield, a tall and lengthy ball player should play first base in order to give the other infielders a bigger target when they are fielding a ground ball. The shortstop should be the best fielder in the infield and is considered the person who gets priority for pop outs in the infield. A second baseman needs to have quick hands to turn a double play. The third baseman needs to have quick reflexes, as third base is considered the "hot corner". Third basemen also need quick in order to be able to charge towards home when there is a bunt. Finally, the catcher needs to be able to have a strong arm to throw those out stealing bases and also have the ability to calm the pitcher down during mound visits in pressure situations. In addition, the pitcher will be someone who can throw hard fastballs and have a variety of off speed pitches.

On the offensive side of our team, our coaches did the same thing in structuring the batting lineup. They held tryouts to assess our ability to hit and also run. Typically, the fastest hitter hits either first or last. The lead off hitter needs to have speed so the heart of the batting order can hit the fast lead off hitter in and produce RBIs. The last hitter is also fast and is considered the "double lead off hitter" because this hitter will also be affected be the heart of the batting order who produce the most RBIs. The second hitter will have a mix of speed and power, but the third fourth and fifth hitters have the most power to produce home runs and RBIs. After the heart of the order, the sixth, seventh, and eighth hitters are ordered from best to worst in producing a high batting average.
 
After the tryouts within the team, we were all assigned a position to play and get used to for the Little League World Series. There was a pitching rotation that our team followed as well as a substitution package that we would follow as the reserves need to play. Also, there were a couple extra players on the roster in case of injury. Our team followed the depth chart the entire summer and players gained confidence in the position that they played. As we continued to win, our team built chemistry. Chemistry is key to winning since everyone on the team gets along and there are no internal problems that can create distractions and cause the team to fall apart. With our team having both a physical edge and mental edge on other teams in the nation, we gained recognition in the nation and even the world. However, in the Great Lakes finals, we played the team that went on to dominate the rest of the country and nearly won the Little League World Series.

Opportunism

I am going to accuse myself of opportunism from an instance when I was at Wrigley Field. My neighbor came to my house because he knows that I used to play baseball and that I am a baseball fan, so he offered me tickets for a Chicago Cubs game. The Cubs were playing the Houston Astros, and at this time, both teams were underperforming and both had records under .500. As a consequence, there were some open seats at Wrigley Field. My friend Tommy and I had tickets by the left field pole, but we were unsatisfied with these seats, and we wanted to sit closer to home plate.

My friend and I got up from our seats and first got food because we wouldn't want to lose a good pair of seats close to home plate. After we got our food, we walked towards home plate. When the security guard asked to see our tickets, I said "my father has the tickets and he is sitting right there" as I pointed to two open seats in the first row behind home plate. The security guard bought what I had said, and let us both walk to the two open seats. Thankfully, nobody came to these two open seats or else we would lose these extraordinary seats. However, since we walked past the security guard, we would be able to find two other open seats in the section behind home plate.

This is an instance of opportunism because I took selfish advantage of the circumstance at hand; the security guard was gullible enough to believe that my dad was sitting in the first row behind home plate when he really wasn't. The Chicago Cubs organization is who would be rendered as the organization who was taken advantage of and as a result lost the amount of money for the two front row seats behind home plate. These two seats are the most expensive seats in Wrigley Field because these seats give a fan the best view of the baseball game. In fact, they lost hundreds of dollars from our actions. I know other fans do the same thing at sporting events, so all organizations lose money from when fans get closer to the field or arena, but it is the fault of the security guards for allowing fans to walk past them when they are not looking or are taken advantage of.

Organizational Change / Transaction Costs

Over the summer, I received an internship offer from Northwestern Mutual. I accepted this internship, realizing that this was considered as the number 1 finance internship, and I am going into investment management for my career. Northwestern Mutual is an organization which provides financial products and services to Americans. These financial products include life insurance, health insurance, disability insurance, long term care, 529 college plans, 401K retirement plans and other retirement plans, annuities, and mutual funds. The headquarters of Northwestern Mutual is in Milwaukee. In Milwaukee, actuarial scientists utilize mortality tables and other statistical measurements to provide the rest of the organization the cost that each of these products should be put onto the market for. Northwestern Mutual has offices in every state across America, with the Milwaukee headquarters being the most important office in the organization.

Northwestern Mutual is a mutual company. This signifies that the policy holders own a part of the company, and the company makes its decisions in best interests of the policy holders. On the other hand, a typical stock company has its profits go to shareholders, which isn't the case in this organization. Northwestern Mutual is also a very unique company in the sense that the financial representatives are able to offer, along with the products of Northwestern Mutual, any products from any insurance company. However, no company has the ability to offer Northwestern Mutual's financial products.

It is important for an insurance company to have solid financial ratings because potential customers typically review the financial strength of the insurance company that they will hold a policy with. Northwestern Mutual has the best ratings from every rater, making Northwestern Mutual the most attractive company for a customer to hold a policy with. This is key for the success of financial representatives, which is the position that I held over the summer.

Before my internship started, the college unit directors trained all of the interns. This training program was helpful for every intern because the 10 weeks that we were interning, we had knowledge of the company, exhibiting the importance of the college unit directors to the organization. The training took place via conference calls for two months, in person for 8 hours a day for a week, and in 4 booklets which were geared towards passing the life and health insurance exams. Since I made it through the training and passed all 4 of the exams, I was able to participate in a 10 week internship.

During the internship, there were several transaction costs which were incurred. Since we had to meet with current and potential clients, gas money was a big transaction cost. The Chicago branch for Northwestern Mutual has clients all over Chicago, so gas became the most heavy transaction cost by far. A way to cut down the cost of this transaction cost was to carpool and set up meetings with other financial representatives and financial representative interns that had potential and current clients near other potential and current clients. Another transaction cost that was incurred is phone call fees, because for an hour a day, we would have to call people and explain the work that we do at Northwestern Mutual. Calling people was only 1/8 of the internship, but I called a lot of people in a short amount of time, so that transaction cost became moderately heavy. Other transaction costs included buying suits which is important in business and being a part of the market and a professional environment, buying a bus ticket to Milwaukee for the annual meeting, and all of the materials which were necessary to complete the internship for the summer of 2014.

William Baumol Econ 490 Fall 2014

William Baumol was born on February 26, 1922, making him 92 years old. He is a professor at New York University, as well as an retired professor at Princeton University. He primarily focuses on market structure and pricing. Baumol has written over 500 journal articles in his time; since he has written so many journal articles as well as books, there isn't a single article or book that stands out. The number of papers which he has contributed to economics is the main reason for him being famous as an economist. He was also a candidate for the Nobel Prize in Economics in 2003.

http://economics.about.com/cs/nobelwinners/p/baumol.htm