Credit crunching, rate rising, and recession fearing: pessimistic phrases that sum up the current U.S. economy. As the housing industry struggles to stay afloat, the Fed continues to cut interest rates and balloon the economic bubble. While the government brainstorms new methods of recession prevention and plans a hopeful economic rebound, Americans wonder: when will normalcy be restored? Could this situation have been avoided?

Though there is no way to predict economic pitfalls and therefore eliminate them, preparation can prevent added panic and anxiety. Mays Business School at Texas A&M University plays a role in this preparation. With courses focused on the changes and history of financial markets, Mays faculty makes it their goal to prepare students, so that when future economic crises arise, the next generation of business leaders is ready for the challenge.

Pop goes the bubble
How did we get here?

As students evaluate the current economy and hope to glean some insight, Clinical Associate Professor of finance Amanda Adkisson offers this brief analysis of recent events:

  • Economic bubbles form when the price of any market asset rises rapidly.
  • In the case of today’s bubble, easy credit through mortgage lenders skyrocketed the price of houses, as more people could afford to buy them.
  • People experience what Alan Greenspan refers to as “irrational exuberance,” which can cause asset prices to disconnect from normal valuation principles.
  • The bubble pops when something brings investors back to their senses. In this instance the credit crunch and sub-prime debt crisis have put the current bubble in popping mode.
  • Investors now recognize the risk of losing their purchasing power, creating unusual market volatility in areas other than the mortgage market, leading to a general market decline.

According to Mays Clinical Associate Professor Amanda Adkisson, a bubble forms when asset prices rise rapidly, causing them to disconnect from normal valuation principles. But this isn’t anything new—in 2000, investors experienced the burst of the tech stock bubble, one of many similar economic situations in American history. The current situation is unique and more challenging, however, because it involves homes. In most households, the home is the single most valuable asset, one which should give families a sense of economic security.

In Adkisson’s opinion, the credit problem and housing meltdown can be related to the price of gasoline, the rate of inflation, and the political turmoil in the Middle East—all situations of great uncertainty that have created economic pain for consumers. As the government raised interest rates to head off inflation due to rising oil prices and the War on Terror, the housing market cooled. Suddenly, the credit markets realized that homeowners faced a perfect storm of declining home values with escalating mortgage payments, and rising gas and food prices—effectively strangling their purchasing power.

“Uncertainty makes people worry more about what might happen in the future. Because people are risk averse, they are more sensitive to negative outcomes,” said Adkisson. She adds that increasing American negativity regarding the national economy could lead to even more volatility, threatening the broader financial system.

Class, what have we learned?

While it is crucial to realize that there is no surefire way to prevent economic bubbles, they can be avoided. Adkisson cites a study conducted by financial expert Ross M. Miller as evidence to this claim, explaining that learning from past mistakes in times of economic crisis is the best way for investors to better prepare for future financial obstacles. Adkisson says this research explains why investors become less adventurous as they age.

Warren Buffett
Warren Buffet’s “Mr. Market” philosophy is a main topic of discussion in Britt Harris’ Titans course.

“If you experience a bubble directly, you learn from it. The problem is, you don’t learn to avoid a bubble by watching someone else experience it,” said Adkisson.

Experience plays a crucial part in avoiding poor economic conditions, but it must also be complemented with knowledge of history. One way Mays faculty focuses students’ attention on financial lessons from the past is through the Titans course, brainchild of Thomas Britton “Britt” Harris, chief investment officer for the Teacher Retirement System of Texas. The course aims to focus on short-term technical competence while providing an understanding of past economic conditions.

“The idea for the course was spawned partially by the observation of how many supposedly smart and experienced people (CEOs, etc.) totally missed the last bubble, and in fact contributed significantly to it. How could that be, as these were the smartest, most experienced, best-resourced and most successful men and women in the world?” Harris explained.

The Titans discuss Warren Buffet’s “Mr. Market” philosophy and behavioral finance, review every economic bubble in the past 200 years, and study hedge fund evolution to teach the necessity of choosing wisdom over technical knowledge. Harris gives students a “real” market experience by requiring them to compete against classmates while managing their own “paper” portfolios, reporting weekly on the state of their virtual investments. Through this, the students keep track of the current economic situation and become aware of the best ways to maintain successful investments regardless of the financial environment.

The final evaluation: don’t panic!

This focus is not restricted to only the Titans class; the Department of Finance also engages aspects of economic preparation and awareness throughout its various classes, presenting classic financial theories that relate to the rapid adjust of prices in volatile markets.

Executive Professor of Finance Cydney Donnell cites the “fad” that often produces today’s economic situation: the fear of losing everything causes investors to perpetuate existing bubbles by taking advantage of the easy credit and failing to closely analyze capital movement. Because of this, she warns students to not accept conventional wisdom and to always ask questions. “Much of the Wall Street mechanism is built on selling investment ideas to investors; many have merit and some don’t. You have to investigate on your own, you can’t just accept the popular theory,” said Donnell.

As for today’s investors, Donnell says it’s important to keep a few things in mind and proceed with caution as assets become more attractive when market prices fall. “The best plan is to stick with the asset allocation and make investments over time, adding a little every year. Then, make sure to rebalance if things get out of whack,” she said. She also counsels students that it can better to make only a few investments and forget about them rather than be overanxious and constantly tweak one’s portfolio, a trait common to young stock market players.

Above all, it’s important to remember that the U.S. economy goes through cycles, suggest Adkisson and Donnell. So have no fear: with proper knowledge and the help of Mays faculty, students can look forward to a brighter financial future.

Categories: Faculty, Featured Stories

There is a shortage of minority representation among U.S. business school faculty. Research indicates that this in turn leads to fewer minority students choosing to pursue business studies at all levels of education; As a result, corporate America continues to be hampered by a lack of diversity.

That’s where the PhD Project steps in. Texas A&M’s Mays Business School is one of many universities that have partnered with this innovative non-profit program whose mission is to increase cultural diversity in the marketplace by increasing ethnicity within business school faculties. The project was developed 13 years ago to provide a network of support for African-American, Hispanic American, and Native American doctoral students.

“The PhD Project is one of the most important and successful initiatives to have been launched in the ongoing quest for advancing higher education in the business disciplines,” says Rajan Varadarajan, associate dean for research and doctoral programs at Mays. “Mays Business School takes great pride in its long standing association with this important educational endeavor and is committed to actively recruit participants in the PhD Project to its doctoral programs.”

Since its inception, the project has aided in increasing the number of minority business professors in the nation from 294 to 876, with nearly 380 more candidates currently enrolled in doctoral programs.

Success in and out of the classroom

Miller
Miller

The project recruits successful minority business people and asks them to consider leaving the corporate world to become college professors. Prospective students are invited to learn more about the organization by traveling to its annual conference, held each November in Chicago. At the event, recruits receive helpful connections to peer support to help them begin their PhD studies.

One such recruit was Mays PhD candidate Toyah Miller, who was contemplating her educational options while working as a consultant for Capgemini Ernst & Young. After attending the project’s conference, she quickly made her choice. “You hear from people who really love what they do…everyone is so helpful and wants to help you achieve your goals. I came away from the conference feeling inspired,” said Miller, who will complete her PhD in management this spring. She will begin teaching at the University of Oklahoma as an assistant professor in the fall.

The Chronicle of Higher Education reports that studies suggest the rate of attrition for doctoral programs in the U.S. could be as high as 40-50 percent. This is not the case, however, with project participants, 95 percent of whom complete their degree. A peer and mentor network provide an essential element of support for those in the program. The project also hosts an intensive annual conference for participants each year, focusing on every stage of the doctoral program.

Christopher Porter, associate professor and Mays research fellow, knows about the PhD Project from both sides of the coin, as he is a graduate of the program who now recruits and supports project participants at Mays. Porter says that Mays has been particularly successful at recruiting these students, and that has been a valuable thing for the school. “The program has helped us diversify our business [school] which benefits both our faculty and students. There are many students at A&M who have never had an instructor who was African American, Hispanic American, or Native American. They need these experiences and this exposure to others and the Ph.D. project has helped us provide those experiences,” he said.

Mays Management Assistant Professor Brett Anitra Gilbert is also a graduate of the PhD Project.

Strength through diversity of experience

Triana
Triana

Mary Triana, who will finish her PhD at Mays this spring, is very excited to achieve her long-time goal. Though she grew up in San Antonio, Triana’s family emigrated to the U.S. from Cuba when she was a child. Triana says her parents always stressed the importance of learning. “One thing people can’t take from you is your education,” her father often told her, encouraging her to learn English and apply herself to her studies at a young age. Through her affiliation with the PhD Project, Triana has landed an assistant professor position at the University of Wisconsin, Madison, where she will start this fall.

The unique background of the project’s participants contributes to its growing success. Curtis Wesley, a graduate of the U.S. Naval Academy and a former naval aviator, is a current Mays management doctoral student. He had previously taught at the Naval Academy, as well as worked in the banking industry before deciding to pursue his PhD. Wesley said that he had been receiving postcards from the PhD Project for years and eventually attended the Chicago conference out of curiosity. Once he attended, he knew that returning to teach on a college campus was the right calling for him.

“I’m a professional student at heart. I like to learn, be heard, and make an impact on students’ lives, and this career will let me do that. And yes, it’s tough, but anything worth having is not easy to get,” said Wesley.

For more information about the PhD Project, visit http://www.phdproject.org/.

Categories: Featured Stories, Programs, Students

When I began college at A&M in 2001 I had no idea what I wanted to do with my life. I wasn’t passionate about anything specific, which wasn’t too concerning as a freshman. When I was a 5th year senior, I became a bit concerned. As a finance major, I would walk around the career fairs trying to find a company that I was interested in. Not a single company remotely interested me. I wondered if I would grow out of the phase of refusing the idea of an 8-to-5 job. I still had no idea what I wanted to do, but I loved traveling, international business, challenges, and learning about new cultures.

It was my 5th year, it was Christmas break, and I still had no jobs in mind. My roommate finally convinced me to go to Beijing, China and do manual labor on the U.S. embassy. If you had told me in high school that I would live overseas or even go overseas in college, I would have laughed. My experiences at A&M led me to a study abroad trip to Italy and internships in Singapore and El Salvador. I definitely developed a passion for traveling and living overseas, so going to China seemed exciting. Plus, it would give me more time to figure out what I wanted to do with my life.

Four Aggies on a dock in China
Drew Jones (third from left) went to China with no definite plans, but by the time he left he had his own business selling custom-made suits.

I made the move to China in August 2006. My roommate, Jim Carlson, and I were out to accomplish the same thing; be adventurous, live overseas, and try to figure out what we wanted to do with our lives. I attained my goal much quicker than I anticipated. After six weeks of living in Beijing I met the woman I would eventually marry. I worked at the embassy for nine months, then started a business selling custom-made suits. I lived in Beijing for eight more months to establish this business before moving back to the states to begin marketing. Manual labor can be fun, but my brain must also be stimulated.

During breaks at the embassy I would write down ideas for my business. After the embassy job I committed to this idea full time. I trained with local tailors on how to take measurements. I started testing my business idea by taking measurements of embassy employees, having them choose from my fabric swatches, getting their suits made, then delivering it to them personally. I began doing this for almost nothing to see if the idea would work. And sure enough, after training to take measurements and some trial and error, I had some very pleased customers.

I knew I would need higher quality suits than what I was producing through a local market geared for expatriates. That’s when I began traveling around China with my Chinese business partner to visit different tailors and factories, and to do research on quality fabrics for my suits. My business partner had limited English capabilities, and no one else I was dealing with spoke any English. I had been learning Mandarin Chinese, which was extremely useful, but I would often revert to hand motions and occasionally made the mistake of talking extremely loud thinking they would suddenly understand me.

After traveling around China for 10 days, I had found the contacts and knowledge necessary to begin a business making and selling custom-made suits. I returned to Beijing and began making my new suits for the expatriate community. My goal when establishing this business was to be able to sell custom-made suits in the U.S. to college students and young professionals for an affordable price. I returned to the U.S. on Christmas Eve 2007 to begin marketing DJones Tailored Collection.

My priorities in college were always people, being involved in various organizations, and taking advantage of overseas opportunities in the summer. I always knew that I would end up doing something different, I just didn’t know what it was. I am so thankful for my experiences at Texas A&M which transformed me to become who I am now. I would have never thought that my experiences in China would lead me to where I am today.

For more information on Jones’ business, visit www.djonescollection.com.

Categories: Perspectives

It’s May, and that means another season of beginnings and endings at Mays Business School. As the academic year draws to a close, it’s the beginning of new careers and adventures for so many Mays students who will soon graduate with much more than just a diploma. When they turn their Aggie rings around to face the world, each of our students should be equipped with the knowledge to succeed, and the integrity and passion to impact their world.

These students have received the very best education available, from top-notch instructors who are celebrated for their research and teaching capabilities. However, I think more important than their classroom experiences has been their opportunities for personal growth. I was so impressed last month when the Business Student Council organized a school supply drive for economically disadvantaged elementary school students in our community. Let me tell you friends, it was amazing to see the outpouring of service these college students gave, with no leadership or prompting from Mays faculty and staff. They did it all on their own. They saw a need and worked to meet it, providing 601 students with backpacks full of supplies, and hundreds of other students with basic school necessities. (Click here for more information and a short video about Project Mays.)

Stories like that are not out of the ordinary at Mays Business School. That’s not surprising when you consider the high caliber of our faculty. Last week, much loved marketing Professor Leonard Berry was recognized by A&M President Dr. Elsa Murano with the Presidential Professor for Teaching Excellence award. This prestigious honor is given to just two faculty members within the university each year, and is among the highest recognitions achievable. The accolade is just the latest in a LONG list of awards for Dr. Berry, who has been recognized again and again for the superiority of his teaching and research. His passion and enthusiasm for his subject matter and genuine, heartfelt affection for his students is legendary at A&M. (Click here for more about Dr. Berry’s recognition.)

I feel so fortunate to represent this great school. I could not ask for better coworkers, better students, or better facilities. Thank you for your continued partnership with our school.

Ricky W. Griffin
Interim Dean, Mays Business School

Categories: Deanspeak