Whether you are sending an e-mail message or writing an annual report, your career in banking, investments, or corporate finance will require you to communicate with clarity, conciseness, and coherence.
Clarity in writing means good grammar and usage.
Conciseness means saying what you have to say in as few words as possible.
Coherence means that the whole message or report "hangs together"—has a clear and discernible organization.
This handbook is designed to help you develop effective writing skills while studying finance at Northern Illinois University. In previous composition classes you probably wrote a variety of essays and research papers. All of your previous research and writing experience will be of value to you as you take on the more specialized writing tasks relating to finance.
One scholar of writing has identified four types of written discourse, each of which has a specific aim (Kinneavy, 1971).
Literary discourse seeks to please the reader through unique poetic or prose structures.
Expressive discourse provides a window into the mind of the writer, allowing the reader to experience the writer's thoughts or feelings.
Referential discourse, the discourse of the sciences, attempts to describe clearly and objectively the worlds of nature and culture.
Persuasive discourse uses reasoning and various kinds of argument to convince readers or listeners of the truth or validity of a statement.
As a student of finance and later as a finance professional, you will typically compose documents that describe particular financial realities, or that attempt to persuade others to take some action. To analyze a particular corporation, stock, or bond you would use referential discourse of a unique kind. To recommend the purchase or sale of a particular stock or bond you would use persuasive discourse. In both of these kinds of writing, clarity, conciseness, and coherence are the keys to success.
Gary Blake (1995), an expert on business writing, has ranked writing problems on a scale from one to ten. He notes that minor problems (1–5) may only cause embarrassment, whereas major problems in your writing (6–10) could "seriously harm the health of your organization" (p. A18). Spelling, punctuation, and misused words may just embarrass you, but lengthy sentences and paragraphs, passive language, vagueness, and poor organization could actually harm your professional reputation and that of your firm. In the field of finance, the ability to write clearly, concisely, and coherently is more than a virtue: it's a necessity!
Proponents of the Writing Across the Curriculum (WAC) movement, which began in the early 1970's, believe that students should write in all their courses, not just in composition classes. WAC advocates (Emig, 1994) argue that "[w]riting serves learning uniquely because writing as process-and-product possesses a cluster of attributes that correspond uniquely to powerful learning strategies" (p. 89). Written assignments not only help you "learn to write" well; they also provide situations in which you can "write to learn." That is, the writing process itself can actually help you to understand and retain material more effectively in any of your courses, including those in the Department of Finance.
Although the general principle of "writing to learn" can be applied across departments and colleges throughout the university, different fields within the university, and even within particular colleges, exhibit unique characteristics of format and style. Whether your chosen field is biology, physics, mathematics, or business, you will have to learn these field-specific writing characteristics, which range from specialized language—particular words and phrases pertaining to a given field—to the accepted formats for specific types of written assignment. The departments of Accounting, Finance, Management, Marketing, and OMIS all have some field-specific "discourse conventions" that students in these fields need to learn.
The remainder of this handbook is divided into three parts:
Part 1 looks at general issues related to reading and writing in finance or in any other discipline in the College of Business.
Part 2 covers the major types of writing assignment you may encounter in Department of Finance courses. Some sample completed assignments are included along with the descriptions.
The Appendix provides some information on the American Psychological Association system of documentation.
We hope that this handbook will serve you well as a resource, as you "write to learn" in the College of Business and "learn to write" in the Department of Finance.
Recent studies strongly suggest that writing enables greater mastery of content in any discipline. Students therefore should not only learn to write: they can and should "write to learn." Since writing involves a number of learning functions—from reading to manipulating a pen or word processor—, writing reinforces learning in unique ways.
Consider keeping a reading journal in finance where you write about what you are reading in the Wall Street Journal and your class textbooks. The more you read and write about what you're learning in finance, the more quickly you will be able to talk, write, and think like a finance professional.
Walter Ong (1982) has suggested that writing actually "restructures consciousness." When we read, the communal sense of oral thought gives way to the more individualistic reality of a reader alone with a text. The more we read and write, the more our awareness of the world is shaped by the texts we are reading. Ong further argues that with the onset of literacy, one gains the ability to "backward scan," and words somehow now become "invested with new discriminating powers" (p. 104). The more you read, reread, and write about articles and books in finance, the more knowledgeable you will become in the field—and knowledge is power, especially when it comes to interviewing for a job.
Often you must retain a large amount of specific information so that you can participate in focused discussions and write detailed papers and exams. The "reader-response" approach to note-taking blends reading and writing to improve your memory skills and enhance your performance in discussions and on exams.
Step One - Read
Read a passage of text that feels comfortable to you in size. Usually journal articles or book chapters provide good segments to work with at one sitting. Read the passage thoroughly until you understand it well.
Step Two - Summarize
Summarize what you have read by writing in your reading journal. Be sure to use direct quotations and paraphrases to construct a detailed summary of the passage—the more specific the better. You are writing only for yourself here, so do not worry about plagiarism or grammatical errors. Just be sure the summary is comprehensive and as close as possible to the original meaning. (For more on summary writing, see §2.3.)
Step Three - Respond
Immediately following the summary, write your reaction to what you have just read. At this point you want to explore your reaction to the text and connect the new information to your existing web of knowledge. Do you agree or disagree with the author and why? Are these ideas new? What is the novel claim begin made here? If the ideas are not new, where have you seen them before? How does this information connect to related materials you have read or lectures you have heard?
Step Four - Review
Perhaps the greatest benefit of your reader-response writing emerges when you review what you have written. First, you have a record of what you have read in short form, so instead of reviewing an entire book or batch of articles for an exam you can reread your summaries. Here is where detail pays off—the more specific information your summaries contain, the better you will be able to recall the original documents. And your response writings will have created a web of meaning linking the many bits of knowledge presented in the course.
Don't be discouraged if this process is slow at first. Summarizing is a skill, and it must be practiced if you want to transform the skill into a habit. The page-flipping and rereading done while writing a summary will be time well spent when you finally spend less time studying for exams and reviewing materials for research papers.
Talk with any of your professors about the research and writing they are engaged in, or ask a professional in banking, investments, or corporate finance. You will quickly find that they view writing as a process that culminates in a product. The process is everything, including research and note-taking, rough drafts, editing, that goes into the production of the final document. The product is the written document itself.
Often a memo or report will be read at the draft stage by fellow researchers or workers, who make comments on the document and give it back to the original writer for revision. The document may go through numerous revisions before it reaches its final form and is sent off to its intended final audience. Similarly, a well written article or chapter overview or a report on a particular corporation should go through a number of revisions on your word processor before you hand it in. Most professors in the Department of Finance are willing to read a rough draft and return it with comments and suggestions.
A word about research: Whether you are evaluating a corporation, analyzing a stock, or researching a topic of interest to you in finance, you should begin the research and writing process as soon as possible. Putting off the writing of a paper to a week or a few days before it is due only make the process more difficult. Professors want to see that you have read the relevant material, utilized the proper valuation models, or analyzed and made sense of the data before you sit down at the word processor and begin to type. You need time to reflect on your findings before you can write anything about the significance of what you have found. Half-digested blocks of paraphrased information stitched together with a few of your own words won't add up to a well-organized research paper. The reader-response techniques suggested in §1.2 could go a long way toward ensuring that the paper is written in your voice and from your perspective, while presenting a thesis that is well supported by relevant data, statistics, and reasoning.
At times you and your fellow students will work together on written assignments. Since much of the writing done in industry involves collaboration, the time you spend reading, talking, and writing with other students is particularly valuable. While the experience of working with your peers can build interpersonal and communication skills, collaborative writing can be both confusing and frustrating. Janis Forman and Patricia Katsky (1986) conducted a study in collaborative writing among students in an MBA program in California. They concluded that problems in collaborative writing arise out of the difficulty of group dynamics and the writing process itself. Forman and Katsky list a number of potential problems:
All but the last two of these can be overcome fairly easily. When assigned a collaborative project, it is imperative that you meet immediately as a group and make sure that everyone in the group understands the assignment given by the professor. Lack of clarity about the assignment on the part of any group member should be addressed immediately by questions to the professor for clarification. In the first meeting you should determine the strengths of each group member and attempt to match strengths with particular group tasks. Before you end the first meeting make sure you set a time and place for the next meeting, and that every group member has a very specific task to accomplish by the next meeting. You might want to check in with your professor on a weekly basis to see if your research or analysis is on target, and to determine if your work is progressing in a timely manner. If each group member is writing a portion of the report, you might want to assign to one person the role of editor. The editor will be responsible for putting materials submitted by other group members together into a complete first draft. The editor will also produce the final draft of the paper, based on the critique of the first draft by the entire group. Be sure to allow plenty of time for the editor to shape the final draft into a report that has a single, unified purpose and voice.
Disputes over leadership and personal conflicts within the group may be harder to deal with. However, these are just the sorts of conflict that arise in the world of business. Be sure to draw on all of your past experience with group dynamics: clubs and organizations in high school and college, sports teams, bands, fraternities and sororities. Be honest with your collaborators. If problems seem insurmountable, then by all means speak with your professor, individually or as a group. Learning to resolve these conflicts can be an important part of your education in finance.
For more information on collaborative writing, see the College of Business Communication Handbook.
The Department of Finance requires that students submit their own work, whether they are writing papers, taking exams, or making oral presentations. Plagiarism—taking someone else's words or ideas and representing them as your own—is expressly prohibited by University regulations:
Good academic work must be based on honesty. The attempt of any student to present as his or her own work that which he or she has not produced is regarded by the faculty and administration as a serious offense. Students are considered to have cheated if they copy the work of another during an examination or turn in a paper or an assignment written, in whole or in part, by someone else. Students are guilty of plagiarism, intentional or not, if they copy from books, magazines, or other sources or if they paraphrase ideas from such sources without acknowledging them. Students guilty of, or assisting others in, either cheating or plagiarism on an assignment, quiz, or examination may receive a grade of F for the course involved and may be suspended or dismissed from the university. (NIU Undergraduate Catalog)
Many of the written assignments in Department of Finance courses have specific format requirements. Always make sure that you understand the format requirements for an assignment before producing the final product. Some assignments will require citation of outside sources, and for that you will need to follow some standard system of citation. For research papers in particular, you will need a format and citation system that you can use consistently. Several such systems are available.
The American Psychological Association (APA) system of documentation has been adopted by NIU's College of Business as the system for documenting papers written for courses in Accounting, Finance, Management, Marketing, and OMIS. (The citations in this handbook, and on the References page, are written according to APA guidelines.) A good discussion of the APA system, including citations for multi-media and Internet sources, can be found in Chapter 36 of the Allyn Bacon Handbook (Rosen & Behrens, 1997).
For a quick guide on how to use the APA system for various types of citation, see the Appendix to this handbook and the College of Business Communication Handbook.
Throughout your career, your written work will be evaluated in terms of many qualities: accuracy and precision of thought, neatness, correctness of grammar, appropriateness and consistency of tone—in a word, all of the things that your teachers try to assess in your written assignments. Knowledge of how particular writing assignments are going to be assessed will help you in the writing process.
Some Department of Finance professors have adopted "holistic" grading criteria, meaning that a paper grade is based on a variety of qualities, and not solely on one criterion, grammar, for example. The following grading "rubric"* was designed for a research paper assignment.
1) THE EXCELLENT PAPER: The student demonstrates a thorough understanding of the topic and is able to effectively communicate this knowledge. The student uses examples, diagrams, statistics, etc. to develop his or her ideas and to aid the reader. The paper supplies evidence that supports the thesis and also conveys the author's reasoning and justification. The writer has clearly identified the major players in the articles and their perspectives on the issue, problem, or question identified in the paper. The paper is well organized, has a consistent point of view and mood, is free of distracting grammatical, spelling, and typographical errors, and carefully documents its sources.
2) THE GOOD PAPER: The student demonstrates an understanding of the topic and includes accurate words, facts, and figures. While the summary is polished and attractive, ideas are not developed in an organized, coherent way. For example, the student may fail to identify all the players and their perspectives, or may list statistics, but fail to synthesize material. Or the student may fail to carefully and thoroughly document his or her sources. The writing may lack effective order, coordination, and subordination of ideas. The paper, nevertheless, is free of distracting grammatical, spelling, and typographical errors.
3) THE AVERAGE (Barely acceptable) PAPER: The student shows a minimal understanding of the topic. Often the student, though able to define terms relating to the topic in his or her own words, is unable to apply this knowledge to the particular situation under discussion. The student may fail to draw obvious conclusions from data presented or may draw conclusions that are not supported by facts. The summary may not be well organized and may contain some grammatical, spelling, and typographical errors.
4) THE BAD PAPER: The student communicates only a minimal knowledge of the topic. The student is able to recite definitions relating to the subject matter but is unable to translate, interpret, or extrapolate. The paper lacks effective and appropriate examples. Key players and their positions on the topic are not identified. The writer fails to maintain focus and appears to be unclear as to the purpose of his or her development of the topic. The paper may be poorly organized or contain grammatical errors that distract the reader and prevent effective communication.
5) THE UGLY PAPER: The student does not demonstrate an understanding of the assigned task or the topic. The paper contains many severe grammatical errors and is incoherent.
* This rubric is based on the work of Julie Dahlquist (1995).
Leonard J. Rosen and Laurence Behrens, authors of the Allyn Bacon Handbook, give two rules of writing that can help you avoid plagiarism:
Rule 1: If you quote the exact words of another author, place quotation marks around these words and cite the source.
Rule 2: When paraphrasing or summarizing, don't use "whole phrases, or many of the same words, or sentence structures similar to the original. . . . Do not assume that you are under no obligation to credit your source if you simply change the wording of the original statement or alter the sentence structure" (Rosen, 591). [Note: Even if you give a citation following such a paraphrase or summary, you are still guilty of plagiarism.]
You should avoid plagiarism not only because it is "against the rules"—and even illegal in some cases—but also because it represents a "short-circuiting" of your thought process. Legitimate paraphrasing requires you as a reader and as a writer to break down and reassemble the author's message. That means you have to analyze what the author says, and recreate it in the language of your own thoughts. In doing so, you will learn more effectively.
The following example shows 1) an original passage, 2) a passage from a paper which would be considered plagiarism, and 3) a correct paraphrase of the same passage. You can use this example to check your own writing for unintentional plagiarism. After a while, correct paraphrasing gets to be a matter of habit.
ORIGINAL: But here's the kicker: Banks can't underwrite insurance, but thrifts can. On the other hand, there isn't much a bank can do that a thrift can't. As a result, assuming Traveler's thrift application is approved—and there's no obvious reason it won't be—Mr. Weill's company will be a bank in everything but name.
PLAGIARISM: Rogers says that banks can't underwrite insurance, but thrifts can. There isn't much a bank can do that a thrift can't. Travelers Chairman Sanford I. Weill's company will be a bank in everything but name.
PARAPHRASE: Rogers points out that current law allows thrifts, but not banks, to underwrite insurance. Moreover, thrifts can perform many of the same functions as banks. If Weill succeeds in getting a thrift charter, then Traveler's will be a bank for all practical purposes.
Each of the following sections presents a single type of assignment in terms of purpose (Why do I have to do this anyway?), process (What steps might I go through to successfully complete this assignment?), and product (What will this paper look like when it's done?) Wherever feasible, sample assignments are included.
The purpose of resumes, cover letters, and thank-you and acceptance letters may seem obvious. What is not so obvious is the complexity of a resume and cover letter, and the degree to which both need to be tailored to fit both you and the potential employer. Your audience, in this case, is the potential employer who wants to see that you have not only the technical skills for a particular job, but also the communication skills that go with the job. How you present yourself in the resume and cover letter comprises the first impression of who you are and what you're about.
In Finance 395, Career Planning in Finance, students research companies for which they might want to work. The students then draft resumes and cover letters, and are asked to volunteer to have their work presented to the class on an overhead projector for critique. The resume, cover letter, and thank-you letter comprise, perhaps, two (or three) distinct genres. Students seem to struggle more with these genres than with other finance papers. Perhaps they are challenged by the need for more expressive discourse, and by the presence of a real, workplace audience.
The more you know about a particular firm, the more likely it will be that you will find the right fit for you and your future employer. Moreover, the more you know about the company, the better able you will be to tailor your resume and cover letter to fit the particular positions available. Even if you do not take Finance 395, it would be wise to begin the preparation of a resume and cover letter after having researched a particular firm or public sector institution.
Examples of the resume, the cover letter, the thank-you letter, and the acceptance letter are shown on the following pages. Other examples of some of these forms can be found in the Job Hunter's Guide published by the Northern Illinois University Department of Career Planning and Placement. Sample Resume:
CAREER OBJECTIVE: Financial Analyst
EDUCATION: NORTHERN ILLINOIS UNIVERSITY, DeKalb, IL Bachelor of Science in Finance, December 1997 Emphasis in Accounting and Operations Management Information Systems Candidate for June 1997 Chartered Financial Analyst Exam I Cumulative GPA: 3.8 / 4.0
Financed 100% of my college education via scholarship and employment
Extensive Computer Skills: DOS, Windows, Windows 95, Lotus 1-2-3, Excel, WordPerfect, Word, D-Base, FoxPro, Harvard Graphics, PowerPoint
WORK EXPERIENCE: Northern Illinois University, DeKalb, IL Spring 1996 - Fall 1997 Finance Department Research Aid: Researched company information
Internship: R. R. Donnellay & Sons Company, Chicago, IL Summer 1996 Price Administration Intern: Provided management with profit analyses based on current company policy and growth objectives, production methods, and job planning. Collaborated with Sales Department personnel in performing economic analyses of special projects. Installed a Local Area Network (LAN) and trained middle management personnel in its use.
First National Bank of Chicago, Chicago, IL Summer 1994, Summer 1995 Set Clerk: Automated check-clearing process for Remittance Banking Department.
HONORS: Presidential Scholarship - Academic and leadership scholarship Institutional Tuition Waiver - Academic and leadership scholarship Allstate Foundation Scholarship - Four-year academic scholarship Chicago Boys and Girls Club Scholarship - Four-year academic scholarship New Resources Corporation - Academic and leadership scholarship 1996 College of Business Case Competition Winner
Sample Cover Letter:
April 1, 1996
Dear Ms. Orlando:
I am currently a senior at Northern Illinois University, and I have just begun my job search. Merrill Lynch is at the top of my list. After listening to your presentation at a meeting of the Financial Management Association, I wanted to find out more about Merrill Lynch. With its diversity and strong global presence, Merrill Lynch is the ideal place to begin a financial career.
Let me tell you a little more about myself. I have spent the last five summers working as a camp counselor. Through this work I have come into contact with people of all ages, and I have developed very strong interpersonal skills. I was personally responsible for the creation of many new activities for the camp program. I am also a well-organized person.
I look forward to meeting with you to discuss employment opportunities at Merrill Lynch. I have attached my resume, and I will call next week to arrange an interview.
Thomas S. Eliot
Sample Thank-you Letter:
September 7, 1997
Dear Ms. Orlando:
Thank you for taking the time to interview me at Northern Illinois University for the position of Market Maker.
I am very confident that my background and experience at the Chicago Board of Options Exchange will be beneficial to you. I am a highly motivated student, planning to finish college in three and one half years, and I will be just as motivated to become a successful trader.
I look forward to working with you and learning all that you can teach me about options trading.
Francis G. Powers
Sample Acceptance Letter:
September 30, 1997
Dear Ms. Orlando:
I am happy to accept the position as a Mortgage Loan Representative with First Chicago Corporation. As requested, I will report for work at 8:00 A.M. on Monday, October 23, 1997. I am very excited about becoming a member of the First Chicago team.
Gerald L. Lewis
(This section is adapted from a handout used by Professor Dowen.)
The point of a memo is to communicate clearly a particular message to a particular audience. Memo assignments simulate workplace situations and require knowledge of the topic, the ability to analyze a difficult problem or situation, and the savvy to respond sensitively to a client or boss in the firm. In order to communicate you must be cognizant of your audience, and you must use good clear English. That is, sentences must be complete, one-sentence paragraphs are to be avoided, you must be conscious of the degree to which you repeat one word (such as "this"), spelling must be correct, and grammar should follow generally accepted usage.
Because of space and time constraints, your writing must be concise. A common business maxim runs, "If I had more time I would have written you a shorter memo." Business people do not have the time or inclination to read long rambling memos, so keep your memo brief.
Other hints: (i) Where possible use active rather than passive verbs, (ii) When in doubt as to how to prepare your memo, think of yourself as an investment professional and your professor as a client who provides a substantial portion of your income, (iii) The draft that is turned in should be at least the third attempt, (iv) read the memo aloud to yourself, and (v) ask another student to read and critique your draft.
I strongly recommend that you read, "What Do You Mean You Don't Like My Style?" by John S. Fielden (1982).
On the following page is a fictitious business scenario that requires you to draft an appropriate memo to your client. Following the scenario is a memo drafted by Professor Dowen that suggests an appropriate response to this potentially sticky business situation.
As a registered investment advisor you work with Dennis Roman, a fifty year old former Micky D's hamburger flipper who recently won $500,000 per year for twenty years from the Illinois lottery. Consistent with Mr. Roman's wishes, his portfolio is 50 % bonds and 50 % conservative equities. Mr. Roman heard on a news program that investing in foreign equities reduces risk. He recently received a prospectus for Red Wallpaper, a firm that makes wallpaper in the former Soviet Union. He desires a written explanation of why you recommended against this investment.
July 22, 1996
TO: Dennis Roman
FROM: Richard Dowen
SUBJECT: Risk, Foreign Investments and Red Wallpaper
Investors may reduce their risk by investing in foreign markets. When the U.S. market rises foreign markets often fall and when the U.S. market falls these markets often rise. Even when the markets move in the same direction, they do so in different proportions. Because of the difference in direction and proportion, foreign investment can act to stabilize changes in wealth caused by volatile market conditions.
However, putting money in foreign markets exposes investors to two new kinds of risk. Political risk means that unfavorable changes in the government can produce up to a 100% loss for a particular investment. Currency risk means that money may be lost because the value of a country's currency depreciates with respect to the dollar. For major countries such as Germany, Japan, and England these risks are low.
While your proposed investment in Red Wallpaper would provide a few benefits of a foreign investment, it would also expose you to significant political and currency risk. If the Russian experiment in democracy fails, your investment would probably be lost. Since the Ruble is a weak currency you would have to buy Russian goods, import them, and either use them yourself or sell them in order to benefit from dividends or capital gains.
I suggest that we discuss some other potential foreign investments. Alternatively it may be time to reassess the level of risk that you are willing to accept and restructure your portfolio. Please contact me at your earliest convenience.
A summary of a text provides a brief version of the main points of the original, with little if any commentary from the person writing the summary. Writing summaries of articles and book chapters helps you learn the language and subject matter of finance. The challenge of writing a summary is deciding what the main points of an article or book chapter are, and then reporting them in as succinct a manner as possible.
1) Make a copy of the original so that you can mark it up as you read.
2) Read the original carefully, several times perhaps, marking important passages so that you can come back to them easily. Also note places where you might want to use direct quotations in your summary—for example, mark places where the original author or someone quoted by the author uses particularly striking language.
3) Go back over the original. Write down, in your own words, the main points, facts, issues, in the order in which they occur. This step will require two things: First, you will have to figure out what the "main points" are. Which facts and figures must be included in your summary, since they are crucial to an understanding of the original? Which examples must be included, and which can be excluded from your summary? Second, you will have to paraphrase the author of the original to avoid plagiarism.
4) Look over your list, to see if the points can be better grouped for summary purposes in a different order. Can you group the points around several main topics in the original text?
5) Decide whether you will be using any direct quotations. If so, write them out or highlight them for easy transcription. Be accurate. Use ellipses (. . .) and square brackets as necessary. (Use square brackets when you must change or add a word to a direct quotation.)
6) Create a verb phrase that describes briefly and accurately what the author "does" in the article, e.g. "argues that xxx," "describes xxx," "shows that xxx."
7) Write the opening sentence of your summary, incorporating the author, journal, date, page, and the verb phrase from step 6.
8) Use Steps 3, 4, and 5 to complete the summary. Depending on the assignment, you may be asked to write a single-paragraph summary. If not, break your summary into paragraphs, each devoted to a major point of the original article.
9) Read over your summary carefully. Are there any key points you left out? Have you spelled names correctly, and are quotations accurate? Have you committed inadvertent plagiarism by copying a phrase from the article? Is the tense consistent? Are the grammar and spelling OK? Would the paragraph be improved if you reordered some of the sentences, or turned some of them into compound sentences? Are there needless words you can eliminate by simple rewording?
10) Ask a friend to read through your paragraph, or bring it to the Writing Center, ESL Clinic, or Finance Department writing consultant. Make final corrections.
The detailed format of your summary will depend on the assignment. Often a single-paragraph format will be appropriate. Here is a multi-paragraph summary based on an article from the Wall Street Journal:
In his article "No-Load Fund Investors Still Buying Advice" (Wall Street Journal, September 11, 1997, A6, A19) Robert McGough shows that rising investor interest in no-load funds can't be equated with an end to the demand for investment advisors. Cerulli Associates, a Boston research firm, has reported that no-load funds accounted for 39 % of all assets of stock funds and bond funds as of April, 1996, up from 31 % at the end of 1990. But a new report by the same firm shows that 18.3 % of the no-load funds sold in 1996 were sold by fee-paid advisors or brokers.
In fact, the majority of mutual funds are still sold with commissions. William Shiebler, a senior managing director at Putnam Investments, suggests that time pressure on investors forces them to reach out for expert advice. Don Phillips, president of a Chicago-based fund research firm, argues that while selecting a mutual fund and allocating investments is not "brain surgery," most investors could still use some advice. Phillips argues that the real value of financial advisors comes in the form of the questions they ask their clients about what they want to do with their money and how much risk they are willing to take. Even though investing in no-load accounts can increase earnings substantially, McGough and other analysts argue that "many people don't have the interest, patience, or time to plunge into studying mutual funds." McGough points out, however, that not all advisers are disinterested, or even competent, and that it can take a long time to find out the truth.
Since most mutual funds sales still pay brokers a commission, brokers may not always sell what is best for their investors. Under an alternative system, advisors are paid an annual percentage, often 1% or 1.5%, of the investor's assets. This system is widely used among financial planners working outside of brokerage firms, and is spreading to the wrap programs of brokerage firms. Brokers earn more by selling load funds, however, and some asset-based purchases have lower limits of $100,000 or more. Cerulli expects sales of funds with asset-based fees (currently about 12% of all fund sales) to top out at 25% within the next few years.
Some further tips on summary writing
1. Focus on the text rather than on your responses to it. Your responses will be useful when you move beyond the summary to analyze and evaluate the text, and to synthesize it with other texts. For the purposes of the summary, however, stick to the contents of the text, and don't give your opinions about what the author has said.
2. Keep your tone objective and detached. Don't adopt the tone of the journalist or other author when summarizing. Your purpose in summarizing isn't to be flashy or exciting; rather, you are trying to communicate as briefly—but completely—as possible to your readers what was said in the article.
3. Open with a sentence that conveys all of the crucial information about the text, including the following: the author's full name; the title of the article, book, or other text; the name, issue date, and page number of the journal if the text is an article; and the basic purpose and subject of the article. If the author has a main thesis, state it in this sentence.
Example: In his article "Eager Banks Say Walk Right In" (Wall Street Journal, October 22, 1997, B12), Stephen E. Frank describes how U.S. banks are experimenting with smaller, more efficient, and more multi-purpose branches.
4. Notice that the author's full name is used the first time it appears. After that, use the author's last name only.
5. Notice how the opening sentence gets across the article's basic purpose, which in this case is to inform, not to persuade. If the article presented a specific argument, a verb like "argues" or "presents a case in favor of" would be more appropriate.
6. In general, use the present tense throughout the summary.
Example: Citicorp's Citibank is exploiting both strategies in a small number of test branches in Illinois and California. The branches are one-half normal size, and they require only one or two human "concierges" to run.
7. To convey past events in the summary, use the present perfect tense.
Example: Wells Fargo has installed over 500 miniature branches in supermarkets over the past two years.
8. In general, use paraphrase rather than direct quotation, especially when you are just getting factual information across. Use proper punctuation for direct quotations. Don't plagiarize.
9. Two possible strategies for getting the author's main points across:
Strategy 1. Give a one or two sentence summary of each paragraph in the original article.
Strategy 2. Group paragraphs in the original article by topic, and give a one or two sentence summary of each of the paragraph groups.
The word "analysis," from Greek, literally means "breaking apart" or "breaking down again." When you analyze a text or argument, you first break it down to see how it works, and then comment on what you find. You may connect the contents of the text with related material from other sources and from your previous knowledge. You may discuss and critique the author's reasoning. You may amplify or take issue with points the author made, or point out biases or blind spots revealed by the author. When reading a text in preparation for writing a summary (see §2.3), you have to think analytically, just to decide what the main points of the text are. When you actually write the summary, however, you hold back your responses to the original piece of writing. In writing an analysis, these responses become your central focus, and you write analytically.
The word "analysis" can be used in a more general way, too: Some of the papers you will write for your finance courses will require you to analyze a company, stock, or bond, utilizing the quantitative and qualitative tools of finance. In writing these papers you develop your ability to analyze complex financial phenomena, and you learn to write intelligently and clearly about them. Analysis papers are for the most part referential and informative —you must demonstrate to your professor that you can proficiently manipulate the analytical tools of finance and apply them to actual stocks, bonds, or firms.
Here we must distinguish between the two kinds of "analysis" assignment mentioned above. If you have two analyze a company, stock, or bond, the invention process will depend on the mathematical tools, software, etc. to be used. For example, valuation models may be applied to specific corporate or public sector entities. If, on the other hand, you are to analyze a certain text, for example an article from the Wall Street Journal, you may find it useful to follow a fairly clear-cut procedure.
1. As you read the article, list—at least mentally—the issues addressed by the author and what the author says about these issues. In particular, what economic and financial principles and definitions does the author bring to the discussion?
2. Determine whether the author is presenting facts, opinions, or both. Try to distinguish between the two. Decide whether you agree or disagree with the author in cases of opinion by applying principles and theories from the course and from your other knowledge.
3. Be aware of the logic that lies behind the article. If the author uses deductive logic to draw conclusions based on evidence, are these deductions valid? Are they true? (Note: Truth and validity are two different things.) In a purely informative article, the implicit logic is inductive; i.e., the author presents a set of facts or events which are intended to be representative of a situation. But has the author presented a complete enough picture of the issue under discussion?
4. Determine whether there are any important principles or considerations that the author has neglected. Such "blind spots" can form the basis of your analysis of the article.
5. For each principle, you might use a two-step technique:
Step 1: Generate a question like "How does this principle apply to what the author has said?," or "Has the author taken this principle into account?," or "How can I use this principle to clarify what the author has said?"
Step 2: Now answer the questions you have asked. The answers then become the main points of your analysis.
6. Organize the analysis around principles or major ideas from the article. In general, devote a paragraph to each principle or major idea. Bring in examples from the article to illustrate how the principles apply to the article:
Example: McGough points out that Citibank's strategy is to try to cut overhead costs through automation and reduction of branch size. This strategy could pose serious problems for Citibank if customers aren't willing to accept these changes.
The first sentence is a statement reminding your readers what the author of the article says about a particular point, Citibank's strategy. The second sentence is the start of your reaction. Subsequent sentences will then tell your readers what you think about Citibank's strategy. If possible, bring in properly cited examples from the course text, other articles, and other sources to reinforce your arguments.
Analysis papers have no set guidelines for organization and format, but your analysis must be as correct and accurate as you can make it, and you must present your findings in some logical order. The detailed "look" of an analysis paper will depend on the specific requirements of the assignment. In general, all charts, tables, and appendices must be tied carefully to the textual summary and analysis. Outside sources must be documented in some clear and consistent manner.
Analytical reviews of articles from the Wall Street Journal have been used in two Department of Finance courses, Finance 340 and Finance 350. These assignments encourage students to read critically about the world of finance, and to begin to see how the theoretical principles of finance apply to real-world situations. An analytical review consists of a summary section (see §2.3) followed by an analysis of the text (see §2.4.)
As a starting point, the summary and analysis process steps and recommendations given in the previous two sections.
A well-organized analytical review will have two main sections:
A. Summary: Begin with a summary of the article, under the heading SUMMARY. The opening sentence of the summary should include all of the basic information about the article (author's name, title of article, issue date and page number of the Wall Street Journal in which the article appeared.) The key points, issues, problems, people, and perspectives of the article, including the author's thesis, if the article has one, should be included in the summary also.
B. Analysis: After the summary, introduce several paragraphs under the heading ANALYSIS. Each of these paragraphs analyzes a key idea or group of ideas in the article in terms of the principles of financial markets and institutions. Bring in related articles and information from other sources to support your own thinking. You can also evaluate the author's reasoning, note hidden assumptions, introduce points the author may have missed, etc. Incorporate graphs, tables, and statistics to clarify and support your reasoning. The final paragraph should offer an overall evaluation of the article in terms of your analysis. If your analysis supports an overall thesis, state it here.
A sample analytical review based on an article from the Wall Street Journal is given on the following page.
Sample Analytical Review:
In his article "Brokers, Insurers Queue Up for Thrift Charters" (Wall Street Journal, September 24, 1997, B12), Stephen E. Frank discusses attempts over the past few years by a number of securities and insurance firms to acquire thrift charters. Such charters would allow these firms to compete directly with banks, while still being able to operate in areas from which banks are excluded by law. Thrifts are particularly attractive to securities firms, because unlike banks, thrifts are allowed to sell insurance, as well as being capable of performing most banking functions.
The large number of recent thrift charter applications has focused renewed interest on the thrift industry. Paul Schosberg, president of America's Community Bankers, feels that "we're headed for one-stop financial shopping offered by the very largest corporations." Thrift charters have become even more attractive due to the easing of branching restrictions, reductions in insurance premiums, and a wider range of lending activities allowed by law to thrifts. However, pending changes in federal banking laws might eliminate thrift charters altogether, forcing thrifts to become banks. Companies trying to acquire thrift charters now may be hoping to continue to engage in thrift-like activities through grandfather clauses, if and when such laws are passed.
Securities and Insurance firms trying to acquire thrift charters clearly assume that consolidation and service diversification will help them to compete. But will the depositors and customers of these newly-created "giants" be better served as a result of these moves? And will consolidation help the companies themselves? We have all too often seen companies overextend themselves in an attempt to enter new markets. With their expertise firmly grounded in some core business, companies try to take on new markets in which they have little experience. A classic example is offered by the S&L's during the 1980s, when lending restrictions were relaxed (Carter, 1989). Many S&L's overextended themselves and stepped into business operations foreign to them. Consequently, many failed. Who suffered the greatest loss from these failures? Not the S&L's—rather, the depositors of these institutions ultimately took the worst loss from poor decisions made by thrift management.
On the other hand, the parallel between the S&L situation of the 1980s and the current environment is not perfect. The companies currently applying for thrift charters are relatively large corporations with proven track records. The likelihood of a debacle as extreme as the S&L crisis of the 1980s is therefore quite small. However, if these companies are to take advantage of consolidation and service diversification, they must achieve "synergy" or economies of scale. Only if a company's organizational structure and corporate culture are conducive to the diversification can this horizontal-growth-through-acquisition strategy succeed.
The recent acquisition of Solomon Brothers by the Travelers Group illustrates this point. Solomon Brothers has traditionally been a rather aggressive, risk-taking investment firm, while Travelers has been somewhat more conservative. Some experts claim that a clash of corporate cultures will inevitably arise, causing problems for the organization as a whole. Rising operating costs in the financial-services industry have been squeezing profit margins recently, and Solomon Brothers and Travelers must reduce overhead, share resources, and achieve all possible economies of scale if they are to succeed—not an easy task, given the differences between the organizational structures and corporate cultures of the two divisions.
While Frank's overall purpose is simply to inform readers about the recent interest in thrift charters, and the subsequent consolidation of financial services by securities firms and insurance organizations, his article hides a crucial assumption, namely that consolidation and diversification will be beneficial for the companies involved and for their customers. Clearly, new services will allow these organizations to expand the scope of their operations, and customers will be able to take advantage of a full menu of financial products from a single firm, reducing time and information costs. However, real economies of scale must be achieved to make the strategy work, and that means minimizing conflicts caused by contrasting organizational structures and cultures.
Carter, F. (1989). The savings and loan crisis in America: A brief review. Journal of Financial History, 17, 12–57.
Case studies present workplace situations that require students to consider textbook and lecture concepts in novel situations. The purpose is to increase students' knowledge by applying it to specific scenarios. The cases are generally open-ended and allow students to figure out what the problem is, and, in some cases, render a solution or decision. Some of the cases require student collaboration, which adds rhetorical and sociological complexities, especially when it comes to writing up the case.
One professor requires that students go through a standard process, which involves 1) reading and digesting the case, 2) formulating the problem or issue in the case, 3) formulating a solution to the case, and 4) writing up the case. On some occasions students are required to present orally the above information on a particular case.
Professors have not agreed upon a single set format for writing up a case studies. They do demand good reasoning, substantiated facts, and clear exposition. One professor requires a four-fold format that lines out 1) the key issues, 2) the background information, 3) the actual analysis of the case, and 4) a proposed solution.
In the workplace, managers are often too busy to read a whole report, but need a short synopsis that concisely and coherently sums up the key features of the research, with or without a recommendation for executive action. To simulate this situation, some professors require students to append an executive summary of less than two pages to an analysis paper.
Students need to go over their research carefully and make sure that the executive summary contains all the crucial facts of the case. The techniques of summary writing (see §2.3) will be useful here.
One professor who requires executive summaries does not care about the specific form of the text except that it should be "brief, concise, explicit, and complete." All exhibits in the appendix must either be referenced—or excluded.
One professor of banking has students use the Stanford Bank Simulation program, a computer simulation that requires them to make decisions about all financial aspects of a bank, and then allows them to track the progress of their bank over a simulated span of time. The simulation gives students a feel for the complexities of managing all aspects of a bank's operations in a changing economy.
Groups of four or five students form teams and compete with each other. Each team makes decisions about twenty or twenty-five issues facing their bank and then submits them to the professor, who enters the decisions into the program. The program then simulates a changing market, and assesses how the decisions made by each team will affect the bank's market position. Each "run" simulates one quarter of a fiscal year, and, typically, this professor will simulate two to two-and-one-half years of a bank's life.
The professor who runs the simulations provides a handout for the team's write-up of the bank's performance. The report must be written as if each team has been given the task of "identifying the strengths and weaknesses of the bank for the Board of Directors." Further, the professor provides the teams with four areas of activity on which the "board" wishes them to focus. The final report need not take a particular form, but all exhibits must be tied to the report.
The following descriptions are based on assignments in Department of Finance courses during the Fall 1997 semester.
In Finance 330T, Capital Budgeting and Long-term Financing, students hand in a written report in which they analyze a company from the S&P 500 in terms of 1) its capital structure, 2) its cost of capital, and 3) its value. On the basis of their analysis, students calculate the company's value based on its projected free cash flow. Students draw their data from various sources including the Internet and Value Line. The report is type-written, and is typically divided into three sections, each of which deals with one of the three main aspects of the analysis. The final grade depends not only on the correctness of the numerical values obtained, but also on whether the student applied the relevant principles in the correct manner. For that reason, the written portions of the report should communicate clearly how the student went about obtaining the answers. This assignment is typically no more than ten pages in length; calculations may be included in appendices. Spread sheets and, less frequently, graphs may be included.
In Finance 340, Investment Principles, students may be asked to turn in several sorts of written assignments. Two such assignments are: 1) an analytical review (see §2.5) based on an article from the Wall Street Journal and 2) a study of the correlations between the stock performance of two companies. In the latter assignment, students are asked to choose a company A from some source like the S&P 500. They are then asked to identify two other companies B and C that they expect to have high and low correlation with A in stock performance. The written report describes in detail on what basis companies B and C were chosen. Data from Value Line, the Internet, and other sources may be used.
In Finance 350, Financial Markets and Institutions, students write two analytical reviews (see §2.5) based on articles from the Wall Street Journal.
In Finance 395, Career Planning in Finance, students compose resumes, cover letters, and thank-you letters (see §2.1.)
In Finance 430T, Treasury and Credit Management, students work collaboratively on several case studies (see §2.6.)
In Finance 440, Security Analysis and Portfolio Management, students write a Security Analysis Report or Security Valuation, based on data from a real company. A detailed handout provides guidelines for format and composition of the written report. Students may be asked to work in groups.
American Psychological Association. (1994). Publication manual of the American Psychological Association (4th ed. ) . Washington, DC: Author.
Blake, G. (1995, April 3). It is recommended that you write clearly. The Wall Street Journal, p. A18.
Dahlquist, J. (1995). Writing assignments in finance: Development and evaluation. Financial Practice and Education, 5, 107–112.
Emig, J. (1994). Writing as a mode of learning. In C. Bazerman and D. Russell (Eds.), Landmark essays on writing across the curriculum. Davis, CA: Hermagoras.
Fielden, J. S. (1982, May-June). What do you mean you don't like my style? Harvard Business Review, 128–138.
Forman, J., & Katsky, P. (1986). The group report: A problem in small group or writing processes? Journal of Business Communication, 23 (4) , 23–35.
Kinneavy, J. (1971). A theory of discourse: The aims of discourse. Englewood Cliffs, NJ: Prentice Hall.
Ong, W. (1982). Orality and Literacy: the Technologizing of the Word. New York: Methuen.
Rosen, L. J., & Behrens, L. (1997). The Allyn & Bacon handbook (3rd ed. ) . Boston: Allyn & Bacon.
The most authoritative source of information regarding APA format is the Publication Manual of the American Psychological Association (American Psychological Association, 1994). The APA standard covers not only citation formats, but matters of grammar and punctuation, overall document layout, style etc. There is only space here for the basics.
Most often you will be citing books, magazine and journal articles, articles in daily newspapers, and on-line sources (for example, world-wide-web documents.) A journal is a scholarly publication, usually published in yearly "volumes" containing a number of monthly or quarterly issues, with page numbers generally running continuously throughout the year. A magazine is a publication intended for a wider audience, usually published in monthly or weekly issues, with page numbers starting again in each issue.
Each reference you use in a paper requires two citations:
This handbook was written using the APA citation formats. If you look for example at the top of page 3, you will find a citation of the work of Gary Blake in the text. On the References page (page 29), you can find the full citation of Blake's article from The Wall Street Journal.
Citation in the Text ("In-line" Citation):
1. Single author, name included in the sentence: Carter (1990), for example, argues for a "pluralistic theory of expertise" (p. 121).
2. Single author, name excluded from the sentence: Studies in writing across the curriculum from the 1960's through the 1970's have tended to focus on either the social or cognitive aspects of written communication within any given discipline (Kinneavy, 1994).
3. Two authors, names included in the sentence: Following the leads offered by Kuhn (1973) and Toulmin (1972), the social theorists argued that writing serves the purpose of enculturating a student into a particular discipline.
4. Two authors, names excluded from the sentence: Studies in writing across the curriculum from the 1960's through the 1970's have tended to focus on either the social or cognitive aspects of written communication within any given discipline (Kinneavy, 1994 & Martin, 1992).
Note: The full APA standard provides guidelines for cases in which there is no author, or in which the "author" is a corporation or other entity.
Full Citation on the References page:
The purpose of the References page at the end of your paper is to give the reader ready access to your sources. Generally with APA references you provide information in the following order: author, date of publication, title of the book or article, place of publication, publisher, and page numbers (if an article). Here are some of the most usual cases you will face:
1. Book with a single author:
2. Journal article with a single author:
3. Magazine article with a single author:
4. Newspaper article with a single author:
5. Book with two authors:
6. Journal article with two authors:
7. Article included in an edited book:
8. On-line source:
The standards for citing on-line sources are still evolving. Remember that what you are really trying to do is to credit the author and give a reader enough information to find the source. A world-wide-web page could be cited as follows:
Anonymous. (1998, January 26). Making the most of your money. [On-line] Available: http://www.quicken.com/investments/mutualfunds/top25/
Note: If the author is anonymous (as in this case), your in-line citation will be (Anonymous, 1998) or, if more than one work from 1998 is being cited, (Anonymous, 1998 January 26). If you can figure out who the author is (remember, the "author" might be a large brokerage firm or other institution), include the author's name in the citation.
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