The End of History?

The aim of this blog is to share interesting things that I am confronted with - things that make/made me think, be it finance-related or not. This time it is someting not-at-all finance-related, maye this is the reason why it is so interesting...

Today I heard a lecture of the reknown sociologist and philosopher Peter Gross on the philosophy of history. He pointed out that the western world was trapped in its self-perception, based on the belief that history

1) has a beginning and an end,
2) that there has been evolution in history and
3) that the current "western" model of society is the best-developed model so far.

It was the first time I really thought about this topic, but I realized that those three statements were true for me. So far, I would have always automatically answered all of them with yes. But are they really true? Is today's music, for example, on a higher level of development than was Ludwig van Beethoven's? Or is our democracy more advanced than was the one in Anient Greece? Interesing things to think about, don't you think?

Some scholars neither agree on those widely-spread beliefs. When talking about the first point for example, you should get to know e.g. Oswald Spengler's famous work "The Decline of the West", which was published as early as 1918.

It would lead too far to point out all works dealing with this topic, but what was also interesting to hear is that today, there are two academic opinions on the future development of the world.

1) All civilizations will converge and a Global State will be installed - This state is referred to as "The End of History" (see. e.g. "Cosmopolis Now" from Sybille Tönnies)

2) Civilizations will not converge, but will start to fight for world domination. This leads to the "Clash of Civilizations" described by Samuel Huntington.

As I do not prefer any of these theories, there are fortunately also some scholars (and most "normal people", I suppose) who think that there is still an option somewhere in between...

No Rocket Science, But Still Worth Posting....

We all know from finance and statistics lectures that the correlation coefficient (Rho) between (realizations) of two (random) variables must always lie in a range between -1 and +1. It is also quite trivial to prove that Rho becomes +1 in case of perfect positive correlation and -1 in case of perfect negative correlation. (Simply suppose a linear relationship Y=aX+b or Y=ax-b and substitute the respective values in the formula of the correlation coefficent, which is: Cov(X,Y)/s(X)s(Y)).

But when it comes to prove that Rho must always lie between (and not on) -1 and +1, there is no linear relationship that enables a comfortable proof. Interestingly, most web pages covering the correlation coefficient mention this issue, but only refer to the fact that the proof was an application of the Cauchy-Schwarz Inequality and leave the proof to the reader. I will not work through the proof here either, but at least I provide you with a useful link: The full proof is published on the webpage of Rice University's Department of Statistics: Here it is.

The Zen of Corporate Finance

Today we had a lecture of Tim Koller, partner at McKinsey's New York office and publisher of the book "Valuation: Measuring and Managing the Value of Companies" at my university.
He explained that based on his extensive research, every question of company valuation can be narrowed down to one single formula: A company's value mainly depends on it's organic growth rate and the return on invested capital. Simplistic? Well, according to Koller's data, reality proofs the concept (at least the data he presented :-)).
In my opinion, this can only be one side of the coin, because today financial markets also seem to follow other "laws": end-of-year rallies, patterns following analyses of technical investors (the ones drawing all those funny curves into stock charts) and of course the patterns described by behavioural finance.

Well, even if Koller's approach does not represent the whole truth, it is still a valuable concept and a must-know for every semi-professional investor.

Welcome to my Blog!

Well, don't really know what to write about at the moment, but as this is my first blog post ever this seems quite acceptable, doesn't it?