Sunday, October 25, 2009

Thoughts from the weekend

I have a lot more time to think and reflect on the weekend when the hustle and bustle of daily life aren't weighing me down. So, I came up with a few financial ideas that I would like to share:

1.) What if the small-cap stock premium could be explained by investors' risk adversity combined with the hope that their stock will shoot to the moon? I don't have any data to support this thought, but I would suspect that small cap stocks have lower prices as well as smaller equity issues, so investors are able to pick up large swaths of stock very cheaply so they minimize downside while hoping for a maximum upside, like a "I hope this is the next MSFT?" *crosses fingers-type of thing.

2.) We should securitize sports, i.e. make futures or options for sports teams. You could do it for points or wins, but each unit would be worth a set amount of money so payouts could be easily calculated. A team's goals would be set by the market! It could be a rallying point, "screw those people down at the sport's trade!" And it goes without saying that players would be forbidden from betting, specifically on the downside.
But that isn't the most fascinating aspect of this idea-it would open a whole new world for securities markets. Definitely they would have a correlation with other assets of zero so it would benefit an overall portfolio.