Introduction to PE Part 4: The Business of Data in Private Markets
I already talked about why private companies are so secretive. But there’s a whole industry built on trying to find their secrets anyway.
Latest published articles
Mortgage-Backed Securities: The Products Behind the Crisis
Most people know what a mortgage is. You borrow money to buy a house, you make monthly payments, and after 20 or 30 years you own the house free and clear. But what happens to all those mortgages after the bank gives them out? They get bundled together and sold to investors. That is a mortgage-backed security. Chapter 34 of Wilmott’s book explains how these things work, why they are tricky to price, and what makes them different from every other fixed-income product.
The Shleifer Model - How Noise Traders Survive in Markets
For decades, traditional finance people had a simple answer to the noise trader problem. Milton Friedman said it. Eugene Fama said it. Fischer Black said it. The answer was: irrational traders will lose their money to smart traders and disappear.
Convertible Bonds: Half Bond, Half Option
Imagine a bond that can transform into stock. That is a convertible bond. Chapter 33 of Wilmott’s book dives into one of the most fascinating instruments in finance, a hybrid security that sometimes acts like debt and sometimes acts like equity. It sounds simple on the surface, but underneath it is a deeply complex contract involving American option features, stochastic interest rates, path dependence, dilution, and credit risk.
Introduction to PE Part 3: The Secret World of Private Markets
One of the biggest problems with private companies is that they don’t have to tell you anything. In the stock market, companies have to share their financial reports all the time. But in the private world, there’s no law saying they have to.
Noise Traders and Why Prices Can Be Wrong
Economics has a rule that sounds so obvious it barely needs saying. If two things are identical, they should have the same price. If they don’t, someone will buy the cheap one and sell the expensive one until prices meet in the middle. Easy. Done. Move on.
Before Behavioral Finance - Wall Street Folklore and Value Investing
Before behavioral finance became a real academic field, people already knew something was off with markets. Traders in the 1920s had their own rules. Value investors in the 1930s had theirs. And nobody was waiting for professors to tell them the market was irrational. They lived it every day.
Interest Rate Derivatives: Caps, Floors, and Swaptions
If you thought equity options were complex, welcome to the world of interest rate derivatives. Chapter 32 of Wilmott’s book takes everything we learned about modeling bonds and the yield curve and applies it to actual products that traders buy and sell every day. Caps, floors, swaptions, callable bonds, and a whole zoo of exotic contracts.
Introduction to PE Part 2: The Confusion Between PE and LBO
The words “private equity” get thrown around a lot. But people use them in different ways, and it gets really confusing.
Introduction to PE Part 1: More Than Just Equations
Cyril Demaria started this book because he couldn’t find anything good to read about private equity. Most of what was out there just didn’t make sense. It didn’t match what actually happens in the real world.