Investors should look at long-term returns

PUBLISHED : Wednesday, 25 November, 2009, 12:00am
UPDATED : Wednesday, 25 November, 2009, 12:00am

An engineer by training, Thomas F. Cooley has seen many economic changes in his life. But even he was caught off guard by the tumult afflicting the world's financial markets since last year.

A renowned scholar in the areas of macro-economic theory, monetary policy and the financial behaviour of firms, Cooley believes frazzled investors should look at the long-term returns of equities and other instruments before deciding whether to venture back into the markets because equities had delivered good returns over the very long haul.

Cooley, who is dean of the New York University Stern School of Business, contended that capital markets had been 'fairly exuberant' this year, but people should be cautious about some Asian financial markets 'because they have tended to be frothier than other markets in the past few years'.

He cited the examples of India and Shanghai. 'I would view with caution the bullish nature of those markets,' he said.

Many feel that the problems of the past 14 months have come about as a result of a reckless 'Wild West capitalism' mindset that the financial world and top international business schools have helped to engender.

For almost 30 years, Stern students have been required to take a professional responsibility course to inculcate the right values. 'Clearly, the interest in and relevance of that class, and the topics they discuss, changes over time, but there are always things to discuss,' Cooley said.

But he does not think that business schools are to blame for ethical failures on Wall Street, but rather it is 'the fault of individuals' because of their 'tendency to not focus on ... basic virtues' in everyday life. 'I don't think you can instil what hasn't been instilled from a very early age,' Cooley said.

However, he conceded that if there was a criticism to be made of business schools, it might be that they had 'adopted too much of a utilitarian approach to evaluating decisions'.

That utilitarian approach, which ignored basic virtues, 'can sometimes turn calculations into simple matters of risk and reward that don't capture the larger social consequences of decisions'.

The biggest job for business schools is to educate their students about the intersection of business and society and the larger responsibilities that business had in society, and the role that business had in improving economic well-being. Such understanding is critical to having the right ethical framework for making business decisions.

'That is something we try very hard to instil in our students,' Cooley said. 'It is a distinct mission of ours to educate them to the larger role of business and society.'

Notwithstanding the bad rap MBA holders from elite schools have received for their role in the meltdown, he believes obtaining the degree is still worthwhile.

'I think the greatest value of the MBA, if properly constructed and taught, is that it can help you develop forward-looking habits ... that prepare you for a career that is going to last a long time and that teaches you how to think analytically in different frameworks and different environments,' Cooley said. 'That's the chief accomplishment of a good MBA.'

But it isn't just MBAs that have been besmirched lately. The term 'financial services' is now as much an epithet as it is an economic sector. Cooley's advice for those seeking careers in financial services is that they be passionately interested in the field, whether it is banking, asset management or alternative investment.

'If they are doing it just in the hopes of making vast amounts of money, then I would be more restrained,' he said. 'It's got to be something that is worth doing because you care about it and not because you want to get insanely rich.'

He believes there will always be jobs in banking, finance, investment and financial services in general because such activities are critical to overall economic activity. 'It's going to continue to be a very robust sector because of the role of international finance, moving money around the globe and intermediating people's investments,' Cooley said.

He also believes Asian markets will continue to develop and financial services in emerging markets are going to be increasingly in demand. 'I think it's a very good career choice,' Cooley said.

As for how young people can climb the financial ladder of success in tumultuous times, he concluded that the best strategy for building wealth was to invest in their human capital 'because it's their human capital - their specific knowledge - that is going to pay dividends over the long haul'.

Cooley also thinks the basics for building financial wealth are the same as they always have been. 'There is a lot of reason to be optimistic about emerging economies. To look for investment opportunities in those markets is a very good strategy,' he said.