Financial Literacy: It should be obvious that financial literacy is a life skill. It is more than just knowing what financial products are available. It is how to make the best financial decisions.
Stanley J. Kon is the Editor-in-Chief of the Journal of Fixed Income (2001-Present) and Chairman of Ripsaw LLC.
Professor Kon has had a 25-year academic career at the University of Michigan, New York University, University of Chicago, University of Wisconsin-Madison, and Duke University and a 15-year career in institutional investment management as Principal, EVP, Director of Research and Co-Director of the Investment Management Group at Smith Breeden Associates, Inc.
He has published articles in the Journal of Financial Economics, Journal of Finance, Journal of Business, Journal of Empirical Finance, Journal of Fixed Income, and Financial Analysts Journal.
Can you tell us a bit about your “backstory”? What led you to this particular career path?
In the last year of my undergraduate chemical engineering degree, I was exposed to courses in economics and felt that my analytic and problem-solving skills could be readily applied to financial economics. My passion for research and teaching escalated during my doctoral studies.
After a long and fulfilling academic career, I wanted the challenge of practicing what I preached to a sophisticated institutional investor audience and found that career very productive and pleasurable as well.
As I entered retirement, my 30-something married children with dual incomes and children of their own asked me for investment advice. That began an evaluation of the current state of personal wealth management which has evolved into my book, Do-It-Yourself Wealth Management, and with my sophisticated technology partners, the web application Ripsaw Wealth Tools.
Can you tell our readers what it is about the work you’re doing that’s disruptive?
The bulk of the wealth management universe has been able to charge high fees because of their information and technology advantage over their clients. Do-It-Yourself (DIY) investors lack the data access and sophisticated analytics for efficient portfolio management. Ripsaw® Wealth Tools is changing that. It is the first platform to provide an independent, disciplined wealth management process that combines auto-updated account information, access to risk dimension data, and financial analytics in a low-cost subscription service for portfolio construction, monitoring, and revision decisions.
The benefits of our approach are enormous in terms of wealth accumulation and the satisfaction of taking control of your financial life.
Can you share a story about the funniest mistake you made when you were first starting? Can you tell us what lesson you learned from that?
It was three years from the day I entered the doctoral program until defending my dissertation. I started employment at the University of Wisconsin at Madison as an assistant professor of finance and managerial economics in September of 1975. I arrived in Madison feeling extremely pleased that I had essentially finished my Ph.D. requirements in three years (most candidates take four to five years) and a publication in hand at the best academic finance journal. While at lunch with a senior faculty member, he stated “now that you have climbed all the way up to zero, now let’s see what you can do.” That helped keep my ego in check.
Who have been some of your mentors? Can you share a story about how they made an impact?
- My father’s philosophy: Treat everyone you meet with dignity and respect; take personal responsibility for all your actions; practice self-examination; always operate with integrity; think before you speak; if you have nothing good to say, don’t say anything at all; be observant; listen much more than you speak; think for yourself; take pride in your work; be productive; no excuses; focus on what is in your control; never be tied to your possessions; enhance your human capital and practice common sense! My undergraduate degree is in Chemical Engineering, but I was never motivated to make it a lifelong career. In fact, I thought about quitting college many times. One of those days I told my father that I needed time to “find myself.” That was an expression in the 1960s we used to make it seem like we were on a noble intellectual search for truth. My father took me to a mirror and made me look at myself. He then said, “now that you found yourself, what are you going to do with yourself?” Common sense! As for “listen much more than you speak”, being a good listener is what my wife says was one of the qualities I had when we met that she found attractive. Thanks, Dad.
- Professors Frank Jen and Andrew Chen: As I was finishing my M.B.A., I applied to the Ph.D. program in management at the State University of New York (S.U.N.Y) at Buffalo with the intent of majoring in management science and the notion of applying quantitative methods to finance. My first semester in the Ph.D. program was enlightening. The only finance course I enrolled in was Analytic Methods in Banking by Professor Andrew Chen. That was a turning point for me! I discovered that the finance faculty taught and published research in exactly the applications I was most interested in. I quickly switched to finance as my major with management science and economics as minors. Andy was on my dissertation committee, a co-author on my first publication, and the academic role model for all Ph.D. students. There was no time to sleep in my third semester of the doctoral program. I taught two sections of undergraduate financial management (typical full load for full-time faculty), enrolled in five doctoral-level courses, and had to present an original research paper in the finance workshop. When I presented my paper, they beat me up! What my mentor, Professor Frank Jen, told me was that in order to be a successful researcher you need to stick your neck out and get it chopped off. I had a good start at humiliation and that was progress. He later became my dissertation committee chairman and co-author on several articles.
- Professor Merton Miller (1990 Nobel Laureate): In the spring of 1976, still in the first year as an Assistant Professor of Finance, I was invited to give a seminar in the Statistics Department of my alma mater (SUNY at Buffalo). At the same time, Merton Miller was giving a talk in the Finance Workshop. He was returning to Chicago that evening and I was returning to Madison through Chicago. My dissertation chairman and mentor, Frank Jen, arranged that we are on the same flight to Chicago and sat next to each other on the plane. I had the father of modern finance to myself for a couple of hours! I explained my research to him, he gave me feedback, and the next day Bob Hamada, chairman of the best finance department in the world at the University of Chicago called me to invite me to come to give a seminar and gauge my interest in a faculty appointment. After moving to the University of Chicago, I had the awesome experience of many dinners with Mert where I received many insights into the profession.
In today’s parlance, being disruptive is usually a positive adjective. But is disrupting always good? When do we say the converse, that a system or structure has ‘withstood the test of time’? Can you articulate to our readers when disrupting an industry is positive, and when disrupting an industry is ‘not so positive’? Can you share some examples of what you mean?
Today’s use of the term disruptive is actually what is referred to as creative destruction in economics but on an unusually large scale. Free market’s seemingly chaotic way of delivering progress. I don’t see many manual typewriters around today. Those jobs are gone, but more jobs were created supplying computers, word-processing software, pdf files, email, and the modern printer. When I went to college for a chemical engineering degree, we used a slide rule for math calculations. Electronic calculators weren’t invented yet. Positive disruption is innovative, improves productivity, and increases standards of living. More examples include killer apps like spreadsheets and smartphones.
The not-so-positive disruptions reduce innovation, decrease productivity, and lower standards of living. Natural disasters are negative disruptions that are out of our control. Businesses and governments, however, that exert monopoly power can arbitrarily increase prices, increase costs of production, reduce transparency and establish barriers to entry that can all reduce standards of living. Examples are the oil embargos in the 1970s that disrupted energy supplies and how the current health care regulations are creating hospital monopolies, inhibiting price discovery, disincentivizing private practices (especially in rural communities), and creating excessively long waiting periods for appointments.
How are you going to shake things up next?
Financial security, like health security, is a major stress reliever. There are many books and philosophies on wealth management, but nothing has been available from an independent source on the efficient implementation of wealth allocation for individuals and families.
My book, Do-It-Yourself Wealth Management, contains the concepts. Our web application, Ripsaw® Wealth Tools, provides the modern technology platform for implementation.
In our now decade-long low-interest-rate environment, advisor fees are a large percentage of asset returns. That is a huge drag on wealth accumulation. Hence, some pressure on advisor fees has come from Robo advisors and other cookie-cutter strategies, but they still charge a percentage of assets under management. Ripsaw® Wealth Tools provides flexible custom modeling for the low price of a Netflix subscription. Isn’t your financial security at least as important as a Netflix subscription?
Do you have a book, podcast, or talk that’s had a deep impact on your thinking? Can you share a story with us? Can you explain why it was so resonant with you?
Capitalism and Freedom by Milton Friedman and Free to Choose by Milton and Rose Friedman
It is easy to understand the intended effects of various actions and policies. It is frequently not easy to understand the unintended consequences of those actions and policies. Central planners think only in terms of intended consequences and do not trust free markets for solutions. Milton Friedman provides a logical framework for understanding the unintended consequences and offers more efficient solutions to society’s problems. It is also clear that capitalism is the only economic system for allocating resources that is consistent with personal freedom. I like to think of competitive forces that can be the checks and balances to inequities in society. A clear example is the public education system in our large cities. They have monopoly power. The children, their parents, and taxpayers are the consumers but have little choice. A world with education vouchers to use for any school would create competition for students among schools. In order to compete, the quality of education in all schools would improve. This is especially important since the structure of education was set long ago for the industrial revolution. We now need a structure for the information revolution. Competitive forces will get us there much sooner.
Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?
“The world ain’t all sunshine and rainbows. It’s a very mean and nasty place and I don’t care how tough you are, it will beat you to your knees and keep you there permanently if you let it. You, me, or nobody is gonna hit as hard as life. But it ain’t about how hard ya hit. It’s about how hard you can get hit and keep moving forward. How much you can take and keep moving forward. That’s how winning is done!” — Rocky Balboa
Everyone I have met that has lived a long time has faced major adversity. Typically, there are multiple incidents. For me, the biggest one was managing through and surviving late-stage colon cancer 29 years ago. During times of adversity, I focus on the things that are within my control.
You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger.
Financial Literacy: It should be obvious that financial literacy is a life skill. It is more than just knowing what financial products are available. It is how to make the best financial decisions. The sooner it begins, the more knowledge will be obtained, and costly mistakes avoided. One can think of each costly mistake as an unnecessary high tuition learning experience. The key is to have young people be exposed to that “real world” as early as possible. They know early on that “money” is the source of purchasing the things they “want,” but do not necessarily differ from the things they “need.”
There are many sources for teens to learn from including parents, teachers, and job experience. A high school curriculum must include financial decision-making within math, economics and a separate course on decisions for life events. The college value proposition, financing a college education, buying versus renting/leasing decisions for cars and homes, financing a home or car purchase, investment decisions for managing income and expenses over a lifetime are all good topics for course projects as quality teaching tools beyond lectures.
How can our readers follow you online?
You can visit Ripsaw® at www.ripsaw.co.
This was very inspiring. Thank you so much for joining us!