Fariba Hashemi

A Dynamic Model of Size Distribution of Firms Applied to U.S. Biotechnology and Trucking Industries

The present paper attempts to contribute to the existing literature on industry dynamics by proposing a tractable structure for the analysis of the dynamic process governing the size distribution of firms. An analytical model is proposed which describes the density of the cross-sectional distribution of firm size within an industry. The model is based on the theory of diffusion processes, and the method illustrates how information on the time-evolution of size distribution of firms over an extended period of time can be used to make inferences about an underlying process. An empirical application to the evolution of size distribution of population of firms in (i) the U.S. biotechnology industry, and (ii) the U.S. interstate for-hire trucking industry illustrates the applicability of the proposed model in industry studies.

A Dynamic Model for the Cross-sectional Distribution of Unemployment Rates

This paper proposes a model to describe the continuous time-evolution of density of the cross-sectional distribution of unemployment rates. The model is founded on the theory of analytical diffusion processes. The steady state distribution as well as the dynamic behaviour of the model are analytically derived. Parameters in the resulting analytical expressions are then fitted to US regional data. The empirical portion of the paper illustrates the usefulness of modeling the temporal evolution of the cross-sectional distribution of unemployment rate, rather than simply attending to equilibrium implications of the process.

Putting Everything Together

We would like to end this book with an example of a highly successful strategic investor, going back to the 1970s and lasting about 25 years. While we live in a very different global environment today, this example is used to illustrate that the guiding strategic principles are timeless, having been used for over 3000 years.

The Empowered Investor: A New Paradigm of Investing

The literature on strategy deals with dozens of different principles. Some are general, like the advice to “build on strengths”, and others apply to only a specific field such as strategic management. In this book, we have chosen to concentrate on key principles that are crucial for wealth creation. We aim to empower the investor in developing and successfully implementing his or her unique investment strategy using a new strategic framework presented in this chapter.

Putting the Process of Strategic Investing into Practice

Recapping our key findings, we emphasize that: 1. Wealth cannot be created by following traditional investment advice. If you invest according to the traditional diversification concepts and capital market theory promoted by the finance industry, you may be able to preserve wealth or, in the best case, generate marginal returns. 2. To create wealth an investor must apply strategic concepts to develop an investment strategy that: • builds on investor strengths and core competencies • exploits opportunities • uses networks • incorporates an investment approach that differentiates the investor from others • prevents threats and handles risks appropriately • observes trends and cycles and invests accordingly • is executed with high efficiency The strategic investor must build strengths and core competencies, and use available resources (personal time, finances, IT, and so on) in a concentrated manner. 3. It is advisable to develop the strategy through a formal process, as illustrated in Figure 8.1.

What Should an Effective Investment Strategy Contain

Our practical experience shows that a strategy should be kept as simple as possible while still including the following items: 1. The vision of the investor 2. The core competences the investor intends to build 3. The structure of the investment portfolio 4. Handling threats and risks 5. The networks the investor intends to build and use 6. Guidelines for cash and liquidity 7. Priorities for allocating the investor’s resources 8. The legal and tax structure.

The Investor Back at the Core of Investing: Lessons from a CFO – Part 2

Martin’s wealth creation succeeded only when he changed his investment approach fundamentally and became a strategic investor. Having abandoned attempts to generate wealth through quoted stocks and bonds, he began talking to friends about their investment strategies. He consulted successful entrepreneurs on their approach to investing and a previous employer who was a respected investor was generous in sharing advice. In the meantime since he could not yet make a living through investing alone, he continued to work as a CFO to generate income.

Perils of the Misguided Investor: Lessons from a CFO – Part 1

Martin Heller began his career as a certified public accountant in the late 1970s. A highly qualified young man, he spoke several languages and soon established himself as a successful professional in the financial services industry. He married, had three children, bought a roomy family home, and as his income grew he was able to pay off his mortgage and save a fair amount.

The Essence of Strategy

Creating wealth through investments is a strategic challenge where key elements of strategic principles are implicated. To illustrate we use a fifth century BC example from a military strategy which helped the weaker side achieve victory over a much stronger opponent.

Why Traditional Investment Models Don’t Work

As long as Martin was investing according to his banker’s recommendations he was not able to substantially grow his wealth. Bonds generated only low returns, and he still had to pay taxes on the returns. His stocks went up and down with the market without any reasonable logic. “I realized that with the conventional approach to investing in (quoted) stocks and bonds I would never be able to build real wealth,” he confided in our interview. Why then does the financial industry heavily promote investments in these asset classes?