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Making Better Financial Decisions — in Finance and Beyond

Making Better Financial Decisions — in Finance and Beyond

June 23, 2022
Barney Hartman-Glaser teaches business concepts that aren’t “overly mathy”

Associate Professor of Finance Barney Hartman-Glaser joined the faculty of the UCLA Anderson School of Management as an assistant professor in 2013. His research focuses primarily on the effects of contracting frictions, such as adverse selection and moral hazard, and on mortgage markets and corporate finance. A native Californian who hails from a family of academics, he says he “learned how to use a spreadsheet before I could read.” When he teaches Anderson’s core course in finance, Hartman-Glaser shares his enthusiasm for his field with his MBA students by fostering an engaging and collaborative learning environment. “You never truly understand something until you can explain it well to others,” he says. He places equal priority on his students’ developing a fundamental conceptual understanding of finance and the practical skills that will help them advance their careers.

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By Paul Feinberg

  • Associate Professor of Finance Barney Hartman-Glaser teaches UCLA Anderson’s core course in finance
  • His goal is to help students develop a set of tools that they can use to make better decisions in any aspect of their careers, whether they pursue a role in finance or not
  • He brings in real-world examples from the daily news in financial markets to demonstrate and apply concepts
Q: What is the goal of the core course in finance — a class all UCLA Anderson MBA students take?

The goal of the intro-to-finance course is to help students develop a set of tools that they can use to make better financial decisions in any aspect of their careers.

So, if they’re hoping to work directly in a finance role, the class is going to give them the kind of specific technical skills they need to work in finance. If they’re not planning on going into finance at all — which describes most of the students —still at some point they’ll need to make a decision or justify a course of action to somebody within their company who is going to think about that decision from a financial perspective. The goal that I have is that they come away with a set of tools to make the best financial decision that they can in any given situation.

Q: Convince the student who is interested in a career in marketing that they also need to understand finance. Can’t they just let their CFO deal with that stuff?

If we think about what we’re ultimately trying to do in any aspect of our professional lives, it’s to create value either for ourselves, for our shareholders, for our customers or for society.

Finance is about the assessment and the measurement of value, at the end of the day. So, if you don’t know how the finance side of what you’re doing is going to be measured and valued, you’re leaving it up to somebody else. If your goal as a marketer is to create the most value but you don’t really understand how the CFO is going to assess how much value you created, then you’re going in with one hand tied behind your back when deciding whether or not you go forward with a particular marketing campaign.

Q: How do you help students overcome their anxiety about “all the math”?

There’s a number of different responses to that concern. Of course, people often view finance as a math topic, and there’s a lot of math that you need to master. As I said, finance involves an assessment measurement of value, and value is a number; so you’re going to need to do math to come up with it.

But at its core, it’s actually conceptual and qualitative, and just coming up with the numbers is not helpful if you don’t understand the underlying context.

At the end of the day, what I really want you to get are the concepts behind the math, in addition to the math itself. My goal as a teacher is to get you to understand what these variables mean and how they fit together in a conceptual sense.

I also make an effort in this course to strip away all the unnecessary tasks. So, there is a tendency within the culture of finance to make things “overly mathy” when they don’t need to be. For this course in particular, in everything that we do, I take out all the math that isn’t necessary. At the same time, there are those students who are going to want to go on and do this stuff in a more advanced manner, so I try to teach the class on multiple levels. I offer step-up points for everybody who wants to go a little bit deeper. But I don’t require those of everybody.

Q: What are some of the other concepts someone who has successfully taken the class should understand going forward?

We start with a study of how timing affects value. It’s called the time value of money — understanding why receiving a dollar today is more valuable than receiving a dollar in a year. Then, how do we incorporate the time-value of money into evaluating certain streams of cash flows?

It’s like this: We’ve got a stream of cash flow that we’re going to enjoy by owning some project or firm. How are we going to come up with how much it’s worth? Then we use those tools — the time value of money — to do something called capital budgeting. If you’re working in a firm and you’ve got to decide how to invest your capital in a new project, how do you decide whether that new project is worthwhile? Then we zoom out a little bit and say, “Suppose you’re thinking about the value of a firm as a whole. Elon Musk just paid 43 billion dollars for Twitter. Why is Twitter worth 43 billion dollars? How do we come up with a number for evaluation of a firm?”

That’s ultimately the main goal for students to think about for the first half of the quarter. Then we sort of take a little bit of a turn and look at bond markets and how to value and assess bonds. After that, we move into understanding how risk affects value.

So, the first half of the quarter is about assessing cash flows on average. After that, we move into thinking that if cash flow is going to be risky in the future, we might need to adjust the value for that. We start with the historical evidence of the relationship between risk and how much return you can expect when you invest in something that’s risky, and then we move into how you would optimally structure a portfolio of investments to take into account risks. Then, we embed that discussion in a broader discussion of how capital markets work. Capital markets are the markets that firms can go to in order to get money to invest in new markets.

Understanding how capital markets work leads us into a discussion of exactly how much extra return you should expect for taking on a unit of risk. That takes us back to the assessment of value. How do you value something that’s risky? The answer comes from our understanding of competitive capital markets, and that ties the whole course together.

Q: Could you lay out the nuts-and-bolts assignments on these topics and requirements for the course?

We do have exams, we have a midterm exam and a final exam. We have group case work, which requires students to present their work in front of the class, evaluating finance cases. For example, we have a case where you have to decide between two investment opportunities for what we call New Heritage Doll, a stand-in for the American Girl company. Students have to decide whether or not this company should take on a new or different project, and they have to present their work in class. Student often don’t think of finance as a class in which they’ll get practice presenting, but I think this is actually really valuable for students who aren’t going to go into finance. Because no matter what your role is, at some point, you’re going to have to make a pitch that is going to be evaluated by a finance person. If you’ve done this before in a finance class, it’s going to be much easier.

There are some practice homework problems, but a lot of practice problem-solving is in class. One thing that I do, which is different than most finance professors — I don’t really lecture very much. If I’m talking for longer than 15 minutes at a time, I know something has gone wrong. Usually, I’ll introduce the topic, talk about the tools we need to address that topic, and then give students the chance to apply those tools in class while I’m there with them. I circulate around the room and try to give individual help. Some people call this approach a flipped classroom. It’s not really a flipped classroom, it’s just a lot of in-class work that’s done individually.

Q: You teach this course more than once per year and you teach it to different groups. So how do you keep it fresh and updated?

I try to take real-time stories from financial markets and explain them in the context of what we’re learning in class. For example, the chairman of the Federal Reserve Board has raised interest rates by 50 basis points. Why? What effects should this change have on capital markets?

There are new things happening all the time in financial markets, so as long as I’ve got a steady stream of news, and I can bring it into the classroom, it’s fresh for me.

I’m also constantly trying to refine the materials I use to better explain the concepts. Just this morning I was working on a lecture I’m going to give on Saturday and I’ve already given this lecture at least 30 times. But I’m always revising it because it can always be a little bit better.