Market News with Rodney Lake
"Market News with Rodney Lake" is a show offering insightful discussions on market trends and key investing principles. This program is hosted by Rodney Lake, the Director of the George Washington University Investment Institute.
Market News with Rodney Lake
Episode 17 | The Future of Finance Education with Professor Gergana Jostova, Chair of GW’s Finance Department
In Episode 17 of "Market News with Rodney Lake," Rodney Lake talks with Dr. Gergana Jostova, Chair of the Finance Department, about the future of finance education. Professor Jostova shares her vision for expanding the department with new programs focused on AI and sustainable finance. They also discuss the importance of an undergraduate degree in finance, as it equips students for various roles, from portfolio management to corporate finance. Professor Jostova explains how businesses and investors are interconnected, highlighting the essential decisions finance professionals make regarding capital allocation and investment strategies. Professor Jostova also provides tips for personal finance management and valuable insights for aspiring finance professionals. Tune in for an engaging discussion on the future of finance education!
Rodney Lake
Thank you for joining Market News with Rodney Lake. This is a regular program for the GW Investment Institute where we talk about timely market topics. I'm Rodney Lake, the director of the GW Investment Institute. Let's get started. Welcome back to Market News with Rodney. Like I'm your host, Rodney Lake today we're hosting a guest, a special guest, Doctor Gergana Jostova.
Rodney Lake
Thank you for joining us. And thank you for being a guest on Market News with Rodney Lake. We really appreciate you being here and thanks for your time. Can you first start with an introduction?
Gergana Jostova
Thank you, Rodney, thank you for having me here. All right. So I've been at GW, can you believe it? 22 years, as a faculty. And right after I took my PhD from Boston College, for in finance, and before that, I did my master of science in finance at Boston College. And in between, or during my PhD, I worked a couple times on Wall Street, and then I just had the trip there.
Gergana Jostova
Yeah. JP Morgan and Deutsche Bank. I can expand on that later, but.
Rodney Lake
But we'll round back to that, please.
Gergana Jostova
Yeah. And before that, I did my undergraduate in American University in Bulgaria, which is where I'm from.
Rodney Lake
Fantastic.
Gergana Jostova
And just my path just started like that. I was not planning to do a PhD. So for those of you who did not plan to do a Ph.D., it's okay. I was doing the plan. My, my, the plan was to do my master of science in finance, okay, at Boston College. And then by the end of the year, my professor said you should do a PhD.
Gergana Jostova
Said, me PhD. I don't know. I'm not that kind of person, but let me try it, because I'm not one to give up on opportunities. So I decided to try it. I loved it, loved it, and I think that turned out so.
Rodney Lake
This professor made this sort of.
Gergana Jostova
Exact exchange.
Rodney Lake
Your.
Gergana Jostova
Life. Exactly. And sometimes I do that to my students too. I say, I think you should be doing a Ph.D. or you should be doing a more advanced degree. And, people don't think sometimes of, oh, I should I shouldn't do this, but you never know until you try it, so you should.
Rodney Lake
Well, you're paying it forward. Thanks for doing that. Yes. And so you've been at GW 20 years, which is fantastic. And I'm sure the time is flying. Yes. And thanks for all the service that you've been doing at GW. So maybe you talk a little bit about the work you've done at GW so far. So you're faculty in the finance department.
Rodney Lake
You've published a lot of research. So maybe talk about that. And then now you're the chair, the finance department. So maybe you bring us up to speed then on your activities now.
Gergana Jostova
So you never know where you're going to end up. You know, you just go along the path and then some opportunities emerging, you know, why not try them? So my research I've been involved in research mostly for the past 22 years. My research really started on Wall Street. So back there I was on the trading floor doing research, and my job was to find strategies that will work and make money.
Gergana Jostova
Of course, that's what you do, right?
Rodney Lake
That's Wall Street.
Gergana Jostova
And I'm still doing that. But from an academic perspective. So what does that mean, an academic perspective? So for example, if you want to sell a good strategy to Wall Street, you have to do all the robustness tests to show that it works. Right. And that's where it stuff stops because that's what you want. But it works in finance, in academia, in the academic world.
Gergana Jostova
We want to understand why it works, because if people are rational, there's some relationship between finance, like for example, if you want a higher return, you should be able to willing to accept higher risk, right? And otherwise if something is risky and you're not as a company providing the higher return, why would people invest in your company? Right?
Gergana Jostova
Right. They would invest in government. So there has to be a risk premium, as we call it. And whenever we see that, there are certain strategies that don't make that make money, but without the extra risk, we call them anomalies in, in the academic world, right? In again, hedge funds will call it profitable trading opportunities, because if you can make money without extra risk, why not exactly.
Gergana Jostova
And so that's what I've been trying to understand for the last 22 years. Same strategies that they've been, trying to understand that. So, at the beginning, we were trying to figure out is it maybe some extra risks that we couldn't we didn't really measure correctly, or maybe we thought.
Rodney Lake
We understood risk.
Gergana Jostova
We don't understand it to. It's a risk. But more and more in my latest research, it's been showing that there's behavioral biases that people have. So for example, people tend to be too optimistic. And to show my students, by the way, that they are too optimistic. I do I don't think in just, you know, but yeah.
Rodney Lake
I'm just joking.
Gergana Jostova
So, I ask my students, to do, like a questionnaire during one of the classes, and I ask them, do you think you'll do better than average at the final in 90%? Think they look better than average. So by definition, yeah. It should be about 50%. It is an average in the class.
Gergana Jostova
Exactly. They could be great, but better than average. So 90% of the people think that they're better than average. And this makes us trade sometimes and believe that we can beat the market when.
Rodney Lake
When maybe we can.
Gergana Jostova
Time we cannot. Yes, most of the returns show it shows that we cannot. So I'm trying to understand those behavioral biases. But just to note that it's actually a good thing to be optimist. Society wouldn't progress unless we have those optimists. Because if let's say, 80% of the businesses fail, who's going to invent the next right? So we want those opportunities.
Here's the transcript with the timestamps removed:
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Rodney Lake
Have to be.
Gergana Jostova
Opportune for trading, something a little bit. You have to be careful. You have to like, know that it is very hard to beat the market by definition because everybody's trying to beat it. So by that, the price reflects the information that everybody has. So let's say you have good information about the stock you start buying. So the price is going to go up.
Gergana Jostova
So even if you don't tell people that you have good information, they're.
Rodney Lake
Going to find that.
Gergana Jostova
Reflected. Because you're buying. Right. Yeah. And so these are things that we're trying to understand. Another behavioral bias is lottery type preferences. You know we think we tend to think that that little stock that, you know, lost so much money, it's going to go up again because it looks like a lottery ticket. Right. So we pay $0.02 for it.
Gergana Jostova
So those are the biases that we're kind of trying to understand.
Rodney Lake
And I think it's an important distinction for, for people listening and watching on YouTube to think about that on Wall Street. If you're building these strategies, they're not necessarily concerned why they work. They want to know do they work. Exactly. And then we deploy that until it stops working and then we find something else. But on the academic side, it's very different.
Rodney Lake
We want to know not only does it work, but we want to understand why it actually works. And I think that's an important distinction. Thank you for making that for people to understand the difference between if you're deploying a strategy on Wall Street and a hedge fund versus trying to do rigorous academic research around that, that strategy. So that's super helpful.
Rodney Lake
Maybe you could also now talk about the types of classes that you teach. So you do research at GW. You teach at GW. What kind of classes do you teach?
Gergana Jostova
So the whole spectrum and I love that is the whole spectrum. So I teach from the first basic finance class and I love it. Love it is one of my favorite classes because I want to put people on the right start trying to start in life. You wouldn't believe how many people have not started to invest until much later in their life when it's too late.
Gergana Jostova
Yeah, as they say, the compounding and I'll give you an example is like almost like they say the eighth wonder of the world. Exactly. Because it can do wonders. Just one example I give to my undergraduate students, and I'll get to the other classes I teach. Sure. So if you so let's say the stock market in the last 100 years has returned about 12% per year.
Gergana Jostova
In fact, if you look at Nasdaq, it's 18% below your average, but less than 12. But let's see. Good. 12. Yes, it's pretty good 12 on average doesn't mean every year some years is going to be down right. It's going to be up just like recently. But let's say you decide to skip coffee $3 a day, put it in a jar, and you do that when starting a 20 until retirement, let's say 65.
Gergana Jostova
Yeah. If you invest it in the stock market, let's say at the end of the year, you don't have to have $3 in every day. Yeah. Yes. At the end of when you retire, you have a million and a half. That's incredibly manageable risk keeping coffee or just maybe.
Rodney Lake
No, right at the end of the year, put it in an index, let it grow.
Gergana Jostova
At this at 12% average if you put it in Nasdaq and higher, even better, even better. But if you start at 40, do the same thing and you would think, okay, it's not too late because it's half the time, about half the time you will end up with 140,000.
Rodney Lake
Dramatic.
Gergana Jostova
Times, ten times less. So that's why start early. That's why I love teaching that class. Because, these are skills that you need. You really have to know those things from the very beginning until because you still have time to invest. And in fact, if you have a project in the class where they have to make a short video and to convince other college students that it's important to start early and they have been super creative.
Gergana Jostova
In fact, in the last year they have even used AI to impersonate celebrities and yes, to convince other people. So the other class that I teach is a master of Science in Finance investments in the Master of Science. This program, which is a big jump from that other one, because there we optimize portfolios, we use different assets. And how do you minimize the risk and maximize the return?
Gergana Jostova
Because these are the two big things in investing. Right. Exactly. Maximum return minimum risk. That's what we do. And in fact, we do it with programing. And so it's it's a lot we get real data from Bloomberg and then optimize it through, with Matlab. So yeah, so much more quantitative. And when we used to have a PhD program because now we're kind of, stop, we had stopped it for a little bit, but we're going to restart it soon.
Gergana Jostova
The I was teaching the PhD in investments class, which basically is everything in my research, like all these like trading strategies.
Rodney Lake
And maybe just picking up on there the rigor around the graduate portion of this. But I think it also applies to undergraduates. Could you talk a little bit about and this is, again for the viewers and listeners to understand if you're going to go into finance, the importance of learning some programing language.
Gergana Jostova
Yes, absolutely. And in fact, we offer some, very exciting classes right now. Like, for example, there's, Python and finance, like all kinds of trading strategies that I was talking about. They do them in, in Python. So we are teaching that at the undergraduate level, very popular. Yes. And yeah, it's very important because think about it.
Gergana Jostova
Can you really have a job trading job and manage many stocks by hand. So you have to have a computer and the computer. That's the language that they know, is programing. So you do have to have fortunately I'm hearing that more and more especially Python. So I know programing Python but maybe I'll have to switch my, my I've been programing Matlab okay.
Gergana Jostova
But more and more this generation now is learning Python and they say you can learn it like in a week. So hopefully that is working. But it's very popular because it's free like Matlab is paid, right. However, GW pays for all of our students. So we have might not be exactly, but it's very expensive for companies and for institutions.
Gergana Jostova
But Python is free, so there are a lot of built in programs you can download from the internet. It's open source. So and ChatGPT can actually,
Rodney Lake
Program in Python.
Gergana Jostova
So yes, I've tried it. We tend to program in Matlab. They're not very good at that because ChatGPT basically uses the knowledge of the internet. Yeah. Yes. And since Matlab is not free it's not good with figuring out how to work. But Python is free so you can do a lot for you.
Rodney Lake
Well, I think that's important. Thank you for mentioning that and stating that I. I also agree that many of the students in finance, it's also my home department. I'm a little bit biased here too, is that, you know, students really need to understand both on the undergrad and grad side, that if you're going to get a job, especially if you're going to be a more junior person, the expectation is that you're going to have some of those hard skills when you come in, because the senior people are probably not going to learn Python if they don't want to.
Sure! Here's the transcript with the timestamps removed:
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Rodney Lake
Exactly. So they're going to say, you know, hey, you should learn this. And maybe if you're using that plus ChatGPT, that's great. But I think it's good to encourage our students, as you mentioned, and we have classes that we're offering now in Python and really understanding that programming is important. Matlab, Python and anything else that is relevant, it could change.
Rodney Lake
But understanding how that works is important.
Gergana Jostova
In fact, I was just going to mention the example, the reason why I'm doing this in my Master of Science and Finance class, teaching the Matlab and Bloomberg or any programming that they want is that this is what I faced when I got this job on in JPMorgan, first on the trading floor. Basically, I arrived and they told me, oh, this is your computer, you have Matlab, Bloomberg, anything else you need?
Gergana Jostova
And so I had to kind of learn it on the job fast. But if you have those skills already arriving on the job, you make a much better impression. Right?
Rodney Lake
And thanks for mentioning that too. So our students have access to Bloomberg here. The access they have access now to FactSet, and some of our specialized classes, we offer access to Aladdin, which is part of BlackRock's set up for risk and analytics. So I think, as you mentioned, learning those systems is very important. And maybe let's get back a little bit, before we get to the chair of the finance department.
Rodney Lake
But let's get back to your work on Wall Street. Maybe could you just offer a little bit about what you did there? You mentioned it a little bit already, and then how that led you to the academic world.
Gergana Jostova
Yes. I sometimes say that the academic world changed my life, and I academia. What? I loved what they did on Wall Street. So basically it was on the trading floor, and yes, we had to develop some models. I was already kind of completed in my fourth year during my PhD. So I already had some programming and research skills to do that so I could have stayed.
Gergana Jostova
But I really wanted to explore the academic world as well. Because it's almost like a one-way street. Academic is very difficult. If you are on Wall Street to move back to academia, especially on the research tenure track side. Then it is the other way around. A lot of successful professors actually either consult or work on Wall Street, but the other way around is very difficult.
Gergana Jostova
Why is it difficult? Because the academic institutions want you to have publications. If you have great ideas on Wall Street, they're not going to let you publish. And so therefore it's a one-way street. Yeah. So that's why I wanted to try it. But anyway, I tried it first. It was JP Morgan on the trading floor.
Gergana Jostova
And the next year they called me, the whole group had moved to Deutsche Bank. That's why I went to Deutsche Bank the second time, but kind of working with the same group. Right. But this was actually a week before 911 when I was leaving. September, and September is the time when if you go to the academic market, which means interview with universities, there's a very strict schedule, right?
Gergana Jostova
So you have to basically send your papers in September. By October, they call you in, by January, they fly you out to different campuses. So it's very structured. So I had to leave at the beginning of September and they told me like, stay, finish your models. But he's in. No, no, no I have to go right. And September 11th happened right after.
Gergana Jostova
And back then actually a JP Morgan still used to be on Wall Street, like on the street in my apartment across from the Twin Towers. Wow. Yes. So I take my job, saved my life. But I again, I was fascinated by what they did there, and I still I'm researching what they did there.
Rodney Lake
Excellent. Well, we talked about your work there. Now we double back on that. So thank you. And you talked about your work on the research side and the classes that you teach. But now you've also taken on an administrative job. You're now the chair of the finance department, which is a very important job. And very sometimes can be a very time-intensive job.
Rodney Lake
Could you explain maybe what the chair of a department does, and your outlook for the finance department?
Gergana Jostova
Well. Thank you. Yeah. I was not planning for that. And you can been for yourself in the chair.
Rodney Lake
I was co-chair and co-chair.
Gergana Jostova
Exactly. So you know how you're doing.
Rodney Lake
It by yourself.
Gergana Jostova
Because I was so focused on research and teaching, it's almost like the administrative side has completely been kind of a dark space for the last 22 years. I just didn't need to not focus on exactly because you have only 20 to 24 hours a day.
Rodney Lake
So you need some sleep, maybe two hours.
Gergana Jostova
Exactly. And so, so this is a new thing for me. I started on July 1st. So for me, it was a steep learning curve. What does the department chair do? And so I wasn't sure. And so I'm learning, but thankfully I have colleagues who have done it so mean. For example, man is great and he's been.
Rodney Lake
Super.
Gergana Jostova
Helpful helping me to transition into the role. So the big thing that the finance, that the chair department chair does is I say I'm the butler, I'm not the boss. The butler. You're making sure that the department runs smoothly. That means that all the classes have been assigned the right people, and the right people know what they're supposed to do, and everybody's happy with what they're teaching.
Sure! Here’s the transcript with the timestamps removed:
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Gergana Jostova
And the students are happy with the faculty that they're teaching them. So it's really about managing, managing, the resources that we have, which is, students and faculty.
Rodney Lake
So you're like the chief operating officer for the finance department?
Gergana Jostova
I can say that. Yeah. Okay. If not Butler, I upgraded that little bit. Exactly.
Rodney Lake
But it's an important job. And so far, what are your thoughts so far about the department and what ideas do you have for the department?
Gergana Jostova
So, my ideas would be to expand. So it's like a business. You want to grow, right? Grow it. Faculty grow with student new programs. The world is expanding vastly and quickly. And the profession is the finance profession is expanding. So we need to move with the profession. So I'm hoping new programs that focus on AI, more on AI or more on social, socially sustainable finance.
Gergana Jostova
So I'm still learning and I'm getting the perspective of different faculty. So it is going to be probably slow, but I'm hoping to get there.
Rodney Lake
Access and finance is an important major for undergrad. As you know, I serve as vice dean for undergraduate programs as well. And about 20% of our students, which is one of the largest majors, if not the largest major year to year on the undergraduate side, could you maybe talk to what students could go do after, you know, getting an undergraduate degree in finance and why you think that's an important major?
Gergana Jostova
Exactly. So there are two really big areas in finance. I usually say to my students, you kind of imagine one side of the classroom is the businesses, and the other side of the classroom is the investors. Yeah, they need each other. Businesses need money because they need to run their operations. And investors need a rate of return. So finance is really connecting the two.
Gergana Jostova
So when you go work in finance, you can either go work in one side or the other. So if you go into portfolio management and mutual funds, hedge funds, pension funds, you will be looking at many companies from the outside and trying to figure out how to combine those in a portfolio that will create minimum risk and maximum return.
Gergana Jostova
Alternatively, you can go. So sorry. So this is for the investors. Yeah. If you are going for the companies you can be on the inside. There's the corporate finance type. So you have the investment side and the corporate finance side. You can work for any company in any company needs a finance person. So you'll be the CFO let's say, or helping the CFO trying to get to the CFO position.
Gergana Jostova
But these will be decisions like deciding whether a company should pay dividends or whether we should reinvest the money inside these.
Rodney Lake
Capital allocation.
Gergana Jostova
Decisions. Exactly. Very important decisions. You know, that's an interesting behavioral bias to that. People tend to think that dividend paying company are good, right. Because we call a bird in the hand. Right. You expect that if they're paying dividends that means that means they have cash. But think of it the other way. If they have cash, that means that they don't have maybe profitable investment opportunities, right?
Gergana Jostova
So a lot of these big start a new startups, they actually don't have cash. They reinvest everything they can get in the business. So having investment opportunities is not a bad thing. Microsoft didn't pay dividends for 20 years and Aberdeen pay at the beginning. And you want to keep that money because new opportunities arise. You want to have it when opportunities arise.
Gergana Jostova
Or maybe you were involved in such opportunities. So decisions like that, should you pay dividends? What signal are you giving to investors if you pay dividends? If you don't pay dividends because you're using them in profitable investment object, how do you communicate that to investors? Not to scare them that you're not going to you're going to skip a dividend.
Rodney Lake
So having a really core understanding of finance and elevating your way through one of those positions, you can have a big impact on the outcome of a company helping making these capital allocation decisions, as you pointed out. And so that's two sides of that coin, as you mentioned. And so thank you for for saying that. And now, maybe on the graduate side mentioned, you know, what are some of the jobs where students are going to, for, you know, after grad school, after the, one of our master's programs?
Gergana Jostova
Yes. So this would be, again, either one side of the room where you're working for one company to manage it or, looking at many companies on the outside and trying to figure out what's the best combination between them. But you'll be doing it at a much higher level, right? Of course. So maybe more managerial type of portfolio management jobs.
Gergana Jostova
And of course, you can grow into those, to different levels. And a lot of people decide to work after the undergraduate and then get some work experience and then go back and figure out, learn more about what they're passionate about, because you don't know what you're passionate about until you try it.
Rodney Lake
Right? Precisely. Well, so now we're going to move to to wrap up here. So, thank you for your services, chair for the finance department, a very important job. And and we're delighted, we're all delighted that you're doing this. So thank you very much. And and you're already doing a fantastic job. Thank you. So now let's let's move on to maybe advice.
Rodney Lake
So what advice would you have for our listeners, our viewers? Maybe it could be students or anybody that's watching, either about, you know, you mentioned personal finance or anything else that you would like to talk about.
Gergana Jostova
So my first advice is, again, if it's for investing, start early, manage your personal finances, because a small decision today could have a big repercussions into the future. Like if you don't take the right decisions, the right steps on the on the on the outside of finance. What I tell my kids as well is do not say no to an opportunity.
Gergana Jostova
You know, when there's an option, it's like an option in finance, right? You have the option to do something. It has value. If you give it up, then you, then have. Exactly. And don't be afraid of failure. I think it's good to be a good example from, Google is actually CFO, a very smart woman, who said the following thing.
Gergana Jostova
So she said every, trimester, let's say, or every year, we sit down and make strategic plans for the year. Let's say we decide on ten strategic plans to do for the year. Okay. If we achieve, all of them, it's bad. That means that we were shooting too low, right?
Rodney Lake
Not aggressive enough.
Gergana Jostova
Exactly. Not aggressive enough. If you, achieve too little, maybe you are not realistic. So achieving two thirds is kind of our golden, golden, target sweet spot. So that's what I, tell people that if you are afraid to try things because you might fail, you're not shooting too high, right? So you have to try things, and some of them are going to fail, and that's okay.
Gergana Jostova
And some of them are not. And so we have to, experiment, try. Don't be afraid of failure. Failure is just a learning opportunity.
Rodney Lake
I think that's excellent advice. I think we'll leave it there. Thank you. Professor Jostova for joining Market News with Rodney Lake. Very much appreciated. And that's a wrap for market news with Rodney Lake. We'll see you back on the next episode. As a reminder, this is not investment advice and saying goodbye from the Duquès Innovation Studio. See you next time.
Rodney Lake
Disclaimer the content shared in the GW Investment Institute podcast is for informational and educational purposes only, and should not be considered investment advice. The opinions expressed in this podcast are those of the host and guest, and do not necessarily reflect the views of the GW Investment Institute or the George Washington University. Listeners should not act upon the information provided without seeking professional advice from a qualified financial advisor.
Rodney Lake
Investing involves risks including the loss of principal. The GW Investment Institute. The George Washington University. In the podcast, hosts do not assume any responsibility for any investment decisions made based on the content of this podcast. Always conduct your own research and consult with a financial advisor before making any investment decisions.
