All right.
Today, we want to talk about
investment banking, which is
different from commercial
banking.
And today we have a guest, Jon
Fougner, who took this course
almost 10 years ago and has
been working in investment
banking since.
I'll introduce him in a few
minutes, but I wanted to start
with just the elements of
investment banking, and then I
wanted to talk about changes
in it that came about after
the financial crisis of
2007 through 2009.
OK.
The topic is investment
banking.
And that is a term, a
20th-century term, that first
became big and important, I'd
say, in the 1930s, but
preceded that by some years.
And it refers to a business of
helping other businesses
create securities.
If someone wants to issue
stock, they go to an
investment banker
to help them.
Or if you want issue
bonds, you go to
an investment banker.
It can be a corporation
that goes to the --
for-profit, it can be a
non-profit corporation, it can
be a government.
I suppose even an individual,
who is incorporated, can go to
an investment bank.
That's the investment
banking business.
Now it's different --
it shares something with the
consulting business, because
investment bankers serve
often as consultants.
A company will come to an
investment banker with a
problem, and they want to raise
money by issuing new
shares, for example, to
solve that problem.
But if it's a good investment
bank, they will do more than
just issue shares for them.
They'll talk about their whole
corporate strategy.
So, in that sense an investment
bank looks like a
consulting firm, but they don't
do pure consulting.
That makes the distinction.
Maybe, they're in many ways a
favored consultant, because
they bring money.
You can talk to a consultant,
who will bring you no money,
and another consultant,
who has his
hands on money somewhere.
And that helps a lot.
The advice and the money
together help a lot.
So, investment bankers are
different from traders,
because usually they deal with
creating something --
about making a corporation or
a government -- making it
work, enabling them to
do something that
they want to do.
And then, being realistic about
it, and coming up with
the money to do it.
And so, that's how investment
banking differs from
consulting
[correction: trading].
And it differs from commercial
banking in that a pure
investment bank does not
accept deposits.
You can't go to your investment
bank and say, I'd
like to open a savings
account.
They don't do it.
I'm talking about a pure
investment bank.
But let me just give you
something about this business.
I'm going to come in a moment
to pointing out that most
investment banking businesses
are not pure investment banks.
But let's talk about what a
pure investment bank does.
It does underwriting
of securities.
That means --
suppose you're a company and
you want to issue shares.
You need someone to go to bat
for you, someone who knows the
kind of people, who might
buy your shares, and
can vouch for you.
So in some sense, it's
a reputation thing.
The investment bank has contacts
among people who make
big investments, and they manage
the issuance of your
new shares, and that's called
an underwriting.
If it's the first time you're
issuing shares, it's called an
IPO, or ''initial public
offering.'' So, you're a
private company, it's just you
and a few friends own the
company, but now you want to go
public, you would generally
go to an investment bank,
and talk to them
about how to do it.
And the investment bank would
solve that problem for you by
doing an underwriting.
So, traditionally there's two
kinds of underwriting --
Also, there's also something
called a ''seasoned
offering,'' and that means, for
a company that has already
gone public, and it already has
shares traded, so that the
shares are seasoned, but you
want to issue more shares.
So, you can go to an
investment bank
to do that, as well.
OK.
There's two kinds of deals.
There's a ''bought deal,''
and then there's a ''best
efforts.'' With a bought
deal, the investment
bank buys your shares.
They go in and say, you know, we
know that we can market for
your shares.
We will buy them ourselves and
resell them on the market.
A best efforts offering is one,
where the investment bank
doesn't buy it and doesn't
promise anything.
They say, we'll make
our best efforts
to place this offering.
So, those are the basic
things that they do.
The methods that they use are
regulated by the Securities
and Exchange Commission
in order to make --
the SEC in the United States,
and regulated similarly in
other countries.
So, that's the basic investment
banking business.
So, if you're thinking of where
to place yourself, I
think investment banking suits
very well people who are --
it's not good for
autistic people.
If you're autistic,
be a trader.
Then, you just get on the phone,
and you buy and sell
all day, and you can be rude,
and you can have coffee stains
on your shirt, and you don't
have to know anything about
classical music.
OK?
But investment bankers
are a different --
I see Jon is laughing.
Tell me, what you know
what classical music.
I assume that was a part of
your training at Goldman.
He says no.
It's a whole different
industry.
So, if you go to the symphony
and look around, you'll see
lots of investment
bankers there.
But you won't see any traders.
You nod on that
[POINTING AT JON FOUGNER],
maybe.
We talked about moral hazard.
I think that an important part
of what investment banks do
is, solve a moral hazard
problem, and that problem is,
that companies, who issue
shares, don't have a
reputation.
And so, what do I care, I'll
issue shares, right before
we're going to go bankrupt.
We know inside that we're going
to go bankrupt, so hey,
let's just see, if we can milk
this company, before the
public knows it, and
issue shares.
That's a moral hazard.
And the investment bank
is in business to
prevent that moral hazard.
They do the due diligence, they
check you out, and then
after that, people are
more trusting of you.
So, I think investment banking
is built around trust, it's
establishing trust.
So, that's how it differs from
a lot of -- that's why it's
important that these people be
cultivated and impressive.
They tend to be well-spoken.
I can ask Jon, whether he agrees
on all this, but it's
my impression, you can tell when
the investment bankers
walk in the room.
They dress differently,
they look differently.
I don't know what it is.
It's something about reputation
-- it's what it's
built around.
The investment banking
industry --
let me just --
since I'm talking about the
nature of investment banking
and since we have a Goldman
Sachs representative here.
I put on your reading list a
book as an optional reading by
Charles Ellis called The
Partnership, and it's a
history of Goldman Sachs.
Goldman Sachs was an investment
bank until just
very recently, and we'll
talk about that.
They're still in the investment
banking business,
but now they're officially
a commercial bank.
It's an old, venerable firm, and
Goldman Sachs emerged in
the early 21st century, as,
I think, the most highly
respected and esteemed
investment bank in the world.
Amazingly successful, and
amazingly well-respected.
Ellis wrote a book just
a few years --
Ellis is on the Yale
Corporation.
He's a distinguished businessmen
and author
himself, and he wrote a book
about Goldman Sachs, which is
largely admiring.
Like, how did this happen?
How did this phenomenon of
Goldman Sachs come about?
And I suggested --
I didn't assign --
I suggested, you read one
chapter, which was called
Principles.
And it says something about
Goldman Sachs, and it refers
to, in that chapter, the
chairman of Goldman Sachs,
John Whitehead, in the 1970s
wrote down a list of
principles that guide
Goldman Sachs.
And Ellis seems admiring
of these principles.
Not everyone would agree.
It's a matter of taste,
I guess, if anything.
Whitehead is now --
I just looked it up --
he's 88 years old, and is
retired from Goldman, must
have retired some years ago.
What kind of an organization?
Ellis says, that the thing
that struck him about the
organization is loyalty.
But that's not alone, that
people feel a strong loyalty
toward their company.
That's not on Whitehead's
list.
So, Whitehead's list.
What is his first
principle of Goldman Sachs?
"Our client's interests always
come first." These sound a
little bit like bromides.
I'm sorry, but I read them
thinking, it is the most
successful investment bank in
the world, so maybe there's
something beyond --
I think, there is something
beyond platitudes here.
Second, "our assets are
people, capital, and
reputation." That's a coincident
with what I said.
"Uncompromising determination to
achieve excellence." Well,
everybody says that, so maybe
we'll discount that.
"We stress creativity and
imagination." Well, those are
sort of bromides, maybe.
Then, Whitehead issued
some guidelines --
this is also in that
chapter later --
for Goldman Sachs employees, and
these seem to be a little
bit more candid.
''The boss usually decides, not
the assistant treasurer.
Do you know the boss?'' That's
something I've learned from my
own interaction with people --
the boss really does decide,
and Goldman Sachs
goes for the top.
And maybe this is obnoxious, I
don't know -- they don't want
to talk with underlings.
''You never learn anything when
you're talking.'' That
means, be a good listener.
''The respect of one person
is worth more than the
acquaintance with 100.''
''There's nothing worse than
an unhappy client.'' The
one thing that --
I don't if it's on Whitehead's
list --
but I think it says something
about investment banking, and
that Ellis says, is that
they shun publicity.
They don't want to be in the
newspaper, they want to be
known by the president.
They want to be known by
a few prominent people.
They're kind of social
climbers, in a way.
But it's all built around some
basic principles of service,
and they want to be talking to
the top guy, and they don't
want to be in the newspaper.
I'm going to quote
Ellis on this.
Now I'm quoting Charlie Ellis.
I call him Charlie.
I know him.
He's a friend of mine.
"Making money, always and no
exceptions, was a principle of
Goldman Sachs.
Nothing was ever done
for prestige.
In fact, the most prestigious
clients were often charged the
most. Absolute loyalty to the
firm and to the partnership
was expected.
Personal anonymity was
almost a core value.
The real culture of Goldman
Sachs was a unique blend of
drive for making money and the
characteristics of family, in
ways that the Chinese, Arabs,
and old Europeans would well
understand.''
So, I'm giving you a flavor of
what an investment bank is.
You might be repelled by it.
You know, is making money
so important?
And if you are repelled by it,
you probably don't want to
work for Goldman Sachs.
On the other hand, they're
kind of respecting some
economic principles, right?
Working for a firm like this,
you can make huge amounts of
money, and then at the
end, you can give
it all away to charity.
And that's the new capitalism,
right?
So, what's wrong with that?
What are you going to
do with all this?
If you make $100 million, what
are you going to do with it?
You're going to give
it away, right?
I mentioned at the beginning, I
mentioned Andrew Carnegie's
book, The Gospel of Wealth.
Maybe that's, what this
is all about.
On the other hand, some of them
don't give it away, and
some of them live lavishly.
Different people have different
impressions of this
business --
but I want to make sure I have
time for our guest and I'm
sort of running out of time.
I wanted to talk about what has
happened in the crisis.
There's so much to say
about this topic.
Maybe, I should talk first
about the first crisis.
In 1933, the US Congress passed
the Glass-Stegall Act,
which forced investment
banks --
it prevented investment banks
from doing commercial banking,
or commercial banks from doing
investment banking.
It split them in two, and it
said you have to decide, are
you a commercial back, or are
you an investment bank?
The Glass-Steagall Act was the
act that created the FDIC, the
Federal Deposit Insurance
Corporation, the first
successful national deposit
insurance act in the world.
And part of it -- it makes sense
-- if you're going to
insure the commercial banks, you
better watch what they're
doing and prevent them from
doing dangerous business.
So, the dangerous business was
investment banking, and they
forced companies to decide.
So, J.P. Morgan, which was doing
both investment banking
and commercial banking in
1933 had to decide.
What is it?
Investment banking or
commercial banking?
So, they picked commercial
banking, and that means, they
fired all their investment
bankers.
So, these guys regrouped and
they formed an investment
bank, called Morgan Stanley.
Stanley was a Yale graduate and
Morgan was, I think -- not
J.P. Morgan, it was
his grandson.
Morgan died around 1911.
And so, those were two
separate ones.
J.P. Morgan, commercial bank.
Morgan Stanley, investment
bank.
But since then, we've repealed
the Glass-Steagall Act, and
that occurred with the
Gramm-Leach Act [correction:
Gramm-Leach-Bliley Act] of --
what was that --
1999.
Well, Gramm-Leach[-Bliley]
repealed Glass-Steagall, and
now these businesses, they
generally do the same
business, both
commercial and --
yes, Gramm-Leach[-Bliley]
was 1999.
Since then, as you recall, we've
had a financial crisis.
And in that financial crisis,
Glass-Steagall got brought up
again, because it seemed that
the crisis was related to a
number of shenanigans that
firms were undertaking.
And the government had to bail
out commercial banks.
We talked about this, and
it's very controversial.
So, the question is, did these
banks get in trouble, because
we repealed Glass-Steagall?
A lot of people came
on saying that.
These banks were doing all kinds
of screwy things that
were dangerous, and we're
insuring them, so it can't be.
So, a lot of people said,
we have to go back.
There was some inherent wisdom
in Glass-Steagall that we've
lost. And this was debated.
Now incidentally --
I didn't mention this --
Glass-Steagall was somehow
confined to the United States.
Outside of the United States, I
don't know if there was any
country, but as far as I know
the U.S. was the only
one that did it.
So, outside of the United
States they had what was
called universal banking.
And these banks outside of
the U.S. were doing both
investment banking and
commercial banking.
They sailed right through the
whole century without being
divided up.
So, the reason why we got
Gramm-Leach[-Bliley]
was, that people started to
say, you know, we're at a
competitive disadvantage.
We Americans are at a
competitive disadvantage to
Europe, because we can't do
both, and they have more
freedom than we.
And so eventually, in 1999, we
said, they could do both, so
that the U.S. also became a
universal banking country.
But then problems arose.
And the problems were --
Paul Volcker, who was chairman
of the Federal Reserve Board
in the late '70s, early '80s
proposed something called the
Volcker Rule.
And the Volcker Rule was
not a full return to
Glass-Steagall, but --
and this is now in the
Dodd-Frank Act.
It's Section 619.
It doesn't say Volcker Rule
there, but that's what it is,
and it prohibits proprietary
trading at commercial banks.
And it also says, that
commercial banks can't own
hedge funds or private
equity [addition:
private equity funds].
So, that was the Volcker
Rule that was put in.
There was also another rule
added, which is analogous to
the Dodd-Frank Act [correction:
analogous to the
Volcker Rule], also.
And this is in the Dodd-Frank
Act of 2010.
There was a senator.
Her name was Blanche Lincoln, a
Democrat from Arkansas, who
proposed the Lincoln Rule --
unrelated to Abraham Lincoln,
as far as I know.
And the Lincoln Rule was --
or Lincoln Amendment, and that
is Section 716 of Dodd-Frank.
It says that --
it doesn't prohibit banks
dealing in swaps, but it said
swap dealers are barred
access to Fed
window, discount window.
And so effectively, it prevents
banks from dealing in
swaps anymore.
As a result of this, Goldman
Sachs has got to shut down --
or it appears that --
the Volcker Rule says
banks have until
October 2011 to comply.
So, it means that Goldman Sachs
has to shut down --
Goldman Sachs had to become a
commercial bank, too, so it's
no longer --
it's an official commercial
bank now.
And because of the Volcker Rule,
it appears that it has
to shut down its proprietary
trading, which was a huge part
of its profits.
And Goldman Sachs will never be
the same again, apparently.
But it's not clear,
what will happen.
It depends all on how Dodd-Frank
is enforced.
I think, that the people that
are in the banking industry
are going to try to claim, that
some of the activity that
was done by their proprietary
traders --
that is, people who were trading
the market on --
true investment banking
shouldn't involve the
investment banker buying and
selling securities trying to
make a profit.
That's not underwriting
of securities,
that's proprietary trading.
The Volcker Rule says, that you
pretty much can't do it
anymore, unless you're a pure
investment bank, but if you're
a commercial bank, you can't
do it anymore, and they're
kind of forced to become
a commercial bank.
But they're going to try to
steer around these rules, and
I think that maybe they can.
They'll re-define something
that looks something like
proprietary trading, and
then continue to do
what they're doing.
We'll have to see.
These things are long
and arduous.
You know, one thing that strikes
me about finance is,
that it's so rules-based.
There are so many laws, there
are so many lawyers, that
nobody can grasp the magnitude
of the regulations that these
people live under.
And you see these landmark
bills, but none of us
understands them, because the
real content of them is
involved in hundreds of pages of
legal documents, that never
cease to amaze me with
their complexity.
Let me tell you something about
shadow banking, which is
relevant here.
The term ''shadow banking,'' I
think of that as coming from a
term that I first heard from
people at Pimco just within
the last five years or so.
Or maybe it goes back
further than that.
It refers to a new kind of
semi-banking system.
What are shadow banks?
These are companies that are
acting like commercial banks,
but they're technically not.
So, they're not regulated
as commercial banks.
And in many cases,
the investment
banks were shadow banks.
I'll give you an example of
Lehman Brothers, which was a
pure investment bank.
It's now bankrupt, it's gone.
It was a pure investment bank,
so it wasn't regulated as a
commercial bank.
This was before the Volcker
rule, before Dodd-Frank, and
they went bankrupt in 2008, and
it was the worst moment in
the financial crisis.
Why did they go bankrupt?
Well, there's a reading on your
reading list by Professor
Gary Gorton here at Yale, who
argues that Lehman, like many
other investment banks, was
financing a lot of proprietary
investments by issuing repos,
or by dealing in repos.
What is a repo?
That's short for repurchase
agreement.
The banking crisis, that we saw
in 2008, was substantially
a run on the repo.
So, here's what happened,
according to Gorton and others
who agree with him.
Investment banks, like Lehman
Brothers, were not regulated
like commercial banks, and as
long as they didn't accept
deposits, they didn't
have to be regulated
as commercial banks.
So, they could do what they
want, and they were considered
underwriters, so fine,
do whatever you want.
Well, not quite, but they
weren't heavily regulated, the
way commercial banks were.
And what Lehman Brother started
to do is, to make
heavy investments in subprime
securities and other
securities by effectively
borrowing
through the repo market.
What is the repo market?
It's a market, in which a
company effectively borrows
money by effectively selling
some securities it owns with
an agreement to repurchase the
security at a later date.
They're short-term loans, and
in fact, collateralized by
some security that they own.
What it was, it was almost
the same as a deposit.
They were short-term loans
that someone could
withdraw at any time.
The someone wouldn't be some
mother and father with their
small savings account.
It would be some bigger,
probably
institutional investor.
But these were acting like
banks, like commercial banks,
because there could be a run
on these banks the same way
there's a run on the
commercial banks.
If anyone starts fearing that
Lehman Brothers is going to
fail, they all want to take
their money out, which means,
they don't renew their repos.
And so Lehman Brothers failed,
when the housing market
declined, the value of its
subprime securities declined.
People, who were lending it
money through repos, got wind
of this, and they stopped
wanting to do it, so it was
like a run on Lehman Brothers.
And Lehman Brothers could
not be saved, if it
weren't for a bailout.
The government had already
bailed out Bear Sterns, and it
had helped Merrill Lynch, which
was failing as well, and
they decided not to bail
everybody out, so they let
Lehman Brothers fail.
So now, the reaction to that is,
that we can't let shadow
banking go unregulated,
and Dodd-Frank is
part of that reaction.
So now, investment banking
is substantially
altered by these laws.
And still, of course, it's a
very important business.
The United States has
traditionally been the most
important country in investment
banking, but it
continues that Europe and Asia
are also important, very
important participants in
investment banking.
Growing, I think.
The financial crisis has put
something of a damper on the
business for a while, but
I think, it seems
to be coming back.
The latest news is, that the
investment banking business is
starting to look more stable
and prosperous.
So, what I want to do
now is invite --
let me just do a brief
introduction.
So, Jon Fougner took this class,
I think it was 2002,
and then, he served as my
research assistant for a book
I was writing, called The New
Financial Order, so I got to
know him better.
The important thing for this
lecture is, that you worked
for Goldman Sachs, and got to
know people there, and now
he's working for Facebook.
You've heard of this
company, right?
I thought it would be
interesting to have him back
to give his impressions of what
life was like after ECON
252, of what Goldman
Sachs was like --
at least the old
Goldman Sachs.
And I think, it's interesting
to hear about Facebook, too,
because it's a different kind of
culture, and I'm interested
in culture.
It's more of a tech business.
I'm interested to hear, if they
have anything like the
Goldman Sachs principles,
or they enunciate
them the same way.
So, I'll bring Jon up, and
I'll let him continue.
JON FOUGNER: Very well.
Thank you Professor Shiller.
And Professor Shiller has
promised, that I'll be
well-spoken, and well-dressed,
and a bunch of other things,
good, bad, or otherwise.
I'm not sure, if I'll live up to
any of those expectations,
but hopefully I can
share a little
bit about this business.
How many of you are considering
going into
investment banking?
Maybe about 30%, or so.
OK.
And how many of you
are on Facebook?
OK.
And how many of you are
considering working at Facebook?
OK, so maybe we'll add
a few more to that
by the end of this.
The goal for the next half hour
is really to help you
think about, whether banking
might be the right next step
for you after college, and for
those of you who say yes, to
share a few tips on
how to think about
getting into the business.
I'll give a little bit of my
background, kind of a context
for my reflections on the
industry, so you can take them
with a grain of salt, share some
anecdotes from banking
during the debt boom, and then
also give a few tips, or steps
that you could take today, if
you're interested in it.
So, a little bit on
my background.
Junior summer, I went to work
for a large investment bank,
as Professor Shiller mentioned,
and I really
enjoyed the work, knew that
I wanted to go back to it.
But I had never lived abroad,
because, as you all know, your
junior year here at Yale,
there's a lot going on with
extracurriculars, and so many
people don't go abroad.
I went to see Charles Hill --
now how many folks are familiar
with Charles Hill?
Fabulous negotiator.
And I said, Professor Hill, how
can I negotiate to go back
to this job a year later,
so I can do a
Fulbright in the meantime?
So, he taught me all this
jiu-jitsu, and it ended up
working out, and I did a year in
Norway, and then came back
full time to banking.
Now, as you probably know,
a lot of analysts go into
banking, they do it for two
years, maybe do private
equity, hedge fund, maybe do
an MBA afterwards, and
something like 15% might stay
on, get promoted, and become
career-track bankers.
When I was working on Wall
Street, this was the peak of
the most recent private
equity boom and the
associated debt boom.
And so, recruiting to private
equity had reached such a
fever pitch, that literally 16
months before the start date
for these jobs, analysts were
getting calls from recruiters,
doing interviews, and
actually making
commitments to joining companies.
And I knew, I was interested in
tech, and so I became very
close to signing with a
technology private equity
fund, that I admire still very
much to this day, but I
actually decided that I wanted
to work in tech itself, and so
the last three and a half years,
as you mentioned, I've
been working at Facebook
working on our social
advertisement strategy.
So, a little bit about inside
the banking role.
It may sound a little bit
funny to talk about the
investment banking division of
an investment bank, but that's
what we'll do for the
next 15 minutes.
And by that, I really mean, just
the part of the business
that Professor Shiller
mentioned, giving advice to
CEOs and CFOs about financing,
and mergers and acquisitions.
So if you see this logo--
and that makes you smile --
I see a few smiles, maybe
a couple grimaces --
if it makes you smile,
it's a good sign that
banking may be for you.
You think about two,
three, four --
PROFESSOR ROBERT SHILLER: They
don't understand that.
That's an Excel logo.
JON FOUGNER: That's
an Excel logo.
PROFESSOR ROBERT SHILLER:
What are you driving at?
JON FOUGNER: That's an Excel
logo, and these are Excel
models, and they go on and on.
PROFESSOR ROBERT SHILLER:
You mean, they're
going to be a nerd.
Is that what you're saying?
JON FOUGNER: Yes, if by that
you mean you want to feel
comfortable with the technical
aspect of the role, yes,
absolutely.
Especially at the junior
level, where --
you mentioned some of the
relationship aspects of
banking, but at the junior
level, really your core
responsibility is building
out these models.
So, if you think about working
on that until 4 in the morning
maybe two nights in a row, maybe
20 nights in a row, and
that's exciting to you,
that's a good sign.
So, how many of you have gone
online to Open Yale to see
Stephen Schwarzman's talk
from this class
from three years ago?
One, two.
Two enterprising users
of the internet.
I would strongly encourage
everyone to do that.
One of the things, that he
talks about is that in
banking, there's not a ton of
flexibility for getting the
numbers wrong.
As the analyst, you really
need to nail the details.
And primarily, what we're
talking about there, is
building operating transaction
and valuation models that
describe your clients,
and other
companies, and their industry.
And then, the information from
those models, along with
research you find by hook and by
crook on the internet, from
your colleague, wherever you
can, kind of comes together
into presentations, polished
pitch books to help win a
piece of business.
So, that could be an IPO, a
merger advisory, as you
mentioned, and once you've won
that piece of business, then
you as the analyst really are
the organizing principal for
getting this deal across
the finish line.
Dealing with the accountants,
working with the lawyers,
other bankers, even competitors
who might also be
working on the deal, and then,
of course, your client, and
whichever counter-party
your client is selling
to or buying from.
So, it's a fair amount
of responsibility.
Typical investment banking deal
team, the core team is
pretty lean.
Maybe one each of an analyst,
associate VP, and MD, and if
you decide to and are given the
opportunity to continue
working in investment banking
on a career basis, then you
will gain a little bit more
control over your week to week
and month to month schedule
as you become more senior.
But even at a senior level,
investment banking is really
considered an always on-call
client service profession.
Now, one of the advantages of
this very lean deal team is,
that there's plenty of
responsibility to go around.
So, if you raise your hand and
say, yes, I can take on some
of this work, that might by
default fall to some of my
associates, and you do it
without making mistakes,
you're going to be able to get
more and more responsibility,
learn more and more
on the job.
One of my favorite projects
that I worked on was a
proposed venture capital
transaction, where we were
looking at investing in eight
different operating companies,
and because the team was that
lean, I was actually able to
basically take on leading the
due diligence on these eight
different companies.
PROFESSOR ROBERT SHILLER: Before
you go ahead, why do
the managing directors
have zero grey hairs?
JON FOUGNER: Well,
I'm just assuming
it's all gone by then.
That's a median, the mean might
be a little bit higher.
High variance.
So, I would --
Was that the nerdy comment
you were looking for?
So, I might encourage you to
think about these roles as an
investment in your career,
where what you put in, of
course, is long hours -- maybe
100 hours a week for a couple
of years --
and what you get out, is a
number of things, including a
skill set that's really valued
and respected, not just in
finance, but around the business
world, exposures to
CFOs and how they think about
problems. If you decide to
continue on as a career banker,
participation and
success that you'll help create
for your company.
And then, of course, a network
of very smart, eager peers,
like the folks in this room,
who then fan out across the
finance industry.
So, as I mentioned, I was in
banking during the debt boom,
and there was such a peak in
transaction that people
started calling it Merger
Mondays, this expectation that
before the bell at the beginning
of the week, there'd
be a $20 billion, or $30
billion, $40 billion
transaction that would
be announced.
And there was so much enthusiasm
for this sort of
transaction that even financial
institutions, which,
conventional wisdom told
us, couldn't be LBO'ed
[clarification: LBO stands for
leveraged buyout], because
their balance sheets were
already so levered, actually
became considered targets
for leveraged buyouts.
And arguably the peak of this
was, when Blackstone
themselves, one of the fathers
of the buyout industry, filed
an S1, and in fact became a
publicly traded company, which
they are to this day.
Your final task as a banking
analyst is to create a deal
toy, when you successfully
created a transaction.
Now, this particular one used
to have water in it and
glittering fish, and at the
time I thought it was very
pretty, but I would just invite
you maybe, when you
create your deals toys, don't
picture your client swimming
with the fishes.
Not the best idea.
And then, this is a safe for a
bank, which, of course, is
logical, safes are in a bank.
But this is actually an
especially fun toy, because
you pull this handle here,
and then actually
this one opens up.
That was my idea of fun when I
was a banker, so you again
should take it with
a grain of salt.
This is a snow globe -- you
shake it upside down, which is
a lot of fun, as well.
But again, just in terms of the
metaphor, and I have only
myself blame -- maybe I
was sleep deprived --
I guess, maybe don't show your
client's capital structure
literally under water, when
you design your deal toys.
PROFESSOR ROBERT SHILLER: Are
you saying that investment
bankers have a childish side?
You say, deal toys.
I was presenting them as
going to the symphony.
What are you presenting
them as?
JON FOUGNER: I can't claim, I
ever made it to the symphony,
when I was an analyst, but a
number of my colleagues were
on the boards, involved
philanthropically with those
organizations.
But yes, I think that we have
this creative energy and
creative spirit.
I think, there's a lot of
creativity in finance that, as
Stephen Schwarzman mentioned
in his talk, at the senior
levels, when you're dreaming how
to combine companies, how
to finance companies, how to
deal with new regulation, as
you mentioned.
But at the analyst level,
maybe not quite as much.
So maybe, there is that creative
spark, that's just
trying to find its way out, one
mischievous way or another.
But anyway, this was the
landscape, when I left banking.
That was September 2007.
And then six months after that,
as Professor Shiller
mentioned, Bear Sterns sold in
a fire sale to J.P. Morgan,
and then six months after that,
September 2008, we saw
Merrill Lynch narrowly avert
liquidation, become the asset
management brand of
Bank of America,
which it still is today.
That same week, Lehman Brothers
collapsed under the
weight of those mortgages,
suffered a bank run, and was
not bailed out, was liquidated,
some of their
investment banking and capital
markets assets sold to
Barclays in bankruptcy.
A week after that, what a lot of
people thought would never
happen, did happen, and Goldman
Sachs and Morgan
Stanley went to the Federal
Reserve, and asked to become
commercial banks, which
technically they still are
today, as Professor
Shiller mentioned.
Now, that having been said, if
you take Charles Gasparino's
account of this era, this
was the end of an
era for Wall Street.
That having been said,
investment banking continued
at firms all around the world,
some of these diversified
conglomerates, and also at a
burgeoning slate of so-called
independent advisory shops.
So, these are folks like
Evercore, Lazard, Greenhill.
And if you're interested in
learning about finance,
investment banking is not the
only way to get into it.
There are also, for example,
the so-called alternative
asset managers, private
equity hedge funds.
Folks like KKR, Carlyle,
Bridgewater, who I believe
still recruits here on campus.
And then, out where I live in
California, you have the heart
of the venture capital industry,
especially around
the information technology
industry.
So, folks like Kleiner,
Sequoia, Benchmark.
They may not be recruiting on
campus, and they may not even
be open to hiring
undergraduates, but some of
their competitors are.
So, if that's interesting to
you, maybe we'll just touch on
a few steps that you
can take today.
Obviously, you're already doing
plenty of this, without
anyone having to remind you.
Things like taking the right
classes, doing well in them,
researching the firms you
want to apply to.
Just three that I'll touch on.
Taking advantage of the
incredible resource you have
in the professors here today,
which you really don't want to
take for granted.
Learning a little bit about
yourself -- and I know that
sounds touchy-feely, but
I'll give a couple
specifics around that.
And then, of course, there's no
substitute for trying this
hands-on to see whether
it suits you.
So, this is pretty much exactly
as I remember John
Geanakoplos --
genius mad scientist. You can
find him on Open Yale now, and
if you have not yet taken his
class, and it's offered next
year, I would strongly recommend
that you do so.
David Swensen, I understand
you've had the distinct
pleasure of hearing from
already, the most successful
endowment manager ever, the
reason that we get to have
nice things here at Yale.
And I just keep coming back time
and again to Pioneering
Portfolio Management, the
bedrock of core investing
principles that he articulates
in that book.
Even if you never become an
institutional investor and are
only thinking as a retail
investor, it's still
incredibly useful stuff.
And he does teach a
senior seminar.
And then, in addition to this
class, as you probably know,
Professor Shiller has a graduate
seminar, which I
think you have promised
to let students apply
to, to get into to.
PROFESSOR ROBERT SHILLER:
Yes, I had
about eight last semester.
JON FOUGNER: OK.
And how did they do?
PROFESSOR ROBERT SHILLER: That's
an embarrassing thing.
They did pretty well, against
our graduate students.
I won't rank them.
Embarrassing to our
graduate students.
JON FOUGNER: But flattering
to all of you.
As Professor Shiller mentioned,
I got to work a
little bit on The New Financial
Order as an
undergraduate, and I just
still consider it such a
rewarding experience, because
the tenets that you talk about
in this book, around how finance
can be a technology
for societal innovation,
everything from the micro
level of personal income
insurance to encouraging
people to take more risks early
on in their careers, to
the macro level of GDP insurance
are some really
visionary ideas.
I, of course, remain dismayed
that some of them have not
been put into practice yet,
but that really is an
opportunity for all of you who
are interested in Finance for
Idealists to think about that as
a potential career option.
Other useful courses, of course,
anything with math,
probabilities, stats,
econometrics, Excel modeling,
especially using the three
financial statements, computer
science, computer programming
is going to serve you well,
not just in investment banking,
which we're talking
about this morning, but also
in those other aspects of
financial services
like trading.
Now, kind of switching
gears a little bit.
How many you have either
done Myers-Briggs
or Strengths Finder?
A few.
Maybe 20 -- maybe 30% or so.
So, these are tools that I think
have become a little bit
more popular in recent years,
which are basically
psychological inventories
where you spend an hour
answering multiple choice
questions, then they literally
spit out a profile of how
you like to work.
Obviously, there's no right or
wrong answers, they're really
just preferences.
It's a pretty modest investment
of your time --
maybe an hour each --
to gain insight not just into
what you're good at, but also
to helping you articulate to
potential employers really
what you can bring
to the table.
And then, of course, where the
rubber meets the road, is
actually applying for that
internship or that job, and
getting your foot in the door.
Career Services on campus are
a fabulous resource, but
because of that they are very
scarce resource, because
almost everyone is using them.
So, if you want to find jobs
that don't get 200 other Yale
resumes coming in their front
door, you want to look a
little further afield.
So, you've got things like lists
of investment management
firms, from Institutional
Investors, American Banker,
Hedge Fund Research.
There are plenty
of these lists.
And I'd say, don't be shy
about cold calling, cold
emailing --
just kind of be persistent.
We touched on professors here.
I am incredibly grateful to
Professor Shiller, Ray Fair,
David Swensen, folks who have
helped me in my career, even
at this extremely early stage
in my career, and it was
really just because I asked.
And I would encourage you to
do the same thing, because
once you've left campus,
it gets a lot
harder to get that help.
And then the alumni
directory --
how many folks have been using
the alumni directory to reach
out for jobs?
Maybe 15%.
I'd encourage you to do so, and
all I would add to that
is, think about what you share
in common with the people
you're reaching out to, think
about whether you can
reciprocate the help that you're
asking for, even if
that might not be obvious now,
because they're established in
their career and you're
just starting out.
I had a student in this class
reach out to me three weeks
ago interested in advice, and
I was happy to share that.
And actually, he ended up being
really helpful, helping
me understand in where you all
are in your decision making
process and your career
right now.
So, there are always ways that
you can help, and you'll find
a much more welcome hand if
you're about to do that.
And then lastly, recruiters.
These large, so-called ''two
and 20'' funds, the
alternative asset managers,
typically use third party
recruiters to find the talent
that they want to interview.
And they are typically targeting
current banking
analysts and associates, but
there's nothing to say that,
if you have a strong finance and
technical background as an
undergraduate, that you couldn't
actually get on their
radar and try to use them
for a placement.
The only caveat I would add to
that is, that you want to be
really clear and confident when
you speak to them about
what is that you're
looking for.
Because if you go in there
waffling, asking them to sort
of be your mentor and your
career coach, they're really
not going to get that sense
of confidence for you, and
they're not going to want to
put you in front of one of
their clients, who are the
asset management firms.
PROFESSOR ROBERT SHILLER:
We're having
questions in just a minute.
JON FOUGNER: Oh, great.
Yes.
[SIDE CONVERSATION]
PROFESSOR ROBERT SHILLER: We're
going to open it up for
questions in a minute, but
go ahead and interpose.
STUDENT: It could probably also
come at the end, I was
just wondering, who
is Keith Ferrazzi?
JON FOUGNER: How many folks
are familiar with Keith
Ferrazzi in the room?
Some people are -- their
arms are getting tired.
Maybe 20%.
So, Keith was the youngest
ever Fortune 500 CMO.
And he's a fellow Yalie, New
York Times best-selling
author, written a lot about the
role that relationships
play in business.
And you hear this word
networking, which, I think,
all of us now get sort of a sort
of unctuous feel around.
It seems very, sort of,
superficial and self-serving,
and what he's really helped
elucidate is, how the basic
tenets of psychology --
and in this respect, he reminds
me of Professor
Shiller -- applying the basic
tenets of psychology to how
you actually build real,
meaningful business
relationships, and breaking down
this artificial barrier
between relationships
and business.
Because business is
relationships.
As Professor Shiller mentioned,
one of the things
that investment bankers try to
do is, establish senior level
relationships, because it's
ultimately individuals, not
entire companies, who are
making decisions.
So, just to share a couple of
anecdotes about my transition
from banking, after banking, as
I said, I knew I wanted to
work in tech, and I very
fortuitously got a phone call
from a lifelong friend of mine
around that time, who was an
engineer who had started
working at Facebook.
And what he convinced me was,
that I could help him and his
colleagues change how
people communicate.
I was pretty sort of anxious
about this, pretty intimidated
by the prospect of being
a business guy doing
engineering.
And what he told me, and I
ultimately think this proved
true, is that you don't have to
be an engineer in Silicon
Valley to have an impact, you
just have to be able to think
rigorously like an
engineer does.
I think the training, that
you're doing here at Yale, and
then the potential training at
investment banking, both have
the potential to serve you
well in that respect.
So, what we're trying to do at
Facebook is get people the
power to share and make the
world more open and connected.
Pretty simple, in principle.
And our strategy for doing this
is mapping out what we
call the social graph.
Now, we didn't create this.
This exists out in the world,
all we're trying to do is draw
a mathematical representation
of it, and that's basically
who likes whom, and
who likes what?
And then, we push information
as efficiently as possible
along the edges of
that ground.
So, this is kind of where I
spend most of my day, not just
over here in FarmVille, but also
over here in ads-land.
And what my role is called is
''local inbound product
marketing.'' So, to kind of
parse that out, what we mean
is basically, I go and talk to
local businesses, restaurants,
plumbers, understand what their
pain points are, what
other advertising products they
use, what they're trying
to accomplish as a local
business owner, and then
basically synthesize that with
data analysis, and ultimately
present it to the engineers as
a case for what we should
build next.
So, these are questions like,
what do the ads that you see
on Facebook look like?
How should they interact with
the rest of the product?
How can we target them to
make them more relevant?
A whole bunch more.
The real guiding precept here
is that, it's basically what
Henry Ford said, right?
He didn't want to build the
faster horse, even if that's
what his clients might have
asked for, he wanted to build
something that was dramatically
more useful, and
for him that was a car, and for
us it's something that we
call social advertising.
I am happy to chat a little
bit more about that during
questions, if folks
are interested.
So finally, just to kind of
compare these two roles, and
how one might have prepared me
for the other, I think the
three things from banking that
have served me best working on
internet products are: One, this
cross function of process
management, which is a
ubiquitous part of the
business world.
Two, building polished
presentations, this one
notwithstanding.
And three, being resourceful
about tracking down data
points to help make the
right decisions.
On the other hand, there's some
parts of the job that
were totally new.
Thinking from the mindset of the
CMO, the chief marketing
officer, rather than the CFO,
the chief financial officer,
just the pace of the
environment, banking is
fast-paced, but the rate at
which products evolve in the
internet is dramatically
faster.
And the fundamental job itself,
which is basically
creating new products, building
the business case for
them, validating that case with
data, trying to actually
mock them up -- and I assure
you, I'm not good
in Photoshop --
and then actually use those
mocks and that case to inspire
engineers and product managers
to want to build them.
So, it's an environment that
is much more ambiguous.
The yardsticks for whether or
not you're going in the right
direction, especially in
the short term, are
not nearly as clear.
But if that's actually something
that's appealing to
you, then I strongly encourage
you to check out jobs around
Silicon Valley, and especially
at Facebook.
So, you can actually go to
facebook.com/careers --
quick plug --
to check out about the
internships and the full time
jobs that we have available.
So, Professor Shiller, did you
want to use the rest of the
time for questions.
PROFESSOR ROBERT SHILLER:
Well, yes.
I'm opening it up to all
of you for questions.
OK, you have a question
back there.
STUDENT: Before you did your
junior summer in investment
banking, how did you even
know you wanted to --
JON FOUGNER: I caught some of
that, and then the screen
caught some of it, so just bear
with us for one second,
and then I'll be
right with you.
You said, before I did my junior
summer, what did I do?
STUDENT: Before you did
your junior summer.
Or how did you figure out that
investment banking was the
field you wanted to be in?
JON FOUGNER: Well, you know, I
knew that some of the stuff on
the right hand column of the
ROI chart was stuff I was
interested in.
I was interested in the
technical side of the work,
working on math, basically,
but also interested in the
relationship side of it, the
strategic side, thinking about
basically how you help
these companies
vet the company decisions.
And during the first week of
training, one of the partners
of the firm came in --
and we use this term partner
kind of as a term of art,
because, as the professor
mentioned, it's no longer a
partnership --
but he came in and said, when
our clients want to do really
important things,
they come to us.
And when they want to think
about important things, they
come to fill-in-the-blank
name of top
tier consulting company.
And that kind of action, and
actually physically seeing the
results that you create in
the world was really
appealing to me.
And I hadn't done Strengths
Finder yet at the time, but I
did it subsequently, and found,
not surprisingly, that
that's where my psychological
reward structure was kind of
geared towards.
PROFESSOR ROBERT SHILLER: Yes?
STUDENT: So, Peter Thiel, who
was the first investor in
Facebook, and is currently on
their board, is now offering
20 people under the age of 20
each $100,000 to drop out of
school for two years and start
their own companies.
And since you actually work for
Facebook, I was wondering
what you thought of that.
JON FOUGNER: Yes, I think
that's fascinating.
And obviously, I don't work
with Peter Thiel.
Look, I think, whatever
we can do to promote
innovation is great.
Now, if you're sitting here in
this room and you're saying,
well, do I want to take this
risk of sacrificing this
signaling device of this college
degree, and also
potentially sacrificing some
structured classroom
experience, in order to rapidly
accelerate, how
quickly I got into
entrepreneurship, I don't know.
That's a personal decision that
is for you to make, and I
don't really have any
opinion on it.
Ultimately, for me it'll come
down to, do these companies
actually end up doing really
cool things and building
really cool stuff?
PROFESSOR ROBERT SHILLER: And
I'd add, it isn't as risky as
you might think, because Yale
will take you back, if it
fails in a couple of years.
JON FOUGNER: One of our very
early employees was a Yalie,
who had had an undergraduate
experience somewhat like
you're describing, where, I
think, he had actually taken
some time off to work
on startups.
I think he came back, finished
his degree, and is now a
partner at Benchmark, one
of the firms that
I had on that slide.
PROFESSOR ROBERT SHILLER: Well,
while they're thinking,
can I ask you --
I emphasized the core values
at Goldman Sachs, and it
strikes me that Facebook
is totally different.
Maybe I'm wrong.
Can you tell me, what are the
core values at Facebook?
If I were to read that list
that I just gave you from
Goldman Sachs, how would it
sound to the Facebook people?
JON FOUGNER: Yes, so I think
there are similarities and
differences.
I think, each of us has a core
constituency, who we wake up
thinking about them, go to bed
thinking about them, probably
dream about them, and know that
whether or not we serve
that constituency will determine
the success or
failure of the company.
And at Goldman that
was the clients.
And at Facebook, our number one
focus is the users and the
user experience.
And we care a lot about our
partners, we care a lot about
our advertisers, we care a
lot about everyone in the
ecosystem, but ultimately
we know we have to
serve the user as well.
So, each company, I think, has
almost a maniacal focus on
serving one core constituency,
albeit they're different.
Now, in terms of the day-to-day
experience, I do
think they're quite different.
I think that what
I'm doing now is
quite a bit more creative.
PROFESSOR ROBERT SHILLER: You're
not doing spreadsheets.
JON FOUGNER: A little
bit, but --
PROFESSOR ROBERT SHILLER:
You're doing it, still.
JON FOUGNER: Yes, not as much.
And I really love the creative
side of the work.
If you think back to Steven
Schwarzman's lecture, where he
mentions that there's no
flexibility for getting the
numbers wrong, I mean certainly
we feel the same
way, all the analysis needs to
be correct, but there's almost
an ominous tone, when he says
that, whereas the way that we
operate is knowing that we have
to move really fast in
order to continue to innovate,
continue to stay relevant.
And so, that means that
sometimes you make mistakes,
and it's no secret that we've
made mistakes, and some of
them have been big mistakes.
And we just try to minimize
the number of times that
happens, try to fix them as soon
as they do happen, and
just be honest about them, and
admit them when we make them.
PROFESSOR ROBERT SHILLER: Can I
ask a question of the class?
You set the example.
How many in this class are
engineering majors?
Not many.
Like 5% maybe.
What about science majors?
That looks like 10%.
See, you're kind of in an
engineering company, right?
I mean, I don't know exactly
what Facebook is, but is there
some kind of division here?
Why aren't there more engineers
in this class?
JON FOUGNER: That sounds like
a question for the class.
PROFESSOR ROBERT SHILLER:
Well, I can't ask them,
because they're not here.
JON FOUGNER: All the engineers,
who are not in the
room, why are you
not in the room?
PROFESSOR ROBERT SHILLER: But
I mean, is there a big
cultural difference?
I mean, are engineers
prejudiced
against us finance people?
You're there, so --
JON FOUGNER: Look, I think
that product design and
software engineering is at the
heart of the company, but as I
mentioned, I was pretty
intimidated going in and
saying, huh, I'm going to
be a business guy here.
Am I not really going to be
able to have an impact?
And I think the things that are
important for the business
people are: One, to remember
what the core mission of the
company is, which for us is
really all about the users.
Two, to have a sense of
what is feasible.
So, you don't actually have to
know how to write the code, or
even necessarily how to mock up
the product, but if you're
making recommendations that we
should build things that are
simply technologically not
feasible, you're going to
waste people's time and lose
credibility pretty quickly.
And then, three, I think, when
you do the analysis, engineers
are going to want to see as
rigorous analysis as possible,
quantitative analysis when
that's relevant, when that's
possible, and to the extent that
you can bring that to the
table, I think that's helpful.
If you think about the business
world at large, one
of the things, that's just
going to be increasingly
important, is the ability to
design, conduct, and interpret
statistically significant,
valid experiments.
And this sounds like a pretty
straightforward thing, that
you might learn by maybe
second or third year of
college, and yet you get out
into the business world, and
you'll find that many of your
colleagues, whether they're
coming from MBAs or other
backgrounds, may not actually
have that background.
So, being able to bring that
sort of rigor to the table,
whether it's at a consumer
internet company or an
industrial company, anything
else, I think is very helpful.
PROFESSOR ROBERT SHILLER: You
know, I'm thinking, maybe I
should change the name of
this course to Financial
Engineering.
That would bring
in the others.
Because to me, engineering and
finance have a certain
connection.
They're both designing
devices.
I think, we have another
question.
STUDENT: Have you thought of
going back to graduate school,
and how do you see that playing
into a career like
investment banking?
JON FOUGNER: Yes, I have thought
about going back to
graduate school.
I think that all of us want
to be lifelong learners
throughout our career.
There's a number of ways
you can do that.
Graduate school is
one of them.
Another is, going into
industries where you're just
confident that everyone you're
working with is really smart,
and they're going to push you
hard, and not settle for
mediocrity, so you just know
you're going to learn by that
pressure and that osmosis.
And then, I think, there's
some kind of simple,
structured things that
you can do, as well.
I threw a slide up of a couple
that you can do in the comfort
of your own living room
-- the Meyers-Briggs
and Strengths Finder.
But then also, you can leverage
having a workplace to
do things like peer
coaching, career
coaching, executive coaching.
So, I kind of take a somewhat
agnostic point of view as to
which of these tools I'm going
to use at any given time.
I just know, that I constantly
want to be challenging myself
and constantly want to
be learning more.
PROFESSOR ROBERT SHILLER: OK.
STUDENT: I've heard a lot
about issues with
click-through rates on various
social networking sites, so if
you could talk about, what you
think the putative value of
Facebook should be, and whether
the current valuation
is appropriate.
JON FOUGNER: Yes, so, I'm happy
to share a little bit
about click-through rates.
I'll probably defer on the
question of how much the
company should be valued at.
Is everyone familiar with what
a click-through rate is?
No, not everyone.
OK.
So, this is just
a simple ratio.
Let's say, you show an ad some
number of times to users on
the internet.
It's the ratio of the number
of times the user clicks on
that ad to the total number
of times you showed it.
So, if you show an ad 100 times,
and you get one click,
you have a 1% click-through
rate.
And if you think about, well,
why are people advertising?
In marketing there's kind of
this concept of this marketing
funnel, which is a little bit
silly, but it actually conveys
a useful concept.
Up here is everyone in the
world, and then here is the
people we can actually make
aware of our product.
And then here is the people who
we can actually make have
an affinity for our product.
And here is the people who we
can actually make consider
purchasing our product.
And then people who actually buy
it, and then repeat, loyal
customers who buy it
more and more.
So, we get to a narrower
and narrower pool.
And what marketers are
constantly trying to do is,
push people through this funnel,
so they can actually
start with someone, who may not
know about the product at
all, and then actually
get them to buy
it again and again.
So, marketers use a variety
of different tools.
Online advertising is one, but
that represents maybe 15% of
the market, but it's a
relatively new one, and
there's plenty of others that go
back decades or centuries.
Things like television,
radio, print.
These different media play
different roles in getting
people through this
marketing funnel.
And if you think about, where
online advertising originally
grew up, it was really
towards the very
bottom of this funnel.
Of, OK, I am looking for a blue
iPod at the best price,
that I can either order online
or that it's within five miles
of my home.
So, I search that on a search
engine, I see a list of
vendors, and in that case, it's
really important whether
I click through, because
that's basically the
determinant of whether or not
we get them through the next
stage in the marketing funnel.
If you think about Facebook
advertising, that is one of
the roles that it can play, but
it can also actually play
throughout this entire marketing
funnel, where we
have a reach of 500 million
people, and then you can
target within that.
And then you can use things like
social context, telling
you that your friend might
really love a product, to help
build your affinity for it, on
through this whole funnel.
So, for some of it,
click-through rate is
relevant, for other of it,
click-through rate really
isn't relevant, and you need to
think about other sorts of
measurement.
Things like companies
like Nielsen do.
Like polling people and asking
them, OK, you saw this media,
did it increase your
likelihood to buy this product?
Or did it make you aware of the
message, that the brand is
trying to convey, that you
weren't aware of before?
I think, it's one of a number
of metrics that go into
assessing the health of the
business as a whole.
PROFESSOR ROBERT SHILLER: I
think we're essentially out of
time, but let me just say,
click-through rates and
marketing sound profit-oriented,
but it seems
to me they have a social
purpose --
one thing is that capitalism is
being transformed by this
kind of thing, because it gets
people to buy things that they
really need.
It's like your Strengths
Finder or Needs Finder.
And I have to applaud Facebook
and other companies.
Finally, I'm going to invite you
back in another 10 years.
This was great.
JON FOUGNER: Thanks.
