Well, now in this episode I would like to sort of complete the wrap up. So we will talk about some knowns and unknowns in finance. Well, you can always argue the wisest people in human history would always claim that they know little. Now, we will not pretend to be as wise. But what we will do, we will say a few words about what we know in corporate finance and what we do not know in corporate finance. So, let's start with some positive messages of what we know. I'll put it what we know. Just what we know. Well, first of all we know that there is the NPV approach and criterion. And we said that this is a nice one and we know how to use it. Now the next thing is that, we know that there is capital asset pricing model as a means of evaluating risk. We know that there is the idea of market efficiency that is somewhat supported by empirical evidence, and also which is very important in some theoretical constructions. We also know that PVs are additive. Remember when we talked about criteria for evaluation, we said that the IRR that seems to be very close to the NPV approach because IRR are sort of, you know, very non-linear functions. It's more difficult to work with them, and sometimes they obscure the information that we have about the project. Then the good news that we know quite a bit about option theory and valuation. Well, there is another thing that people know and although we in our specialization talk about that in their final course about mergers and acquisitions that has a special name agency theory. So this is about principles and the agents and how they are linked and how they are sometimes abuse of their authority and so on and so forth. So these are sort the positive things, and although you can always say, well NPV is not perfect. Well, CAPM is not perfect and then option theory is not perfect, and unfortunately hard to understand. It contains lots of math, so what's the use? Now, but these things the illogical inconsistent, they allow us to have the big picture of modern corporate finance. And actually, it allows us to understand the meaning of major concepts and the logic in their development. So this is the good news. Now some piece of bad news. This would be, I'll put it in red. What we do not know. And like I said there's quite a bit and much more than we know. But we can say that market efficiency is not perfect and I'll put exceptions. They are not perfectly understood. Now, drivers of returns and risks are not perfectly understood. Well, we know there's a lot of development in this area, but still this is not. Now I would also say that capital structure theory and practice, term structure of interest rates, what really feeds it. Now things like value of liquidity, I would put and many more. Many, much, many problems, much more. So basically, we know little. Now what message does it send to us? Well, the good news is that what we have on the previous list allows us to go ahead. It allows us to value investment projects with reservations, with exceptions, not perfectly, but still to the extent that there is the mutual understanding in the market that people would be willing to engage in transactions and that's what we see around. We see that markets with their multi trillion dollar values, they operate sort of efficiently. Well, there are exceptions as we all know, there are some crises, there are bubbles. We talked about all that in some greater detail in the previous course, but still we see that these problems, these challenges they do not preclude the people both be students of this market and the market participants from the progress. That's the one thing. And there is another thing that I believe this is really important, is that if for any reason we face the challenge and if we don't know how to approach it, that in itself does not mean that we have to stop and do nothing. We may try all the things we know. And if you find something that is new that is a norm, that is just the moment when some people step in and start studying that more thoroughly in some greater detail, and that results in hopefully the solution of any of these challenges. Again, I would avoid using the word problems here. These are the challenges and these are the challenges that are for the overall understanding of how the market operates. I will give you an example to wrap this episode up that I recently read in a newspaper. There has been a lot of effort around to study what money managers or investment managers that progressively outdo their competitors. What they do better. One set of ideas was that they know some magic recipe. Now it happened to be that these people, including some legendary investors who sometimes showed triple digit returns, they are not doing anything special. But when they study industries and companies, they do that better than others. They are not lucky. They are just more to the point. They pick industries and companies in which there is growth potential and if they do this job better than many of their competitors. So what we are saying is that it seems that all of the theory and practice and cases that we've studied, they sort of there are for everyone. Well everyone can use them. But the question is, how efficient in this use you will be. So the fact that some people outdo others is not based on anything that is sort of super advancement or so. Sometimes people just understand better, they go deeper in studying this and in our terms in this course they're closer to the meaning of trends events and values. From now on in the final set of episodes I will talk with you about how you can use all this huge information to be able to benefit from that.
