Michael Jordan and Finance 101: An Example for Your Class

Here's a quick tip to use early in your Introductory Finance Course:

As everyone on the planet knows, Michael Jordan retired for good (?) last week. The interesting aspect of the event from a Finance viewpoint was that the stocks of several firms for which Mr. Jordan is a spokesman closed down when it became clear that a retirement announcement was forthcoming. The hardest hit was Nike, whose stock fell from $44 3/8 to $42 (-5.4%) in one day. (!)

I just finished using this tidbit (along with Nike's financial snapshot and stock chart, courtesy of www.quicken.com) to illustrate the following points:

(1) Current market share prices reflect investor expectations about the firm's future cash flows. Clearly, investors felt Jordan's resignation from basketball would affect his ability to influence Nike sales. Nike's market capitalization (and shareholders) took a $680 million hit ($2.375 x 286.3 million shares outstanding).

(2) The share prices in question fell before the actual announcement. In other words, investors anticipated the content of Jordan's press conference -- exactly what the EMH suggests. And,

(3) The share prices fell as a result of events not under management control. (I'm assuming that, given Mr. Jordan's wealth, as well as his position as perhaps the most recognized person on the planet, Nike's management had virtually no chance to influence his decision.) Put another way, not all share declines are the result of poor management decisions.

You might want to sum up the discussion by noting that, as this example suggests, Finance pervades most (all?) aspects of life. (At least we like to think so.)

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