Analysis
Share buybacks have an “aura” of shareholder-friendliness. When done right, it’s a very efficient way of rewarding long-term shareholders and reaffirming management’s confidence in the company’s future prospects, usually after the shares have gone down. However, companies can get it wrong and sometimes very much so. Teased by an article, we discuss a few ways things can go wrong.
While researching for a future post about one of his Goldman Sachs’ “alumni”, we’ve had the pleasure to re-read Bob Rubin’s excellent commencement speech at Harvard in 2001. We’ve alluded to it in two previous Buysiders posts: “No one would listen”, in March 2010 and the first post with IP report excerpts, the one on Risk Management. A bit over ten years have passed, but these are timeless concepts.
Brilliant article by John Kay in the Financial Times – “Sex, lies and the pitfalls of overblown statistics”. Questioning is vital when dealing with data: what does it really mean, where did it come from, what is it trying to answer, is it the best data to answer that question, what are the incentives of the source of the data, what are my own incentives and biases in interpreting this data… and so on. In fact, one should start with the right questions, but that’s another subject. Skepticism and intellectual honesty makes for a hard way to live one’s life, but there’s really no choice if one is to minimize the traps of “data”.
Very interesting profile on Ray Dalio’s Bridgewater in the new issue of the New Yorker magazine. Long and often a bit on the speculative side – it’s always difficult to take without “salt” the perceptions of someone who has spent, at best, a few days/weeks with the subject of the report – it’s still a great read.
We don’t have Baupost Capital’s full 2010 letter, but these excerpts are still very interesting. Seth Klarman’s straight talk is always refreshing. Bits on Cash as strategic asset (being able to pull triggers in the midst of panic), “Short-termism” and how that affects everything, and Edge are particularly interesting.
We’ve been meaning to post something from Edge.org, our new Blogroll inductee and a great source for the “free time”-type of thought-provoking reads. And we mean “free time” because their stories tend to run very long. The story we posted is their “question for 2011″: What Scientific Concept Would Improve Everybody’s Cognitive Toolkit? It has been answered by 158 interesting people such as Nassim Taleb, Richard Thaler, Don Tapscott and many others – some wrote simple, quick answers and some really dug deep to justify their arguments. Great stuff, but you have been warned: it’s easy to spend a LOT of time in this website.
Two notes on Cisco: an article on Slate provocatively called “Will Netflix destroy the Internet?” highlighted a report on “Global Internet Phenomena” (which can be downloaded after a quick, free sign-up). In it, we can highlight part of what makes Cisco so interesting as a “picks and shovels” play in the increased bandwidth usage trend. The second article uses Cisco as an example of tech companies paying dividends and not getting “recognized” for it.
Quick post about a NYT story on the inherent difficulties in economics – with obvious applications in investments. Also pretty useful as a teaser for our Castles of Sand introductory text in the Q3 2010 report.
The doctor profiled in this NYT article met Amos Tversky (who worked with Daniel Kahneman on prospect theory) and became a different type of doctor – “perhaps the leading debunker of preconceived notions in the medical world”. The real benefit of reading this article is that it shows what skepticism, curiosity, intellectual honesty and the drive to find some kind of “truth” can accomplish in any field, especially one that lends itself to empirical examination/ fact checking. Great reminder of PART of the required mindset of an analyst.
Buffett was particularly expansive regarding his processes and methods, and this alone makes this video worth the time (some 90 minutes). The fact that it was October 1998, a pivotal time in the dot-com boom and just after the LTCM imbroglio makes it even more interesting.
