Riskmanagement
We have had for years a section in our Intranet on Tax legislation and another on interesting corporate structures that save money in any way – operationally, fiscally, etc. The overall idea is to study the state-of-the-art in all espects of corporate life – it’s useful to understand companies’ performances/ strategies/ cultural aspects, and if it’s good it can eventually be shown to companies we invest in. Of course, in the case of tax practices there’s a thin line between aggressiveness and innovation and falling into regulatory traps… Reading this NYT article out today, we still have no idea where GE fits in this range, but it’s safe to say that they’re certainly innovative in the tax department.
Three short stories we’ve read over the holiday (we also read many bigger ones, which deserve their own posts in the next few days). We’ll go from Carl Icahn and the hedge fund industry, to Seth Godin and marketing, to a review of the TED Fellows program by a TED 2011 attendee. Three very different subjects – choose the one(s) that best matches your interest, but always make a point to stretch yourself every now and then and read something you don’t expect to like, by someone you don’t expect to agree with.
Two quick notes. One: IBM’s “Watson” computer beating humans at Jeopardy has people yearning to use the technology in Finance. Really?? Two: South Koreans may get one gigabit per second Internet in every household by 2012. Any Brazilian paying almost US$ 100 for half-decent connections is certainly thinking about how much time this country has lost…
The Economist yesterday ran a story on the frothiness of the Brazilian markets, especially for Private Equity and Hedge funds. It’s great that the country has seen a wave of IPOs and that more sectors of the economy are now represented in the exchanges. Increasing Private Equity investments and a healthy market providing an exit strategy could mean that, over time, more interesting companies and business models come to the market. But as we’ve argued in our latest report, an excerpt of which we include in this post, some caution is due.
We’ve discussed “risk management” the TSA way, but you can’t beat nukes. What can risk management in nuclear plants contribute to the design of systems and policies to monitor and manage risk in global finance? The Financial Times ran an article over the weekend about it, and it’s a thought-provoking and fun read. As we’ve highlighted in the TSA post, “we’ll never eliminate risk” but we can always learn more about ways to mitigate it.
Bill Nygren of Oakmark Funds just published his letter commenting on the 2000 decade, and it’s a very interesting (and concise) exercise in expectations management. Leaving aside comments on his fund’s performance or musings on the “ideal” hurdle rate for a manager’s performance, the highlight is this: in the 40 quarters that made up the last decade, his flagship fund “only” beat the self-imposed hurdle (make money and beat the S&P 500 by more than 1%) in 8 of the 40 quarters – and still beat the S&P 500 by a large margin in the period. To finish first, first you must finish.
It’s reader-suggested week at Buysiders.com! Ever since the 2001 letter to shareholders (which discussed the 9/11 attacks), Warren Buffett has said that his biggest fear is a nuclear strike in American soil. In 2006, despite the frenzy surrounding Buffett’s announcement of the biggest-ever charity pledge, there were still plenty of headlines regarding his $50 million pledge to the Nuclear Threat Initiative. In typical Buffett fashion, his money was tied to results and to the raising of further US$ 100mm to match his donation. Also in typical Buffett fashion, the odds of success seem good.
That David Einhorn is a poker fan is not news, and his great book “Fooling Some of The People All of the Time” has been out for a while. But since there’s a new epilogue for the book, the DealBreaker blog did a fun interview with Einhorn over a few hands of heads-up poker – a game about which the reporter didn’t know the first thing. That’s a lesson in risk management right there. You won’t find brilliant investment insights or killer poker tips, but if you haven’t yet read the book and this post makes you finally do it, we’ll be happy.
An Atlantic Monthly interview with the head of the TSA, the US agency in charge of transportation security (better known to us travelers as the people behind the annoying yet necessary airport security procedures). In a useful metaphor to risk management in investing, Mr. Pistole (yes, that’s his real name) is very frank in saying that “risk elimination” is a very different proposition from “risk mitigation” – and he would like to move in the direction of actually knowing details about the travelers instead of relying solely on material searches. Not unlike our risk-management mantra “know who you’re dealing with”.
Long interview with two of IP’s partners, Cristiano Fonseca Filho and Fred Trigueiro. Quite informal, the interview goes through IP’s pioneering history in the Brazilian capital market and shows how we apply some of the most important aspects of our culture in the day to day: Ethics, Discipline and Patience, Independence… We’ve obtained permission from Exame to translate and publish the interview and here it is.
