Accounting inconsistencies
In the next few posts, I plan to focus on the accounting inconsistencies that bedevil analysts. In particular, here are the items that I will highlight: 1. Goodwill: When a company acquires another,...
View ArticleAre complex models the answer?
There seems to be consensus that conventional economic models did a poor job predicting the magnitude of the last crisis and that we need to do better. In today’s Wall Street Journal, we see the...
View ArticleAlternatives to the CAPM: Wrapping up
Even as we agree to disagree about the usefulness or lack of the same of CAPM betas, let us reach consensus on a fundamental fact. To ignore risk in investments is foolhardy and not all investments are...
View ArticleAlternatives to the CAPM: Part 5. Risk Adjusting the cash flows
In the last four posts, I laid our alternatives to the CAPM beta, but all of them were structured around adjusting the discount rate for risk. Having made this pitch many times in the past, I know that...
View ArticleClik here to view.
Growth (Part 2): Scaling up Growth
As companies get larger, it becomes more difficult to sustain high percentage growth rates in revenues for two reasons. The first is that the same percentage growth rate will require larger and larger...
View ArticleWill the financial overhaul bill fix what’s wrong with banks?
On Friday, congressional conference committee members announced that they had reached agreement on the final contours of the financial overhaul bill. The bill is expected to be put to a final vote in...
View ArticleHerding behavior: Why, so what and what if?
A news story from yesterday’s Wall Street Journal on hedge funds and their herding behavior provides a good starting point for this discussion. In summary, the article notes the following:(1) Hedge...
View ArticleAmateur Athletics
This post spans two topics I love – finance and sports- and what triggered it was the hullabaloo over Cam Newton, Auburn’s quarterback, and the purported attempts by his father to extract money from...
View ArticleWhat is “fair value”?
What is the fair value of an asset? Sounds like a simple question but the question has taken on a life of its own, given recent changes in both accounting and legal standards. In both contexts, the...
View ArticleChill, dude! It is not the ratings downgrade.. It is how you react to it!
Sorry about the title, but I am in Southern California, in surfer terriotory! I guess that the debt ceiling debate was not the end game it was made out to be. In spite (or perhaps because) of the fact...
View ArticleClik here to view.
Merck and Pfizer: Thoughts on investing as a patriotic duty and market...
We have an interesting long-term experiment in the making in the pharmaceutical business, as two of the largest players – Pfizer and Merck announced their plans for the future. Pfizer was the first up,...
View ArticleAmateur Athletics
This post spans two topics I love – finance and sports- and what triggered it was the hullabaloo over Cam Newton, Auburn’s quarterback, and the purported attempts by his father to extract money from...
View ArticleWhat is “fair value”?
What is the fair value of an asset? Sounds like a simple question but the question has taken on a life of its own, given recent changes in both accounting and legal standards. In both contexts, the...
View ArticleChill, dude! It is not the ratings downgrade.. It is how you react to it!
Sorry about the title, but I am in Southern California, in surfer terriotory! I guess that the debt ceiling debate was not the end game it was made out to be. In spite (or perhaps because) of the fact...
View ArticleAsset allocation for illiquid markets
In my last post, I argued that illiquidity is not a minor problem restricted to a few stocks. In fact, it can affect all stocks, at least during some time periods, with its effect varying across...
View ArticleBreach of Trust: Bank Valuation after the banking crisis
Until the banking crisis of 2008, investors had made a Faustian bargain, when it came to valuing and investing in banks. Banks were opaque in their public disclosures and investors often had little...
View ArticleDefault and Bankruptcy: Black, white and shades of grey
The talk of default is all around us, as we watch Greece and Italy struggle with impending disaster and the fight over debt limits in the United States fills the airwaves. But what is default? What are...
View ArticleHow much cash is too much? Looking at Apple
In the midst of lots of news about Apple – Steve Jobs taking a leave of absence and a 78% surge in profits reported today – I saw this news story in the Wall Street Journal. The gist of the story is...
View ArticleA tide in the affairs of men…
In my last post, I noted how difficult it is to separate luck from skill in both investment and corporate finance. While I remain leery of stock picking success stories (and believe me when I say I...
View ArticleTrapped Cash: Measurement and Consequences
It is an open secret that US companies have accumulated huge cash balances over the last two years. In fact, there were a few mentions that Apple’s cash balance of $76 billion gave it more cash than...
View Article
