Money and Finance
- Investing In A High-quality Business...
From Capital Returns: Investing in a high-quality company can seem dull and unrewarding in the near-term. The lower risk which comes from investing in quality companies is only properly observed over the long-term. The fact that investors are often...
- Charles Brandes On Risk
From Brandes on Value: Risk has now been popularly redefined as the impact of short-term volatility, not as what it really is, which is the permanent loss of capital. In my more than 40-year career, I have never seen risk as misunderstood yet as...
- Giverny Capital – 2013 Letter To Partners
Link to letter: Giverny Capital – 2013 Letter to PartnersSince 1993, the cornerstone of our investment philosophy is based on Benjamin Graham’s book “The Intelligent Investor”, first published in 1949. In it, Graham wrote: “In the short...
- Eddie Lampert Issues Letter To Sears Associates
Yesterday, Sears Holdings announced our results for the third quarter of 2007. While we were not pleased with these results, much of the commentary in the media and on Wall Street following the results ignores the strength of our company and the progress...
- Moats Matter For Dividend Investors
"Why Moats Matter for Equity Income" Josh Peters, Morningstar "The first thing you have to remember about dividend investing is that dividends are paid out slowly, though, relentlessly, and they really add up over time. But if you're going to actually...
Money and Finance
Oaktree - Howard Marks: Letter to Clients
Of the two things I think are most wrong about American business, the worst is short-termism. (The other is the ability of executives to thrive while their companies do poorly.) Companies are rewarded for short-term success and penalized for short-term failure, whereas few people ask about the long term. The only thing that matters is “What have you done for me lately?” A lot of this emanates from stockholders.
In a memo several years ago, I listed a few phrases that have sunk into obscurity over the course of my career. They included “fiduciary duty,” “preservation of capital” and “dividend yield.” Another is “long-term investor.”
Most investment managers are measured against a benchmark every quarter and expected to add value. Some clients have their fingers on the trigger, ready to axe a manager who underperforms for a year or two. For this reason, managers sit with their own fingers on the trigger, ready to dump a stock or bond whose short-term performance lags. And company CEOs whose securities are laggards are likewise on the hot-seat, with boards that rarely support executives who disappoint Wall Street.
Too many people think of the long run as nothing but a series of short runs. The way to have the best five-year investment record, they think, is by sequentially assembling the twenty portfolios that will produce the best performance in each of the next twenty quarters. No one wants to invest in a company that may lag until long-term investments pay off down the road. They’ll just sell its stock today, assuming they’ll be able to buy it back later.
Understanding this, companies face great pressure to emphasize short-term results. What might they do in response?
• Maximize revenues (perhaps by stuffing pipelines and offering discounts that accelerate future sales into the present).
• Minimize expenses in slow-to-bloom areas like research and development.
• Borrow to buy back stock, because debt capital is cheap and equity is expensive (despite the fact that equity provides safety and leverage amplifies risk).
Do you want your companies doing these things? Probably not. But do the collective external pressures force companies in these directions? Absolutely. The things that maximize profits in the short run often serve to decrease profits and increase risk in the long run, but they can be mandatory these days.
In a memo several years ago, I listed a few phrases that have sunk into obscurity over the course of my career. They included “fiduciary duty,” “preservation of capital” and “dividend yield.” Another is “long-term investor.”
Most investment managers are measured against a benchmark every quarter and expected to add value. Some clients have their fingers on the trigger, ready to axe a manager who underperforms for a year or two. For this reason, managers sit with their own fingers on the trigger, ready to dump a stock or bond whose short-term performance lags. And company CEOs whose securities are laggards are likewise on the hot-seat, with boards that rarely support executives who disappoint Wall Street.
Too many people think of the long run as nothing but a series of short runs. The way to have the best five-year investment record, they think, is by sequentially assembling the twenty portfolios that will produce the best performance in each of the next twenty quarters. No one wants to invest in a company that may lag until long-term investments pay off down the road. They’ll just sell its stock today, assuming they’ll be able to buy it back later.
Understanding this, companies face great pressure to emphasize short-term results. What might they do in response?
• Maximize revenues (perhaps by stuffing pipelines and offering discounts that accelerate future sales into the present).
• Minimize expenses in slow-to-bloom areas like research and development.
• Borrow to buy back stock, because debt capital is cheap and equity is expensive (despite the fact that equity provides safety and leverage amplifies risk).
Do you want your companies doing these things? Probably not. But do the collective external pressures force companies in these directions? Absolutely. The things that maximize profits in the short run often serve to decrease profits and increase risk in the long run, but they can be mandatory these days.
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- Investing In A High-quality Business...
From Capital Returns: Investing in a high-quality company can seem dull and unrewarding in the near-term. The lower risk which comes from investing in quality companies is only properly observed over the long-term. The fact that investors are often...
- Charles Brandes On Risk
From Brandes on Value: Risk has now been popularly redefined as the impact of short-term volatility, not as what it really is, which is the permanent loss of capital. In my more than 40-year career, I have never seen risk as misunderstood yet as...
- Giverny Capital – 2013 Letter To Partners
Link to letter: Giverny Capital – 2013 Letter to PartnersSince 1993, the cornerstone of our investment philosophy is based on Benjamin Graham’s book “The Intelligent Investor”, first published in 1949. In it, Graham wrote: “In the short...
- Eddie Lampert Issues Letter To Sears Associates
Yesterday, Sears Holdings announced our results for the third quarter of 2007. While we were not pleased with these results, much of the commentary in the media and on Wall Street following the results ignores the strength of our company and the progress...
- Moats Matter For Dividend Investors
"Why Moats Matter for Equity Income" Josh Peters, Morningstar "The first thing you have to remember about dividend investing is that dividends are paid out slowly, though, relentlessly, and they really add up over time. But if you're going to actually...