MISLEADING CEO PERFORMANCE

David MoonBlog

by David Moon When General Electric CEO Jeffrey Immelt announced on June 12 he was stepping down as the company’s CEO, he did so under fire from a number of shareholders for poor company performance during his tenure. However, Immelt’s time at GE juxtaposed against the performance of another high-profile CEO, Yahoo’s Marissa Mayer, highlights the often misleading nature of executive performance. Immelt is considered a failure by many observers. Since taking over the reins from Jack Welch almost 17 years ago, the stock price has fallen from $48 per share to $29. If the job of management is to … Read More

Stock prices and earnings disconnected

David MoonBlog

by David Moon The NASDAQ Composite finally caught up with the Dow Jones Industrial Average and S&P 500, hitting multiple new highs in the past couple of weeks. The index records have some investors celebrating, some cautious and some outright concerned. They are all right. As someone whose business involves, to a large extent, owning shares of stock, record high stock prices is a good thing, both for our firm and our investors. But current index levels are vulnerable because of their disconnect from underlying fundamentals. Not all investors agree. “Technical investors” believe that stock prices adhere to the laws … Read More

Consumer strength misleading

David MoonBlog

by David Moon Headlines this past week heralded that Americans’ credit scores reached an all-time high in April, finally signaling a full and robust recovery from the recession of 2007-08. The average credit score is now 700, a level considered good-to-excellent. A full 60% of Americans now score at or above that influential figure. The average score in Tennessee is 666. The cause of these higher scores is misleading and the result of the higher scores could create problems. Chapter 10 bankruptcies fall out of your credit score calculation after ten years. The first wave of these bankruptcies and foreclosures … Read More

Risk is not volatility

David MoonBlog

by David Moon The investment industry has lied to you. Risk is not volatility. Investment risk is not standard deviation, beta or some other statistic masquerading as a Greek letter. Regardless of the how many fancy reports you’ve received stating otherwise, risk cannot be measured to two decimal places. Variability in the price of an investment, or group of investments, plays a role in one type of risk: the risk that you might be forced to liquidate an investment at an inopportune time. This is a risk faced by short sellers, those who invest with borrowed money, people who own … Read More

Other peoples’ money funds mistakes

David MoonBlog

by David Moon Puerto Rico is broke and in default on $58 billion in debt. Its solution is to make payment on the loans in default with a sales tax revenue stream that is already committed as collateral for $15 billion of still performing loans. Lawsuits are flying, as Puerto Rican officials describe the dire consequences that will occur if it isn’t doesn’t breech existing bond covenants. Puerto Rico’s attempt to unilaterally divert collateral from one loan to another is the equivalent of trying to get multiple mortgages on your home and promising each lender a first lien. People go … Read More

Passive news consumption risky

David MoonBlog

by David Moon On April 26, 1478, an audience of 10,000 sat in the Florence Cathedral in Italy celebrating Easter Mass, as conspirators organized by one of the city’s leading families, the Pazzi, attacked two brothers of the Medici family, their arch-rival, successfully assassinating the eldest. The conspirators, including the archbishop of Pisa, were executed, their bodies dragged through the streets of Florence until the flesh was fully ripped from the corpses. The medieval Italian political and papal class made the 20th century mafia look like rank amateurs. Yet surveys regularly find that Americans incorrectly believe that violent crime is … Read More

Notes from Berkshire meeting

David MoonBlog

Although a written document can’t do justice to Paul Anka and Warren Buffett singing a Berkshire-ized version of “My Way,” Adam Blum’s notes from the the Berkshire Hathaway shareholders’ meeting last week are outstanding. Adam Blum’s 2017 Berkshire Hathaway annual meeting notes – May 6 2017

Munger’s comments also worth reading

David MoonBlog, Charlie Munger

Last week, 40,000 people crammed into Omaha’s CenturyLink Center for the Berkshire Hathaway shareholders’ meeting to hear Warren Buffett and partner Charlie Munger field questions on almost every imaginable subject. A more intimate setting to have personal access to Munger is the annual meeting of the Daily Journal Corporation, a small publishing company in Los Angeles. Munger is the board chairman.  2017 was a rare year that no one from MCM attended the meeting, but here is one attendee’s 10-page summary of the meeting and Munger’s comments, followed by two Munger essays on the Great Recession of 2008-09 (published in … Read More

Lessons from Buffett’s stock managers

David MoonBlog

by David Moon Warren Buffett, arguably the most talented investor of the past 50 years, owns investments that generally fall into one of three categories: wholly-owned operating businesses (such as GEICO, Dairy Queen and Clayton Homes); investments in public-traded securities (including American Express, Coca-Cola and John Deere); and direct, minority investments in various businesses. His company, Berkshire Hathaway, also holds $82 billion in cash, more than the U.S. federal government. Buffett and Berkshire Vice Chairman Charlie Munger made all of the company’s investment decisions until 2010, when Buffett hired hedge fund manager Todd Combs to manage a small portion of … Read More

Opportunity costs and trade policies

David MoonBlog

by David Moon A politically charged debate about foreign trade, tariffs and domestic jobs quickly obfuscates the economic, not political, reason a country engages in international trade: to improve that country’s overall economy. The explanation is counter-intuitive, but true nonetheless. Ignoring political considerations (an unrealistic fantasy) a country should import any good that an overseas trading partner can produce at a lower opportunity cost, regardless of which country could produce the item at the lowest absolute cost. The U.S. is currently the world’s leading aviation manufacturer, responsible for 40 percent of the world’s aircrafts; Mexico produces 45 percent of the … Read More