performance - What We're Reading - StockBuz2024-03-29T00:56:32Zhttp://stockbuz.ning.com/articles/feed/tag/performanceThe Fund Manager From The Poor Background Achieved Morehttp://stockbuz.ning.com/articles/the-fund-manager-from-the-poor-background-achieved-more2017-01-11T18:57:07.000Z2017-01-11T18:57:07.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><div class="left"><span class="font-size-2" style="color: #ffffff;"><a href="http://www.nber.org/digest/dec16/managers.jpg" target="_blank"></a><a href="http://www.nber.org/digest/dec16/managers.jpg?width=408" target="_blank"><img src="http://www.nber.org/digest/dec16/managers.jpg?width=300" class="align-left" width="300" /></a></span></div>
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<p style="font-size: 20px; color: #000000; line-height: 28px; margin-left: 10px; margin-right: 10px; text-align: justify; font-family: Arial,Helvetica,sans-serif;"><span class="font-size-2" style="color: #ffffff;">Individuals from less privileged backgrounds may face higher barriers to entry into prestigious positions, meaning only the most skilled advance and succeed.</span></p>
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<p style="font-size: 20px; color: #000000; line-height: 28px; margin-left: 10px; margin-right: 10px; text-align: justify; font-family: Arial,Helvetica,sans-serif;"><span class="font-size-2" style="color: #ffffff;">In <b>Family Descent as a Signal of Managerial Quality: Evidence from Mutual Funds</b> (NBER Working Paper No. <a href="http://www.nber.org/papers/22517"><span style="color: #ffffff;"><font color="#007AC0">22517</font></span></a>), <a href="http://www.nber.org/people/oleg_chuprinin_1r"><span style="color: #ffffff;"><font color="#007AC0">Oleg Chuprinin</font></span></a> and <a href="http://www.nber.org/people/denis_sosyura"><span style="color: #ffffff;"><font color="#007AC0">Denis Sosyura</font></span></a> find that mutual fund managers from poor families consistently achieve better investment results than fund managers from wealthier backgrounds. The researchers also find significant differences in promotion patterns and trading styles between these two types of fund managers.</span></p>
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<p style="font-size: 20px; color: #000000; line-height: 28px; margin-left: 10px; margin-right: 10px; text-align: justify; font-family: Arial,Helvetica,sans-serif;"><span class="font-size-2" style="color: #ffffff;">Previous studies about the relationship between managers' upbringing and their performance have focused on educational differences, including whether the managers attended elite universities or had access to education-related networks of influential people who could later help boost their careers. Such studies tend to find that managers with a stronger educational background tend to deliver better performance.</span><br />
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<span class="font-size-2" style="color: #ffffff;">This study relies on hand-collected data from individual U.S. Census records on the wealth and income of managers' parents. The researchers also identified and verified fund managers via Morningstar, Nelson's Directory of Investment Managers, and LexisNexis Public Records. They ultimately identified hundreds of fund managers, most born in the mid-1940s, whose parents' Census records were in the public domain. They then examined the performance of hundreds of actively managed mutual funds focused on U.S. equities between the years 1975 and 2012.</span><br />
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<span class="font-size-2" style="color: #ffffff;">The researchers find that mutual fund managers from wealthier backgrounds delivered "significantly weaker performance than managers descending from less wealthy families." Managers from families in the top quintile of wealth underperformed managers in the bottom quintile by over one percent per year on a risk-adjusted basis.</span><br />
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<span class="font-size-2" style="color: #ffffff;">The researchers emphasize that these findings do not imply that those from poor families are in general better at their jobs than those with a more fortunate background. Rather, because individuals from less-privileged backgrounds have higher barriers to entry into prestigious positions, they argue, only the most skilled advance and succeed.</span><br />
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<span class="font-size-2" style="color: #ffffff;">Indeed, in tracking career trajectories of mutual fund managers, they find that the promotions of managers from well-to-do families are less sensitive to their performance. In other words, managers who are born rich are more likely to be promoted for reasons unrelated to performance. In contrast, those born into poor families are fewer in number and are promoted only if they outperform. They also find that fund managers from less-affluent families who do make it into top ranks are more active on their job: they are more likely to trade and deviate from the market, whereas those born rich are more likely to follow benchmark indexes.</span><br />
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<span class="font-size-2" style="color: #ffffff;">The researchers note that they chose to study mutual fund managers because they often work independently, and because funds' performance can easily be measured for comparison purposes. But they say their findings about family background and job performance may have implications that extend beyond asset management. "Our evidence suggests that an individual's social status at birth may serve as an important signal of quality in other industries with high barriers to entry, such as corporate management or professional services," they conclude.</span></p>
<p style="font-size: 20px; color: #000000; line-height: 28px; margin-left: 10px; margin-right: 10px; text-align: justify; font-family: Arial,Helvetica,sans-serif;"><span class="font-size-2" style="color: #ffffff;">Courtesy of <a href="http://www.nber.org/digest/dec16/w22517.html" target="_blank"><span style="color: #ffffff;">NBER</span></a></span></p>
</div>Why "Tobins Q" Ratio Should Have You Concernedhttp://stockbuz.ning.com/articles/why-tobins-q-ratio-should-have-you-concerned2016-05-07T21:37:49.000Z2016-05-07T21:37:49.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291310?profile=original"><img class="align-full" src="http://storage.ning.com/topology/rest/1.0/file/get/1291310?profile=RESIZE_1024x1024" width="750"></a>After writing “<a href="https://www.thefelderreport.com/2016/04/12/heres-the-perfect-metaphor-for-fed-policy/">Here’s The Perfect Metaphor For Recent Fed Policy</a>,” I had to pick up a copy of <a href="http://amzn.to/1Tt8VTd"><em>The Dao of Capital</em></a>. Mark Spitznagel just has a unique way of looking at the markets that really resonates with me.</p>
<p>One thing that really jumped out at me while reading it was Spitznagel’s research regarding Tobin’s Q, (though he calls it, “The Misesian Stationarity Index”). It struck me for two reasons. First, I haven’t seen much research like this elsewhere and second, the opinions I have seen regarding it are all of a dismissive nature.</p>
<p>Just Google “Tobin’s Q” and you’ll find all sorts of pieces proclaiming, ‘Don’t worry about Tobin’s Q,’ and, ‘Tobin’s Q is not an effective way to time the market,’ etc. Actually, both of these sentiments are incorrect.</p>
<p>Spitznagel’s research published in the book shows investors should be worried about the extreme level of Tobin’s Q today for the simple fact that is a very good way to time the market.</p>
<p>But before I get into that I should probably explain what the ratio is. It’s pretty simple, really; the Q-Ratio is just the total value of the stock market (numerator) relative to the total net worth of the companies that comprise it (denominator). The data is provided quarterly by the Fed.</p>
<p>When the Q-Ratio is very low, stocks, as a group, are inexpensive relative to their replacement cost. Conversely, when the ratio is very high, stocks are relatively expensive in this regard.</p>
<p>Critics have suggested this way of thinking about the stock market is outdated. In other words, “<a href="https://www.thefelderreport.com/2015/03/23/im-hearing-a-lot-of-smart-people-use-the-four-most-dangerous-words-in-investing-these-days/">this time is different</a>.” And even if they admit that comparing equity valuations to net worth has some value they insist that value does not include timing the market.</p>
<p>However, Spitznagel shows that when you separate the historical record of the ratio into quartiles and compare forward returns to the risk-free rate, stocks have performed very poorly after very high q-ratio readings. They also performed very well after very low q-ratio readings. Once again, it turns out that, “<a href="https://www.thefelderreport.com/2016/01/21/is-it-time-to-buy-stocks-not-if-youre-a-long-term-investor/">the price you pay determines your rate of return</a>,” is validated by the data.</p>
<p><a href="https://i2.wp.com/www.thefelderreport.com/wp-content/uploads/2016/05/Returns.jpeg?ssl=1"><img class="aligncenter size-large wp-image-10549" src="https://i2.wp.com/www.thefelderreport.com/wp-content/uploads/2016/05/Returns.jpeg?zoom=1.5&resize=696%2C531&ssl=1" alt="Returns" height="531" width="696"></a></p>
<p>Additionally, when the Q-Ratio has been very high, as it is today, the size of the subsequent drawdowns were much larger than those following low readings in the ratio. In other words, when stocks become largely very expensive, as they are today (see the chart at the top of this post) we should come to expect large losses.</p>
<p><a href="https://i2.wp.com/www.thefelderreport.com/wp-content/uploads/2016/05/Drawdowns.jpg?ssl=1"><img class="aligncenter size-large wp-image-10550" src="https://i2.wp.com/www.thefelderreport.com/wp-content/uploads/2016/05/Drawdowns.jpg?zoom=1.5&resize=696%2C517&ssl=1" alt="Drawdowns" height="517" width="696"></a></p>
<p>So if you care about forward returns relative to potential drawdowns, the Q-Ratio is something you probably want to pay very close attention to. Clearly, it has great value in determining this reward-to-risk ratio that is critical to the <a href="https://www.thefelderreport.com/2016/01/25/2-questions-to-ask-yourself-if-youre-worried-about-your-investments-right-now/">investment process</a>. And, like <a href="https://www.thefelderreport.com/2016/03/11/this-is-still-the-worst-possible-environment-for-stock-market-investors/">other measures</a>, the Q-Ratio is currently suggesting investors are taking a great deal of risk for very little in the way of potential reward.</p>
<p>How the Q-Ratio comes to be so skewed is different topic altogether and something you’ll learn in reading the book. But <a href="https://www.thefelderreport.com/2016/01/05/if-youve-been-wondering-whats-driven-the-recent-bull-market-in-stocks/">here’s a hint</a>. And if you need further incentive to <a href="http://amzn.to/1WIF9yT">pick up a copy</a>, Spitznagel also includes a couple of simple strategies built around the Q-Ratio that handily beat a buy-and-hold approach.</p>
<p>Courtesy of <a href="https://www.thefelderreport.com/2016/05/04/why-tobins-q-should-make-you-more-cautious-towards-the-stock-market-today/" target="_blank">TheFelderReport</a></p></div>Stock Buybacks. Should You Buy These Companies?http://stockbuz.ning.com/articles/stock-buybacks-should-you-buy-these-companies2013-06-01T02:00:00.000Z2013-06-01T02:00:00.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1290274?profile=original"><img class="align-left" style="padding: 10px;" src="http://storage.ning.com/topology/rest/1.0/file/get/1290249?profile=original" width="310"></a>At their worst, stock buybacks can be a form of corporate cannibalism. Often the unspoken motive is to use extra cash to boost earnings per share by reducing the number of shares among which the company's profits are divided. But that can be a slippery slope says <a href="http://online.wsj.com/article/SB10001424052970203405504576603124202273828.html" target="_blank">Kevin Beech</a>, an Analyst at Behind The Numbers. "If they don't keep repurchasing stock, their earnings will take a hit. So it can turn into a sort of an addiction."</p>
<p>Another question is how prudent will they be in their repurchase? Will they do so at a high p/e (flashback to NFLX Reed Hastings buying back @ $300/share in 2011) or will they do so on weakness and during dips? </p>
<p>Still others actually <em><strong>target</strong></em> names with a share repurchase as <a href="http://seekingalpha.com/article/76379-why-you-should-short-companies-doing-share-buybacks" target="_blank">short candidates</a> for a variety of (very possibly prudent) reasons. (Hat tip to veteran member GT)</p>
<p>Lastly you must ask yourself <em>do companies with stock buybacks <strong>perform</strong> as well, better or worse than the S&P</em>? Talking heads would have you believe a stock repurchase drives prices higher.........really?</p>
<p><span class="font-size-3"><strong>I truly encourage you to check the data for yourselves</strong></span> in this <a href="http://www.factset.com/websitefiles/PDFs/buyback/buyback_4.2.13" target="_blank">Factset PD</a>F as it does not appear to that to be the case. In fact, they <span style="text-decoration: underline;"><em>underperform</em> the broader market</span>. Clearly buybacks are not all sweetness and light as you would be lead to believe and news television never got the memo as they are continually hyping companies with stock buybacks. Go figure! They have to keep those sponsors happy now, don't they. </p></div>