Stock Market Prognosticator

How To Destroy Value

2009-11-11T15:22:00.008-06:00

It was reported today that Motorola (MOT) is shopping around its division that makes set top boxes and other equipment for cable and phone companies. The rumored asking price is around $4.5 billion.

That sounds great, but unfortunately for Motorola and its shareholders, the company paid $11 billion for it 10 years ago. Read how management gushed over it back then:

"This partnership will enable us to expand our portfolio for network access, delivering next-generation solutions along with 'home hubs' that will handle high-speed Internet access and video entertainment, as well as carrier-quality voice services," Motorola chief executive Christopher B. Galvin said. "People want access tailored their way and the ability to get online quickly and simply."

Some might say that Motorola didn't really pay $11 billion since it issued its own stock to complete the purchase. This is nonsense of course.

Deals like this might be a contributing reason to explain why Motorola stock has been a disappointment to many investors.

Interesting Article

2009-10-26T05:45:00.007-05:00

I ran across an academic article recently that I haven't had time to read yet, but thought I would share it with readers of this blog.

The Financial Crisis as a Symbol of the Failure of Academic Finance? and it's available here.

This excerpt from the abstract drew my attention:

"Theoretical constructs such as the efficient markets hypothesis, rational expectations, and market completeness were too often treated as intellectual dogmas instead of (parts of) falsifiable hypotheses...the failure of academics to communicate the limitations of their models and to warn against (potential) misuses of their research - and sins of commission - introducing (often implicitly) ideological or biased features in research programs."

Full Citation

Blommestein, Hans J., The Financial Crisis as a Symbol of the Failure of Academic Finance? (A Methodological Digression) (September 23, 2009).

"Short-Termism" In The Market

2009-09-17T09:22:00.001-05:00

I have blogged constantly about the value and importance of long term investing, and a recent report from the Aspen Institute came out with some practical proposals to fight what they call "short-termism" in the market.

Let's start with the problem as outlined by the institute:

"High rates of portfolio turnover harm ultimate investors’ returns, since the costs associated with frequent trading can significantly erode gains."

"Fund managers with a primary focus on short-term trading gains have little reason to care about long-term corporate performance or externalities, and so are unlikely to exercise a positive role in promoting corporate policies, including appropriate proxy voting and corporate governance policies, that are beneficial and sustainable in the long-term."

"The focus of some short-term investors on quarterly earnings and other short-term metrics can harm the interests of shareholders seeking long-term growth and sustainable earnings, if managers and boards pursue strategies simply to satisfy those short-term investors."

The report recommends market incentives to discourage such short term behavior. This would include revising the capital gains structure to impose a lower tax on stocks held for a longer time period, and an excise tax on short term trading.

These sound like sensible suggestions and should be taken seriously by the powers that be.

The full report is here.

Another Greenshoot

2009-09-15T06:56:00.003-05:00

Another green shoot in the economy hit the tape last week:

"FedEx Corporation (NYSE: FDX) today announced that it expects to report earnings of $0.58 per diluted share for the first quarter ended August 31, down 53% from $1.23 per diluted share a year ago. The company's guidance for the quarter was $0.30 to $0.45 per diluted share."

"FedEx expects earnings to be $0.65 to $0.95 per diluted share in the second quarter, which reflects the current outlook for fuel prices and a continued modest recovery in the global economy."

How many green shoots equal a recovery?

BJ Services Take Under

2009-08-31T20:10:00.010-05:00

Am I the only BJ Services (BJS) shareholder out there who thinks that this is a lousy deal? Is there any hope for a competing bid? BJ Services traded close to $40 back in 2006, and was as high as $33 last summer.

So we get .40 shares of Baker Hughes and $2.69 cash for a big total of $16.47. Wow, that's a big $0.63 premium over the previous close for BJS.

I know that the management of BJ Services has a reputation for being cheap, but that's not supposed to extend to when you sell your own company.

Article Shows That Sell Side Analysts Still Suck

2009-08-13T10:32:00.011-05:00

An article entitled "Behavioural Bias and Conflicts of Interest in Analyst Stock Recommendations" published in the Journal of Business Finance & Accounting examines these issues:

"Whether sell-side analysts are prone to behavioural errors when making stock recommendations as well as the impact of investment banking relationships on their judgments. In particular, we analyse their report narratives for evidence of cognitive bias."

The conclusions:

"New buy recommendations on average have no investment value."

I think everyone already knew that, although I would add that in the short term they can drive the price of a stock up.

"Whereas new sell recommendations do, and take time to be assimilated by the market."

Again, fairly logical since sell side sell recommendations are fairly rare, they are likely to be more noticed.

"We also show that new buy recommendations are distinguished from new sells both by the level of analyst optimism and representativeness bias as well as with increased conflicts of interest."

Just as a review, representativeness bias refers to "A cognitive strategy for quickly estimating the probability that a given instance is a member of a particular category. We use it to judge the likelihood that something or someone belongs to a specific category."

"Successful new buy recommendations are characterised by lower prior returns, value stock status, smaller firms and weaker investment banking relationships."

Small Cap Value stocks with little or no analyst coverage rule.

So what does this all prove? That sell side analysts are humans just like the rest of us and suffer from deviant investment behavior despite what is arguably a higher formal education.

Mokoaleli-Mokoteli, Thabang, Taffler, Richard J. and Agarwal, Vineet,Behavioural Bias and Conflicts of Interest in Analyst Stock Recommendations. Journal of Business Finance & Accounting, Vol. 36, Nos. 3-4, pp. 384-418, April/May 2009. Available at SSRN: http://ssrn.com/abstract=1400370 or DOI: 10.1111/j.1468-5957.2009.02125.x

Health Insurance Debate

2009-08-12T08:08:00.014-05:00

There has been a lot of media attention on the continuing debate over the Obama Health Care proposals that are tortuously making its way through the U.S. legislative process. Well here is another thing to consider - a new study by the folks at Stanford University, the Rand Corporation and the University College of London entitled:

Does Health Insurance Make You Fat?

The conclusion reached was that "We find stronger evidence that being insured increases body mass index and obesity."

Abstract

"The prevalence of obesity has been rising dramatically in the U.S., leading to poor health and rising health care expenditures. The role of policy in addressing rising rates of obesity, however, is controversial. Policy recommendations for interventions intended to influence body weight decisions often assume the obesity creates negative externalities for the non-obese."

"We build on earlier work demonstrating that this argument depends on two important assumptions: 1) that the obese do not pay for their higher medical expenditures through differential payments for health care and health insurance, and 2) that body weight decisions are responsive to the incidence of medical care costs associated with obesity. In this paper, we test the latter proposition – that body weight is influenced by insurance coverage - using two approaches.'

"First, we use data from the Rand Health Insurance Experiment, in which people were randomly assigned to varying levels of health insurance, to examine the effect of generosity of insurance coverage on body weight along the intensive coverage margin. Second, we use instrumental variables methods to estimate the effect of type of insurance coverage (private, public and none) on body weight along the extensive margin."

"We explicitly address the discrete nature of the endogenous indicator of health insurance coverage by estimating a nonlinear instrumental variables model. We find weak evidence that more generous insurance coverage increases body mass index. We find stronger evidence that being insured increases body mass index and obesity."

Bhattacharya, Jayanta, Bundorf, M. Kate Kate, Pace, Noemi and Sood, Neeraj,Does Health Insurance Make You Fat?(July 2009). NBER Working Paper No. w15163. Available at SSRN: http://ssrn.com/abstract=1435601

Value vs. Growth

2009-08-02T06:40:00.002-05:00

The ancient battle between Value and Growth investing continues, with Barron's weighing in with its take on the issue. It's starting to remind me of the Hundred Year's War between France and England or that Star Trek episode where two planets have been at war for five hundred years.

Value Investing has underperformed growth investing over a six month or three year horizon, but Value Investing outperformed in the second quarter of 2009.

The problem with this and all other like statistics is that it artificially categorizes all cheap stock as Value stocks. Barron's uses the Russell indexes to measure performance, and specifically mentions Bear Stearns, Citigroup (C), Freddie Mac (FRE), General Motors, Macy's(M) and JCPenney(JCP) as being particularly harmful to Value investors.

Just because a stock is cheap doesn't make it a Value stock. This is pretty basic and is one of the first things any investor learns after picking up a book written on Value investing.

The Real Vampire Squid On The Face Of Humanity

2009-07-27T10:55:00.012-05:00

Matt Taibbi’s article on Goldman Sachs has now achieved legendary status for the term he coined in this sentence:

“The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”

The entertaining article was a little short on facts, but who cares, after all, in an age where blogging dominates, no one cares about accuracy anymore. What really matters is shock value, and no one should be surprised that this article appeared in a mainstream media publication, as they are desperate to find a way out of its slow death.

I digress, though, as I am not writing this post to argue against the points that the author made. What I am writing about is to tell everyone that the real “vampire squid wrapped around the face of humanity” is not Goldman Sachs but in reality is the “momentum” investor.

When I worked on a trading desk at Morgan Stanley, we had a more colorful name for them. We called them “fast money scum,” and we meant it.

The ethos of the momentum investor is simple in concept. Buy what’s going up. If it keeps going up, buy more. When momentum breaks, get out. Everyone knows who these investors are. When a stock you own is down 20% after it misses earnings by a millionth of a cent – that’s them.

The momentum investor has enabled all three bubbles in the last ten years – Technology/Internet, Real Estate/Homebuilding and Commodities. They do this by pushing stocks up far above what they should be trading for on a fundamental basis.

It wouldn’t be so bad if these investors were honest about what they do, but they are not. They usually manufacture or hide behind some fundamental story about whatever sector is bubbling up, usually in league with sell side enablers, who are enamored of the trading commissions they generate.

Even worse, the financial media - CNBC and Bloomberg TV - orient programming toward this group, by amplifying short term trends, rather than discouraging it.

This infects the entire market as institutional investors, most of whom are trained as fundamental investors, are forced to jump on the bandwagon, lest they be left behind in the relative performance game.

Momentum investors have cost ordinary investors trillions in wealth over the last decade, as many small investors buy into these fundamental stories and then don’t realize when momentum breaks and the plug is pulled.

Any new regulatory initiatives out of the Obama Administration should be oriented toward controlling or destroying these investors.

Sovereign Wealth Funds

2009-07-21T06:06:00.007-05:00

Does anyone remember a year ago when everyone pundit and media outlet predicted that Sovereign Wealth Funds were going to take over the world? The assets they controlled were growing so quickly due mostly to the commodity boom that it was starting to create hysteria in the United States. It's amazing how quickly the conventional wisdom can change.

From the Financial Times:

"The financial clout of sovereign wealth funds has been savaged by the credit crisis as the value of their assets has plunged and forecasts for their growth have been dramatically scaled back."

Steve Forbes Video

2009-07-12T15:33:00.002-05:00

Steve Forbes drags Julius Caesar into the current financial crisis in a video from late June 2009. He compares Caesar's hubris to that of those who led our financial system into disaster.

Hubris is a Greek word which is officially defined as either overbearing pride or presumption or arrogance. The word is used, in the context of our financial crisis, to refer to a group of financial elite, or "masters of the universe" who felt that they could manufacture unlimited speculative profits using almost unlimited leverage, without any significant risk.

I agree with Steve Forbes on this, but his historical knowledge is severely lacking. He states in the video that Caesar conquered more land than any military leader in history, and specifically mentions Alexander the Great. This is clearly not true, as Alexander controlled a larger empire as measured by land mass, than Rome at its largest extent. Look at the links after the video.

This is a map of the Roman Empire at its peak in 117 A.D., which is 150 years after Caesar was killed. Since Alexander has a larger empire than Rome at its largest,then he certainly had a larger one than at the time of Caesar.

This is a map of the land that Alexander conquered.

Wikipedia also has a list of the largest empires in history as measured by land mass. Rome is way down on the list.

List of largest empires.

What Will The End of Newspapers Mean For Blogging?

2009-07-10T08:33:00.002-05:00

Here’s the real issue behind the fall of the Newspaper industry. What will all those bloggers do when there are no newspapers left and they can’t scrape content from a newspaper while hiding behind the “fair use” doctrine?

If you’re not familiar with scraping content, it works like this. Cut and paste the opening paragraph from the online version of an in print Newspaper article. You can put it in quotes, with a link to the original source if you are generous, or just reference it without a source. Charts and tables are also copied into the blog. You then frame the content with your thoughts on it afterward.

You’d be surprised how much web content is derived from this without any thought to how difficult it is to write these newspaper articles. No consideration is given to the hours spent researching stories or wading through dense government press releases, or the years spent cultivating sources, etc.

I just looked at the front page of a highly followed blogger who has been in the news a lot lately, and fully 50% of his stories are scraped from other publications. This blogger does give full credit to the source with a link. Just something to think about.

So Much For Chinese Demand

2009-06-29T08:25:00.001-05:00

"The International Energy Agency cut its oil demand estimates for every year through 2013 by about 3 million barrels a day, it said in its Medium- Term Oil Market Report today. Consumption will average 86.76 million barrels a day in 2012, the first year it will rise above 2008’s level of 85.76 million barrels a day, according to the Paris-based agency."

Well so much for demand for Energy from China. This demand growth has always been hyped by Energy bulls, but as I and many others have stated previously, what really matters is demand growth from the the U.S. and other industrialized nations.

Here is how the math works:

Oil demand in 2009 for the OECD countries is 45.2 million barrels per day, down 2.3 million barrels per day from 2008.

China oil demand is 7.9 million barrels per day. Let's assume that it grows at 5% a year, or about 400,000 barrels per day.

As you can see, the fall in demand from the OECD easily wipes out demand growth from China by a factor of at least five.

Two More Oil Bears

2009-06-17T08:38:00.007-05:00

James Mulva, the CEO of Conoco Phillips said that the doubling in the price of oil off of its bottom to $73 a barrel was "a little bit ahead of the actual supply and demand situation and inventory levels."

Nouriel Roubini, the economist, said that the rally in oil prices was "too high too soon." Here's a short video of Roubini covering his full views on the current economy.

When General Motors Ruled The World - Part III

2009-06-13T09:26:00.002-05:00

General Motors was formed in 1908 by William Durant, when he incorporated the Buick Motor Company. Later that year, Oldsmobile becomes the second company to join General Motors. In 1909, General Motors purchased a 50% interest in the Oakland Motor Car Company, which later became known as Pontiac. In 1909, General Motors bought Cadillac for $5.5 million. This is a photographic tribute to this iconic American institution.

In 1936 and 1937 the United Auto Workers (UAW)attempted to organize the labor force at General Motors. This strike later became known as the "Flint sit down strike," where workers occupied the large General Motors plant in Flint, Michigan.

The strike spread to other plants and in February 1937, General Motors capitulated and recognized the UAW as the exclusive bargaining representative of workers in the union.

The first three pictures below are of John L. Lewis, and other labor leaders discussing the strike in January 1937 in Washington, DC.

Did the union victory in 1937 plant the seeds of the eventual destruction of General Motors? These men had no way of knowing, obviously, and were just fighting for basic rights that we take for granted. It certainly is not fair to blame the union for all of the ills of General Motors, as management made its share of bad decisions.

The final picture is the management of General Motors, including Alfred Sloan, discussing the strike with the Governor of Michigan and the U.S. Secretary of Labor. The management of General Motors refused to even sit in the same room with the Union leaders and all negotiations had to be done through intermediaries.

When General Motors Ruled The World - Part II

2009-06-11T09:25:00.002-05:00

They Did Have Good Intentions

2009-06-10T08:56:00.002-05:00

Another video from a lecture series called "The Culture that Spawned the Crisis: A Closer Look" held at The National Constitution Center in May 2009. The speaker is Peter Wallison, who worked in government during the Reagan Administration.

He argues that a push under the Clinton and Bush administration's to increase the homeownership rate was a worthy goal, but it was done by distorting the credit market by pressuring banks and the two Government Sponsored Entities to make loans that they should not have made. This is not the first time that someone has made this point, but it does bear repeating.

A Pathological Mutation of Capitalism

2009-06-06T08:30:00.002-05:00

I wanted to share an interesting video from a lecture series at the National Constitution Center entitled "The Culture that Spawned the Crisis: A Closer Look." Several speakers argue that the changing culture of the United States led to the conditions that caused the financial crisis.

Some of these cultural changes include the concept of "thrift" which used to be an important part of American culture, but over a generation evolved into a culture of envy and personal gratification, where people expect something for nothing.

John Bogle, the founder of the Vanguard Group, speaks in this video. He uses the the term "pathological mutation" to describe the change in our capitalistic system, from a traditional owners capitalism where rewards went to the owner and providers of capital to a managers capitalism where the majority of rewards went to corporate managers and financial intermediaries.

When General Motors Ruled The World

2009-06-04T08:42:00.009-05:00

White Mountains Insurance Analyst Day 2009 - Part II

2009-06-01T08:26:00.003-05:00

Here are my notes from the White Mountains Insurance Analyst Day held on May 20, 2009. These are for the introductory section, the financial highlights and a review of bad news in 2008. When I went back to the events section of the White Mountains Insurance web page, the webcast link was missing, so I don't know if I'll be able to review the rest of the meeting. I have e-mailed the company asking for the link but haven't heard back. If anyone has the link to the webcast, please send it to me.

2008 – Bad News

WTM had $1 billion in excess undeployed capital last year because of a lack of investment opportunities – so the company bought back stock and did Berkshire transaction. Barrette admitted that with hindsight this was obviously, not a good idea. He doesn’t think it will destroy value but will not do what he thought it would do.

Equity Portfolio – Bad News

Equities as a percent of adjusted shareholder value has gone from 55% in December 2007 to 70% pro forma for the Berkshire transaction in June 2008, to just under 38% in the first quarter of 2009. He said that with hindsight the company should have sold down its equity portfolio, but instead paid Berkshire out of proceeds from its fixed income portfolio.

By December 2008, WTM altered its equity strategy to a goal of capital preservation. After first two weeks of October 2008, WTM found its capital falling to levels that came close to minimum capital levels necessary to keep credit ratings where they needed to be. Moved out of common stocks and de risked fixed income portfolio.

Barrette said the company likes what they own and would probably own some different things if they had more capital or flexibility. WTM owns things not because they have to but because they want to.

WTM Life Re – Bad News

This was a business that WTM got into that it didn’t fully understand what they were getting into. Alan Waters is in charge of fixing the business.

WTM has reinsured two blocks of Japanese variable annuity policies with same counter party that guarantees the return of initial deposit at death or maturity. These are ten year policies with average remaining life of 7 years. Outstanding guarantee is $2.5 billion for WTM, which is the difference between the account value and the guaranty value. Seventy percent is invested in fixed income index funds, and 30% in equity index finds.

Lost $188 million in this business in 2008, $181 million in last quarter of 2008. This loss comprised $93 million from assumption and model changes, which was the change in WTM assumptions on policyholders surrenders.

When a policyholder surrenders a policy the insurer does not pay full guarantee value of policy but only the account value so when account or asset values are low, high surrender are good. Unfortunately for WTM actual surrenders were well below what the company had estimated when they wrote the policy so they had to change the surrender assumption in the last quarter of 2008. WTM changed surrender assumption from 6.2% to 2.2% of all policies.

WTM lost $32 million in first quarter of 2009, but business is now marginally profitable now that the markets have calmed down.

WTM has reduced risk through increased hedging and improved method of hedging. WTM uses swaps instead of bond futures. Increased volatility coverage from 60% to 70%., and added local trading coverage in Europe and Asia.

WTM is still sensitive to surrender rates and if rate decreased to 1.1% then it would cost company $44 million.

Barrette says WTM ventured into a business it did not fully understand, and now he understands that they didn’t fully understand it, and he apologizes for it.

Barrette said it is a big loss but believes that they have it under control but there is still possible downside. The lesson is when something looks easy then look again. WTM usually laughs at those who get into its business who think it is easy and now they are on the other side of that.

White Mountains Insurance Analyst Day 2009 - Part I

2009-05-30T08:21:00.013-05:00

Here are my notes from the White Mountains Insurance Analyst Day held on May 20, 2009. These are for the introductory section, the financial highlights and a review of bad news in 2008. When I went back to the events section of the White Mountains Insurance web page, the webcast link was missing, so I don't know if I'll be able to review the rest of the meeting. I have e-mailed the company asking for the link but haven't heard back. If anyone has the link to the webcast, please send it to me.

Notes

Ray Barrette introduces the Board of Directors of White Mountains Insurance (WTM) and says that some are in the room and the rest are listening on the phone. He commented that the Board had a tough time with them due to the poor returns the last few years. Barrette says that he was not sure if Bruce Berkowitz would be there in person or listening on the web.

Barrette then introduced some of the WTM people who would be speaking:

David Foy, CFO
David Linker? (spelling), fixed income manager
Mike Miller, One Beacon
Alan Waters. White Mountains Re

Financial Highlights

Barrette said that 2008 was a tough tough year. Book value of WTM dropped 20% and book value of One Beacon dropped 22%. First quarter things have stabilized with WTM book value flat and OneBeacon up 3%.

One Beacon combined ratio at 94% for first quarter of 2009.

WTM Re has had a bit of an up and down combined ratio and has had reserve issues in the past but Barrette believes that those reserve issues are behind them. He knows that he has said that before and if people are skeptical he is not surprised.

Answer Financial (AFI) – controls $1.2 billion in premiums combined with Esurance. He believes that Esurance/AFI is third choice for consumers behind Geico and Progressive.

Esurance combined ratio is at 103% in first quarter of 2009, but WTM looks at loss ratio rather than combined ratio, but the combined ratio did come down 10 points. WTM cut marketing and advertising expenses but are ready to ramp them up when needed.

Investment Returns

Barrette said it was the first time in his very long career that underwriting is doing well, but investments are the problem. Investments were always value added to the company. Total investment results were down 9.5% in 2008, and while this might be good for some people, the company’s job is not to lose money, and the company was disappointed with that. Things stabilized in first quarter of 2009, and the company likes what it owns.

Surprise from last year was Life Reinsurance business, which they had barely talked about in past meetings and then there were significant losses with it. First quarter of 2009 was a problem and the company lost $32 million in the Life Reinsurance business, but things have stabilized.

Book Value Growth

Barrette said this a chart that he used to love to show at investor meetings, but it looks a whole lot less attractive now. Since IPO in 1985, 15% growth in book value – still ranks pretty high in industry. Stock value growth used to be above book value growth but now it is below.

Since 1999, book value has grown at 10% a year and market value of stock at 8% a year. Barrette apologizes for the results.

The Mind of Wall Street - Part II

2009-05-29T08:04:00.003-05:00

I just started reading a book called “The Mind of Wall Street,” by Leon Levy. Levy died in 2003, but had a fifty year career on Wall Street and was one of the early partners at Oppenheimer and Company. Levy is a value and contrarian investor who incorporates the psychology of the market into his investment process.

An interesting bit of information is that according to Levy, the concept of the adjustable rate mortgage was conceived by Gene Fenton, an employee of Oppenheimer and Company. Fenton, in true Wall Street spirit, constructed it so that it could only adjust upwards. Of course, this concept did not catch on too well given the one sided nature of the product.

Some time later, Marion Sandler, another Oppenheimer and Company employee, came along and changed it so it would adjust either way. If you don't recognize this name, years later Marion and Herb Sandler went on to fame with Great West Financial, a leader in the mortgage market. The Sandlers sold out to Wachovia at the peak of the housing bubble.

FDIC Quarterly Banking Profile - Q1-2009

2009-05-28T05:48:00.001-05:00

The Federal Deposit Insurance Corporation (FDIC) just released its quarterly banking profile for the first quarter of 2009. Highlights include:

1) FDIC-insured institutions post an aggregate net profit of $7.6 billion in the first quarter of 2009. This was down 60.8% year over year, but up from the $36.9 billion net loss reported in the fourth quarter of 2008.

2) Banks set aside $60.9 billion in loan loss provisions.

3) Banks reported an average net interest margin of 3.39%.

4) First-quarter net charge-offs of $37.8 billion.

5) Noncurrent loans and leases increased by $59.2 billion, the largest increase in three years.

6) The percentage of loans and leases that were noncurrent in the quarter was 3.76%, the highest percent since 1991.

7) Total equity capital of insured institutions increased by $82.1 billion in the first quarter, concentrated mostly in large TARP recipients.

8) Twenty one banks failed in the quarter, the most since 1992.

Varsity Notes

2009-05-27T12:29:00.007-05:00

I recently stumbled across an interesting web site that contains hundreds of free lecture notes and other materials for various courses at different colleges and universities across the world.

The site is called Varsity Notes, and is great if you want to freshen up your knowledge in certain areas related to investing or elsewhere. The relevant categories for our purposes would be:

Finance

Business Administration

Economics

Accounting

Some of the more famous professors whose notes are available include Aswath Damodaran of New York University. Damodaran makes available on his web site a 58 page handout on Valuation.

The Mind of Wall Street

2009-05-25T08:07:00.004-05:00

I just started reading a book called “The Mind of Wall Street,” by Leon Levy. Leon Levy was one of the first partners at Oppenheimer and Company. Levy died in 2003, and was a value investor incorporating much behavioral psychology into his investment process.

When I saw the book at the store, I saw the title and the name Levy, and my eyes skipped over the first name and I assumed that Gus Levy was the author. Gus Levy was in charge of Goldman Sachs in the early 1970’s.

Oppenheimer and Company has an interesting history. The firm was founded in 1951 after Max Oppenheimer left the firm Hirsch and Co. Levy joined soon after that. Oppenheimer catered to many German refugees at the beginning, and in the first few years more German was spoken at Oppenheimer than English.

Another interesting tidbit recounted by Levy was his accounting of the ethnic divisions that used to exist on Wall Street. The major street firms were broken down as follows:

Merrill Lynch – Catholic.
Brown Brothers, Morgan Stanley – WASP
Goldman Sachs, Lehman Brothers - Jewish

This book should be an interesting read, and I will post on it over the next few weeks.