ebook essays pieces of the puzzle
Friday, September 17th, 2010
big growth questions

Since the March 2009 bottom, the large growth stocks have lagged considerably in performance.  (The chart above shows the four main Russell indexes.)  However, such comparisons are always very time sensitive — start your chart before the financial crisis and watch the large-cap value index go to the bottom of the heap.  There’s been a lot of chopping around over the last year, after the initial strong move.  All four of the indexes have returned in the mid-single digits during that period, with the large growth stocks actually leading by a small amount.  Nevertheless, it seems as if those blue chips are fodder for the battles between the bots and the ETF players, while being sold on balance by long-term investors.  Meanwhile, the valuations keep going lower.  (Chart:  Bloomberg terminal.)

private equity-backed deals

Renaissance Capital, which specializes in IPOs, has released an analysis of new issues that come out of private equity firms.  Such offerings are making up a larger percentage of new public companies, and the deals tend to perform differently, especially at first.  A helpful summary.

five dumb things

Check out this posting from 2003 from TheStreet.com of five dumb things on Wall Street in a particular week.  Of special interest are #2, in which Motorola defines what “flat” means (when variants of “down” would have sufficed); #5, regarding the apparent surprise of a $455 billion federal deficit (ah, those were the days); and #3, on analysts cheering on corporate managements, in this case Merrill Lynch (it was its own company then, you know).  “When analysts congratulate, you go underweight.”

razors and blades

In the old days, a new piece of academic research would be debated back and forth by the experts in the field, each of whom knew the genealogical tree of the idea in question.  Now, not so much.  Research gets posted on SSRN, someone in the blogosphere comments on it, and, while “going viral” is an overstatement, it’s surprising how quickly an idea can spread.  Take Randal Picker’s paper on razors and blades, which was picked up in a hurry by a number of websites.  Perhaps it’s because so many of us have had to deal with managements and analysts using the analogy over time to explain a business and are glad to see the model challenged.  (By the way, if you are an academic, or anyone else for that matter, that pines for the old days, you can consider disconnecting from the flow altogether.)

mind the gaap

Monday’s pix referenced a thoughtful piece from interfluidity on financial statement analysis.  A paper from Stanford Graduate School of Business explores some related ground; it’s titled, “Pro Forma Earnings:  What’s Wrong with GAAP?”  Included in the exhibits are looks at the differences in GAAP and non-GAAP numbers for major companies.  My take is that GAAP (as improved over time) should be required and should be the standard for reporting on all market data sources (none of this “let the analysts choose by company” as occurs now), but that companies should share other looks at their business and analysts should be creative in trying to figure out how best to determine value.  As the Stanford paper notes, the non-GAAP numbers often have a higher information content, but we need a common place to start for all firms.