ebook essays pieces of the puzzle
Tuesday, August 17th, 2010
printing the numbers

As I walked through an airport last week, I saw a newspaper on a kiosk that had a picture of Mark Hurd, a chart of Hewlett-Packard (HPQ) stock, and a shocking headline.  I had been blissfully unaware of the story.  In the time since, there have been a number of explanations as to why the drama unfolded as it did.  The one that resonates with me is from Joe Nocera’s column, since Hurd exhibited the attributes of the prototypical modern CEO.  Time and again we have seen laudatory press and atta-boy conference calls for CEOs that drive the bottom line higher by wringing out costs.  It’s a great way to goose the stock and make those options pay off, but the question is what you are left with in the end.  Too often, you get a hollowed-out firm with a hollowed-out culture that’s not nearly what it was before.  In the top chart, you see operating margins for HPQ over time, now restored to their former glory, but how?  The bottom chart, showing R&D as a percentage of revenue, provides one clue — apparently garage tinkerers no longer need apply.

By the way, the best computer printer that I have owned was a Hewlett-Packard model bought in the Nineties that was still going strong almost a decade after I got it.  Unfortunately, I replaced it a couple of years ago with one from the same firm, and it’s an unmitigated piece of junk.  Very symbolic.  (Chart:  Bloomberg terminal.)

the levy flight

I found a biggercapital posting (entitled “Cockroach Theory and Levy Flight”) to be quite intriguing.  First, Michael Bigger pulls from Seth Godin, who day in and day out provides wonderful perspective on marketing and human behavior.  Then he applies the idea in question to finance, financial journalism, and the flow.  There are a variety of developments in this area already, from quantitative applications to tools that provide analysis for fundamental investors.  It all reminds me of those few investment managers who seem to be able to do this all on their own, who can sense the building and diminishing buzz more acutely than others.  And it makes you wonder about whether an informational Heisenberg uncertainty principle will come into play someplace along the way.

more on active share

In March, I wrote a posting for the research puzzle regarding the concept of “active share,” and how it can and should be a tool for those assessing portfolio performance (and the likelihood of it persisting).  It looks to be gradually gaining ground as a metric; Morningstar has continued to publish about active share and includes a measure of it in some of its analytical platforms, and money managers like Jensen Investment Management are using it in their marketing.  With investors from individuals to institutions growing tired of paying active fees for beta performance, active share and similar metrics are here to stay.

fat cat rhetoric

A Newsweek piece said that Steve Schwarzman, the chairman of Blackstone (BX), is “angry at the president for some of his rhetoric.”  Oh, yes, and before that, it quoted him as saying of the elimination of the carried-interest tax loophole, “It’s like when Hitler invaded Poland in 1939.”  Huh?  He is a billionaire, but 0-for-2 on this one:  wrong on the policy and losing any rhetorical battles he enters as long as he clings to the Hitler analogies that seem so popular with loonies (be they of the right or the left).

seeking and finding

“Believe those who are seeking truth.  Doubt those who find it.” — André Gide.