Practical analysis for investment professionals
10 December 2015

Weekend Reads for Investors: Ransom, Sabotage, and Monsters Edition

Posted In: Weekend Reads

A Modern Take on Ransom

Over the last month, I have read two absolutely fascinating pieces that each cover very unique territory. First comes the utterly modern story of Greek banks being held for ransom by hackers demanding payment in bitcoin! Rare is the story whose elements are entirely modern in detail. What I mean by that is that if you read about someone being mugged by a criminal using a taser, the story is essentially an ancient one with the sole exception of the instrument of threat. In this story though, every element could only happen in our current era. Wow. (DeutscheWelle)

Old School Sabotage for Your Organization

No less fascinating is a story that I am pleased to say was featured on Enterprising Investor about behaviors that unintentionally sabotage your organization. If you have spent any time securing either a business education or working in the professional world, you know that these stories are a dime a dozen. These sabotage techniques, however, were actually created by intelligence operatives in World War II and were intentionally designed to slow down the manufacturing machine of the Axis powers and their allies. I guarantee you, however, that everything you see on the list is something mundane and overlooked as sabotage. (Enterprising Investor)

In the same vein but expressed in a very, very different manner, I am a fan of capital being treated as if it were precious and simultaneously a fan of risky capital ventures that stand the chance of making our lives better. In the current interest rate environment, however, I fear many corporate managers no longer care much about the top line. In fact, many do not care much about the bottom line either. What has preeminence, of course, is the line below the bottom line: EPS. Earlier in 2015, I wrote a piece entitled the “The Little Worm That Is Destroying Capitalism” that highlighted these issues. Now others are starting to notice the economic sabotage caused by share buybacks. (Enterprising Investor, Reuters)

Finally, there is another sordid finance tale in this category. Specifically, the alleged abusive short-selling of Overstock.com as facilitated by its own prime brokers and their clearing brokers. As someone who believes in the power of valuation methodology, I am a supporter of short-selling. But read this story and I think you will be amazed at the craven things firms in finance do. And what is worse, they do them to their own clients. (Economist)

Alpha Wounds

Speaking of sabotage, you may know that I am in the middle of writing a series of Enterprising Investor posts called Alpha Wounds that tries to map out some of the poor choices made by the financial sector that are hurting the active management industry. I spend plenty of time pointing fingers at the active management community itself, but I also take aim at investment consultants. Here the Financial Times asks: Do investment consultants have too much power? The Alpha Wounds series has landed me a couple of interviews and one conference presentation, by the way. If you are enjoying the series, you will also like Fireside Markets’ interview with me discussing Alpha Wounds. (Enterprising Investor, Wall Street Journal, Fireside Markets)

Three-Eyed Monsters

But now let me bring the discussion back to topics more familiar to each of us: markets, analysis, technology, and so forth. Think negative nominal interest rates are weird? Then what about swap rates trading below Treasury yields? This is just not supposed to happen and is the financial equivalent of the three-eyed monster: theoretically possible, but strange to behold. Why is this occurring? Too much capital-requirements regulation is fundamentally altering the structure of fixed-income markets such that sell-side firms cannot act as market makers and arbitrageurs. (Financial Times, Wall Street Journal)

Chinese Food for Thought

You must have seen the news that the renminbi (RMB), China’s currency, was granted reserve currency status by the IMF. I predicted this via my Twitter feed starting about three years ago, but honestly I believed the arrival of the RMB was still some years off in the future. So what exactly does this mean? It means that those who make use of the IMF’s services can elect to do business in yuan, in addition to the other official reserve currencies. Nothing more, nothing less. However, the symbolic power is almost as large as China’s ambition to make its currency a viable competitor to the dollar, euro, yen, and so forth. Of course, China still has a long way to go. Specifically, its government bond market is not open to foreign investors, and it still adjusts its banking and markets policy unpredictably and to serve policy ends, not just economic ones. For example, recently China closed its overheated IPO market, but now that the panic there has subsided, it just reopened the market for primary market securities. (Enterprising Investor, FinanceAsia)

By the way, you may see the term renminbi and yuan used interchangeably to describe China’s currency. This is almost true. So what is the difference? Renminbi is the official name of the currency, whereas yuan refers to individual units of the currency.

Mini Lesson in Statistics

Recently a piece of medical research created a mini-firestorm of media interest. It found that there was growing morbidity in middle-aged Caucasians here in the United States. Many commentators saw it as evidence that materialism leads to stress. which leads to the results the paper demonstrated. But not so fast! Turns out that the researchers did not control very well for how they handled demographic shifts in their study, and once controlled for, the effects nearly disappear. Yet another example of confirmation bias at work, perhaps in combination with good old-fashioned guilt. (Proceedings of the National Academy of Sciences, The New Yorker, AndrewGelman.com)

Now for Something Completely Different

I am nearly 46 years old and remember cartoons from my childhood and movies from my teens that showed self-levitating displays in the cockpits of spaceships, but now they may be coming to an automobile near you. Speaking of spaceships, did you know that in the United States, President Barack Obama signed the US Commercial Space Launch Competitive Act of 2015 into law? This statute allows for private companies to conduct mining operations in space for minerals to benefit the earth’s human inhabitants. (R&D, Japan Times)

The last and, for me, most interesting of all the stories featured here is news that the creature deemed by scientists to be nature’s toughest — the tardigrade — had its DNA sequenced. It turns out that this hearty beast can survive virtually anything thrown at it: freezing, drought, radiation, and even the vacuum of space. How does it do this? Via a technology that would make Harry Markowitz proud: portfolio diversification of its DNA. Tardigrade DNA is part animal, bacterial, fungal, plant, archaeal, and even viral. (National Geographic)

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: iStockphoto.com/JLGutierrez

About the Author(s)
Jason Voss, CFA

Jason Voss, CFA, tirelessly focuses on improving the ability of investors to better serve end clients. He is the author of the Foreword Reviews Business Book of the Year Finalist, The Intuitive Investor and the CEO of Active Investment Management (AIM) Consulting. Voss also sub-contracts for the well known firm, Focus Consulting Group. Previously, he was a portfolio manager at Davis Selected Advisers, L.P., where he co-managed the Davis Appreciation and Income Fund to noteworthy returns. Voss holds a BA in economics and an MBA in finance and accounting from the University of Colorado.

Ethics Statement

My statement of ethics is very simple, really: I treat others as I would like to be treated. In my opinion, all systems of ethics distill to this simple statement. If you believe I have deviated from this standard, I would love to hear from you: [email protected]

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