The Equius Blog is updated frequently with original content and links to articles and other media from academics, industry partners and other respected sources. Posts will generally be of a financial, economic, or investment nature. Any political inferences, real or perceived, are the sole responsibility of the author and the reader. Opinions expressed are not necessarily those of Equius Partners.
Actor Will Smith during a French television interview this week:
Smith: I have no issue with paying taxes and whatever needs to be done for my country to grow. I believe very firmly that my ability to sit here—I'm a black man who didn't go to college, yet I get to travel around the world and sell my movies, and I believe very firmly that America is the only place on Earth that I could exist. So I will pay anything that I need to pay to keep my country growing. . . .
Interviewer: Do you know how much in France you would have to pay on earnings above one million euros [under new French President Francois Hollande's proposal]? Not 30%. 75%.
Smith: 75?! Yeah, that's different, that's different. Yeah, 75. Well, you know, God bless America.
In today's Wall Street Journal, Rich Karlgaard contrasts the hype of the upcoming Facebook IPO with the much more important trends in U.S. manufacturing and energy technology.
Excerpt:
The modern-day code rockers are not mere nerds, either. They form an Algorithmic Army of slightly surreal folks like, well, Mr. Zuckerberg. They seem to be pale men with oddly flat voices and faraway gazes who prefer to hide out in the bathroom during the IPO roadshow. When finally coaxed onto the stage to face investors, the great Zuckerberg appeared in a hoodie.
That can't be America's future, can it?
Read more here (The Wall Street Journal, May 17, 2012)
From venture capitalist, Bill Frezza, on RealClearMarkets.com:
Economics is not called the dismal science for nothing. Many professional economists go to great lengths to obscure simple truths inconvenient to their political masters. The media then promote these obfuscations, which are designed to appeal to a misinformed electorate. And that is the truly dismal part.
Much of the economics politicians peddle – and voters think they know – is pure bunk. For a different perspective, here are 10 common sense propositions I challenge political economists to refute.
Another benefit of Apple's huge success with their much-loved consumer products is the light it's shining on out-dated and destructive government policies. Wendy Milling offers a compelling case against government antitrust run amok in "The DOJ's Mugging Of Apple Reminds Us That Antitrust Is Theft."
Bill Frezza, a Boston venture capitalist, appears to be as outraged as I am that Jon Corzine has not been brought to justice for the disappearance of $1.2 billion in client assets when he headed MF Global.
Justice may be blind, but who works overtime to make it deaf, dumb, and stupid?
Which would you imagine might attract more aggressive enforcement from the Justice Department: the theft of $1.2 billion from supposedly segregated customer brokerage funds, or lying about an alleged incident of whistling to attract the attention of a whale so that whale watchers could get a better peep? If you said the latter, then you appreciate the extent to which federal law enforcement priorities have run off the rails.
Read more of "Corzine Steals Billions Sans Charges, Errant Whale Watcher Faces Prison" here.
Nick Schultz of the American Enterprise Institute interviewed Cliff Asness on the cause of the financial crisis. Asness is the widely-respected founder of AQR Capital and was a research assistant for Eugene Fama at the Univeristy of Chicago as he earned his PhD in Finance.
In line with the rest of our industry we are making some changes to the language we use in our marketing and communications. We are writing this letter so we can explain these changes properly. Most importantly, Zilch Capital used to refer to itself as a “hedge fund” but 2008 made it embarrassingly clear we didn’t know how to hedge. At all. So like many others, we have embraced the title of “alternative asset manager”. It’s clunky but ambiguous enough to shield us from criticism next time around.
We know we used to promise “absolute returns” (ie, that you would make money regardless of market conditions) but this pledge has proved impossible to honour. Instead we’re going to give you “risk-adjusted” returns or, failing that, “relative” returns. In years like 2011, when we delivered much less than the S&P 500, you may find that we don’t talk about returns at all.
It is also time to move on from the concept of delivering “alpha”, the skill you’ve paid us such fat fees for. Upon reflection, we have decided that we’re actually much better at giving you “smart beta”. This term is already being touted at industry conferences and we hope shortly to be able to explain what it means. Like our peers we have also started talking a lot about how we are “multi-strategy” and “capital-structure agnostic”, and boasting about the benefits of our “unconstrained” investment approach. This is better than saying we don’t really understand what’s going on.
Some parts of the lexicon will not see style drift. We are still trying to keep alive “two and twenty”, the industry’s shorthand for 2% management fees and 20% performance fees. It is, we’re sure you’ll agree, important to keep up some traditions. Thank you for your continued partnership.
In our book, a prudent fiduciary would not place investing clients (speculative clients are another thing) with active money managers, given the very low odds of success over time. Ignorance of the voluminous research supporting this position is no excuse. However, certain concepts promoted by advisors who use active strategies are sound nevertheless. In this video, HighTower Advisors does a great job of explaining the difference between brokers and fiduciaries through the use of a whiteboard animation. Enjoy!
Many managers of actively-managed mutual funds in the late 1990s, who were frustrated with underperforming the market for years, loaded up on large growth, technology, and Internet stocks just prior to those stocks' collapse in 2000-2002 period. Nothing real unusual there, since active managers are notorious for coming late to the party, getting drunk on their greed, and then stumbling into the gutter to sleep it off–with their shareholders suffering the inevitable hangover. No, what's a bit unusual, is for small cap and value managers to join the party despite assuring their parents (the fund shareholders) that they would stay home and behave.
Well, unfortunately, we’re watching active fund managers behave badly once again. This time, they can’t resist Apple’s stock after it climbed to new highs and is now the biggest company in the world.
Apple Inc.'s surging shares have prompted hundreds of mutual funds to buy the stock—including many that aren't expected to invest in a giant, U.S.-based technology company that pays no dividends.
At least 50 small-cap and midcap mutual funds—which focus on small and midsize companies—own Apple, the world's largest company by market value, according to analyses for The Wall Street Journal by market-data firms Morningstar Inc. and Ipreo Holdings LLC. Non-U.S.-focused funds also own it. Apple doesn't pay a dividend, but about 40 dividend-focused funds hold its stock. And Apple shares can be found even in one high-yield bond fund.
An opinion piece in today's New York Times is causing a lot of buzz in the blogosphere and, being the consistent Wall Street critics that we are, we decided to post a link to it here. For more color and background, we've also provided a link to a reference to the article in today's Wall Street Journal.
TODAY is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.
Goldman Sachs Group Inc., the frequent target of criticism for its aggressive pursuit of profits, again found itself in a harsh spotlight Wednesday when a London-based executive resigned from the firm in a New York Times opinion piece that assailed the firm's culture as "toxic and destructive."
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