Can Rally Run Without Revenue? - WSJ.com:
"In the short-term, earnings prospects may remain favorable for the market. Aggressive expense control and modest inventory restocking could boost third-quarter numbers, while the fourth quarter has easy comparisons against an awful 2008 that will give the appearance of healthy profit increases."
Instead of comparing current numbers against the previous year numberss, why not show one-year, two-year, three-year etc comparisons?
Monday, August 31, 2009
Saturday, August 29, 2009
Is Performance Measurement Dying?
Fiduciary Duty Hits the Street -- Sort Of - WSJ.com:
"The changes could transform the brokerage industry by changing the way products are sold and marketed and even how brokers are paid. Requiring brokers to operate under the existing fiduciary standard could force them to recommend more investments that are less costly and more tax-efficient."
As a performance measurement professional, I can't help worrying this is going to lead to cuts in the support functions at financial firms. One such support function is performance measurement and presentation.
As a fledgling specialty, performance measurment can adapt as it can easily be folded into those areas which it supports i.e. marketing. The difficulty will come meshing the proclivites of those who currently enjoy performance calculations with those who enjoy marketing.
As holder of the CIPM designation and an individual with experience in sales and non-profit work, I can attest that the selling/service industry and attribution analysis/heavy spreadsheet work do not necessarily attract the same type of person.
"The changes could transform the brokerage industry by changing the way products are sold and marketed and even how brokers are paid. Requiring brokers to operate under the existing fiduciary standard could force them to recommend more investments that are less costly and more tax-efficient."
As a performance measurement professional, I can't help worrying this is going to lead to cuts in the support functions at financial firms. One such support function is performance measurement and presentation.
As a fledgling specialty, performance measurment can adapt as it can easily be folded into those areas which it supports i.e. marketing. The difficulty will come meshing the proclivites of those who currently enjoy performance calculations with those who enjoy marketing.
As holder of the CIPM designation and an individual with experience in sales and non-profit work, I can attest that the selling/service industry and attribution analysis/heavy spreadsheet work do not necessarily attract the same type of person.
Thursday, August 27, 2009
Cash For Clunkers: Changing Benchmarks
'Clunkers' Lifts Foreign Cars - WSJ.com: "Transportation Secretary Ray LaHood said the program was 'wildly successful' at bringing 'moribund' car showrooms back to life."
I was under the impression that the cash for "clunkers" program was intended to help the automakers, specifically the US-based ones (GM, Ford and Chrysler). Secretary LaHood says otherwise.
It was the after-the-fact results that demonstrated the cash for clunkers program was an auto dealer bailout, and, judging from the Top 10 models sold, one for foreign car dealers.
What this does show is the importance of designating a benchmark before the results are in. Investment managers committed the GIPS know this. One can't simply get to month's end, see your performance results, then find a benchmark that works.
I was under the impression that the cash for "clunkers" program was intended to help the automakers, specifically the US-based ones (GM, Ford and Chrysler). Secretary LaHood says otherwise.
It was the after-the-fact results that demonstrated the cash for clunkers program was an auto dealer bailout, and, judging from the Top 10 models sold, one for foreign car dealers.
The top 10 models purchased under the government's 'cash for clunkers' rebate
program:
1. Toyota Corolla
2. Honda Civic
3. Toyota Camry
4. Ford Focus FWD
5. Hyundai Elantra
6. Nissan Versa
7. Toyota Prius
8. Honda Accord
9. Honda Fit
10. Ford Escape FWD
What this does show is the importance of designating a benchmark before the results are in. Investment managers committed the GIPS know this. One can't simply get to month's end, see your performance results, then find a benchmark that works.
Monday, August 24, 2009
Code of Ethics
Goldman Sachs Trading Tips Reward Big Clients - WSJ.com:
"Mr. Canaday says analysts are told that any comment at a meeting that could result in a change in a rating, earnings estimate or stock-price target "must be published and disseminated broadly to all clients." He adds, however, that it is rare that tips arising from the meetings reach that threshold. He says ratings changes after the meetings also are rare."
As someone who has been involved with the professional designations available from the CFA Institute for the past seven years or so, I can't help thinking about the ethical codes those granted the right to use the designations must abide by. What the WSJ article describes sounds like front running, which would violate said code.
I am curious how the CFA Institute views Goldman Sachs practice as described in the front page article.
"Mr. Canaday says analysts are told that any comment at a meeting that could result in a change in a rating, earnings estimate or stock-price target "must be published and disseminated broadly to all clients." He adds, however, that it is rare that tips arising from the meetings reach that threshold. He says ratings changes after the meetings also are rare."
As someone who has been involved with the professional designations available from the CFA Institute for the past seven years or so, I can't help thinking about the ethical codes those granted the right to use the designations must abide by. What the WSJ article describes sounds like front running, which would violate said code.
I am curious how the CFA Institute views Goldman Sachs practice as described in the front page article.
Saturday, August 22, 2009
Importance of Benchmarks
Outplacement Firms Struggle to Do Job - WSJ.com:
"Chet Shubert, 53, arranged outplacement as a human-resource executive at Wyeth Pharmaceuticals and National Starch & Chemical Co. Last year, it was his turn, when he was laid off following a merger. He says he was offered several months of outplacement at Right's Management's Philadelphia office. In his first group meeting, he was surprised when a staff member said the firm didn't track how many clients get jobs."
This front page article is a lesson in the importance of benchmarks (or control groups for the more scientifically-inclined). Without them, there is no way to measure whether any outplacement firm is better than the other.
While benchmarking seems obvious to the investment management industry now, there was a time in our lifetime when benchmarks weren't considered vital either. Then came modern portfolio theory to usher in their importance.
Now proper benchmarking of investment products is a requirement for GIPS and a given in best practices.
"Chet Shubert, 53, arranged outplacement as a human-resource executive at Wyeth Pharmaceuticals and National Starch & Chemical Co. Last year, it was his turn, when he was laid off following a merger. He says he was offered several months of outplacement at Right's Management's Philadelphia office. In his first group meeting, he was surprised when a staff member said the firm didn't track how many clients get jobs."
This front page article is a lesson in the importance of benchmarks (or control groups for the more scientifically-inclined). Without them, there is no way to measure whether any outplacement firm is better than the other.
While benchmarking seems obvious to the investment management industry now, there was a time in our lifetime when benchmarks weren't considered vital either. Then came modern portfolio theory to usher in their importance.
Now proper benchmarking of investment products is a requirement for GIPS and a given in best practices.
Thursday, August 20, 2009
Simple Prose On Seasonal Adjustments
WHAT THE GOVERNMENT REALLY SAID ABOUT US HOUSING - New York Post:
"A seasonally-adjusted house is one that exists only in the government's fertile statistical imagination.
And that imagination is spewing out a whole lot of deceptive economic numbers because normal seasonal adjustments are being thrown off by the abnormal nature of the current economy."
Seasonal adjustments assume what happened before happens again. A black swan would make these adjustments gibberish.
Mr. Crudele provides an easy to understand dismantling of the new residential starts figure.
"A seasonally-adjusted house is one that exists only in the government's fertile statistical imagination.
And that imagination is spewing out a whole lot of deceptive economic numbers because normal seasonal adjustments are being thrown off by the abnormal nature of the current economy."
Seasonal adjustments assume what happened before happens again. A black swan would make these adjustments gibberish.
Mr. Crudele provides an easy to understand dismantling of the new residential starts figure.
Sometimes Exactitude Is Meaningless
New jobless claims rise unexpectedly to 576K - Yahoo! News:
"The number of people remaining on the benefit rolls dropped by 2,000 to 6.24 million."
With rounding, the "6.24 million" figure could range from 6,244,000 to 6,235,000 - of course rounded to the nearest thousand. I wonder whether reporting the 2,000 drop was an editiorial decision or oversight.
Seems insignificant with the rounding or too exact to be true.
"The number of people remaining on the benefit rolls dropped by 2,000 to 6.24 million."
With rounding, the "6.24 million" figure could range from 6,244,000 to 6,235,000 - of course rounded to the nearest thousand. I wonder whether reporting the 2,000 drop was an editiorial decision or oversight.
Seems insignificant with the rounding or too exact to be true.
Wednesday, August 12, 2009
Following Up On Yesterday's Orthodoxy in Investment Performance Measurement
Investment Performance Measurement:
"The fact that investment reporting often only reflects the asset manager’s perspective raises an obvious rhetorical question: Does investment reporting as currently practiced really meet the needs of clients? The next questions are not rhetorical: How will the investment industry close the expectations gap and give existing clients investment reports prepared from their perspective, and who will lead the effort?"
"The fact that investment reporting often only reflects the asset manager’s perspective raises an obvious rhetorical question: Does investment reporting as currently practiced really meet the needs of clients? The next questions are not rhetorical: How will the investment industry close the expectations gap and give existing clients investment reports prepared from their perspective, and who will lead the effort?"
Tuesday, August 11, 2009
Re-Reading "U.S. Equity Styles Indexes" from The Research Foundation of AIMR
I was struck by this blurb within the discussion of the valuation effect on stock over- and under-performance:
"...the surprise registered by academic researchers in response to the discovery
of the value and size effects is hard to overstate. More than a decade of
efficient market and CAPM orthodoxy had convinced most that the cap-weighted
market portfolio could not be beaten, at least not with a simple, easy-to-follow
decision rule..."
The field of investment performance measurement could be said to be as young as the CAPM and efficient market theories were when Reinganum, Banz and Basu discovered the valuation effects. That could indicate there are accepted practices and methodologies within performance measurement and presentation that are currently viewed with similar orthodoxy as the CAPM and efficient market theory were in the late 70s.
"...the surprise registered by academic researchers in response to the discovery
of the value and size effects is hard to overstate. More than a decade of
efficient market and CAPM orthodoxy had convinced most that the cap-weighted
market portfolio could not be beaten, at least not with a simple, easy-to-follow
decision rule..."
The field of investment performance measurement could be said to be as young as the CAPM and efficient market theories were when Reinganum, Banz and Basu discovered the valuation effects. That could indicate there are accepted practices and methodologies within performance measurement and presentation that are currently viewed with similar orthodoxy as the CAPM and efficient market theory were in the late 70s.
Monday, August 10, 2009
More Regulation Is Coming
Obama pushes bill to crack down on hedge funds - Jul. 15, 2009:
"The bill, one of many Obama administration proposals to revamp financial regulation, would require all investment advisers with more than $30 million under management to register with the SEC and disclose key information about their funds to regulators and investors."
I wonder whether the CFA Institute would pro-actively get involved to be part of a solution in ways the healthcare industry has with heath care change.
"The bill, one of many Obama administration proposals to revamp financial regulation, would require all investment advisers with more than $30 million under management to register with the SEC and disclose key information about their funds to regulators and investors."
I wonder whether the CFA Institute would pro-actively get involved to be part of a solution in ways the healthcare industry has with heath care change.
Sunday, August 9, 2009
Apples to Oranges.
How to understand the myriad jobless reports - Stocks & economy- msnbc.com:
"Q: What does the report on weekly jobless claims measure?
A: The report captures the number of people who file their first claim for unemployment insurance after being laid off.
This can be a good measure for how many jobs were cut the week before, but it doesn't capture the whole picture. For whatever reason, not everyone who loses their job ends up filing for unemployment insurance benefits, or at least they may not file right away. Still, the rough number can point to upward or downward trends in the labor market between monthly reports filed by the Bureau of Labor Statistics.
Q: What does the monthly unemployment report measure?
A: The monthly unemployment report is based on a Census Bureau survey of 60,000 U.S. households. The survey asks respondents several questions, including whether they have a job, are looking for a job, or are so discouraged that they have quit looking for work altogether.
The report lays out a whole range of unemployment rates. The most-cited rate only counts people actively looking for work; the latest unemployment report, released on May 8, calculated that rate as 8.9 percent. A much broader unemployment rate — 15.8 percent in the latest report — also includes everyone who has dropped out of the labor force or has been forced into part-time work."
This explains the conflicting recent news that the economy continued to lose jobs but the unemployment rate decreased. The two statistics aren't drawn from the same data. It's apple to oranges, sort of.
Drawing conclusions using those numbers provides conflicting conclusions. GIPS tries to prevent this by offering standards for performance presentation.
"Q: What does the report on weekly jobless claims measure?
A: The report captures the number of people who file their first claim for unemployment insurance after being laid off.
This can be a good measure for how many jobs were cut the week before, but it doesn't capture the whole picture. For whatever reason, not everyone who loses their job ends up filing for unemployment insurance benefits, or at least they may not file right away. Still, the rough number can point to upward or downward trends in the labor market between monthly reports filed by the Bureau of Labor Statistics.
Q: What does the monthly unemployment report measure?
A: The monthly unemployment report is based on a Census Bureau survey of 60,000 U.S. households. The survey asks respondents several questions, including whether they have a job, are looking for a job, or are so discouraged that they have quit looking for work altogether.
The report lays out a whole range of unemployment rates. The most-cited rate only counts people actively looking for work; the latest unemployment report, released on May 8, calculated that rate as 8.9 percent. A much broader unemployment rate — 15.8 percent in the latest report — also includes everyone who has dropped out of the labor force or has been forced into part-time work."
This explains the conflicting recent news that the economy continued to lose jobs but the unemployment rate decreased. The two statistics aren't drawn from the same data. It's apple to oranges, sort of.
Drawing conclusions using those numbers provides conflicting conclusions. GIPS tries to prevent this by offering standards for performance presentation.
Thursday, August 6, 2009
Spreadsheet Certainty
When Precision Is Only 92.11567% Accurate - WSJ.com:
"...decimal places lend the aura of authority and the veneer of verisimilitude. So the modern world is awash in squishy numbers wearing the many-figured garb of faux precision."
One would believe this does not really apply to investment performance measurement, but one would be incorrect. Think about what goes into the valuation of the numerous asset-backed securities and real estate.
Infrequent sales, illiquid markets, mark-to-model....All lay at the foundation of the values used to calculate security returns, which role-up into composite returns which are presented to the nearest basis point and provide a potential investor with "an aura of authority".
Interestingly, there was a book review in yesterday's WSJ that tapped into a similar vein. Philip Delves Broughton reviewed Matthew Stewart's polemic against management consulting "The Management Myth". According to Broughton, "Mr. Stewart argues that the profession is built on a science of management that is both narrow-minded and intellectually bogus....The business world...has become so obsessed with its own perverse value system and view of human nature that it is undermining the “commons” of society."
"Narrow-minded and intellectually bogus" are ways of describing foundational assumptions the author disagrees with. In the current environment of anger and disillusionment with Wall Street, the analogy to the assumptions underlying asset-backed securities could be described similarly.
Agree or disagree, and I am prone towards just the philosophical curiousity of the argument, what both do have in common is a foundation rooted in the "aura of authority and the veneer of verisimilitude" provided by the easy-to-read spreadsheet result.
"...decimal places lend the aura of authority and the veneer of verisimilitude. So the modern world is awash in squishy numbers wearing the many-figured garb of faux precision."
One would believe this does not really apply to investment performance measurement, but one would be incorrect. Think about what goes into the valuation of the numerous asset-backed securities and real estate.
Infrequent sales, illiquid markets, mark-to-model....All lay at the foundation of the values used to calculate security returns, which role-up into composite returns which are presented to the nearest basis point and provide a potential investor with "an aura of authority".
Interestingly, there was a book review in yesterday's WSJ that tapped into a similar vein. Philip Delves Broughton reviewed Matthew Stewart's polemic against management consulting "The Management Myth". According to Broughton, "Mr. Stewart argues that the profession is built on a science of management that is both narrow-minded and intellectually bogus....The business world...has become so obsessed with its own perverse value system and view of human nature that it is undermining the “commons” of society."
"Narrow-minded and intellectually bogus" are ways of describing foundational assumptions the author disagrees with. In the current environment of anger and disillusionment with Wall Street, the analogy to the assumptions underlying asset-backed securities could be described similarly.
Agree or disagree, and I am prone towards just the philosophical curiousity of the argument, what both do have in common is a foundation rooted in the "aura of authority and the veneer of verisimilitude" provided by the easy-to-read spreadsheet result.
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