What I'm Thinking About

Of Candor and Conflicts: What Were We Thinking? by Marianne M. Jennings, Professor of Legal and Ethical Studies at Arizona State University

"My intention, therefore, is to discuss three factors that are typical precursors to the ethical failings that lead to such scandals:

• pressure and myths about success
• conflicts, tone, and our resistance to
both
• gray areas that are not really gray."

Annualizing Partial Returns: The Case for Valuing Twitter at $2.7 Billion

A Case for Valuing Twitter at $2.7 Billion - Digits - WSJ

Quote:
'First, it is often difficult to come up with comparables (there has never been anything quite like Twitter) and the valuations often come before such important standards as, say, profits, so investors are left valuing a business based on such metrics as future revenue. "

First, Twitter is AOL Instant Messenger with Spamming Feature. Valuing Twitter is important only to the investment bankers would earn a commission and the early investors who will cash out.

That scathing assessment aside, the professor estimates Twitter going to have one billion users by 2013? Color me skeptical.

Whether it is the early estimates of internet growth or the estimates of the number of blogs in existence that inform my skepticism, I see a global population estimate of 7 billion people around 2013. Am I truly to believe that 1 in 7 people on Earth will be a Twitter user?

Just as projecting 20% growth per annum in perpetuity will lead to a company growing bigger than the economy, to project Twitter user growth to equal 1/7th of the world population in four years does not pass the sniff test.

GIPS disallows annualizing partial year performance for a similar reason. Prediciting the future is essentially a guessing game. Taking the best week of performance an asset manager had and annualizing provides such a large number that it too won't pass the sniff test.

Real Life Application of Rule of 72

Tom Daschle: Climbing the Hill on Health Care - WSJ.com:

"Failure to address ever-escalating health costs means that a typical family will see its annual cost of health insurance rise to $25,000 by 2025 from about $12,000 now."

While this is clearly a politician's appeal, I am going to stay away from the reasoning behind using a figure 16 years in the future without discounting it back to present value.

The Rule of 72 is a back of the envelope way of figuring out how long it will take something to double. Divide 72 by the expected growth rate to get the number of years to double. If the growth rate is 7.2%, then the amount doubles in 10 years.

The former Senator has given us the final value and the number of years. We need to figure out what the current cost of of health insurance for a "typical family" is. If one assumes that cost to be $12,500, then we know it will double over 16 years. That gives an approximate health insurance growth rate of 4.5%.

The National Coalition on Healthcare says, "The average employer-sponsored premium for a family of four costs close to $13,000 a year...". To explain further gets me into political commentary I rather not explore in this forum.