I think everyone who’s ever worked at an investment bank saw at least a little something of themselves in the Journal’s fat asshole article this morning. My own feelings are mixed since, for me, investment banking was a lifestyle improvement over a previous job that left me partially paralyzed from overwork (true story! I got better). So in a sense I don’t have that much to complain about, but I did, and do, constantly and loudly and now on the internet.
Part of what sucks about banking – that I think the Journal article missed – is the frequent pointlessness of your activity: you get on a plane, go see a guy, tell him about this awesome merger or financing or whatever you’ve got planned for him, shake hands, and fly away never to see him again. And by “never” I mean “not until six months later, after he’s printed a deal away from you, when you go and do the same thing, but this time maybe you don’t shave.” You’d probably still be a fat, stressed, overworked cabbie-puncher if most of your ideas actually got executed, but you’d perhaps be less suffused with metaphysical dread. That’s how I’d feel anyway. Then, I blog now.
Anyway, a thing that I don’t know anything about, and never ever want to know anything about, so don’t tell me, is the proper price-to-book trading multiples of life vs. P&C insurance companies and whether there’s a conglomerate discount for being in both businesses. So with that as a disclaimer I found this pretty damn convincing: Continue reading »
If you think a company has a good business and shareholder friendly management, you might consider buying its stock. If, on the other hand, you found a company that you were pretty sure was managed by a bunch of baboons, it might make sense to short its stock, and maybe publicize your conclusions via a PowerPoint presentation and/or an ironic-adorable coffee-foam doodle. In practice, though, there are a whole lot of cases where smart investors light upon companies managed by baboons and buy them anyway.
Weird, huh? Conveniently there’s a neat paper out of NBER today (NBER version here, free version here), by Wharton professors Alex Edmans and Itay Goldstein and Columbia professor Wei Jiang, about how feedback effects can limit the efficiency of stock markets. The idea is that stock prices send a signal to managers about whether or not the company’s projects, in the judgment of the market, have a positive or negative expected NPV. Buying stock because the company is doing good stuff pushes up the stock price and tells managers to keep doing what they’re doing. Shorting stock because the company is putting investor money into paper bags and lighting them on fire pushes down the stock price and tells managers that maybe a change of strategy is in order. But if you short the stock because you think that the lighting-money-on-fire strategy will lead to ruin, you run the risk that managers will take that feedback seriously and put away the lighter fluid, and the stock will go back up. Or as the authors put it:
Continue reading »
Sadly he used the cover of a miserable market and a Friday afternoon to bury this gem of passive aggressiveness:
The Reporting Persons have decided to withdraw their slate of directors after concluding that a considerable base of shareholders would not support their stated campaign at this time. While the Reporting Persons continue to believe that the best way to ultimately maximize shareholder value is through a sale of the Issuer to a strategic buyer, the Reporting Persons respect and understand that several large shareholders may believe that now is not the best time to run that process, given the deteriorating conditions of the financial markets and the Issuer’s view that even the Reporting Persons $80 per share offer substantially undervalues the Issuer.
Continue reading »
What’s in it for you? Well…if you elect his co-workers, family and friends to run Clorox, he’ll put the company up for auction and get you at least $78 a share. Or, if he can’t, he’ll just give you the $78 himself. But only half of that will be in real money. The rest will be in Clorox bonds that, a month ago, Jefferies was “highly confident” that they could sell to the market on reasonable terms. Now maybe not so much:
Continue reading »
Remember how Carl Icahn’s going to buy Clorox? Neither do Clorox shareholders, with the stock trading at $64, more or less where it was before he announced his $76.50 offer (later revised to $80). And with no committed financing, a swift rejection (accompanied by a poison pill) from the board, and a little bit of market turmoil, you could forgive him if he wanted us all to forget about his offer to escrow $6.2 billion to show his seriousness.
But you can’t just tell Carl Icahn to buzz off without facing the consequences. And he made the consequences clear when he made his $80 offer: Continue reading »
Standard & Poor’s has had a few hiccups recently, locking themselves into pointlessly downgrading U.S. Treasuries, pissing off Jean-Claude Trichet, and blowing up the CMBS market revival because they realized too late that they’d forgotten to carry a two.
But Jana Partners and Ontario Teachers’ think of these things not as problems but as opportunities for growth. Or, at least, they seem to think that future growth is going to come less from teaching children how to read and do math, and more from rating sovereign bonds issued by children who can’t read or do math.
Continue reading »
