Education to Employment

McKinsey Quarterly


Education to employment: Designing a system that works
Some 75 million young people around the world are unemployed, yet most employers say they cannot find enough qualified candidates for entry-level jobs. What skills will help young people find work, and what is the most effective way of delivering them?
A new McKinsey report finds that employers, education providers, and young people live in parallel universes with dramatically different perspectives and little engagement. Drawing on a survey of some 8,500 stakeholders in 9 countries, as well as an analysis of more than 100 education-to-employment approaches across 35 countries, the research also finds that three junctures are critical for taking action to address the crisis: enrolling in postsecondary education, developing skills, and seeking employment.
To explore the issue of youth unemployment and to read case studies of successful programs, visit the McKinsey on Society Web site.
Register for a live Web event on Monday, December 10, from 9:00 a.m. to 10:30 a.m. (EST), where we’ll bring together academics and government and business experts to discuss the findings of the report.

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All Greenwald Lecture Videos (2005 and 2010) on Value Investing

Videos: Just go into the folders and download. I hope you learn from them. I have yet to swee the 2010 videos.


Part two Greenwald   2010 Videos
Bruce   Greenwald Videos Part two


More Greenwald Videos; Canadian Value Inv. Blog; The Panic of 1893 (The Silver Panic)

Videos on Greenwald (2012) and Other Investors:


The Panic of 1893

In  the years preceding the outbreak of the panic, the nation’s money was victim to flagrant mismanagement by the Federal Government. The policies of Washington drove gold out of the country and hence undermined the sanctity of gold contracts, raised the distinct possibility of an abrupt switch to a depreciated silver standard, and introduced a confusing system of no less than nine different currencies. Worst of all, however, the federal government engineered a currency and credit expansion which made panic and depression inescapable. The day of reckoning arrived when the weight of these political interventions brought the economy to its knees. The Panic of 1893 was a crisis of political interference.

The Panic of 1893 and other factors had a lasting impact. The depression of the 1890s did not fully abate until 1897. One response to the series of failures and bankruptcies was an upsurge in business consolidations.

Gresham’s Law: Coin Melt Values or Guaranteed Upside with No Downside

It is illegal (last time I checked) to melt money down, but under Gresham’s Law, bad (nominal) money chases out good money (market value of the metal coins above the nominal value).


1946-1964 Roosevelt Dime (90% silver 10% copper) $2.3929
1932-1964 Washington Quarter (90% silver, 10% copper) $5.9824
1946-2012 Nickel (75% copper, 25% nickel) $0.0500377
1909-1982 Cent (95% copper, 5% zinc) $0.0232306

Silver dimes and quarters remain a great investment. But, don’t forget about nickels. In the early 1970s, silver dimes and quarters were circulating the way nickels are now—and look at the value of metal content in the silver coins now. In the next round of serious price inflation, the same type thing is likely to happen to nickels. Just like silver dimes were in the 1970s. Billionaire Kyle Bass has already stockpiled one million dollars worth of nickels. (Source

Small Cap Analysis; Buffett on Taxes and Rebuttal by Norquist

Presentation on Brick

Gottfried_TheBrick_VICNY2011 (3)    (Powerpoint)

Tap dancing to work (Buffett Interview on Charlie Rose)

Buffett Opines on Raising Taxes (Comments in Italics)

When taxes change, would-be investors will certainly change their decisions about where to direct capital, even “though the companies’ operating economics will not have changed adversely at all.” Buffett saw this clearly in 1986, with respect to Berkshire’s own investment decisions; it’s hard to believe that Buffett no longer believes that today, with respect to private investors.

November 25, 2012

A Minimum Tax for the Wealthy By WARREN E. BUFFETT

SUPPOSE that an investor you admire and trust comes to you with an investment idea. “This is a good one,” he says enthusiastically. “I’m in it, and I think you should be, too.”

Would your reply possibly be this? “Well, it all depends on what my tax rate will be on the gain you’re saying we’re going to make. If the taxes are too high, I would rather leave the money in my savings account, earning a quarter of 1 percent.” Only in Grover Norquist’s imagination does such a response exist.

It’s a catchy opener, attracting headlines and guffaws from the expected quarters. But I’m struck by his opener because I can think of at least one real-world example in which a rich investor nearly spiked a deal due to taxes: Warren Buffett himself, as recounted in Alice Schroeder’s terrific biography, The Snowball (pages 230-232).

Early in his career, Buffett invested heavily—almost one third of his early fund’s capital—in Sanborn Map, a company that mapped utility lines and such. But he soon grew frustrated with the company’s leadership, which “operated more like a club than a business,” and which refused to return greater dividends to investors. So Buffett amassed more and more stock, and with control of the company finally in hand he pressed the board of directors to split the company in two (one for the mapping business, and one to hold the company’s other outsized investments).

Finally, the board capitulated. But with victory finally at hand, Buffett nearly scuttled the deal because of … taxes. As Schroeder recounts, quoting Buffett, one director proposed that the company just cleanly break the company, despite the tax consequences—”let’s just swallow the tax,” he suggested.

To which Buffett replied (as he recounted to Schroeder): And I said, ‘Wait a minute. Let’s — “Let’s” is a contraction. It means “let us.” But who is this us?  If everyone around the table wants to do it per capita, that’s fine, but if you want to do it in a ratio of shares owned, and you get ten shares’ worth of tax and I get twenty-four thousand shares’ worth, forget it.’
Buffett was willing to walk away from a deal because the taxes would have taken too much of a bite out of it.

Between 1951 and 1954, when the capital gains rate was 25 percent and marginal rates on dividends reached 91 percent in extreme cases, I sold securities and did pretty well. In the years from 1956 to 1969, the top marginal rate fell modestly, but was still a lofty 70 percent — and the tax rate on capital gains inched up to 27.5 percent. I was managing funds for investors then. Never did anyone mention taxes as a reason to forgo an investment opportunity that I offered.

Under those burdensome rates, moreover, both employment and the gross domestic product (a measure of the nation’s economic output) increased at a rapid clip. The middle class and the rich alike gained ground.

So let’s forget about the rich and ultrarich going on strike and stuffing their ample funds under their mattresses if — gasp — capital gains rates and ordinary income rates are increased. The ultrarich, including me, will forever pursue investment opportunities.

That’s not the only time that taxes played a major role on Buffett’s decisions, as recounted by Schroeder. Later in the book (pp. 533-534), she recounts how Buffett chose to structure his investments under Berkshire Hathaway’s corporate umbrella, rather than as part of his hedge fund’s general portfolio, precisely because of the tax advantages.

In fact, as he explained in his 1986 letter to investors, changes in the 1986 tax reform act posed a specific threat to certain investment decisions:

If Berkshire, for example, were to be liquidated – which it most certainly won’t be — shareholders would, under the new law, receive far less from the sales of our properties than they would have if the properties  had been sold in the past, assuming identical prices in each sale. Though this outcome is theoretical in our case, the change in the law will very materially affect many companies. Therefore, it also affects our evaluations of prospective investments.  Take, for example, producing oil and gas businesses, selected media companies, real estate companies, etc. that might wish to sell out. The values that their shareholders can realize are likely to be significantly reduced simply because the General Utilities Doctrine has been repealed – though the companies’ operating economics will not have changed adversely at all.  My impression is that this important change in the law has not yet been fully comprehended by either investors or managers.

And, wow, do we have plenty to invest. The Forbes 400, the wealthiest individuals in America, hit a new group record for wealth this year: $1.7 trillion. That’s more than five times the $300 billion total in 1992. In recent years, my gang has been leaving the middle class in the dust.

A huge tail wind from tax cuts has pushed us along. In 1992, the tax paid by the 400 highest incomes in the United States (a different universe from the Forbes list) averaged 26.4 percent of adjusted gross income. In 2009, the most recent year reported, the rate was 19.9 percent. It’s nice to have friends in high places.

The group’s average income in 2009 was $202 million — which works out to a “wage” of $97,000 per hour, based on a 40-hour workweek. (I’m assuming they’re paid during lunch hours.) Yet more than a quarter of these ultrawealthy paid less than 15 percent of their take in combined federal income and payroll taxes. Half of this crew paid less than 20 percent. And — brace yourself — a few actually paid nothing.

This outrage points to the necessity for more than a simple revision in upper-end tax rates, though that’s the place to start. I support President Obama’s proposal to eliminate the Bush tax cuts for high-income taxpayers. However, I prefer a cutoff point somewhat above $250,000 — maybe $500,000 or so.

Additionally, we need Congress, right now, to enact a minimum tax on high incomes. I would suggest 30 percent of taxable income between $1 million and $10 million, and 35 percent on amounts above that. A plain and simple rule like that will block the efforts of lobbyists, lawyers and contribution-hungry legislators to keep the ultrarich paying rates well below those incurred by people with income just a tiny fraction of ours. Only a minimum tax on very high incomes will prevent the stated tax rate from being eviscerated by these warriors for the wealthy.

Above all, we should not postpone these changes in the name of “reforming” the tax code. True, changes are badly needed. We need to get rid of arrangements like “carried interest” that enable income from labor to be magically converted into capital gains. And it’s sickening that a Cayman Islands mail drop can be central to tax maneuvering by wealthy individuals and corporations.

But the reform of such complexities should not promote delay in our correcting simple and expensive inequities. We can’t let those who want to protect the privileged get away with insisting that we do nothing until we can do everything.

Our government’s goal should be to bring in revenues of 18.5 percent of G.D.P. and spend about 21 percent of G.D.P. — levels that have been attained over extended periods in the past and can clearly be reached again. As the math makes clear, this won’t stem our budget deficits; in fact, it will continue them. But assuming even conservative projections about inflation and economic growth, this ratio of revenue to spending will keep America’s debt stable in relation to the country’s economic output.

In the last fiscal year, we were far away from this fiscal balance — bringing in 15.5 percent of G.D.P. in revenue and spending 22.4 percent. Correcting our course will require major concessions by both Republicans and Democrats.

All of America is waiting for Congress to offer a realistic and concrete plan for getting back to this fiscally sound path. Nothing less is acceptable.

In the meantime, maybe you’ll run into someone with a terrific investment idea, who won’t go forward with it because of the tax he would owe when it succeeds. Send him my way. Let me unburden him.

Warren E. Buffett is the chairman and chief executive of Berkshire Hathaway.

Norquist hits back against Buffett op-ed, calls argument ‘silly’

By Daniel Strauss – 11/26/12 06:12 PM ET

Americans for Tax Reform President Grover Norquist responded to an op-ed by billionaire Warren Buffett Monday, saying Buffett’s argument was “silly.”

On Monday The New York Times published an op-ed by Buffett criticizing Norquist’s anti-tax pledge and urging Congress to pass legislation rolling back the Bush-era tax rates for incomes above $500,000 a year. Later on Monday Norquist appeared on Fox News and called Buffett’s argument silly, and said Buffett got rich by “gaming the system.”

“Warren Buffett has made a lot of money, some of it off of gaming the political system. He invests in insurance companies and then lobbies to raise the death tax, which drives people to buy insurance. You can get rich playing that game but it’s all corrupt,” Norquist said. “It’s not investing; it’s playing crony politics and economics. That’s a shame. He’s done the same thing with some green investing. Shame on him for gaming the system and giving money to politicians who write rules that make your assets go up.

“The real economy, the real economy, if he thinks that the government can take a dollar and then you go to an investor who doesn’t have that dollar and it doesn’t affect investment, I’m sorry that’s just silly unless he plans on going to Obama and getting money from a stimulus package and he considers that investment. When the government takes a dollar away from the American people or a trillion dollars, that’s a trillion dollars not available to be saved and invested. I’m sorry if Buffett can’t see that but that’s kind of silly on his part.”

The back-and-forth between Norquist and Buffett comes as legislators seek to come to an agreement on a deficit-reduction package to avoid the “fiscal cliff” of spending cuts and tax increases set to hit next year.

A number of Republicans have indicated that they could disregard supporting the Americans for Tax Reform pledge in order to reach a deal.

Buffett, an outspoken supporter of President Obama, published an op-ed in the Times in 2011 arguing that the tax rates on the wealthiest Americans should be higher. The Obama administration subsequently began pushing for a “Buffett Rule” that would raise the marginal tax rate for some of the wealthiest Americans. Obama has since called for increasing the tax rate on incomes above $250,000 a year. The Buffett Rule also introduces a base 30 percent tax rate for incomes between $1 million and $10 million and a 35 percent rate for incomes over $10 million.






Ben Graham’s Valuation Technique; NYU

One often thinks of prices as determining values, instead of vice-versa. But as accurate as markets are, they cannot claim infallibility.–Ben Graham

Notes on a Lecture on Valuation Technique by Ben Graham in 1947

These notes are a supplement to our previous and ongoing discussion of valuing growth stocks found here

Old set of notes:graham_valuation_technique or retyped notes for easier reading: Valuation Technique by Ben Graham from Class Notes

Despite being a brilliant man or because of his insight into himself and human nature, Graham had the ability to remain humble and accept his limitations of analyzing securities, especially growth stocks. He felt picking growth stocks required shrewdness which could not be considered a typical trait for an analyst.

Graham asserts that there is no definite, proper value for a given bond, preferred, or common stock. Equally so, no magic calculation formula exists that will infallibly produce a specific intrinsic value with absolute accuracy.  (Source: Benjamin Graham on Investing by David Karst)


Los Angeles hedge-fund manager Jamie Rosenwald has launched a value-investing class at New York University. Smart lessons, savvy stock picks.

For years, Sudeep Shrestha, 31, a native of Nepal who works at one of Wall Street’s most prominent hedge funds, watched the investment action from the sidelines. For an accountant in the private-equity division, there was no easy path from the back office to the fist-pumping and cork-popping in the front. When his business-school catalog arrived, including a class in value investing, Shrestha sat up. He waited about two seconds before logging on and enrolling.

The class, at New York University’s Stern School of Business, would make a table-pounding case for stock-picking—in particular, seeking undervalued, underloved issues—at a time when the efficient market hypothesis had convinced a big swath of investors that it was impossible to beat the market. The teacher was a little-known hedge-fund manager from Los Angeles who promised to bring his friends to class to help with lessons. By the time Shrestha completed Global Value Investing: Theory and Practice, he was sold on value investing, and convinced that the market is very inefficient, indeed.

To win, “you need to buy $1 for 50 cents, buy $1 for 50 cents,” he hummed to himself, over and over. So did the two dozen other M.B.A. candidates in the class taught by Jamie Rosenwald, a first-time teacher and co-founder of Santa Monica, Calif.-based Dalton Investments. If the lessons learned translate into market-beating returns, NYU’s first value-investing class won’t be its last by a long shot.

VALUE INVESTING TRADITIONALLY has been associated with Columbia University, 112 blocks to the north. Benjamin Graham, the father of value investing, taught at Columbia; Warren Buffett was his student, and the Columbia Business School runs a popular value-investing program through its Heilbrunn Center for Graham and Dodd Investing. (David Dodd co-wrote Security Analysis, the bible of value investing, with Graham.)


Makoto Ishida for Barron’s

Rosenwald, of Dalton Investments, and his wife donated $1 million to NYU’s endowment. A tenth of it will be invested in one or two stocks a year, based on recommendations made by the students he teaches.

Still, plenty of renowned value investors attended NYU. Larry Tisch, the late co-chairman of Loews (ticker: L), was a graduate and major benefactor. Joe Steinberg, president of Leucadia National (LUK), went to NYU, as did Bill Berkley, founder of insurer W.R. Berkley (WRB). Rosenwald, an engaging 54-year-old, attended NYU, too. “I was jealous that Columbia had street cred,” he says.

Although value investing is undergoing one of its periodic lapses in favor, Rosenwald knew it could beat the market over the long haul. He had only to point to nine of Graham’s successful protégés, discussed by Buffett in an influential 1984 article titled, “The Superinvestors of Graham-and-Doddsville.”

Waiting for the market to come around to your way of thinking is a long game, and Rosenwald has it in his genes: His grandfather was Graham’s financial-services analyst. When Jamie was 12, Grandpa Rosenwald made him fill out spreadsheets, using graph paper and a slide rule, as an exercise in assessing company valuations. A couple of years later, he made Jamie read Fred Schwed’s jeremiad against Wall Street, “Where are the Customers’ Yachts?”

THE LESSONS STOOD ROSENWALD  in good stead. Dalton, with $2 billion under management, runs value-oriented hedge funds, and its principals have a reputation for investing in profitable contrarian situations—California apartment buildings after the savings-and-loan crisis, Shanghai real estate after SARS, and distressed mortgages. Now they are backing a fund investing in apartments in hard-hit markets such as Las Vegas. “In chemistry terms, Jamie is the activation energy,” says a fund manager who asked not to be named. “When a reaction should happen, he’s the catalyst.”

Rosenwald steered a fund investing in Japanese management buyouts that produced nice returns despite a tough slog. Eventually, he merged it into Dalton Asia, which he runs with his young co-manager, Tony Hsu. Since its January 2008 inception, Dalton Asia is up 45%, versus a 23% decline in the MSCI Asia Pacific benchmark.

When NYU gave Rosenwald the green light to develop a class, he thought about how best to structure it. There would be six sessions of three hours each. The bulk of the grade, he figured, would reflect attendance, since life is mostly about showing up. The final would be a stock pitch. Rosenwald and his wife, Laura, would stake $1 million for NYU’s endowment, a tenth of which would be invested in one or two stocks a year, chosen based on students’ recommendations.

Rosenwald believed that students, like the companies they would invest in, needed skin in the game. At the first session, he made the enticing offer of a tuition refund if they didn’t learn at least three important things from the class. But since value investing pays off over the long term, they would have to wait 20 years to get their money back. The students grinned.

By definition, most investors can’t beat the market. But market-beating practices can be taught, beginning with a change in one’s mind-set. Over succeeding weeks, Rosenwald laid them out. The key was to think of yourself as an owner, choosing managers and making sure the numbers were in your favor. He explained to the class Graham’s principles, among them the need to choose stocks that have a margin of safety, and trade at prices that are low relative to book value and earnings.

Rosenwald also walked his students through Buffett’s investment requirements—that businesses be simple and understandable, have a history of predictable earnings, and generate high returns on equity as well as high and stable profit margins. The best companies have so-called economic moats: assets that warrant premium prices. They also have trustworthy managers who actually buy the company’s shares. Students had to think like owners from Day One; Rosenwald himself won’t buy a stock without meeting management first.

Rosenwald added a twist: Overseas markets, he told the class, were a good place to hunt for bargains.

Other lessons: Buying companies at 50 cents on the dollar dramatically lessened a risk of loss. Intensive research also abridged the risk, and  reduced the need to diversify. As day follows night, stock prices eventually reflect fundamentals. The students waded through Berkshire Hathaway’s annual reports and shareholder letters from renowned investor Seth Klarman of the Baupost Group.

One night, a young man who worked for a big property developer asked Rosenwald if he should diversify. Rosenwald’s eyes grew round. “Are you making so much money in your late 20s that you can afford to diversify, or are you making a small amount of money now that will grow over time?” he asked.

The latter, the student acknowledged. “Then there’s zero reason to diversify,” Rosenwald counseled. “You should bet it all on black, where you have done your own research.”

Even if the investment didn’t pan out, the student would have learned a valuable lesson about the importance of thorough research. The great investor Leon Cooperman, Rosenwald told the class, believed that outstanding investors had the following characteristics: They were intense, wanted to be the best, and knew the P&L (profit-and-loss statement) cold. They could identify their own comparative advantages and capitalize on them.

To bring the lessons home, he invited his fellow value investors to class. David Abrams of Boston’s Abrams Capital, who got his start with Klarman, told about an early and costly mistake, when he persuaded his boss to buy a fifth of a company that turned out to be a fraud. “Be very wary of book value,” Abrams warned the students. “The problem with Excel [spreadsheets] is that [they] give you a very false sense of precision.”

Bob Robotti, another prominent investor, got his start as an accountant. “You have to understand the numbers,” Robotti said. “But you don’t have to be Warren Buffett to do this right.”

THE LAST DAY OF CLASS was a festive one: Rosenwald’s colleague, Tony Hsu, would listen to student pitches and decide which stock the NYU endowment would buy. Then, Rosenwald would take everyone to dinner. Each stock should return 10% a year plus inflation, a bogey that Rosenwald lifted from another celebrated investor, Mason Hawkins of Southeastern Asset Management.

First up was Shrestha, whose pleasant, square face beamed above his crisp blue shirt. He pitched Leucadia, “a minor Berkshire” that invests in undervalued companies. Unlike Berkshire, however, it turns them around and sells them. He pulled up Leucadia’s Website, whose stripped-down look is eerily similar to Berkshire’s.

“Sudeep, it trades at $22 a share,” said Rosenwald. “What is the value exactly?”

Shrestha pointed out that Leucadia’s mining investments had turned off investors. As a result, it traded at a discount to book. In the past 30 years it had traded at a discount only three times. The chairman and president collectively owned a fifth of the company. One issue, he pointed out, was that they were elderly. (A few weeks later, Leucadia addressed that concern by buying 71% of the investment bank Jefferies Group [JEF] it didn’t own; Jefferies’ CEO would become CEO of the combined company.)

The students lined up enthusiastically to pitch. One touted the contingent value rights of the drug company Sanofi (SNY);  another pitched Genworth Financial (GNW), and still another talked about the value in American Residential Properties, which did a private offering over the summer.

Then came Neil Dudich, a portly, well-spoken student. Dudich described the charms of trucking company Arkansas Best (ABFS), whose ability to compete during the recession was curtailed by an ill-timed contract with its unionized workforce in 2008. Since then, the stock had collapsed by 80%, to 0.6 times tangible book, a fraction of its 10-year average. The market value was now about equal to the price Arkansas Best paid for a logistics firm early this year. Arkansas Best was about to negotiate a new union contract that Dudich believed would be more favorable, and the market was “losing sight of the mid- and long-term.”

Dudich, 35, thought that he knew what he was talking about. He worked for the union representing movie and TV directors. In the following days, Hsu picked Arkansas Best and Leucadia for the NYU endowment.

THE NEXT WEEK, ROSENWALD was on a plane to Asia to check on investments such as Transcosmos (9715.Japan), a Japanese outsourcing company whose founding family “lives for dividends,” and Fosun International (656.Hong Kong), often referred to as China’s Berkshire.

The investments were outside the U.S. but followed the same principles: “Find something worth $1 trading at 50 cents; research, research, research; and then buy it and sit on it,” Rosenwald says. “I wouldn’t want to be taught that there’s no way to make extra money in the world, that all knowledge is known and in stock prices. My grandfather would say that’s ridiculous.”


Another Email from Nigeria (Creative Scams)

The first scam that I have come across that tugs at the heartstrings. My spam box receives about 25 a day.  I wonder what the scammer’s conversion rate is…………




Apology for invading your privacy. I came across your email address in my email book today as my spirit leads. I have been praying and fasting for direction to meet someone i can trust with my life endeavors for humanitarian purpose. I’m Kate Johnson, 70-yrs old from England affected with cancer of the breast.  My condition has deteriorated to the 5th stage. My surgical specialist informed me recently that i would not be able to survive my next surgery is a matter of 50/50 Operation. That might just be trust as my medical Report explained more in details. Right now, am left with no hope as a childless widow.

Considering my condition now, I have been touched by the lord to donate from what I have inherited from my late husband to less privilege through someone i can trust with my heart as my spirit lead me  for good work to humanity rather than allow my heartless relatives to use my husband’s hard earned funds inappropriately. Right now, am on sick bed at cancer center in Liverpool, England for treatment. Am writing you this letter purposely because i need to know if you can be trusted to handle a humanitarian project for me. I am willing to donate a huge Amount to the poor through a Godly minded and honest person since is very impossible for me to even get up from sick bed. Can you help me?

Please send full contact details so you can receive my donation.

Kindly get back to me as soon as possible for further details on what to next, waiting for your urgent responds.

Best Regards,

Kate Johnson.

Wow, my hankie is soaked with tears. A childless widow dying of cancer needs my help to donate for humanitarian causes. Sob.  


Video Lectures on The Great Depression by Tom Woods

Link to the playlist for the complete ‘The Truth About American History’ seminar:

All videos are worth viewing–Lectures Five and Six Discuss the Great Depression.


Worst Mergers of the Decade. Deals from Hell. Attack on Michael Porter’s Strategy

Never let a tragedy go to waste. Study Success but also Failure

H.P. Takes $8.8bn Charge on ‘Accounting Improprieties’ at Autonomy

A Pro Weighs in on Autonomy’s Financial Statements:

Historical Perspective on How HP Lost Its Way:

Here are 10 of the worst large mergers of the past decade.

Advanced Micro Devices Inc. Acquiring graphics chip maker ATI did nothing for AMD, and the company has been in a steady state of leadership change and decline almost ever since. AMD shares were around $20 in mid-2006, and they are now under $2.00.

Alcatel-Lucent S.A. (NYSE: ALU). France’s Alcatel acquired Lucent, and things have just slid lower and lower. The stock is now under $1.00.

Alpha Natural Resources Inc. (NYSE: ANR) announced its plan to buy Massey Energy at the end of January of 2011. The Alpha Natural Resources share price was above $50 when this deal was announced. Shares are down to around $7 now.

Bank of America Corp. (NYSE: BAC) may have won when it acquired Merrill Lynch, but by acquiring Countrywide it shot itself in the foot.

Boston Scientific Corp. (NYSE: BSX) paid more than $27 billion to acquire Guidant in 2006. All that Boston Scientific has to show for the huge undertaking is a group of very unhappy and depressed shareholders. This stock was $35 at the start of 2005 and its peak was around $45 shortly before that. Its shares slid long before the Great Recession to less than $15 in 2008 as the problems were mounting. Now Boston Scientific is close to a $5 stock with only a $7.2 billion market value, and it carries more debt than it has in physical assets.

Microsoft Corp. (NASDAQ: MSFT) really was supposed to get a lot more out of its aQuantive acquisition from 2007. On the surface it seemed like a great fit. In the summer of 2012 Microsoft announced that it was taking a $6.2 billion goodwill write-down tied mostly to this $6.3 billion merger.

Sears Holdings Corp. (NASDAQ: SHLD) is the amalgamation of two troubled retailers after Eddie Lampert married Sears and Kmart in 2005.

Sprint Nextel Corp. (NYSE: S) was originally just Sprint and Nextel before the late 2004 deal was announced. The deal did not formally close until August of 2005. If you adjust for payouts and the like, Sprint shares were around $22 before the merger and were around $23 when the deal closed in August 2005. This stock was dead money for years, and then by early 2008 it had fallen to less than $10 per share

Symantec Corp. (NASDAQ: SYMC) seemed to have a match made in heaven when it acquired Veritas Software. This married a storage giant right into a security giant. The problem is that this merger destroyed what had been a massive growth engine when Symantec shares already had started to falter.

The Wendy’s Company (NASDAQ: WEN) made a monumental error by becoming Wendy’s/Arby’s. Arby’s went to Triarc in 2005 and then became Wendy’s/Arby’s in 2008.

Worth reading in more detail:

Book Recommendation: Deals from Hell, M&Q Lessons That Rise Above the Ashes by Robert F Bruner.

The detailed case studies consist of the following:
– Merger of the Pennsylvania and New York Central Railroads, 1968.
– Leveraged buyout of Revco Drug Stores, 1986.
– Acquisition of Columbia Pictures by Sony Corporation, 1989.
– Acquisition of NCR Corporation by AT&T Corporation, 1991.
– Renault’s proposed merger with Volvo, 1993.
– Acquisition of Snapple by Quaker Oats, 1994.
– Mattel’s acquisition of The Learning Company, 1999.
– Merger of AOL and Time Warner, 2001.
– Dynegy’s proposed merger with Enron, 2001.
– Acquisition program of Tyco International 2002.
Each case study of failure is accompanied by one or more comparison cases that vary in some instructive way.

First Chapter and Table of Contents:Deals from Hell

If you can avoid a merger failure or spot bad management to avoid you capital being misallocated then the $10 or $20 for this book is cheap. Also from the author:

Criticism of Michael Porter’s Strategy. Can You Predict Sustainable Competitive Advantage?

A review of Porter’s Five Forces Industry Analysis:Five forces industry analysis

Thanks to a reader who says, “I don’t agree with all the premises of this author who criticizes Michael Porter’s Five Forces. Does Coke adapt to consumer preferences? Perhaps a little, but Coke’s competitive advantage seems sustainable while the author says there is no such thing.

Excerpt: No basis in fact or logic

There was just one snag. What was the intellectual basis of this now vast enterprise of locating sustainable competitive advantage? As Stewart notes, it was “lacking any foundation in fact or logic.” Except where the (advantage) was generated by government regulation, sustainable competitive advantage simply doesn’t exist.

Porter might have pursued sustainable business models. Or he might have pursued ways to achieve above-average profits. But sustainable above-average profits that can be deduced from the structure of the sector? Here we are in the realm of unicorns and phlogiston. Ironically, like the search for the Holy Grail, the fact that the goal is so mysterious and elusive ironically drove executives onward to continue the quest.

Hype, spin, impenetrable prose and abstruse mathematics, along with talk of “rigorous analysis”, “tough-minded decisions” and “hard choices” all combined to hide the fact that there was no evidence that sustainable competitive advantage could be created in advance by studying the structure of an industry.

Although Porter’s conceptual framework could help explain excess profits in retrospect, it was almost useless in predicting them in prospect. As Stewart points out, “The strategists’ theories are 100 percent accurate in hindsight. Yet, when casting their theories into the future, the strategists as a group perform abysmally. Although Porter himself wisely avoids forecasting, those who wish to avail themselves of his framework do not have the luxury of doing so. The point is not that the strategists lack clairvoyance; it’s that their theories aren’t really theories— they are ‘just-so’ stories whose only real contribution is to make sense of the past, not to predict the future.”

Full Article here:

For a detailed compilation of articles on this subject of strategy go here: Porters Five Forces of Any Value


The latest Federal reserve data continues to show accelerating money supply (M2) growth. For the period starting  Aug. 20, 2012 to November 12, 2012 the chained  13 week average for these periods, shows annualized non-seasonally adjusted M2 growing at  8.4%.


Chanos and HP; More Case Studies and HAPPY THANKSGIVING!

Jim Chanos: Hewlett-Packard Is ‘Ultimate Value Trap’

Published: Wednesday, 18 Jul 2012 | 1:22 PM ET
Jim Chanos is short Hewlett-Packard.the company as “the ultimate value trap,” Chanos said he is short Hewlett-Packard during the “best idea” panel at the CNBC and Institutional Investor Delivering Alpha conference.

Chanos, president and founder of Kynikos Associates, said Hewlett-Packard [HPQ 11.6914 -1.6086 (-12.09%) ] has been hiding the true costs of its R&D through acquisitions. Once the costs of these acquisitions are taken into account, revenues and cash flow at the company are “basically flat,” Chanos said.

This means that investors looking simply at metrics such as price to earnings may mistakenly view HP as “cheap,” or a “value” investment opportunity, according to Chanos.

What’s more, the personal computing business is in decline, Chanos said. The growth of tablets and smart phones will continue to eat away at PC sales, Chanos predicted.

“People will still buy PCs. It just won’t be a very profitable business,” Chanos said.

Chanos said his analysis could be applied to several other technology companies. He mentioned that he had previously discussed shorting Dell, but the decline in the stock has made him “less excited about that idea.”

How Jim Chanos Spotted the HP Scandal

Published: Tuesday, 20 Nov 2012 | 10:17 AM ET

By: John Carney
Senior Editor,

While many investors were caught off-guard Tuesday morning by the giant, allegedly fraud-ridden write-down by Hewlett-Packard of the value of Autonomy, hedge fund manager Jim Chanos wasn’t one of them.

(Read more: Hewlett-Packard Walloped by Charge Relating to Fraud)

Chanos, the founder of Kynikos (greek for “cynic”) Associates said HP was one of the companies he regarded as “the ultimate value trap” in a presentation delivered in July at the Delivering Alpha Conference sponsored by CNBC and Institutional Investor.

(Read more: Jim Chanos: Hewlett-Packard Is ‘Ultimate Value Trap’)

Chanos related the story of why he began to consider shorting HP [HPQ 11.69 -1.61 (-12.11%) ] . He had been short Automony, the British cloud-based business software and data company. When HP bought the company at a hefty premium, this raised a red flag for Chanos. What’s more, Chanos pointed out, several top Autonomy executives left the company shortly after the acquisition.

Although some investors believed that HP was cheap enough to be considered a “value stock” because its price-to-earnings ratio was relatively low compared to competitors, Chanos said that HP appeared to be masking the true costs of its basic R&D costs with spending through acquisitions. If those costs were expensed as operating costs rather than capitalized as acquisitions, then revenues and cash flow at HP were basically flat, Chanos said.

Chanos said that the attempt to grow through acquisitions—HP had done $37 billion in acquisitions over the last four to five years—had not paid off for HP and that its core businesses were struggling. The personal computing market, in particular, was under assault from mobile technology, with people increasingly abandoning laptops for tablets. The company was engaged in “value destruction through acquisition,” Chanos said.

Chanos, who rose to fame after short-selling Enron prior to that company’s downfall, was led to short HP because of the acquisition of Autonomy, a deal which HP now says was tainted with billions of dollars of fraud. Another very prescient call by Chanos. by CNBC Senior Editor John Carney

See Autonomy Annual Report–What did HP’s Team Miss?JaarverslagCOM_Autonomy_2010

Here is what one pro says…….


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