Tag Archives: Schiller

Book Club for The Intelligent Investor; Can a Company Have Too Much Debt? Free Courses


Book Club for Value Investors (Discussion) http://www.moderngraham.com/

Graham & Doddsville – Issue 20 – Winter 2014

Can a Firm Have Too Much Debt


Is There Too Much Corporate Debt_Bernankie 1988

The above papers were written during the LBO craze of the late 1980s which, in turn, was driven by the all-time low in asset values of the early 1980s.

Liquidation and Debt Capacity   Worth a read!

Free Course with Yale’s Schiller on Financial Markets and Risk:


Argument Clinic

Buy, Sell or Hold? Schiller Free Finance Course

Truck Photo

Arkansas Best Trucking

Annual 2012 Ark Best




Buy, Sell, or Hold?  Why? Is this a good business? Can costs be passed through to customers?  Is growth profitable?

Wrong answers will result in: http://youtu.be/6eXFxttxeaA

Free On-Line Finance Course from a Nobel Prize Winner:  http://oyc.yale.edu/economics/econ-252-11#sessions

Case Study: Stub Stocks or Sum of the Parts Analysis of Loews (L)

If you go to work tomorrow wearing a green shirt and say, “I’m going to win a million dollars today because everyone knows when you wear a green shirt on Tuesdays, you win a million dollars,” your colleagues will grab a giant butterfly net. You’re predicting an outcome that 1.) has no historical precedent and 2.) lacks any rooting in reality. You see that clearly.

Yet every time I (Ken Fisher) talk about history’s role as a powerful tool in capital markets forecasting, inevitably some say, “Past performance is no indication of the future!” Well, that is not why you should look at history. Use history as a laboratory–to understand the range of reasonable expectations. For example, when event X happens, the outcomes are usually B,C or D, but can be anywhere from A to F.  So I know that anything could happen, but odds are greater something like A through F happens, with odds still higher on B, C, and D. And the odds of something outside that range happening is very, very low, so it would take exceptional extra knowledge to bet on something like that happening.  (Source Markets Never Forget, But People Do, Fisher)

Case Study in Valuing a Stub–Loews, Corp (L)

These opportunities can offer (mostly) non correlated returns to the general market. Calculating the price of a stub is relatively straight-forward with publicly traded subsidiaries. These are typically non-franchise companies. Our goal in this case is to find the value of the stub (residual value) versus the market price of the conglomerate and its various subsidiaries. Is there opportunity here? What else would you need to consider?  In a day or two I will post the analysis. To help you, I have posted several readings below this case.

Link to Loews Annual Report and 10-K (2011): http://ir.loews.com/phoenix.zhtml?c=102789&p=irol-index

Readings on Sum of the Parts Analysis and Stub Stocks

Sum of the Parts Conglomerates

Pratte on Liquidation and Creation of Stub Stocks

Stubs Maurece Schiller 1966  Prof. Greenblatt referenced and suggested this book as an example of how long special situation opportunities have existed. Interesting historical examples. Chapter on Stubs.

Leveraged Recaps and Exchange Offers_NYU

High-I.Q. Investors

The New York Times Article by Robert Schiller makes a case that high-I.Q. tend to focus on their own smaller cap stocks with value characteristics.


February 25, 2012

What High-I.Q. Investors Do Differently by ROBERT J. SHILLER

YOU don’t have to be a genius to pick good investments. But does having a high I.Q. score help?

The answer, according to a paper published in the December issue of The Journal of Finance, is a qualified yes.

The study is certainly provocative. Even after taking into account factors like income and education, the authors concluded that people with relatively high I.Q.’s typically diversify their investment portfolios more than those with lower scores and invest more heavily in the stock market. They also tend to favor small-capitalization stocks, which have historically beaten the broader market, as well as companies with high book values relative to their share prices.

The results are that people with high I.Q.’s build portfolios with better risk-return profiles than their lower-scoring peers.

Certainly, caution is needed here. I.Q. tests are controversial as to what they measure, and factors like income, quality of education, and family background may not be completely controlled for. But the study’s results are worth pondering for their possible implications.

The paper, by Mark Grinblatt of the University of California, Los Angeles, Matti Keloharju of Aalto University in Helsinki and Juhani Linnainmaa of the University of Chicago took advantage of some unusual data. The crucial numbers came from, of all places, Finland.

Why there? Two reasons. First, Finland requires all able young men to perform military service. As a result, the authors were able to obtain I.Q. test scores of all of men conscripted in Finland from 1982 to 2001.

Second, Finland had a wealth tax, and its citizens had to report their investment portfolios to the government. This means the authors could compare the men’s I.Q. scores and their investing habits, as well as link those factors to other individual data. Similar data sets aren’t available in other countries, however, so we may not want to generalize too much.

Still, the results are interesting. The authors didn’t claim that people with high scores had some kind of monopoly on stock-picking genius. What they did contend was that these people tended to follow basic rules of successful investing.

In some ways, it’s a puzzle why I.Q. scores would matter in this regard. After all, the view that people should diversify their investments, to avoid putting all their eggs in one basket, is widely accepted. It’s not hard to diversify a portfolio or to have someone do it for you.

And another time-proven rule of investing — that people should put a substantial amount of their money in the stock market — might have its detractors, no matter what their I.Q. scores. That is especially possible given the volatility in the financial markets in recent years.

Yet only about half of all American adults have money in the stock market, directly or indirectly. So maybe something else is going on. If people can’t figure out the financial markets on their own, they can entrust their money to professionals or heed professional advice. The real problem may not be that many people lack investing savvy or smarts. Perhaps what they lack is trust, or confidence in whom to trust.

Three economists, Luigi Guiso of the Einaudi Institute for Economics and Finance, Paola Sapienza of Northwestern and Luigi Zingales of the University of Chicago, argued in a paper published in 2008 that many households avoid investing directly in stocks out of vague fears that they might be deliberately misled or cheated. Using results from a survey of households, this time in the Netherlands, the economists showed that those who indicated a high level of trust were 50 percent more likely to invest in the stock market. They were also more likely to have diversified their stock holdings. The paper, titled “Trusting the Stock Market,” was published in The Journal of Finance.

Knowing whom to trust, and relying on those who are trustworthy, is itself an aspect of intelligence. Mr. Guiso and his co-authors cited research that suggested that investment decisions relied significantly on a part of the brain called the Brodmann area 10. This region of the frontal cortex is believed to be associated with our ability to make inferences about others’ preferences and beliefs based on their actions. Such social intelligence seems to reward some people more than others with an ability to put standard investment advice into practice.

Successful investing requires that we judge other people, and it relies on an ability to develop a good model of others’ minds. It requires that we put into perspective recent angry rhetoric against Wall Street and understand that, while some criticisms are surely justified, others are just as surely exaggerated.

Anyone, regardless of background or education, may worry about being misled. The professionals tell us that the stock market is the best place to invest, but such assurances don’t help us when the market swoons. Many pros assured us that housing prices would never decline, either.

But if we can somehow foster more trust in investment professionals, a full spectrum of people — whatever their I.Q.’s — might adopt a more successful approach toward investing.

THE Consumer Financial Protection Bureau, created by the Dodd-Frank Act of 2010 and now under the command of Richard Cordray, ought to be an important vehicle to help bring about such trust, by responding to complaints and making rules that will help restore confidence. The Office of Financial Education, one of its divisions, would seem to have a big role in this effort.

But there is only so much this agency can do. It has a budget amounting to less than $2 for every American adult in 2012, and much of that will go toward activities it is taking over from the Office of Thrift Supervision and other agencies.

The government, as well as those in financial and educational spheres, must think about how we can restore and strengthen ordinary people’s trust in the financial markets. It doesn’t take a high I.Q. to see that it’s in everyone’s interest to get basic financial decisions right.

Robert J. Shiller is professor of economics and finance at Yale.