[05/23/19 NEW] Djokovic, Nadal, and the CEO Pay Controversy

Novak Djokovic, Wimbledon’s 2018 winner, received £2.25 million prize, whereas Rafael Nadal, who lost to Djokovic in the semifinals, receive a paltry £562,000. What explains Djokovic’s almost four-times higher prize? Is Djokovic four-times more talented than Nadal? Was he playing four times harder? Does Djokovic draw four times more spectators, or TV audiences than Nadal…

[05/08/19 NEW] UBER: Pre-IPO Observations on Performance

Investors eagerly await Uber’s (UBER) impending IPO and with good reasons. It’s not every day you get an opportunity to invest in an industry – ride-sharing – founder and leader. Uber’s successes and travails are legendary and, soon, you’ll have an opportunity to share in its ownership. Now is the time for a sober, unemotional…

[04/06/19] Is the Market-to-Book Ratio Still Relevant? Yes, But …

I am asked frequently whether the widely-used market-to-book ratio (i.e., market value divided by balance sheet book value, or equity) is still relevant as an indicator of over- or undervalued shares, and a gauge of investors growth expectations. The short answer is: No. In a world dominated by intangible investments, whose measurement is seriously misspecified…

[03/27/19] Should You Buy Lyft Despite the Dual-Class Voting Shares?

Lyft, the ride-hailing startup, is going public in a few days, aiming to raise $2 billion at a valuation of $23 billion. Not bad for a seven-year-old startup. Uber, the industry giant, is still waiting by the sidelines, so that buying Lyft’s shares may be an opportunity for investors to get a foothold in the…

[02/27/19] When Will They Learn? Big Mergers Often Fail

On Friday, February 22, 2019, shares of food giant Kraft Heinz (KH) dropped 27%, amounting to a $14 billion shareholder loss. The main reason for the price calamity: a $15.4 billion write-down of Kraft’s major brands, like Oscar Mayer, Velveeta Cheese, Planters Nuts, and Maxwell House Coffee. An asset write-down means that due to operating…

[01/26/19] Here We Go Again: “Beware of Short-Term Investors”

A sure way to grab a headline and 15 minutes of fame (paraphrasing Andy Warhol’s immortal quip) is to blame investors and/or corporate managers of being myopic, that is―short-term oriented. Despite the fact that there is absolutely no evidence that neither investors nor managers are, in the main, short-term oriented, such claims are often made…

[01/13/19] Wikipedia, an Investment Tool. Who Would Have Thought?

On January 2, 2019, Apple stunned investors with a bleak revenue guidance, lowering the previous guidance for first quarter 2019 sales of $89-93 billion to $84 billion. (See January 2, 2019 Apple CEO’s letter). A “major black eye” called it CNBC. Investors agreed: Apple’s share price dropped 10% (the market overall decline was 2.5%). This…

[12/22/18] Why Are Hedgefunds Underperforming?

Hedge funds underperformed passive investments for the past 10-15 years. The reason: structural changes that resulted in a 50% fall in the number of public companies, due to mergers, financial failures, and low IPOs. The remaining companies are much larger and slower-growth. Identifying promising investments among such companies is very difficult.   “Hedge funds typically…

[12/13/18] Spotify Isn’t Profitable? Big Deal!

Summary Spotify is hammered for failing to report profits, but that’s irrelevant. Major expense items in its P&L, like R&D and certain finance costs, aren’t really operating expenses. What really matters is the business model, and Spotify’s is positive for customer growth, churn, and gross margin. (Less so for customer duration and ARPU.). The media…

[11/16/18] Value Investing Isn’t Dead Yet, Just Wounded

Value investing, which is often traced back to Ben Graham in the 1940s, is among the most influential trends in finance in recent decades. Value investing is based on the idea that lots of stocks are out of investors’ favor because of myriad of reasons, such as recent losses, management upheaval (think GE), product failures,…