Instead of carefully archiving my blog entries by hand, I thought I'd let Blogger do it for me. A lot of my favorite blogs use Blogger, so I decided to give it a try.
Since I haven't done that many entries in my blog, I'm going to paste the old ones here so they'll be archived here as well.
June 15, 2006
I'm catching up on my reading, and I just finished a good one that has been sitting on my shelf since spring. It's Financial Shenanigans
by Howard Schilit, president of the Center for Financial Research and Analysis. It is a very readable step-by-step guide to detecting fraud by reading financial statements.
Most of the big corporate scandals in the past few years have been in one way or another accounting scandals. Either accounting was the primary method of committing fraud, or else accounting was used to cover up other malfeasance. Schilit identifies seven "shenanigans" and the ways they are typically performed. They are:
1. Recording revenue too soon or of questionable quality
2. Recording bogus revenue
3. Boosting income with one-time gains
4. Shifting a current expense to a later or earlier period
5. Failing to record or improperly reducing liabilities
6. Shifting current revenue to a later period
7. Shifting future expenses to the current period as a special charge
All of this has to do with accounting arcana, which is what makes these kinds of scandals so opaque to the public. The public understandably doesn’t understand what's been done, much less how anyone was hurt by it. One misunderstanding that one sees in newspapers occasionally is what a reserve is, and why not having one or underestimating one is bad. The impression given is that reserves are actual money--rainy day funds to pay for future litigation or bad debt.
That's why a readable book like this is useful. It really goes into accounting detail, and explains what the various financial statements are, and how to read them. It gives lots of examples of specific companies caught engaging in specific shenanigans. (Some, like Sunbeam, seems to have engaged in about every kind of shenanigan possible.) He always shows stock price graphs so one can see what the result is to equity when the chickens come home to roost. (He also uses the graphs as a way to brag on the CFRA's ability to see trouble early. They always seem to issue warnings well before the shenanigan is discovered. But, Cassandra-like, their warnings are ignored by investors. If their record at detecting shenanigans is so good, you would expect stock prices to drop every time they issue a warning on a company. Hmm.) Occasionally he offers a pungent detail or two on the company's story, but it would be better if he gave a little more--like this executive went to jail, or that executive was forbidden by the SEC to ever lead a publicly traded company again, etc.
I think this would be a good book for undergraduate and graduate business students, especially those interested in becoming analysts. Aside from giving a lot of practical advice, it would be an entertaining counterweight to the (let's face it) fairly tedious accounting textbooks that one necessarily has to read.
June 5, 2006
I started my internship at Cameron Compression Systems
today. I'm basically to continue the work that our ALP team did, using statistical methods for the purpose of demand forcasting of large compressors.
My ALP team generally did well with their internships. Teammates are working at FMC, Intel, Lehmann Brothers, Waste Management, and McKinsey. Most of us are here in Houston, but Daniel Rojo is up in Colorado for the summer (lucky guy).
June 2, 2006
My favorite new website is footnoted.org
. The author of this site is Michelle Leder, a reporter who specializes in investing and finances. In footnoted.org, she reads proxy statements and SEC filings to dig up excutive compensation outrages. It's hilarious how brazen some of these guys are, and it must be supremely frustrating for stockholders who end up paying through the nose even for incompetent executives.
A typical entry was the one posted yesterday:
"What do you give a top executive who is being investigated by the company’s own board over "allegations relating to improper payments to foreign government officials" and suddenly decides to resign? How about a quarter of a million dollars? For the rest of his life.
"That’s exactly what’s going on at Pride International (PDE), which filed this retirement agreement with outgoing Chief Operating Officer John Blocker Jr. yesterday. Blocker, who was only named COO in January 2005, used to oversee the company’s Latin American operations. Though Pride hasn’t provided many details, a former employee has made allegations about bribes going back a number of years, which has prompted Pride to delay filing both its 10-K for 2005 as well as its first quarter Q."
OK, maybe Blocker isn't a briber. That's still to be investigated. Still, it's hilarious. Even more mind-boggling was this entry from May 24:
"Last year, when Radio Shack (RSH) announced that it had reached a transition/consulting agreement with Chairman and CEO Len Roberts that would pay him over $41K a month to provide advice for 31 months after he stepped down as Chairman and CEO, the stock was trading at around $33 a share.
"Fast forward to today, when the company filed Roberts’ actual agreement in an 8-K and you’ll quickly see that little has changed: Roberts will still collect $41.6K a month through December 2008 and Radio Shack will stay pay up to $100K a year to provide Roberts with office space and an administrative assistant. [...] But the stock price is down around 50%. [...]
"So given all of this, why is Roberts getting the same deal? And exactly what sort of advice will he be providing for that kind of money? Will the new CEO - whenever he or she is named - even want this advice that they’re forced to pay for? [...] But given the challenges the company faces as it tries to recover, it seems questionable as to whether this is the best use of investors’ money."
Most of the CEO compensation horror-stories one hears are about huge quantities of money and whether the executive (or anyone) could possibly be worth it. Or else they're about fraud, like the ongoing options-dating scandal. But what I like about this blog is that in addition to the above stuff, it details the humiliating payments a company has to pay to get rid of a bad executive--indeed, how hard they are to get rid of at all. Len Roberts is going to be hanging around for another three years, whether the new CEO wants him or not! Hah!
I highly recommend this blog.
May 29, 2007Freakonomics is
not what I would have hoped for, given the hype. It deals with a subject near to my heart: counterintuitive facts. The one in the book that has gotten the most attention was the notion that the drop in crime in the early 90s was caused by the legalization of abortion in 1973.
University of Chicago economist Steven Levitt doesn't really seem to use economic theory much in these examples. Instead, he uses statistical methods and data mining. Fair enough--maybe the book should be called "Freakistics," but whatever.
But what he doesn't do, and this drives me crazy, is take the reader through the solution step by step. I realize this is a popular book, but I want to know more about the data, the algorithms, and the statistical techniques. Instead we get a kind of "trust me" narrative. Levitt will say that when we did data mining on this database, we discovered "X." That is completely unsatisfying! At least to me. And I will admit that I'm not average reader: I like math and statistics and want to understand the myriad ways they are applied to real world phenomena. Still, even if I was reading a book about, say, farming, I'd want to know the "how" (in non-technical terms) as much as the "what."
The whole book comes across as written for the least common denominator--it doesn't make its reader work at all. The ideas are interesting, but without further explication, are interesting but unsupported claims. Levitt pats himself (and the reader) on the back for not embracing "conventional wisdom" (a term apparently invented by John Kenneth Galbraith. Who knew?), but the book is full of an equally pernicious kind of "wisdom," received wisdom. Without some better idea of how these results were derived, the book is just Levitt telling you some stuff, and you have to decide whether you want to believe him or not. There is no intellectual journey here.
May 28, 2007
Peter Gent is best known as the author of North Dallas Forty
, but in 1983 he wrote another football novel, the completely demented The Franchise
. According to Texas Literary Outlaws
, this book was written during a period in Gent’s life when he was exhibiting some scarily paranoid behavior. This comes through loud and clear in The Franchise
, which is a conspiracy-filled history of a new expansion team, located in the never-named city of Austin. The franchise brings in the coach and quarterback from U.T. (also never named) and starts towards their plan of building a Super Bowl team in three years. At first, the primary villain (among many) of the piece is Dick Conly, right-hand man to owner Cyrus Chandler. Conly is an amoral schemer who knows he’s smarter than everyone else. While he never really becomes a “good guy,” his alliance strategically changes to the good guys later on in the novel. Conly gets most of the best lines. For example:
“It’s about goddam time.” Conly lurched out of the chair and snatched up the crocodile briefcase. “Does the son of a bitch want to take a goddam bribe or not? I have important people to corrupt.”
The book is full of funny, awful, corruption like this. It’s amazingly bloodsoaked--James Elroy would envy the body count--and each outrage is certain to be topped by a later outrage. One can’t call it satirical because the picture it paints of the NFL is not remotely believable. But The Franchise
is funny, twisted, and entertaining. It reminds me a little of Carl Hiaasen, but even more extreme. It wasn’t as good as North Dallas Forty
, but still quite readable.
May 27, 2007X-Men: The Last Stand
got a mediocre review in Slate
, but I found it pretty entertaining. There is a cure for mutants, and many of the mutants who dislike what they are are eager to get normal. If you use the gay analogy, the cure is like those "ex-gay" therapies. (It is shown to be totally like those therapies at the end, when you discover that it doesn't work.) The Beast makes an appearance, and Kitty Pride grows a bit more important. Weirdly enough, they kill off Cyclops, Professor X, and Phoenix. But since they killed off Phoenix last time, maybe they have learned the golden rule of comics: death is never permanent. Mainly, this one worked because it was full of action and clever special effects, making it perfectly mindless forgettable fun.
May 24, 2007
I recently reread The New Confessions
by William Boyd. This is one of my favorite books, and rereading it is always a pleasure. That can't be said about a lot of books, even ones I liked a lot the first time around. The Baron of the Trees
also has that quality, and they have an unusual connection in that each touches on the European Enlightenment.The New Confessions
is about a peripatetic English filmmaker whose career reminds one a little of Abel Gance here, Luis Bunuel there, with some D.W. Griffith, Fritz Lang, and Hollywood 10 thrown in. It is a credit to the imagination that Boyd can contrive a situation that allows an Englishman to inhabit all these roles. (He repeats this feat in Any Human Heart,
but The New Confessions
is the better book.) The series of unlikely events is far-fetched but basically believable. Rereading it, I find myself cringing at John James Todd's self-destructive inability to compromise. When I first read it, I admired that. That's one thing that makes this book great; the protagonist embodies these characteristics that are bound to strike one differently as one reads it over again.
John James Todd is not a monster, but he is careless and thoughtless, and hurts people he shouldn't. He's selfish in a very particular way (though not greedy). He is capable of generosity and even heroism. He's incredibly narcisistic. All these qualities make his life interesting, and the novel proposes that his strengths and weaknesses, his weird up-and-down life story are in the end unimportant; his masterpiece, a film adaptation of Rousseau's Confessions
, is what counts. The New Confessions
is a ringing endorsement of art. For a nonbelieving lover of beauty like me, it's an inspiring notion.
And yet... You read the book because John James Todd's life is so fascinating and moving. And the work of art that is the purpose of his life is, in the end, a fiction. We readers never will see The Confessions
because it doesn't really exist. This is the irony of any book about creating great art. Boyd knows the irony is there and plays with it. I suspect he, like me, is a true believer in art. But he is too smart not to realize the problematic nature of writing fiction about art. This separates The New Confessions
from, say, Somerset Maugham's The Moon and the Sixpence
, an inferior book with a similar theme.
Labels: books, finance