CFA Institute Enterprising Investor

Whistleblowing is an amazingly foolish activity for the whistleblower.
It might help society, but the consequences tend to destroy the whistleblower. I saw what it did to a close family member who blew the whistle on activities that caused the death of at least one patient.

Retaliation against Whistle-Blowers: No Good Deed Goes Unpunished
http://blogs.cfainstitute.org/investor/2012/10/24/whistle-blowing-no-good-deed-goes-unpunished/
" the results of a 2011 National Business Ethics Survey titled “Retaliation: When Whistleblowers Become Victims.” The report contains some shocking statistics:

45% of US workers observed wrongdoing;
65% of those who witnessed wrongdoing reported it;
22% of those who reported wrongdoing said they experienced retaliation (an increase of 46% from 2009); and
46% of those who observed wrongdoing but chose not to report it, cited fear of retaliation as the reason."

The professional consequences of whistleblowing by nurses
http://www.ncbi.nlm.nih.gov/pubmed/11125963
"Abstract
When nurses encounter misconduct in the workplace, their ethical codes of conduct bind them to the role of patient advocacy and compel them to safeguard the patient from harm. However, reporting misconduct can be personally and professionally risky. The aim of the research was to examine the professional consequences of whistleblowing and nonwhistleblowing in nursing. A descriptive survey design was used to examine the professional effect of reporting misconduct (whistleblowing)…

Do you enjoy gambling? As in, do you enjoy games of pure chance where you could lose your money? If not, don't invest in stocks. No one beats the market. Put your extra money into index funds with low fees if you want something safe. If you want something riskier with better upside (where skill is actually involved), try something like urban real estate. Obviously you still have to know what you're doing, but there are opportunities for people with enough to buy places in cash.

In short: do not do this.

Further reading:

http://cashcowcouple.com/investing/stock-picking-always-losing-game/

Key passage:

> Professionals Can’t Pick Winners

> The New York Times article, “The Prescient are Few” (1) offers a great look at the study (2) by Professors Laurent Barras, Olivier Scaillet and Russell Wermers about the performance of 2,076 professional mutual fund managers over a 32-year time period.

> The result are what I’d expect. They found that from 1975 to 2006, 99.4% of these managers displayed no evidence of genuine stock picking skill, and the 0.6% of managers who did outperform the index were “statistically indistinguishable from zero.”

> Professor Wermers goes on, “This doesn’t mean that no mutual funds have beaten the market in recent years. Some have done so repeatedly over periods as short as a year or two. But the number of funds that have beaten the market over their entire histories is so small that the False Discovery Rate test can’t eliminate the possibility that…

> We play Monopoly. Suddenly the bank gives everyone 40% more money. What happens to the prices for owned properties and houses?

Nothing if it just sits around, which is what is generally happening in the real world:

* https://fred.stlouisfed.org/series/M2V

Please stop with the Monetarism: there is no empirical evidence for it, no matter how 'intuitive' you think it is.

> But also – why do so many people insist that inflation is an increase in the money supply? This makes zero sense. Here’s why – our economy is mostly a credit based economy. So, if I take out a loan for $100,000 then the money supply has technically increased by $100,000. But what if I don’t actually tap that loan? What if I borrow the money because, for instance, house prices just went up 25% and I want to have some cash around for emergencies? This doesn’t tell us anything about prices, living standards or really anything. But this is what so much of the money supply represents – money that has been issued and is just sitting around unused. Why is this useful? It’s like calculating your weight changes by counting how much food you have in your refrigerator. No. That’s potential calories consumed and potential weight gain. The amount of food in your fridge tells you little about your future weight changes just like the amount of money in the economy tells us little about the actual price changes in the economy.

> Sometimes I feel like people read some econ 101 and the admittedly intuitive idea that…

I fully agree Buffett is a one of a kind investor who's outperformed. I would love to have owned BRK shares, and still think you can't really go wrong owning them. That said, his performance v. S&P 500, a simple index, hasn't persisted. Basically, Buffett lost his advantages and even started making public bets that index funds would outperform actively managed funds.

> I did the math and starting from 1965 to 2002, a period of 38 years, the compounded annual return of the S&P 500 was 10.02% while that of Berkshire was 25.66%. But—and here's the kicker—from 2003 to 2022, a period of 20 years, the S&P 500 delivered a 9.80% compounded annual return while Berkshire came in lower at 9.75%. [0]

He's gotten fined for insider dealing by the SEC. And I figure that a lot of his "alpha" came in the earlier days of the markets when there was less regulation.

FWIW, here's an interesting article on Buffett's alpha. [1]

> Previous researchers analyzing Buffett’s returns using conventional size, value, and momentum factors haven’t been able to adequately explain his outperformance, the authors say, leaving admirers to conclude that Buffett’s magic is pure alpha. So they extend the analysis by testing Buffett’s impressive returns — as measured by Berkshire’s stock — against two factors that better reflect his folksy investing wisdom: One called “Betting Against Beta,” which represents safe, low-beta stocks, and another called “Quality Minus Junk,” which represents the stocks of…

> I think there were a lot of problems, but most of them boil down to "heavy-handed government intervention in the markets".

The Fed was very hands off in the early 1930s:

> […] At the onset of the Great Depression in 1929–1930, the Fed maintained a “hands-off” approach, believing the economy simply needed to “wring out its excesses.” This is somewhat ironic in that Fed policy itself greatly contributed to the financial excesses of the 1920s. Nevertheless, the Fed failed to recognize the nature of the economy.

> When the Great Depression hit in 1929, the Fed’s instinct was to do little and let the economy and markets correct. But the Fed seemed to have no sense of how big the credit bubble from the 1920s was. Consequently, from 1929–1933, the Fed remained committed to a tight monetary policy. Under the gold standard then in force, when the gold balances held by the government contracted, the money supply did so as well. Faced with the increasing economic turmoil, US businesses and the public at large trusted gold more than paper currency. Overseas investors, fearing a potential devaluation of the dollar, preferred gold too. This created a gold drain. As the Fed’s gold stocks declined, the United States unwittingly reduced credit in the economy. Over the 1929–1933 period, the US money supply contracted sharply, declining by roughly one third between 1929 and 1933, and the country experienced its worst ever downturn, with unemployment soaring to roughly 25%.

*…

== The Intangible Valuation Renaissance: Five Methods [0]

== 3 methods for valuing intangible assets [1]:

1. Under the excess earnings method, valuators forecast the after-tax cash flow that the asset is expected to generate. This method can be the most complex (and costly), but is also usually the most accurate.

2. Under the relief from royalty method, valuators forecast the revenue that the asset is expected to generate, then apply a comparable industry royalty rate and subtract taxes.

3. Under the cost method, valuators determine the cost to develop the asset (i.e. labour and materials), plus a reasonable return on that investment. This method is often used for early-stage companies where forecasts are difficult to prepare or in instances where information doesn’t exist to use the first two methods.

== Financial Valuation: Applications and Models [2]

"Coverage includes state-of-the-art methods for the valuation of closely-held businesses, nonpublic entities, intangible, and other assets, with comprehensive discussion on valuation theory, a consensus view on application, and the tools to make it happen."

[0] https://blogs.cfainstitute.org/investor/2019/01/11/a-renaissance-in-intangible-valuation-five-methods/

[1] https://www.bdc.ca/en/articles-tools/change-ownership/sell-business/how-to-value-intangible-business-assets

[2] https://www.wiley.com/en-us/Financial+Valuation%3A+Applications+and+Models%2C+%2B+Website%2C+4th+Edition-p-9781119286608