The Stingy News Weekly (05/23/2010)
The dangers of DCF
"Theoretically, discounted cash flow (DCF) is the correct way of valuing an asset. However, as Yogi Berra noted, 'In theory there is no difference between theory and practice. In practice there is.' The implementation of a DCF is riddled with problems. First off, we can't forecast, which kind of puts the kibosh on the whole exercise. Even if we choose to ignore this inconvenient truth, problems with the discount rate still make a mockery of the whole idea of DCF. No wonder DCF has such a poor reputation. The good news is that several alternatives exist. We explore three that avoid forecasting altogether"
How will Greece get off the dole?
"What the income figures fail to capture is the relative weakness of Greece's economic institutions. They are not remotely comparable to those of Germany and some of the other better-governed European Union nations, which is why the current crisis will prove so difficult to solve."
Third Avenue Value Q2 2010
"It is difficult to function as a value investor unless the value analyst has a firm grasp of economic reality. It is equally difficult to promulgate intelligent financial regulations unless the sponsors of the regulation have a firm grasp of economic reality. Neither the general public, nor legislators and Obama administration officials, seem to have much of a grasp of economic reality, at least when it comes to dealing with troubled financial institutions."
The running of the stockbrokers
"Europe, 2010, a tradition is born..."
"With stocks sagging, it's time to buff up your watch list of quality companies. That way, you might be able to snag a few should they fall well into bargain territory. Vito's list is a good place to start."
The very bad luck of the Irish
"With the European Central Bank announcing that it has bought more than $20 billion of mostly high-risk euro zone government debt in one week, its new strategy is crystal clear: We will take the risk from bank balance sheets and give it to the central bank, and we expect Portugal-Ireland-Italy-Greece-Spain to cut fiscal spending sharply and pull themselves out of this mess through austerity. But the bank's head, Jean-Claude Trichet, faces a potential major issue: the task assigned to the profligate nations could be impossible. Some of these nations may be stuck in a downward debt spiral that makes greater economic decline ever more likely."
Rogoff criticizes debt strategies
"Despite the headwinds of poor jobs growth and a troubled housing market, the U.S. will avoid a double dip recession, according to Kenneth Rogoff, the Thomas D. Cabot Professor of Public Policy, Harvard University."
Overoptimistic for a generation
"For the past quarter century, equity analysts' earnings-growth estimates have been almost 100% too high."
Tyler Cowen on prizes
"Tyler Cowen is a professor of economics and director of the Mercatus Center at George Mason University. He writes for MarginalRevolution.com"
"In the realm of public policy, we live in an age of numbers. To hold teachers accountable, we examine their students' test scores. To improve medical care, we quantify the effectiveness of different treatments. There is much to be said for such efforts, which are often backed by cutting-edge reformers. But do wehold an outsize belief in our ability to gauge complex phenomena, measure outcomes and come up with compelling numerical evidence? A well-known quotation usually attributed to Einstein is 'Not everything that can be counted counts, and not everything that counts can be counted.' I'd amend it to a less eloquent, more prosaic statement: Unless we know how things are counted, we don't know if it's wise to count on the numbers."
Do bonuses create cheaters?
"The common practice of granting bonuses to people who hit a certain target is supposed to boost their productivity. Turns out, it may be encouraging them to cheat, according to a new paper by University of Guelph and Ryerson University researchers."
Malcolm Gladwell keynote address
"Bestselling author Malcolm Gladwell (The Tipping Point, Outliers) addresses the Options Industry Conference."
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