DALE'S VIEW
I have been a student of the market and investments since I was a kid. Attended my first analyst convention in cleveland in May 1971...while a student at local to you Denison U.
Did MBA, finance at U. of chicago...grad assistant for Art Laffer...worked on currency study with Art for Dept. of Treasury...did CFA...traded over the counter...had summer scholarship to Midwest Stock Exchange...floor trading...back office...etc. Whoopie.
Got a real job as investment analyst with great firm in Chicago for learning real fundamental analysis...mentored by 2 DoR's, etc. Stock, bond rating, focus on company and industry analysis.
Reason for mentioning all this is that I long ago came to feel that most investors really did not have the ability to understand what drove the companies in which they invested. Key point.
Then spent 6 year's in industry with bankrupt to "turnaround" situation firms ...in acquisition, strategic planning, financial planning and investor relations-type roles. Returned to investment world with that balanced perspective to do industrial high yield investments....where you really need to understand the fundamentals...and there is well above average risk of financial loss due to at least restructuring, if not chapter 11, etc.
Then worked as VP planning/bus. development for industrial firm which had one of the more visibly successful turnaround acquisitions in the early 1990's...I was responsible to CEO for acq. plan. and implementation of consolidation plan...
Needless to say, did alot of other stuff to. Now, am involved for short time in a start-up venture ...non-profit...so little upside to me, save that I've always wanted to have the chance to see if I could really do what I thought I could in an operating role.
Point of all this recitation is Economic Background to better access the fundamentals of companies.
Have no problem with the idea that a number of very large, well-covered companies are usually priced rather efficiently in what now appears to be a mathematically complex, versus "statistically" described stack market..ie, signs of math chaos...
Well and good. But, I have seen migration away from understanding of real dynamics to skills associated with broad, shallow scanning of what information is knowable...with computers...broad info systems. neural nets/genetic algorythms to identify pricing anomalies, etc.
The irony is that as fewer investors have the time and skill to work to understand what's gonna happen, they become part of the party line, hence add no value. In other words, the very people who are trying to beat the market become a party to participating at the market average. They recycle their own thoughts.
If you look at the very successful, you look at folks like Warren Buffet, whose investments are usually astute, but are nowhere as diversified as would be suggested by an objective to reduce company-specific risk.
While Buffet will quickly point out that he personally does not add value to the industrial companies in which he invests, he at least has learned to spot value, franchise, and the managers who know how to get it done.
I really am surprised that more investors do not go the route of emphasizing private equity investment, in which it is not only possible to potentially add value to underlying investments, but to be small enough to understand fundamentals well.
Calls for a different kind of investor, to be sure. But, even that is changing, as alot of the guys doing private investment are former investment bankers, who are certainly bright enough, but still have only really the financial structuring skills and "contacts" to bring to the party.
By the way, I have also come to see that few really operations-oriented managers are worth squat as investors. To use a metaphor, they tend to invest at the "level", whereas a good investor is thinking at the first derivative...with the great investor possibly at the second derivative. That is one reason that I feel most acquisitions are not so hot: the people doing them lack the balance of operating and investment skills.
I might add, though, that great investors usually have a longer-term horizon, which tends to allow one to cancel out "noise" and benefit from the company's performance.
Well, those are a couple of half-baked thoughts from someone getting longer on experience, but probably no smarter.
Don't have a clue what that means to the teaching of investments, but it tells me that teaching ratio analysis beyond one session in a basic investment analysis course is a waste of time...unless you're using these ratios in some kind of discriminate analysis, etc.
An interesting e-mail that came in recently. 3/31/96