I was reading an article in the WSJ about Steve Balmer and Microsoft, and realized something interesting. Microsoft has given considerable cash back to share holdings – in excess of $100bn when dividends and share buy-backs are added together. This is no small amount of money; had that cash stayed on Microsoft’s balance sheet, Apple would still have a long way to overtake Microsoft’s current market cap.

Interesting article from from R. Sternberg in 1994.

Lack of motivation. A talent is irrelevant if a person is not motivated to use it. Motivation may be external (for example, social approval) or internal (satisfaction from a job well-done, for instance). External sources tend to be transient, while internal sources tend to produce more consistent performance.

Full text here.

I stumbled upon a July investor update by Freddic Mac, and learned some unsettling facts.

• Homeowners had more equity in their homes in 2001, before the real estate bubble than today.
• At the peak the enterprise value of US housing was approximately $23.5 trillion. Today, it’s $16.5 trillion, meaning $7 trillion of wealth has been destroyed.
• The average growth rate of nominal house prices is 4.5% which is higher than inflation.
• Since June 2006, national home prices have experienced a cumulative decline of 20%
• In the past year, 41 out of 50 states saw further declines in property values.

Read the rest of this entry »

In today’s congressional hearings, Goldman Sachs was bluntly accused of fraud. Goldman Sachs has among the smartest people in the world working for them. Some of them are my friends. I don’t blindly support all things capitalism, but it’s infuriating to see Congress make a dog-and-pony show out of routine business practice to appease the misguided anger Main Street has towards Wall Street. To understand why these congressional hearing are asinine, it’s important to understand that Goldman Sachs was simply a market maker in the transaction which the SEC is labeling “fraud”.

Say you think the Lakers are going to lose in the playoffs this year – yes they have a great track record, but after looking at their statistics you believe they are going to lose. To profit of this belief, you have to place a bet against the Lakers, and you’d make this bet through a bookie. The bookie has to take your bet and find someone willing to take the other side of it – someone who believes the Lakers are going to win, and is willing to bet against you. The bookie has just become a market maker, and this is essentially what the SEC is calling fraud.

Irrespective of what Goldman’s internal positions were – whether they were short or long the housing market it doesn’t change the fact that two educated institutional clients who had differing views on the housing market bet against each other. Institutional investors have teams of employees who solely assess the products in which their firms are taking positions, and they make educated decisions on which way they feel the markets are moving. Sometimes they are wrong as IKB Bank was, and sometimes they are right as John Paulson was. However, it’s important to stress, that both firms voluntarily entered into opposite sides of the bet, and Goldman Sachs was simply the market maker.

Making calculated decisions on the direction of markets and taking positions to reduce exposure-hedging– is routine business practice and this is how companies offset risks in everything from currency fluctuations to commodity costs. For firms to hedge the types of risks that are integral to their operations they have to turn to market makers to help them find someone willing to bet against them. Market makers play a crucial role and hedging is routine business practice for large firms. To retroactively try and criminalize standard business practices simply to appease public tempers is a grave mistake.

I don’t update here much, yet hello to all of you delivered here by Google. A couple quotes to start the New Year:

Be always at war with your vices, at peace with your neighbors, and let each new year find you a better man.
- Benjamin Franklin

Every man should be born again on the first day of January. Start with a fresh page. Take up one hole more in the buckle if necessary, or let down one, according to circumstances; but on the first of January let every man gird himself once more, with his face to the front, and take no interest in the things that were and are past.
- Henry Ward Beecher

“Do I strike you as a man with a miserable inferiority complex? Only that kind of man spends his life running after women.

Love is blind, they say; sex is impervious to reason and mocks the power of all philosophers. But, in fact, a man’s sexual choice is the result and the sum of his fundamental convictions. Tell me what a man finds sexually attractive and I will tell you his entire philosophy of life. Show me the woman he sleeps with and I will tell you his valuation of himself.

He will always be attracted to the woman who reflects his deepest vision of himself, the woman whose surrender permits him to experience—or to fake—a sense of self-esteem. The man who is proudly certain of his own value, will want the highest type of woman he can find, the woman he admires, the strongest, the hardest to conquer—because only the possession of a heroine will give him the sense of an achievement. He does not seek to gain his value, he seeks to express it. There is no conflict between the standards of his mind and the desires of his body.”

Francisco d’Anconia
Atlas Shrugged, Ayn Rand