Investing

How To Make Companies Think Long-Term

Harvard Business Review logo by Roger Martin –

In my latest book, Fixing the Game: Bubbles, Crashes, and What Capitalism Can Learn from the NFL, I wrote about the negative impact of executive stock-based compensation on corporate short-termism. Eliminating stock-based compensation would help reduce the incentive for executive leadership to focus on the short term. But there is a residual problem which has long frustrated me. The answer finally popped into my brain (funny how that works). As usual, the solution won’t be easy to pull off (but that has never stopped me).

The residual problem I’m talking about is corporate short-termism. Many companies face quarterly or even more immediate pressure from their shareholders (increasingly made up of hedge funds, program traders, and day traders) to deliver short-term performance. Worried that short-term-oriented arbitrageurs will put their company in play and short-term-oriented shareholders will gain majority or effective control of the company, ending their ability to steer the long-term trajectory of the company, they focus on making short-term decisions to protect their positions. The paradoxical result is that they never get around to taking those long-term-oriented decisions. [Read more…]

Coddling Misinformation About Taxation

High Taxes Misinformation about Taxation Buffet by Chris Banescu –
Warren Buffett and President Obama claim that the rich do not pay enough taxes. They both blame the American tax code of being unfair and coddling the rich. Both have been pushing the same class-warfare narrative for many years, using current US capital gains and dividends taxation rates as evidence for their big government progressive agenda. Both are spreading misinformation about all the taxes corporations and individuals actually pay.

As far back in 2007, Mr. Buffet, the third-richest man in the world, began criticizing the US tax code for its low tax rates on dividends and capital gains from long-term investments. One of his most infamous statements, one often repeated by the Left to support its punish-the-rich schemes, was made in a speech at a $4,600-a-seat fundraiser for Senator Hillary Clinton in New York:

“The 400 of us [here] pay a lower part of our income in taxes than our receptionists do, or our cleaning ladies, for that matter. If you’re in the luckiest 1 per cent of humanity, you owe it to the rest of humanity to think about the other 99 per cent.”

[Read more…]

Why Most Market Forecasters Get it Wrong

Market Riders Investment Advice by Mitch Tuchman –
Be it a football game, the weather, an election, or the future of Middle East uprisings, people want to know what will happen before it does. We want to know the future, and we actively seek out experts who can predict it. But facts show that in most pursuits where dynamic and multiple variables determine what will happen, experts are not good at predicting the future. And to make matters worse, those who predict are rarely held accountable for their prognostications.

Take politics, for example. Philip Tetlock, a psychology professor at the University of Pennsylvania, conducted a study that became a book called Expert Political Judgement. He tracked about 80,000 forecasts from nearly 300 political experts over 20 years regarding political events in many countries. He tracked the outcomes of their forecasts against a group of college undergraduates making subjective predictions and a group who just made random guesses. The experts did slightly better, but not much. Nevertheless, they got on TV frequently and built their names and reputations. [Read more…]

Ten Stock-Market Myths That Just Won’t Die

7/26/2010 – Brett Arends –

The Dow plummeted nearly 800 points a few weeks ago — and then just as dramatically rocketed back up again. The widely watched market indicator is down 7% from where it stood in April and up 59% from where it was at its 2009 nadir.

These kinds of stomach-churning swings are testing investors’ nerves once again. You may already feel shattered from the events of 2008-2009. Since the Greek debt crisis in the spring, turmoil has been back in the markets.

At times like this, your broker or financial adviser may offer words of wisdom or advice. There are standard calming phrases you will hear over and over again. But how true are they? Here are 10 that need extra scrutiny. [Read more…]

Wealthy Shift Their Income to Avoid Higher Taxes

6/8/2010 – Robert Frank –
In his Wall Street Journal op-ed Monday, famed supply-sider Arthur Laffer argues that higher taxes on the wealthy rarely work because the wealthy simply shift their income.

President Obama’s upcoming tax increases, he says, are encouraging the wealthy to take cash and income off the table this year, robbing from next year’s growth and spending. As a result, he says “The economy will collapse in 2011.” [Read more…]

Tax Hikes and the 2011 Economic Collapse

Economic Collapse 20116/6/2010 – Arthur Laffer –

Today’s corporate profits reflect an income shift into 2010. These profits will tumble next year, preceded most likely by the stock market.

People can change the volume, the location and the composition of their income, and they can do so in response to changes in government policies.

It shouldn’t surprise anyone that the nine states without an income tax are growing far faster and attracting more people than are the nine states with the highest income tax rates. People and businesses change the location of income based on incentives.

Likewise, who is gobsmacked when they are told that the two wealthiest Americans—Bill Gates and Warren Buffett—hold the bulk of their wealth in the nontaxed form of unrealized capital gains? The composition of wealth also responds to incentives. And it’s also simple enough for most people to understand that if the government taxes people who work and pays people not to work, fewer people will work. Incentives matter. [Read more…]

Buy American Stocks, I Am

Buy American Stocks, I Amby Warren E. Buffet – Oct. 17, 2008

The financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So … I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities. [Read more…]