Ativo Capital

Rigorous Thinking


Financial and economic commentary reflecting Ativo’s world view:

Does the Stock Market Really Ruin the Economy?

Wednesday, February 10, 2016

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Last week’s Wall Street Journal (2/1/2016) featured an article (Does the Economy Ruin the Stock Market Or Does the Stock Market Ruin the Economy, gated) citing recent work by UCLA economist Roger Farmer questioning whether the recent market rout simply reflects the economy, or whether a weak stock market is crashing the economy. After summarizing the conventional perspective that discounted future earnings determine market pricing, the article conceded that maybe, just maybe, stock market patterns could be influencing the real economy. Our reaction? What took you so long?! We’ve been making that case for more than thirty-five years. Of…

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Alan Greenspan on Stock Price and Capital Spending

Monday, April 21, 2014

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Taking a few vacation days this past week has given me time to read Alan Greenspan’s latest book, The Map and The Territory.  His comments on page 84 were particularly interesting: The ratio of stock price to cost of construction of capital assets correlated quite well with machinery orders (capital investment) going back into the 1920s.  I recently updated the 1959 analysis and was amazed at how well this simple relationship still works, even tracing the recent years’ sharp fluctuations in real private capital investment.  Since 1993, for example, a 10 percent change in stock prices relative to the…

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More U.S. Firms Use Nonstandard Accounting Measures to Figure Executive Payouts

Monday, March 3, 2014

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Last Wednesday’s Wall Street Journal reported that an increasing number of firms are using non-GAAP measures as the basis for executive compensation awards. Despite the overall negative tone of the article, our perspective is that moving away from GAAP measures isn’t necessarily a bad idea.

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Corporate Moneyball: Why the Right Metrics Do Matter

Sunday, November 6, 2011

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Guest Post by Clyde Rettig, Director, CharterMast Partners LLC The popular movie, Moneyball, based on Michael Lewis’s equally popular 2003 book of the same name, tells the true story of how the 2002 Oakland Athletics nearly made it to the World Series after applying nontraditional criteria to select new players. GM Billy Beane was trying to rebuild a team that had been decimated by departures of its best players to richer, big-market teams. The criteria the Athletics used, which can be characterized as actual performance metrics, were based on statistical analyses of target players’ historical on-base and run-scoring results…

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A Real Return on Sustainability Webinar

Wednesday, August 10, 2011

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Click to view the webinar: A Real Return on Sustainability Is your company missing a Billion dollar opportunity or ignoring a Billion dollar risk? CharterMast, Ativo Research, one of the nation’s top ranked equity research firms, report on an innovative study that shows how sustainability performance has Billion dollar impacts on shareholder value. Are you looking to: Craft and integrate comprehensive sustainability strategies? Understand investment and market implications of sustainability? De-risk your business from regulation and market shifts? Make the business case and sell sustainability initiatives?   Numerous companies have realized that sustainability strategies have financial implications far beyond…

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Warren Buffett: Always Know What YOUR Company Is Worth

Monday, January 31, 2011

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We can’t say it any better than Warren Buffett says it here: I have been in dozens of board meetings in which acquisitions have been deliberated, often with the directors being instructed by high-priced investment bankers (are there any other kind?). Invariably, the bankers give the board a detailed assessment of the value of the company being purchased, with emphasis on why it is worth far more than its market price. In more than fifty years of board memberships, however, never have I heard the investment bankers (or management!) discuss the true value of what is being given. When…

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ESG/Sustainability Investors Should Engage Directly with Company Executives

Wednesday, September 22, 2010

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Guest Post by Pamela Styles, Principal, Next Level Investor Relations LLC Investors and company executives should be concerned about the lack of time and attention investor relations officers (IROs) feel they have available to understand the constructive and rapidly evolving investor attention to ESG (environmental & energy, social issues and corporate governance)/Sustainability factors in investment decisions, especially given estimates of related global managed assets that range from $18 to $27 trillion (see Rigorous Thinking or UN Principles for Responsible Investing reports.) Thoughtful assessments in two recent Rigorous Thinking postings do not overtly speak to the investor relations dimension, but…

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The Shareholder Value Case for Corporate Responsibility

Tuesday, August 31, 2010

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Aneel Karnani’s “Case Against Corporate Social Responsibility” (Wall Street Journal, 10/23/2010) misses a critical dimension of this issue. When it comes to measuring shareholder value, conventional financial metrics such as earnings and NPV fall short, failing to incorporate factors such as public perceptions, risk profiles, and investor preferences, which can have a significant impact on stock prices and the returns shareholders actually realize. For example, the UN Principles for Responsible Investing reports that its members manage $18 trillion of assets in 36 countries, with some estimates ranging as high as $27 trillion managed globally according to these principles. Values…

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Pay for Performance?

Monday, May 17, 2010

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It’s that time of year again. Now that the proxy statements are out and shareholder meetings are on the calendar, we’re seeing the latest round of articles and studies (such as this from Business Week) questioning whether CEO’s are being overpaid or underpaid for the performance they’ve delivered. One major concern with many such comparisons is that they define “performance” as Total Shareholder Return (TSR) over some arbitrary period. A critical (and obvious) problem is that TSR, by definition, requires specific start and end dates for the measurement period. Moving the start date or end date by even one…

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Does Good Corporate Governance Pay?

Monday, May 3, 2010

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The Economist website recently published an article addressing the linkage (or lack thereof) between good governance and returns to shareholders. Critics of reform point to a study by Lucian Bebchuk showing that test portfolios of well-governed firms no longer earn excess returns. Although we approach the issue differently than Bebchuk, we concur (at least generally) with his conclusions. Even though Bebchuk found no relationship between good governance and excess returns over the period studied, he did find a strong correlation between good governance and high Q ratios. This is eminently sensible. A high Q ratio is due to one…

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