dog with robo dog

Incentive Based Returns

“God knows how any of you can place your vote based on ISS or Glass Lewis,” says JPMorgan CEO Jamie Dimon.  “If you do that, you are just irresponsible, I’m sorry.  And you probably aren’t a very good investor, either.”  Or you probably aren’t in favor of Dimon’s last paycheck: “investors are seeking that a greater portion of executives’ incentive pay be based on performance…Proxy advisers [ISS and Glass Lewis] had recommended investors reject the pay resolution.”  Meanwhile, “S&P 500 companies returned a record $242 billion to shareholders in the first three months of the year via buybacks and dividends, surpassing the previous high of $233 billion in the second quarter of 2007…While dividends and buybacks prop up stocks in the near term, they can come at the expense of long-term growth initiatives.”  Meanwhile, “productivity has declined in all the major developed economies.  This fall is not a mystery, as is often claimed.  Poor productivity is a consequence of low investment, and in the UK and the US a major cause of low investment is the incentives created by the bonus culture…Bonuses encourage managers to put more emphasis on the short term for which they are rewarded and pay less attention to the longer-term dangers their companies face…We should therefore expect the rise in short term incentives to have been accompanied by low investment and high profit margins.  This is exactly what has happened…Bonuses should be linked to increases in productivity as well as to profit targets.”



Here are some things you could know about hedge funds: “the top 11% of managers controlled 92% – or $2.78 trillion — of total hedge fund assets at the end of Q1 2015…Of these top firms, more than 400 managing $1 billion to $4.9 billion collectively controlled $892 billion while 22 managers with $20 billion or more, had $790 billion all together…On average, managers with more than $20 billion were established in 1992.”  To which Josh Brown thinks that “if you founded a hedge fund in the early 1990’s, you probably had 100 serious competitors in chasing down the alpha that used to be the lifeblood of the hedge fund game.  Cramer was running like a hundred million and he was considered to be a big dog back then…It’s not that hedge fund managers are unskilled — it’s that way too many of them are so highly skilled.  This is why alpha is so hard to come by.”  Here’s another theory: it’s not that hedge fund managers are unskilled — it’s that way too many passive algorithms are highly skilled: “the middle of the day has become awfully quiet on the U.S. stock market, as index funds and computer models push the action toward the end of the trading day…These include programs that dribble out trades at intervals, known as ‘volume weighted average price’ algorithms.  Their proliferation has led volumes to snowball at times when investors are already active, such as at the close…Another factor behind the shift has been the proliferation of passively managed investments…buying or selling a stock at its closing price better aligns their performance with the index they are trying to emulate.  Actively managed funds, in contrast, aim to beat, not match, stock indexes.”


China: Stock Market Plunges More Than 6% (Alt)


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ICYMI: Los Angeles Has Taken The Baton From Seattle


WM: Damodaran: “Why Low Interest Rates & Large Cash Balances Skew PE Ratios”


AAPL: Dropping Lots Of Car Hints


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