Ethics
- Good managers can very easily make bad decisions due to several rationalizations: won't get caught, within the realm of law, what's allowed or typically done
- Complexities in the decisions of laying off staff and interplay with affirmative action policies. One approach is a staged strategy where the initial round is according to one criteria like performance and the next is according to a different objective like diversity.
- Building a good board: diversity of perspective, independence, skin in the game
- Analyst recommendations are a contrarian indicator, especially if employees of the underwriter
- IPOs typically underpriced to give kicker to client on sell side and to give profit to preferred clients who buy on asset management side
- In long run, IPOs underperform
- Managers game EPS by manipulating earnings; way more times that EPS comes in a penny above a threshold than a penny below a threshold
- Investors overreact to high-strength, low-weight recommendations and underreact to high-weight, low-strength recommendations
- Can only make money investing if you have some informational advantage or understand sentiment better than others
- Value works better than glamour
- Avoid doing what the herd does
- Stock rising witho good financial backing will not continue to rise for long
- Value stocks: ROE + steady earnings growth + many positive earnings surprises; low debt; healthy or growing profit margins; not a homogeneous product; competitive advantage; public for at least 10 years; low P/B and P/E (P/B < 1); PEG < 1; current assets > current liabilities (can pay current bills)
- Stocks heavily purchased by small investors do badly in following periods
- Find proxies for retail sentiment (naive investors); contrarian indicator
- High asset growth stocks underperform relative to low asset growth (naive extrapolation/overreaction)
- High accounting accruals is bad sign (boosting income artificially)
- Piotroski f-score works well, implies market not efficient; uses 20% of stocks with highest B/M ratios
- f-score: sum of 9 binary signals (not risk related); healthy companies, less risky/non-interesting companies are undervalued but more profitable
- High B/M can mean undervaluation or distress. f-score separates undervaluation from distress, works as investing strategy.
- More evidence for non-efficient market than efficient market
- Psychological biases affecting investors: confirmation bias, hindsight bias, representativeness, anchoring, conservatism, availability bias, overconfidence
- Employment compensation issues
- Severance
- Say for pay
- Individual benefits
- Cause vs. non-cause termination
- Change of control terms in executive employment contracts
- Perks
- Benefits
- Restricted stock vs. restricted stock units vs. incentive stock options vs. non-statutory stock options
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