Good companion piece to our recent post called “Life without a risk-free benchmark”. It argues that by increasing incentives to invest in supposedly AAA-rated securities, proposed banking and insurance regulations may actually increase systemic risk – and that the US debt debacle is the best example of it.
Brazil keeps making the news pages everywhere, nowhere more than in the Financial Times – sometimes the extra attention doesn’t translate into quality reporting. That’s not the case with recent FT articles we highlight in this post, but even so, the articles are all about things one can’t predict, control or truly get to know… So perhaps the most interesting of the recent FT stories on “Brazil”, so to speak, was a “Business Diary: Nizan Guanaes” piece highlighting one of our true geniuses in advertising.
Mr. Soros has quit managing money for others and will return money to investors. Other high-profile managers have done the same at varied times for different reasons, but Mr. Soros links his decision exclusively to the new regulatory environment, more specifically the requirement to register with the SEC. Given that Quantum is returning US$ 750mm but Mr. Soros’ family retains US$ 24.5 Billion in the fund, it’s more a symbolic move than anything else. Bonus link: an interesting lecture by Mr. Soros.
Quick notes: First, two profiles on the two top execs at Goldman Sachs, CEO Lloyd Blankfein and his heir apparent, COO Gary Cohn. Together they form an interesting picture of the world’s most loved/hated bank. Second, Seth Godin’s post today about quality and how to define it. It appears at first as it’s “more of the same”, but given his background he’s clearly focusing on media/marketing; therefore the “types of quality” framework take on a different, but no less useful, meaning.
Just the title of this video in the Financial Times is enough of a brain-teaser. The point is: if you rely excessively in a “risk-free” rate, your models must be going crazy. As the “professor” in the video says, efficient market theory was always shaky ground in which to lay the foundations of any investment, and now it should be clear to everyone that we should question the very existence of something “risk-free”. In fact, there was always this choice.
An interesting article on the legal feud between hedge funds TCI and 3G Capital and rail operator CSX. It’s a good reminder for us to mention that The Deal Professor column at NY Times’ Dealbook is mandatory reading. There’s much more to “risk” than greek letters, and one aspect of risk is knowing precisely what one is getting into – in this case all possible legal ramifications of a given stake.
Very interesting profile on Ray Dalio’s Bridgewater in the new issue of the New Yorker magazine. Long and often a bit on the speculative side – it’s always difficult to take without “salt” the perceptions of someone who has spent, at best, a few days/weeks with the subject of the report – it’s still a great read.
Bloomberg describes the rise in importance (and salaries + bonuses) of the risk officers in financial institutions. Business Insider took that story to its limit and created a “rock star” profile of many prominent Chief Risk Officers. The question is: are financial institutions safer for it? What “risks” are being “measured”, and how? When even Basel III is being called into question and financial-sector regulation is still open for debate in the US and abroad, what exactly is being achieved? We have delved on the subject before, and still believe that, most of all, “risk comes from not knowing what you’re doing”.
Reading an article about an interesting Education business had us thinking of regulation and, primarily, goals for Education. The current debate about Public Education in the US focuses on adjustments/ improvements to the No Child Left Behind Act of 2001, which is all about accountability. In a separate story, Tom Friedman reminds us that the top-notch jobs of the future may require skill-sets (and individual attitude) that current education models may simply be unable to provide. But when you’re a Brazilian public education student and the debate isn’t even close to scratching the surface of the “accountability” trend, it’s definitely a scary future.
The “Epicurean Dealmaker” comments to a Tim Harford article in the Financial Times – both worth the time. It highlights that science is increasingly about multidisciplinary collaboration, with its pros and cons. The risk is that scientists are becoming so specialized that no one can know enough about each piece of the puzzle, so it gets harder to check and to innovate. There will be no more Da Vincis, argues Tim Harford. In such a specialized world, the quest to achieve as much of a multidisciplinary knowledge as possible – as argued by Feynman in the introductory quote and by Charlie Munger repeatedly over the years – gains importance day by day.