Back in July, after President Biden's disastrous old-mannish debate performance, stocks in Taiwan took a tumble. Taiwan Semiconductor Manufacturing Co., a chipmaker critical to the world's computer industry, collapsed, losing 5.6% of its value on a single day. This was largely on fear that the debate foretold a coming Trump Presidency, and that Trump would be less interested than Biden or several earlier Presidents in preserving Taiwan's de facto independence from Beijing. It might be natural to ask: if TSMC stock fell sharply on the danger that Trump would be elected, what has the reality of a Trump election done to it? Kind of strange but ... the immediate effect has been to lift the price. Here is a six-month chart: TSMC stock chart - Google Search The TSMC stock price, as you can see, was rising more-or-less steadily for the first two months of the charted period, peaking on July 10. That is a little to the left of the central axis of the above screen shot...
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There has been a good deal of talk lately about "stock buybacks." This is because, if I understand the situation, the Republicans want to give money to various businesses to get them through the coronavirus problem. The Democrats respond, NOT "subsidies are wrong in principle" (given the history, that seems an unlikely position for them to take, though these days anything is possible) -- rather their response is "we'll go along with the bail-outs to your buddies, so long as various strings are attached which we can pretend are pro-worker strings." I just want to say that on this point the Republicans have a case. Let's not talk or act as if there's never a good reason for a company to buy its stock back. Example: a management may have a good faith belief that its stock is undervalued by the market, and thus due for an upswing. It may also face a situation in which, before that upswing can happen, it faces a takeover threat from a corpor...
After a brief slide, stock prices in the U.S. turned around and headed up on June 13. Neither the slide nor the upward bounce was of historic significance by itself. The S&P 500 closed June 8, Thursday, at 2433.78. It closed the next day at 2,431.23. The following Monday, down somewhat again, to 2,429.48. So, as I say, on Tuesday it rose, closing at 2,441, reversing (by more than double) the losses of the two previous days. This could be simple "random walk" stuff. But ... what brings it to mind is the way this particular bounce immediately became an item in political debate. Because June 13th happened to be the day Attorney General Jeff Sessions testified before Congress about Russia, Comey, and so forth, Trumpites drew a connection via social media even as Sessions was talking. Mr. Market presumably approves of Trump, wants a vigorous Trump administration, and so cheered as Session rebuked that administration's foes. That's their story. It has some obv...
It is odd to see an academic peer-reviewed paper in which the actual substance of the paper seems to diverge so completely from what the authors say are their conclusions. This is the case, though, in a new paper by Cecile Carpentier and Jean-Marie Suret, dealing with the question: do stock price declines create a plausible deterrent for industrial accidents? Here's the link: JofEEM. Here's the abstract: We analyze the stock market reaction to 161 major environmental and non-environmental accidents, reported on the front page of the New York Times for half a century. To determine if the market induces a real deterrence effect, we extend the event windows up to one year. On average, the market reacts negatively and enduringly to the announcement of an accident. However, this average effect is largely driven by the airline industry and by government interventions. The estimated average compounded abnormal return following environmental accidents does not differ from ze...
I'm sure I've mentioned in earlier posts the notorious Bernie Madoff, who ran Bernard L. Madoff Investment Securities LLC from the day he started it up in 1960 until the day he surrendered to authorities in December 2008. Madoff’s crime, in common parlance, is that he was running a “Ponzi scheme.” This is a fraud in which early depositors are told their money has been invested in some wonderfully productive/reliable way, and they are receiving a share of the profits, when in fact what they are receiving are phony paper returns, from the deposits of other suckers. In Madoff’s case, the Ponzi scheme seems to have been adopted in a very cold-blooded way and operated for decades before it finally became unsustainable. I mention him here because I've been giving some thought to the fact that sometimes the development of a Ponzi scheme is not quite so cold-blooded. Sometimes an asset manager will bumble into running a Ponzi scheme by degrees. [I a...
It was in October 2011 that David Einhorn presented a slideshow to the Value Investing Conference. I frankly haven't kept close tabs on the consequences: what has happened to the stock price of Green Mountain (NASDAQ: GMCR). The two year stock price chart is available here. GMCR was on its way down, off its September 2011 peak price of $110, before Einhorn said anything. For GMCR, the fall was horrid. The price was below $30 by the start of the new year 2012. It didn't start recovering for more than a year. In September 2012, its patent on its K-cups expired. This was a critical part of Einhorn's original argument : the intellectual property was the moat keeping competitors away. Those neat little pods let you brew coffee one cup at a time in your kitchen, (or in a hotel suite) and people were willing to pay premium prices for that convenience. After September 2012 had passed and the patent protection was lost: at least that loss had been further discounted into pr...
Thinking this through. What happens to the value of shares of public stock if the company buys some of the stock back in the marketplace? Think of it first as a simple accounting matter, and let's assume for simplicity's sake that the actual or potential buyers of the stock in the marketplace (who constitute the market demand) know and care about the book value on the balance sheet: that is, the equity as defined by the formula Assets - Liabilities = Equity . Suppose the company has 1,000 shares of stock outstanding, each selling for $50. Its market capitalization, then, is $50,000. Now, it uses some of its own cash (an asset) to buy back some of the shares of stock. This decreases the amount of stock still available to a would-be buyer. So if 100 shares are retired and 900 are left, as a first approximation -- assuming demand for the stock stays the same, we might well expect the value of those to increase to $55.55 per. BUT something else has taken place, ...