Thursday, May 14th, 2015
“I don’t think anyone is thinking long term now.” Thomas Mann
It is interesting that even Thomas Mann, German novelist, social critic, and Nobel Prize winner in 1929, would already worry about people’s short-termism during his tumultuous years. It seems that things have not changed and almost 100 years after his words, we should worry again that social and technological contingencies are pushing us to short term decision making rather than taking the long term view.
Short-termism is affecting many areas of our lives but it is certainly most apparent in financial matters. From the daily nuisance of CNBC to analysts’ obsession with companies’ quarterly numbers, short-termism is spreading everywhere. Investors of all kind are not immune either; professional investors are now generally not more inclined to a longer term view than the often criticized retail ones. To this point, Morningstar, a well-respected research shop, reveals that the average holding period for stocks in the 25 largest mutual funds in the U.S. is now only 1.4 years. Interestingly, the long term view in investing is usually quickly resumed as a convenient slogan during any significant correction; retail investors who would have otherwise quickly taken profits, during a correction suddenly declare a long term faith in their investment ideas. This strategy switching conveniently avoids the embarrassment and physical pain of actually taking losses. On the other hand, professional money managers, make sure to remind their retail clients that investing is a long term game and only by staying fully invested at all times, can gains be produced; this in spite of their own somewhat contradictory portfolio turn-over.
In light of such pervasive action, one should wonder if perhaps the short term view may actually be more beneficial than the much more boring long term approach. In fact, we do have evidence of higher benefits from long-termism in many areas of social development, including portfolio management.
Keith Ambachtsheer, in his interesting article “The Case for Long-Termism,” published on the Rotman International Journal of Pension Management, traces the roots of social success to that tipping point in time when mankind switched from a short term strategy of day to day survival to one of long term wealth creation. Initial survival needs forced mankind to implement very short term decision making; in financial terms, Ambachtsheer defines this situation as one where the discount rate for saving and investment decisions for a time frame longer than the immediate present is very high. However, as progress helped produce more than it was needed in the current time reference, discount rates started to fall and long term decisions became prevalent ensuring a rapid advancement of our civilizations.
Perversely, long-termism may be the victim of its own success. As technology and social organization become more and more complex, additional intermediate agents are needed to manage the intricacies of daily life; this proliferation of agents often leads to a misalignment of interests and reward mechanisms along with an increase in asymmetrical information. For instance, think of the executive managers that lead a company but may not own it; because of their frequent reporting duty to investors who, conversely, own but not manage, the managers’ interest will inexorably lead toward short term actions regardless of any long term benefit. This contingency is much like the politician’s situation where any long term decision carrying short term pain would be deemed, from a career perspective, suicidal or like BBC fictional UK Prime Minister Jim Hacker would euphemistically say “courageous.” Interestingly, one solution devised to overcome this problem—rewarding managers with stock options to increase their stake in the company they managed and align them more with the stockholders—resulted in an even more significant inclination toward short-termism. Decision making ended up being driven purely by the rhythm of quarterly results. Very reluctantly, a trend toward linking executive pay with long term performance rather than quarterly results is now under way.
However, from an investment management perspective, managers’ reward and clients’ performance expectations are still deeply rooted in short-termism.
While fixing managers’ incentive structure may encounter resistance, the formula to use in the future may be rather self-evident. What may be more difficult to change is the pervasive investing mentality poisoned by emotional biases, media self-interests, and an understandable fear of the long term unknown.
In the past, we have indicated a number of relatively simple practical solutions to mitigate the damaging inconsistencies caused by the noise surrounding the investment process. Conversely, Ambachtsheer highlights three major common themes he detected in his research of successful investment outfits:
- Articulate a clear stance
- Think as if you were investing directly in a business
- Balance conviction and humility
Articulating a clear view of the ultimate goals and processes to achieve such targets is key in sidestepping classic mistakes produced by short term emotional biases. Ambachtsheer, in his work, found that being out of step with the short term mainstream was not only acceptable, but actually viewed as a competitive advantage.
The following point is a favorite of many successful money managers, among others Warren Buffet, as it clearly forces an investor to focus on the long term viability of an investment and its proper valuation rather than being swayed by price fluctuations of the day-to-day action. Thinking of an investment in the market as if one were buying an actual operating company, rather than just acquiring stock certificates, will redirect one’s attention to the actual business fundamentals and operational dynamics.
The third theme goes right to the heart of most emotional biases. Many investors often lack conviction in their investment processes and therefore become subject to short term noise with the result of damaging their long term performance. On the other hand, many other investors tend to overplay their conviction mode and rarely accept that perhaps a mistake was made and corrective action might be in order. Walking the fine line between confidence and reality, between discipline and smart flexibility, is a must in determining the success of any investment framework.
In the course of modern investment history, practical examples of the long term advantage can be found in different cases. Ambachtsheer quotes John Maynard Keynes’s track record when managing the Cambridge University endowment in the 25-year span from 1921 to 1946. Keynes’ strategy was based on an overweight in stocks (unheard of at the time) chosen based on fundamental metrics and with a history of dividend paying. Keynes also preferred to concentrate his portfolio only in positions he felt strongly about and that he could hold for a long time. During his tenure as the investment manager for Cambridge, he earned an average annual return of 16% on the discretionary part of the Endowment fund versus 10.4% and 7.1% respectively for the British stock and bond indexes.
In our own research, we have found that certain specific strategies do benefit from a longer term approach. Value based portfolios are a classic example of situations where the longer the investing horizon, the better results tend to be. On this point, James Montier of GMO has been writing extensively; in back-testing across different time frames his results seem to indicate that a longer time horizon is often required to allow markets to arbitrage such value discrepancies. Montier found that while value outperformance can be realized as quickly as in one year periods, a five-year investment horizon seems to help magnify the value/growth delta to a significant 40%. Along the same lines, for instance, Berkshire Hathaway uses a rolling five-year performance of the Standard and Poor’s Index as its benchmark in an effort to match its longer term investing commitment. Even more extreme is the example of the Singapore Sovereign Wealth Fund that publicly maintains a 20-year horizon for value creation. Finally, we should also mention the Yale Endowment model whose success was based, among other metrics, on the ability to arbitrage in the long term those short term dislocations that reoccur in financial markets.
It would seem that investment performance, like fine wine, does get better with age.
Bio: Davide Accomazzo is the Chief Investment Officer for THALASSA CAPITAL LLC, a Registered Investment Advisor and Family Office. He is also Adjunct Professor of Finance at the Graziadio School of Business and Management at Pepperdine University in Malibu, California. Mr. Accomazzo writes extensively on markets and portfolio management issues for different specialized publications and he is one of the contributors to the book Alternative Investment: Instruments, Performance, Benchmarks, and Strategies, part of the Robert W. Kolb Series in Finance. Mr. Accomazzo resides in sunny Topanga, California, with his daughter and wife.
Wednesday, January 21st, 2015
The new issue of the Graziadio Business Review includes a variety of articles written by knowledgeable authors that we believe you will find informative, insightful, and engaging.
While women make up half the workforce in nearly every country, women do not comprise half of the leadership. In “A Values Approach to Advancing Women in Leadership,” Dr. Bernice Ledbetter highlights recent research conducted on women, their leadership and values that offer new insights on why it is necessary to advance women in leadership if organizations hope to create and sustain economic competitive advantage.
Dr. Steven Ferraro and Dr. Richard Powell discuss “The Halloween Effect” in their article “Is ‘Go Away in May’ a Good Portfolio Play?” While this seems to be a compelling trading notion, is it really as profitable as the mantra asserts?
In “Trends in Employee Turnover and Retention,” Dr. Joel Goldberg covers the problems with trust and loyalty on both sides of the employer/employee relationship in the new labor market.
“Is Warren Buffett Unpatriotic?” in merging Burger King World Inc. with Canada’s Tim Hortons, Inc. and moving the headquarters to Canada? Or is this a systemic problem of increasing tax inversions caused by globalization and high U.S. taxes on businesses? In this article Dr. Robert Lee and Dr. Abraham Park discuss the issue.
Dr. Cam Caldwell and Larry Floyd offer seven practices for “High Performance Work Systems” and explain why creating partnerships with employees makes economic sense.
How do businesses remain competitive, develop high-performing teams, and keep up in this fast-paced business climate? RuthAnn Ritter will elaborate in her article “Infusing Traditional Business Systems with Spiritual Wisdom.”
If you have questions, comments, or would like to submit an article, please contact Nancy Ellen Dodd at: nancy [dot] dodd [at] pepperdine.edu.
Topic: Accounting, America's Financial Crisis, Business Law, Change Management, Corp Governance, Economics, Finance, Global Marketplace, Human Resources, Leadership, Management, Org Behavior, Strategy, Women and Business
Tags: employee turnover, Halloween Effect, high performance, Leadership, Warren Buffett, women
Tuesday, December 23rd, 2014
Principles that Reliably Yield Success
“Habitual procrastination can really hurt you in the long run because waiting to take care of something that’s obviously important to you – health, money, family matters – weighs on your subconscious,” says Dr. Cerfolio, known as “the Michael Jordan of lung surgery.”
Understanding one’s personal “line of gratification” is the foundation for sticking to self-improvement goals, he says.
“There are many kinds of lines of gratification,” he says. “For some, they’re the number of zeroes in their bank statement; for others, the curves of their muscles after they leave the gym. It’s good and healthy to look back on your hard work and admire what you have accomplished before moving on to the next task.”
Dr. Cerfolio, author of “Super Performing at Work and at Home: The Athleticism of Surgery and Life,” shares tips on how to make those lines of gratification more impressive.
- Be an early riser. The main reason operating rooms hum into action at 7 a.m. is tied to human physiology; the bodies of patients are better able to handle the stress of surgery at that time. “People are generally better off getting work done early in the day when we’re better prepared for stress and performance,” he says. “And getting a job done early frees you up later in the day.”
- Love what you do. Why wouldn’t you want to take ownership, responsibility and pride in what you do for a living? When you treat a job as only a means to a paycheck, you are missing the point. If your job isn’t the one you’d really love to have, don’t make it worse with a negative attitude. Instead, make it your own. Make it a point of personal integrity and principle to challenge yourself to achieve something every day. After all, 40 hours a week is a long time to stay anywhere.
- Ask yourself: Did I really try my best? “I tried my best” is a common refrain from those who haven’t reached their goals. An honest response you can ask yourself is, “Am I sure?” This question is not about being overly critical. It’s simply about realizing that, if you had practiced or studied an extra 10 minutes each day, you would’ve been that much closer to your goals.
- Set specific, measurable goals. Results define Every individual should have clear goals that are objective and measurable. Goals such as “to be happy,” “to do well at work” or “to get along” are too nebulous. To be successful, you have to be able to define your goals by measurable results.
- Find the high ground. In anything you do, aspire to live up to the noblest, highest aspect of your job. Certain jobs – such as police work, firefighting, teaching or working in health care – are service oriented, so it’s easier to feel good about your contributions. Look for the contributions you’re making in your job and take pride in what you’re doing to make the world a little better.
- Be the go-to guy or girl. This takes time, practice and the confidence necessary to want the ball in a critical situation. Being the go-to guy or girl means being willing to take responsibility and risk failing. A go-to person is also willing to speak up about problems or changes necessary in a business or organization, and suggest solutions.
Robert J. Cerfolio, MD, MBA, is the James H. Estes Family Endowed Chair of Lung Cancer Research and Full Professor Chief of Thoracic Surgery at the University of Alabama in Birmingham. He received his medical degree from the University of Rochester School of Medicine, surgical training at the Mayo Clinic and at Cornell-Sloan Kettering hospital, and has been in practice for more than 26 years. The author of “Super Performing at Work and at Home,” Cerfolio, who was a First Team Academic All-American baseball player in college, is a world-renowned chest surgeon and recognized as one of the busiest and best thoracic surgeons in the world.
Thursday, October 16th, 2014
Welcome to a new issue of the GBR.
This issue includes a variety of articles written by knowledgeable authors that we believe you will find informative, insightful, and engaging.
Who were the beneficiaries of the TARP bail-outs? Dr. Joetta Forsyth has done extensive research on the TARP bail-outs and the regulatory filings and how they intersect. Her article “Did Widespread, Government-Detected Regulatory Filing Errors Predict Which Lenders Were Subsequently Bailed Out Under TARP?” is an interesting overview of how the crisis developed. The article will give you pause about who is handling your paperwork and the culture in which they are working.
Dr. John Paglia and Dr. Craig Everett along with MBA student Chanel Curry-Brooks wrote “Crafting a Strategic Financing Plan: How Business Owners Should Think About Raising Financing and Capital.” The authors note that one common oversight in financial planning is developing the proper plan to secure the right type of financing. This is a must-read for entrepreneurs, small business owners, and anyone responsible for raising capital for their business.
From finance we move to coaching and leadership. “See reality as it is, not as you wish (or fear),” is one of the suggestions for peer coaching in the article on “Developing Peer Coaching: 10 Suggestions for Success” by Dr. Robert Fulmer and John Brock. The article explains how to build a coaching culture, the “Grow Model,” and their suggestions that will not only develop better coaches, but also better leaders.
Dr. Cam Caldwell offers “6 Insights for Transformative Leaders: Keys to a Competitive Advantage.” The first key starts with listening to what really matters to discover the leader’s calling and concludes with authentic caring for the most important assets of the organization.
Friendly rivalry? Not always. In “Managing the Dark Side of Competitive Rivalry: When Competition Leads to Alarming Behavior,” Dr. David King explores when competition goes from creating better products and services at lower costs to having a negative impact on both the company and the customer.
Crowd-pleasing. Crowd-funding. Crowdsourcing? In management education? Dr. Owen Hall, Jr. explains how that occurs and the benefits in his editorial “Crowdsourcing Management Education.”
In “The Book Corner,” Dr. William Bleuel reviews two books Keeping Up with the Quants, by Thomas H. Davenport and Jinho Kim; and Customer Experience 3.0, by John A. Goodman. He gives each book 5 stars: Stop what you’re doing and read this book now! The Corner also includes my review of Mark Allen’s AHA Moments in Talent Management, an engaging fable that teaches the 13 Talent Management Principles using a story format and gives practical exercises for assessing whether your organization incorporates these principles.
If you have questions, comments, or would like to submit an article, please contact me at: nancy [dot] dodd [at] pepperdine.edu.
Wednesday, April 23rd, 2014
Welcome to the new issue of the GBR.
We believe that you will find these articles informative as well as a challenge to take a deeper look at your business life, your work life, and as it applies, to your academic life.
In this issue we have two articles on the importance of ethics in business, how business and academia can partner to improve the integrity of leadership, and the importance of ethics and integrity in academia. Check out Dr. Cam Caldwell’s article “Forging Ethics-Based Business Partners” and Dean Linda Livingstone’s article “Integrating a Spiritual Life into the Work Life.”
Yes, Dorothy, there is a PhD in Thinkology. Dr. Mark Allen shares ways that corporate universities have managed talent, retained employees, initiated more effective deployment, and prepared for succession in his article “Talent Management and Corporate Universities.”
How does an organization compare to a music composition? If you enjoy music, you will enjoy the musical metaphor Dr. David R. King and Dr. Samuel M. Demarie composed in their article “Organizational Jazz.” They will explain how the culture of music can be used to improve the organizational culture.
“To MOOC or not to MOOC, is that the Question?” Read Dr. Owen P. Hall, Jr.’s article to find out more about the impact of Massive Online Open Courses on management education.
Friday, December 20th, 2013
It is estimated that we allocate approximately 25 percent of our waking hours, about four hours a day, managing our impulses.
Thursday, October 3rd, 2013
Welcome to the new issue of the Graziadio Business Review! This issue is now available online at gbr.pepperdine.edu.
Let the Social Networking Games Begin
Gamification: The Future for Business in Hiring and Training
By Donald M. Atwater, PhD and Brian Clark, MBA
The use of social networking games for business, which is referred to as gamification, is an emerging technology. This article reports several cases where gamification has been successfully introduced in businesses and explores areas that are likely to expand in the future to improve the value of workers.
The Case of Microsoft’s Surface Tablet
Going Behind the Strategy with SWOT
By David R. King, PhD, and Todd Peterson
The applicability and relevance of SWOT analysis can be demonstrated by showing how this strategy tool can explain Microsoft’s Surface tablet. Microsoft faces increased competition from other technology firms and its core business of personal computer (PC) operating systems and software face declining demand;a SWOT analysis helps to understand Microsoft’s response.
With the U.S. and world economy seemingly climbing out of serious recession, it is time to take stock of corporations that are recovering and those that may have suffered more lasting damage. Here, the concept from the physical world, hysteresis, is applied to corporate financial statements contrasting the path of growth leading up to the recession to the path of contraction that follows.
LESSONS LEARNED: Creating Values That Work
Beyond Just Setting An Example
By Marianne Tracy, MSOD
Values are the most important features of developing organizational identity. In addition, values provide the frame for achieving organizational results. Defining values and associated behaviors provide both a focus and the glue that binds the leadership behavior and managerial culture. This article includes eight suggestions for incorporating values and behaviors into an organization?
Today, business educators are under growing pressure to engage in significant reforms due to the impacts of globalization, new learning technologies, soaring tuitions, and unprecedented economic uncertainty. The approach being adopted in many business schools is to engage faculty and students in a virtual learning experience via social media.
Click Millionaires: Work Less, Live More with an Internet Business You Love
By Scott Fox
Reviewed by Donald M. Atwater, Phd
Fate of the States: The New Geography of American Prosperity
by Meredith Whitney
Portfolio Hardcover, 2013
Reviewed by John J. Scully, PhD, CPA
Harder than I Thought: Adventures of a Twenty-First Century Leader
by Robert D. Austin, Richard L. Nolan, and Shannon O’Donnell
Harvard Business Review Press, 2012
Reviewed by Mark Allen, PhD
Technical Analysis for the Trading Professional, Second Edition: Strategies and Techniques for Today’s Turbulent Global Financial Markets
by Constance M. Brown, CMT
Reviewed by Steve Ahn and Alexander Frumkin
We hope you will enjoy this issue.
Topic: GBR News
Monday, September 16th, 2013
The Graziadio Business Review published “The Case of Microsoft’s Surface Tablet: Going Behind the Strategy with SWOT” in 2013 Volume 16, Issue 2, an article by David R. King, PhD, and Todd Peterson. This post contains some updated thoughts.
The analysis examining “The case of Microsoft’s Surface Tablet” was developed in the Spring of 2013, but the predictive ability of SWOT analysis is borne out by current events with Steve Ballmer announcing his retirement and Microsoft’s purchase of Nokia’s mobile division. The purchase of Nokia’s mobile division was enabled by the financial assets of Microsoft highlighted by the article, and it fills two strategic needs.
First, it provides additional impetus to Microsoft’s shift to mobile computing. The increased sales of smartphones and tablets have largely come at the expense of PCs running Windows. The development of Windows 8 as a bridge project has not been widely accepted by the marketplace, and better integration of software with hardware by Microsoft is needed. Nokia’s mobile division has experience with hardware and designs 80 percent of the smartphones using Microsoft’s operating system. A disadvantage of this approach is that it commits Microsoft to sell hardware in market dominated by Google and Apple. It also reduces the probability that other manufacturers will design mobile devices for Windows. Reduced adoption by other manufacturers can be expected, because Microsoft will now be directly competing with them and asking them to pay a licensing fee for its software (at the same time Google offers Android for free).
Second, the strategic shift required of Microsoft requires an experienced leader, and turnover in senior leaders below Steve Ballmer compound the challenge of selecting someone to replace him. The purchase of Nokia’s mobile division also brings back Stephen Elop, an experienced Microsoft executive, who has to be considered a front runner to replace Steve Ballmer. Acquisitions are fraught with risk, but having a CEO familiar with both Microsoft and Nokia should help the process and increased importance of mobile computing on Microsoft’s future.
In summary, the need for a strategic shift at Microsoft has been clear for months and Microsoft is beginning to make needed changes. It will be interesting to see how these changes continue to develop and how successful Microsoft is in adjusting to market demands, integrating Nokia, and transitioning to a new leader.
Wednesday, March 20th, 2013
As I outlined in my Three Part MBA Philanthropy Series, alumni are a critical financial component to business schools. However, alumni can contribute in many other ways. In addition to providing financial support to their alma mater, alumni also play an equally important role in pre-student recruiting and job placement.
Why is pre-student recruiting important? Today, business schools are facing both intense competition and demanding customers. These forces tend to drive up the cost of student acquisition and retention. MBA programs are indeed influenced by their stakeholders. More and more, the student is being treated as a customer, and student and alumni satisfaction have become key metrics to school rankings. At the same time, the student is also a product. Student seats are a perishable resource just like airline seats or hotel rooms. Once the school term starts, an unfilled seat equates to lost revenue.
Therefore, to increase student acquisition, we must expand our global reach. One way to do this is through strategic business partnerships with international schools. These partnerships will expand Graziadio’s global educational opportunities, enhance our brand, leverage complementary strengths, and increase flexibility and convenience for students.
Management education alliances, among other things, provide the vehicle for the virtual exchange of both students and faculty. Imagine a situation where a student is looking for an elective, but it is not being offered at their home institution at a convenient time or place. The student could instead register at a partner school that is offering a similar course. The same could apply to the faculty.
For example, in Fall 2010, I took a special residential offering at the West LA Graduate Campus called Managing Business with China. This course, among other things, allowed me to connect with reputable faculty and speakers from China that I would not have been able to do so otherwise because of time demands from work. Similar initiatives will spur increasing opportunities for connecting graduates to the global business community.
Recent data show that management education is currently undergoing a paradigm shift from a teacher-centric process to a learning-centric environment that focuses on customized learning. This transformation is being fueled by the need to produce educated leaders that can compete on a global basis.
As alumni, our degree is what we make of it. We are called to contribute to Graziadio’s legacy in terms of our time, talent, and treasure not only to merely increase our own degree’s ROI, but also so that this legacy can continue for future generations. In order to impact our MBA ROI, we must remain competitive, and in order to remain competitive, we must reach a global audience. This will allow us to attract the most talented students, translating into huge, quantum leaps in impact AND financial support for Graziadio.
Every organization is perfectly designed to get the results it’s getting. If we don’t like our results, it implies we must change the design. It’s time to follow the data and change the design.