Highly relevant article of Megan McArdle on the demographic shift in the US - a problem which also other Western civilizations face:
Birthrates are falling. Will the economy follow
....... "Start with a simple equation: economic growth equals the growth in the workforce plus the growth in the productivity of that workforce. If the workforce shrinks, then productivity growth needs to be higher, in order to compensate; otherwise your economy shrinks. In theory, we can compensate for the coming demographic shift with higher productivity. A shrinking population, after all, means a higher capital to worker ratio.
But this doesn't quite work, because our population will not simply get smaller; it will also get older. If everyone was going to suddenly die at 45, we might be able to get the requisite productivity boost. But as the population ages, it will change dramatically, becoming less innovative, more risk averse, less physically capable. Just as we desperately need productivity to speed up, it is probably going to slow down.".... Source: Excerpt of Megan McArdle article
Keywords: Population, Western Economies, Economic Growth, Demographics
The answer seems to be clearly No, as a new study shows:
Bargeron, Leonce, Schlingemann, Frederik P., Zutter, Chad J. and Stulz, Rene M., Does Target CEO Retention in Acquisitions Involving Private Equity Acquirers Harm Target Shareholders? (December 5, 2012). Charles A. Dice Center Working Paper No. 2012-026. Available at SSRN: http://ssrn.com/abstract=2185574
"While there is widespread concern that target CEO retention by the acquirer harms target shareholders when the acquirer is a private equity firm, CEO retention can also be valuable to private equity acquirers, and hence potentially benefit shareholders. We find that CEO retention does not harm target shareholders when the acquirer is a private equity firm. In fact, we show that, in acquisitions by private equity firms, better performing CEOs are more likely to be retained and target shareholders gain an additional 10% to 23% of pre-acquisition firm value when the CEO is retained compared to when the CEO is not retained. In contrast, shareholders of targets acquired by operating companies do not benefit from CEO retention. Finally, we find no evidence that the target’s value is artificially depressed ahead of a private equity acquisition where the CEO is retained."
Keywords: Private Equity, CEO Retention, Acquisition Premium
Say you have a million people stand in a row and flip coins a million times. Each time they get heads, you give them a dollar. Each time they flip tails, you take a dollar from them.
On average your total payout should be zero*: the tails should cancel out the heads. But that doesn't mean everyone ends up with nothing more than what they started with. Some people will be horrific losers, mortgaging the house to cover what they owe you. Others will be rich. And at least one will have a run so phenomenal that you'll think it can't be luck. He must have some sort of secret skill--the Warren Buffett of coin flippers. read more on The Daily Beast
Keywords: Return on Investing, Value Investing
Keywords: US Economy, Regulation, Fiscal Uncertainty
Study: At most a third of us show a consistent approach to financial risk; Empirically rich new study finds most people alter their risk-management approach depending on the type of financial decision, by Peter Dizikes, MIT News Office
Take a moment to consider some of the financial choices you’ve made in recent years. Do you have a consistent approach to your money, either by playing it safe or having a willingness to take risks? Or do you not have a set philosophy, and instead make your financial decisions independently of each other? read more on MIT News
Keywords: Risk Behavior, Financial Decision
Randy Komisar, Partner at Kleiner Perkins, explains that market forces and current opportunities play a big role in whether or not an entrepreneur succeeds.
Keywords: Skills of Entrepreneurs, Taking Advantage of Opportunities
Year end is the time for (not often very competent) stock market predictions.
It could be wise to challenge such predictions with more fundamental considerations of proven cracks in the field of value investing.
Such as Warren Buffett:
This "value investing checklist" is also quite useful.
Keywords: Value Investing, Fundamental Company Value
Opp, Christian C., Learning, Active Investors, and the Returns of Financially Distressed Firms (June 14, 2012). Available at SSRN: http://ssrn.com/abstract=2181441 or http://dx.doi.org/10.2139/ssrn.2181441
"I develop a dynamic asset pricing model to analyze expected returns of financially distressed firms in the presence of learning about firm fundamentals and endogenous information acquisition by active investors that acquire large stakes in distressed firms via private investments in public equity. The model reveals that learning and information acquisition critically affect risk exposures close to default and can rationalize low and even negative expected equity returns for firms with high default risk. Similar to Schumpeter's (1934) argument that recessions have a positive, cleansing effect on the economy, the model reveals that equity holders may benefit from the increased speed of learning about insolvent firms in downturns, which increases the value of their abandonment option in these times. Equity holders' option value is further enhanced by the ability to partially free-ride on active investors' acquisition of information on firm fundamentals. Both information channels are shown to affect equity betas, and may account for striking, momentum-type dynamics in risk premia." Source: SSRN
Keywords: Learning, Financial Distress
Keywords: Venture Capital, Entrepreneurship
Keywords: Media, Information Business
...."For example, the Barclays U.S. Credit Index yielded just 2.57% in mid-October. With inflation expectations, as reflected by the breakeven inflation rate on 10-year Treasury Inflation-Protected Securities (TIPS), hovering between 2.5% and 2.6% as of mid-October, investors are barely being compensated for inflation risk – let alone default, liquidity or term-structure risk. So while there are many opportunities out there, being selective – and well-informed – is critical."...
Keywords: Credit Markets, Inflation Risks, Quality of Projects
Cullen O. Roche of Orcam Financial Group, LLC describes very well the Fiat monetary system, focusing on the US system. A must read for non financial experts to get a better understanding of the system.
"This paper provides a broad understanding of the workings of a modern fiat monetary system that is applicable to countries that are autonomous issuers of currency in a floating exchange rate system. The paper is broken down into 6 sections which I would recommend reading individually for ease of digestion and understanding." SSRN
Keywords: Monetary System, Fiat Money
"This paper studies the relation between the going public decision and employment growth experienced by IPO firms. We find that a typical IPO firm in our sample hires twice more employees around its IPO than during its life as a private firm. The number of employees increases by 31% during the two-year period around the IPO. Evidence shows that the most likely channel through which IPO firms increase their employment levels is the relaxation of their financial constraints, allowing firms to access both equity and debt markets resulting in better funding of their growth opportunities and an increase of the firm’s human capital. We also examine the relation between employment growth and firm performance: IPO firms with greater employment growth exhibit better performance and lower delisting probability. Overall, these results highlight the importance of the IPO event and access to public capital markets for job creation by US firms." Source: SSRN
Keywords: Initial Public Offering, IPO, Employment
Keywords: US Economy, Immigration
..."The share of households projecting the economy will get better rose to 37 percent in November, the highest since March 2002, according to a survey accompanying the Bloomberg Consumer Comfort Index. That propelled the survey’s monthly consumer expectations gauge to 4 from minus 7. Jobless claims fell last week, while the index of leading economic indicators advanced in October, other reports showed"...read more
Keywords: US Economy, US Consumer Confidence, US Housing
Keywords: Investing, Speculation
"The re-balancing of China's economy will offer opportunities in various sectors and benefit small-and medium-sized enterprises. However, direct access to SMEs for international investors is often difficult. Private equity is well placed to benefit from this opportunity, and provides access to small companies (70% of deals were done were < usd 50mn in the last 5 years) not available through public equity markets." Source: SSRN
Keywords: Private Equity, China, Chinese Private Equity Market
Further China PE market information:
China Europe Mergers & Acquisitions:
A prominent transaction example:
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