Volatility, luck and a margin of safety: An excellent round-up — Abnormal Returns
On this day in 2009, Goldman Sachs closed at $141.85 per share, adjusted for dividends; since then, it’s announced $24 per share in earnings. It’s now trading at $137. Somehow, the bank has managed to lose value over the past 12 months, even as the S&P 500 has risen by 25%. Here’s a chart showing the relative one-year performance of Goldman (blue) and Bank of America (green) against the S&P 500 (red), up to yesterday’s close: it doesn’t even include today’s 4% drop in Goldman’s share price.
Spencer Bailey has a piece on old-school wine journalists vs new-school bloggers, in which he essentially says that the former are qualified to do their jobs, while the latter have freshness and an appealing voice. The oddest part of the column, for me, was the emphasis on the qualifications of the old guard:
Eric Falkenstein has a great blog entry on the relationship between risk and return, riffing off my post on what stock-market volatility should do to investors’ asset allocation. Essentially, he says, the idea that returns increase with risk is simply wrong:
Barbara Kiviat is right that (a) it makes perfect sense to abolish the mortgage-interest tax deduction, and that (b) it’s not going to happen any time soon. But rather than get defeatist about this, I think the answer is to take Paul Volcker’s advice and embark on an ambitious root-and-branch overhaul of the way that debt is treated everywhere in the tax code. Remember that the overall tax rate on equity finance is 36.1%, while the tax rate on debt finance is negative 6.4%. No wonder American businesses, just like American homeowners, are overleveraged! (Frankly, it’s a wonder to me that American companies aren’t more leveraged than they are, given how attractive the tax treatment of debt is: maybe this is just a function of how easy it is to avoid taxes in less dangerous ways.)