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Akram's Razor's  Instablog

Akram's Razor
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Akram is a 33 year old portfolio manager based out of Dubai.
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  • “Measured by Numbers”
    PAUL
    These tests were conducted over a six month period using a double-blind
    format of eight over-lapping demographic groups.  Every region of the
    country was sampled, the focus testing showed a solid base in the 9 to
    11-year old bracket--with a possible carry-over into the 12-year olds. 
    When you consider that Nobots and Transformers pull over 37 percent
    market share, and that we are targeting the same area, I think that we
    should see one quarter of that and that is one fifth of the total
    revenue from all of last year.  Any questions?  Yes?  Yes?
     
    JOSH
    I don't get it.
     
    “Big” 1988
     
    “Measured by Numbers”
     
    Just the other day I was sitting in on a meeting with some analysts from Malaysia. The economist quickly started rattling of gdp numbers for 2009 and 2010. First, to be clear, I know very little about the Malaysian economy other than that produce a lot of palm oil, and that the pricing of palm oil impacts their decisions to purchase potash. These numbers could have just as easily represented the Gdp of a fictitious country that produced nothing but widgets. To put the numbers in perspective the analyst threw out some numbers on China Gdp growth and then some numbers on Gdp growth rates in developed economies. The message was clear: We are not growing as fast as China which all investors love, but we are growing a lot faster than most countries you probably know. Now, in defense of the Malaysian analysts, they actually put together a good presentation; it’s just that I am starting to feel like I’ve reached a point of number saturation.
    I remember I was at a job interview with ML in late 2007 and the person interviewing me handed me a recent Merrill annual report. As I perused the report, I couldn’t help but notice the highlighted ROE numbers over the last five years. Merrill’s return on equity over the past five years was double what it had been since inception, and Merrill was clearly quite proud of these numbers as they’d chosen to highlight them. I found it quite ironic that I was interviewing with a firm that was at that very moment trying to raise capital from foreign investors while touting numbers that looked too good to be true.
    This is of course should come as no surprise to most people. The numbers nowadays don’t just tell a story; they are the story.
    Bernie Madoff figured this game out a long time ago. If you can put together some nice consistent numbers you’ll have a line out the door of people looking to put money with you, and only a handful of people asking questions. So, why not make them up? Bernie did. For 18 years he returned 10.5% a year with a standard deviation of less than 2.5%. He produced better returns than the market, and he did it with a fraction of the volatility.  
    Bernie wasn’t the only one. Guys like Marc Drier and Allen Stamford also figured out that a world that measures by numbers is easy to deceive. 
    When I first arrived in Dubai I would often question the brokers at real estate stands in the mall that would be throwing around projected returns and expected yields like they were investment advisors. Like Josh Baskin, “I didn’t get it.” I didn’t have much more to add, and I was eager to learn what I was missing, but I rarely if ever got any answers. The numbers, as I was often told, spoke for themselves.
    The recent move in global markets reminds me of my 2008 conversations with Dubai real estate agents . The fact that everything has risen justifies the fact that everything has risen. Just the other day I was watching Laszlo Birinyi on Cnbc speak about the bull market. Laszlo has very lofty expectations for markets, but like my real estate broker friends in Dubai, very little to offer in terms of explanations. For example, when discussing U.S. real estate Laszlo said something to this effect: Is there is a real estate problem? I don’t know. I hear all these people talking about it. But then I look at nvr stock and its up 100%. So, whose right? The market is always looking ahead. It’s telling you things are going to be much better.
    But not everyone is taking the Laszlo approach. Some people know that there is something inherently wrong with what’s going on in markets just as many Madoff investors knew he was cheating in some way shape or form, but they are still willing to invest. Why? Because they think it’s easy money, and that they can get out before things turn sour.
    There is another famous saying about numbers.
    The numbers don’t lie.
    If we’ve learned anything over the past two years, that statement just isn’t true.


    Disclosure: no positions
    Oct 24 8:10 AM | Link | Comment!
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