Weekly Reading 12/31/2021

Runaway Capitalism – how gradual evolution can lead to a destruction of a species. An almost singular focus on certain metrics (like ROE and profitability) has led management teams, companies, economies, and thus, society down a dangerous path.

The rise of the DuPont equation and Return on Equity and how ROE led business down an unsustainable path

• • “By parsing ROE into the DuPont Equation (very rapidly to become a business school mainstay), he provided the financial basis for organizations’ dividing into functions, each with their own objectives. He reasoned that if marketers worked on maximizing return on sales, production managers were rewarded for the sales they wrung out of their physical plant, and finance managers focused on minimizing the amount of equity capital they needed, ROE would take care of itself. Thus Brown laid the foundations of today’s hated silos.”

Economies change for 2, and only 2, reasons:

• • • Technology changes
    • Changes to the rules
      • Ex: debtors were once thrown in prison but now society has laws to restructure debts. Society’s focus is on moving forward, not just punishing people for past transgressions.

In my opinion, the article goes off the rails at the end.

• • I do think the core of the article raises an interesting idea- that focusing on certain metrics can lead to imbalances.
    • In some ways, I interpreted this article as an early precursor to ESG investing. If a company has a ‘maximum profits at all costs’ mentality it might work for a while but it also develops serious risks elsewhere in the system.

    One thing I think the article leaves out is the ability of these systems (like capitalism) to be self-correcting. Capitalism doesn’t exist in a vacuum – after all we live in a republic. So when labor gets treated poorly there are avenues for addressing these imbalances. The authors kind of mention this when they reference how one of the two reasons why economies change is because the rules change- these rules are ultimately based on votes!

Performance – U.S. vs. Developed Market (Ex-U.S.) Relative Returns

You Have No Idea How Hard It Is to Get a Hamster Drunk

“…“she and her students rated the animals’ drunkenness on a literal wobbling scale. They scored the hamsters from zero, for “no visible wobbling,” to four, for “falls onto side and does not right self.””

After an enormous improvement in 2020, there has been a slight dip in Josh Allen’s production. Ignoring the fact that all his receivers are 5’7” or shorter, completions are down and interceptions are up. The change in trajectory isn’t great. But as any good analyst knows, you need to dig into the numbers to get the full picture.

Considering the Advanced passing metrics, Josh’s time in the pocket has dropped by 0.2 seconds and there has been more pressure even as other teams have blitzed less! Said differently, the offensive line is in shambles which is incredibly frustrating. The Bills, located in Buffalo, NY… a city which ranks #7 in McDonalds/Capita and is the proud home of the chicken wing, apparently can’t find a couple fat guys to protect the franchise quarterback… this continues to astonish me.