TEbatti: Deflaatiota pelätään turhaan

Kirjoitimme kansanedustaja Elina Lepomäen kanssa Talouselämän TEbatti-palstalla deflaatiosta. Oli kiva kirjoituskokemus, koska ajattelen monista asioista Elinan kanssa samalla tavalla ja Elina on hyvä tyyppi. Ehkä kirjoitamme yhdessä vielä jotain tulevaisuudessakin. Teksti julkaistiin edellisviikon painetussa lehdessä ja se löytyy verkosta täältä.

 

Tarkoituksenamme oli avata keskustelua inflaatiosta/deflaatiosta ja tuoda uusi näkökulma asiaan. Tämä siitä syystä, että EKP:n elvytyspolitiikan perusteista on käyty varsin vähän syvällisempää keskustelua ja deflaatio koetaan aina asiana, jota pitää vastustaa ja pelätä. Mitä jos asia ei olisikaan näin mustavalkoinen. Ohessa siis teksti. Kritiikkiä kirjoitukseemme on esittänyt mm. Roger Wessman omilla sivuillaan. Kiitos Rogerille kommenteista. Kiitos kun vaivauduit tarttumaan asiaan. Kannustavaa palautetta on tullut myös kiitettävästi. Aihe on selvästikin liian vähän keskusteltu, koska se sai aikaan tällaiset reaktiot. Yksipuolinen "totuus" on aina vaarallista, niin tässäkin asiassa. Kun eri näkökulmat esittävät perusteluita, syntyy pohja erilaisille johtopäätöksille. Toivottavasti tämä keskustelunavaus täyttää tämän tavoitteen.

 

Kun olen keskustelua ja kommentointia eri lähteistä seurannut, on ollut jännä havaita erilaisia rooleja. On

• Asiapohjaiset argumentit puolesta/vastaan sekä uudet näkökulmat
• Tykkääjät ja trollaajat ilman kosketusta asiasisältöön
• Henkilökohtaisuuksiin menevät hyökkääjät sekä henkilöiden puolustajat
• Väärinymmärtäjät ja väärintulkitsijat - tahalliset tai tahattomat
• Henkilöt joiden on kirjoitettava ja jaettava jotain, mitä vain, jotta ovat mukana keskustelussa

Esittämällä näkemyksen asiasta kuin asiasta, osallistuu aina näiden roolien vaikutuspiiriin. Sitä on julkinen keskustelu. Ainakin näin vaalien alla.

Deflaatiota pelätään turhaan

Miksi tuotteiden ja palvelujen pitäisi olla huomenna kalliimpia kuin tänään? Tämä peruskysymys on jäänyt inflaation puolestapuhujilta vastaamatta. Ihminen valitsee luonnostaan hyödyn mieluummin aikaisemmin kuin myöhemmin. Positiivinen aikapreferenssi selittää velkamarkkinoiden olemassaolon: pankkilainalla voi hankkia suuremman asunnon jo tänään, sen sijaan että säästäisi ensin vuosia.

Inflaatio, hintojen jatkuva nousu, ei ole luonnollinen ilmiö. Inflaatio ja keskuspankille asetetut inflaatiotavoitteet ovat poliittisia päätöksiä, eivätkä markkinatalouden välttämättömyyksiä. Niukkuuden kasvaminen voisi selittää hintojen nousun, mutta tästä ei ole ollut kyse: tavaran määrä on moninkertaistunut.

Teollisessa historiassa tuotteiden hintojen lasku on ollut megatrendi. Kapitalismi, massatuotanto ja teknologinen kehitys ovat tuoneet kuluttajien ulottuville tuotteita, joihin heillä ei ollut aiemmin varaa. Tämä on kasvattanut yleistä elintasoa.

Hintojen lasku kasvattaa ostovoimaa

On myytti, että deflaatio estäisi investointeja. Inflaation vallitessa pääoma vaatii korkeampaa tuottoa rahan ostovoiman ylläpitämiseksi, deflaatiossa pääoma kykenee tyytymään vähempään. Turhan usein tarkastellaan nimellistä tuottoa reaalituoton sijasta. Vaikka tuotantolaitoksen hinta laskisikin, tuottaa se edelleen sen määrän peltipurkkeja tai paperia kuin ennenkin. Reaalitalouteen vaikutus on sama.

Samoin on myytti, että deflaatio pienentäisi kokonaiskulutusta. Hintojen lasku kasvattaa ostovoimaa. Palkat laskevat hitaasti, joten palkansaajille deflaatio on pelastus. Vähittäiskauppojen tammikuiset hinnanlaskuilmoitukset tuskin saivat kuluttajien suita mutrulle!

Myös deflaation vallitessa on mahdollista harjoittaa kannattavaa liiketoimintaa. On kyettävä ylläpitämään kustannustehokkuus suhteessa kilpailijoihin. Kuluttaja ostaa jatkossakin laatua, ja työpaikkoja syntyy tuottaviin kohteisiin kysynnän myötä.

Politiikassa vaikuttaa inflaatio-sukupolvi

Deflaatiota pelätään, koska sitä ei osata. Taloudessa ja politiikassa vaikuttaa sukupolvi, joka on elänyt vain nousuhinnoittelussa. Moni asia mutkistuu, kun exceliin syötetään indeksikasvun sijaan negatiivista hintakehitystä. Inflaatio on kaikille toimijoille helpompi toimintaympäristö; se antaa asioita ilmaiseksi.

Yrityksille, niiden johdolle ja omistajille on mieluisaa, kun liiketoiminta ”kasvaa paperilla”. Palkansaajia ja ay-liikettä lämmittävät nimelliset palkankorotukset. Sijoittajat näkevät arvonnousunsa usein nimellisenä, ja verottajakin nojaa nimellisarvojen kasvun verottamiseen.

Japania pidetään malliesimerkkinä deflaation kiroista. Maassa on toki erityisesti demografiasta johtuvia kasvuongelmia, ja julkinen velka on suuri. Varsinaisena epäonnistumisena on kuitenkin vaikea pitää maata, jonka elintaso on ”kahden menetetyn vuosikymmenen” jälkeenkin yksi maailman korkeimmista, ja joka jatkuvasti suoltaa innovaatioita markkinoille. Työntekijää kohti mitattuna Japanin talouskasvu on ollut vuosina 1991 – 2012 nopeampaa kuin mallioppilaana pidetyn Saksan.

Setelipaino ei nosta tuottavuutta

Euroopan keskuspankki EKP julkisti tammikuun lopussa mittavan elvytysohjelman. Ohjelman tarkoituksena on puolustaa keskuspankin kahden prosentin inflaatiotavoitetta ja shokkikäynnistää tahmea talouskasvu. Näyttöä määrällisen elvytyksen kyvystä nostaa reaalitalouden toimeliaisuutta on kuitenkin niukasti.

Vaikutus tulee ensisijaisesti heikentyneen valuutan myötä parantuneen kilpailukyvyn kautta. Setelipaino ei kuitenkaan nosta kansantalouden tuottavuutta, vaurastua voi vain tuottamalla enemmän kuin kuluttaa. Tilanne ei muutu, vaikka hinnat tuplataan tai värjätään vihreäksi.

Samalla elvytys tarkoittaa varallisuuden uusjakoa. Viime vuonna julkaistun euroalueen pääomamarkkinoita koskeneen tutkimuksen mukaan setelielvytys nostaa epäsuhtaisesti riskisten omaisuusluokkien nimellisarvoja, kuten kiinteistöjen ja osakkeiden hintoja. Se siis suosii erityisesti velkavivulla sijoittavia kotitalouksia, instituutioita ja valtioita. Deflaatiossa tilanne on käänteinen: se suosii tehokkuutta ja tuottavuutta kuplien sijaan.

Ei vaikuta euron ulkoiseen arvoon

EKP:n politiikalla ei myöskään välttämättä ole niitä vaikutuksia euron ulkoiseen arvoon kuin on kaavailtu. Yhdysvalloilla on nyt vähemmän tilaa kiristää rahapolitiikkaansa, kun sekä Eurooppa että Japani elävät vielä pitkään negatiivisen koron maailmassa.

Sen sijaan on aito vaara, että ilmainen raha johtaa euroalueen sisäiseen sosialismiin, jossa tuottavuutta nostavat uudistukset lykätään, markkinoiden hintasignaalit katoavat ja reaalitalouden kannustimet tuottaa lisäarvoa häviävät. Deflaatiossa olisi toisin.

Kirjoittajista Elina Lepomäki on rahoitusalalla asiantuntija- ja johtotehtävissä toiminut kansanedustaja (kok). Tero Luoma on Taaleritehtaan Pääomarahastot Oy:n sijoitusjohtaja.

Ayn Rand: Philosophy - Who Needs It?

Ayn Randin tuotanto alkaa tämän kirjoituksen myötä olla luettuna ja yhteenvetoa lukuunottamatta käsiteltynä. Philosophy - Who Needs It on viimeisin kirja, jonka kanssa Rand työskenteli eläissään ja se koostuu useammasta novellista, jotka pääasiassa toimivat vastauksena joko jonkun esittämään kritiikkiin Randia kohtaan tai muuten kannanottoa johonkin yleisesti vallitsevaan näkemykseen. Tyyliltään se siis poikkeaa merkittävästi muista hänen teoksistaan, ennen kaikkea Atlas Shruggedista ja The Fountainheadista.

 

Ayn Rand: Philosophy- Who Needs It

Teoksena Philosophy - Who Needs It on keskinkertaista Randia, jos sitäkään. Siinä Rand asemoi oman objektivistisen filosofiansa suhteessa sekä klassisiin filosofeihin että aikansa yhteiskuntaan. Kollektiivinen ajattelu saa läpi kirjan kyytiä ja kapitalismille pyritään luomaan filosofinen viitekehys. Kirja ei saanut aikanaan kovinkaan hyvää vastaanottoa, eikä se kyllä merkkiteokseksi nousekaan, ainakaan suhteessa Randin tunnetumpiin teoksiin. Ehkä tekstiä hallitsee liikaa tarkoitus vastata muiden ajatuksiin oman ajattelun sijasta. Teoksen taustallahan on hänen USA:n Military Academyssa pitämänsä puhe.

 

Jos siis jossain kohtaa haluaa oikaista, niin tämän Randin voi hyvinkin jättää lukematta. Joitain hyviä sitaatteja, mutta kokonaisuutena jää varsin sekavaksi. Hienoa on huomata, Randin nostavan Ludwig von Misesin esille omana taloustieteen suosikkinaan. Näin tulee luoduksi yhteys itävaltalaisen koulukunnan ja randilaisyyden välillä, vaikka toki perustavaa laatua olevia eroavaisuuksia näiden ajattelusta löytyykin.

 

Poiminnot

• Tribalism is a product of fear, and fear is the dominant emotion of any person, culture or society that rejects man's power of survival: reason. (58)
• If you ask me to name the man most responsible for the present state of the world, the man whose influence has almost succeeded in destroying the achievements of the Renaissance - I will name Immanuel Kant. (87)
• Capitalism did not create poverty - it inherited it. Compared to the centuries of precapitalist starvation, the living conditions of the in the early years of capitalism were thefirst chance the poor had ever had to survive. (91)
• Capitalism and altruism cannot coexist in the same man or in the same society. Tell it to anyone who attempts to justify capitalism on the ground of the "public good" or the "general welfare" or "service to society" or the benefits it brings to the poor. All these things are true, but they are by-products, the secondary consequences of capitalism - not its goal, purpose or moral justification. The moral justification of capitalism is man's right to exist for his own sake, neiher sacrificing himself to others nor sacrificing others to himself; it is the recognition that man - every man - is an end in himself, not a means to the ends of the others, not a sacrificial animal serving anyone's need. (91)
• Philosophy is a necessity for a rational being: philosophy is the foundation of science, the organizer of man's mind, the integrator of his knowledge, the programmer of his subconscious, the selector of his values. To set philosophy against reason, i.e., against man's power of cognition, to turn philosophy into an apologist for and a protector of superstition - is such a crime against humanity that no modern atrocities can equal it; it is the cause of modern atrocities. (111)
• Concepts are the products of a mental process that integrates and organizes the evidence provided by man's senses. Man's senses are his only direct cognitive contact with reality and, therefore, his only source of information. Without sensory evidence, there can be no concepts; without concepts, there can be no language; without language, there can be no knowledge and no science. (121)
• In reality and in the Objectivist ethics, there is no such a thing as "duty". There is only choice and the full, clear recognition of a principle obscured by the notion of "duty": the Law of Causality. (133)
• Inflation is a man-made scourge, made possible by the fact that most men do not understand it. It is a crime committed on so large a scale that its size is its protection: the integrating capacity of the victims' minds breaks down before the magnitude - and the seeming complexity - of the crime, which permits it to be committed openly, in public. For centuries, inflation has been wrecking one country after another, yet men learn nothing, offer no resistance, and perish - not like animals driven to slaughter, but worse: like animals stampending in search of a butcher. If I told you that the precondition of inflation is psycho-epistemological - that inflation is hidden under perceptual illusions created by broken conceptual links - you would not understand me. (170)
• Money is the tool of men who have reached a high level of productivity and a long-range control over their lives. Money is not merely a tool of exchange: much more importantly, it is a tool of saving, which permits delayed consumption and buys time for future production. To fulfill this requirement, money has to be some material commodity which is imperishable, rare, homogenous, easily stored, not subject to wide fluctuations of value, and always in demand among those you trade with. This leads you to the decision to use gold as money. (172)
• There is only one institution that can arrogate to itself the power legally to trade by means of rubber checks: the government. And it is the only institution that can mortgage your future without your knowledge or consent: government securities (and paper money) are promissory notes on future tax receipts, i.e., on your future production. (174)
• If student minorities have succeeded in demanding that they be given courses on such subjects as Zen Buddhism, guerilla welfare, Swahili, and astrology, then an intellectual student minority can succeed in demanding courses on, for instance, Aristotle in philosophy, von Mises in economics, Montessori in education, Hugo in literature. At very least, such courses would save the student's mind; potentially, they would save the culture. (271)

Benjamin Graham: The Intelligent Investor - The Definitive Book on Value Investing

"I read the first edition of this book early in 1950, when I was nineteen. I thought then that it was by far the best book about investing ever written. I still think it is. To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What's needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework. This book precisely and clearly prescribes the proper framework. You must supply the emotional discipline." - Warren Buffet.

 

There is nothing to add to this Warren Buffet's comment about Benjamin Graham's legendary book The Intelligent Investor - The Definite Book on Value Investing. This book is clearly a must read for any investor - intelligent or not. This book is like the Bible of Investing. It explains all the key principles you need in investing, especially if you prefer value investing. Many people, me included, spend their time on reading all types of investment books without choosing the best, the most fundamental one. Why? Why don't you just take time for these 622 pages once and learn the ideas from their original source? It's highly worth it!

 

Here below is a relatively short summary about this book. This is a commentary version, due to which I have marked commentaries in italics. These comments are not original Graham's, but still many of them are worth highlighting. Hopefully you can get some basic ideas from here. Anyway, my point is clear: read this book!

Benjamin Graham - The Intelligent Investor

Benjamin Graham - The Intelligent Investor - The Definite Book on Value Investing

Graham developed his core principles, which are:
1) A stock is not just a ticket symbol or an electronic blip; it is an ownership interest in an actual business, with an underlying value that does not depend on its share price.
2) The market is a pendulum that forever swings between unsustainable optimism (which make stocks too expensive) and unjustified pessimism (which makes stocks too cheap). The intelligent investor is a realist who sells to optimists and buys from pessimists.
3) The future value of every investment is a function of its present price. The higher the price you pay, the lower your return will be.
4) No matter how careful you are, the one risk no investor can ecer eliminate is the risk of being wrong. Only by investing on what Grahan called the "margin of safety" - never overpaying, no matter how exciting an investment seems to be - can you minimize your odds of error.
5) The secret of your financial success is inside yourself. If you become a critical thinker who takes no Wall Street "fact" on faith, and you invest with patient confidence, you can take steady advantage of even the worst bear markets. By developing your discipline and courage, you can refuse to let other people's mood swings govern your financial destiny. In the end, how your investments behave is much less important than how you behave.

Those who do not remember the past are condemned to repeat it.

There are no sure and easy paths to riches on Wall Street or anywhere else.

It has long been the prevalent view that the art of successful investment lies first in the choice of those instruments that are most likely to grow in the future and then in identifying the most promising companies in these industries. But this is not as easy as it always looks in retrospect:
1) Obvious prospects for physical growth in a business do not translate into obvious profits for investors.
2) The experts do not have dependable ways of selecting and concentrating on the most promising companies in the most promising industries.
The ultimate results of such a conservative policy is likely to work out better than exciting adventures into the glamorous and dangerous fields of anticipated growth.

The investor's chief problem - and even his worst enemy - is likely to be himself.

An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative. ...Never mingle your speculative and investment operations in the same account nor in any part of your thinking.

We recommend that the investor divide his holdings between high-grade bonds and leading common stocks; that the proportion held in bonds be never less than 25% or more than 75%, with the converse being necessarily true for the common-stock component; that his simplest choice would be to maintain a 50-50 proportion between the two, with adjustments to restore the equality when market developments had disturbed it by as much as, say 5%. As an alternative policy he might choose to reduce his common-stock component to 25% "if he felt the market was dangerously high" and conversely to advance it toward the maximum of 75% "if he felt that a decline in stock prices was making them increasingly attractive".

The defensive investor must confine himself to the shares of important companies with a long record of profitable operations and in strong financial condititon. Aggressive investors may buy other types of common stocks, but they should be on a definitely attractive basis as established by intelligent analysis.

Stock trading is not an operation "which, on thorough analysis, offers safety of principal and a satisfactory return".

To enjoy a reasonable chance for continued better than average results, the investor mus follow policies which are 1) inherently sound and promising, and 2) not popular on Wall Street.

Motley Fool Model: 1) Take the five stocks in Dow Jones Industrial Average with the lowest stock prices and highest dividend yields. 2) Discard the one with the lowest price. 3) Put 40% of your money in the stock with the second-lowest price. 4) Put 20% in each of the three remaining stocks. 5) One year later, sort the Dow the same way and reset the portfolio accordingly to steps 1 through 4. 6) Repeat until wealthy.

Stocks do well or poorly in the future because the businesses behind them do well or poorly - nothing more, nothing less.

Is there a persuasive reason to believe that common stocks are likely to do much better in future years than they have in the last five and one-half decades? Our answer to this crucial question must be a flat no. Common stocks may do better in the future than in the past, but they are far from certain to do so.

The only way that inflation can add to common stock values is by raising the rate of earnings on capital investment. On basis of the past record this has not been the case.

The intelligent investor must never forecast the future exclusively by extrapolating the past. ...Tne only thing you can be confident of while forcasting future stock returns is that you will probably turn out to be wrong. The only indisputable truth that the past teaches us is that the future will always surprise us - always! And the corollary to that law of financial history is that the markets will most brutally surprise the very people who are most certain that their views about the future are right.

The value of any investment is, and always must be, a function of the price you pay for it.

In the financial markets, the worse the future looks, the better it usually turns out to be.

General portfolio theory

It has been and old and sound principle that those who cannot afford to take risks should be content with a relatively low returns on their invested funds. From this there has developed the general notion that the rate of return on which the investor should aim for is more or less proportionate to the degree of risk he is ready to run. Our view is different. The rate of return sought shold be dependent, rather, on the amount of intelligent effort the investor is willing and able to bring to bear his task. The minimum return goes to our passive investor, who wants both safety and freedom from concern. The maximum return would be realized by the alert and enterprising investor who exercises maximum intelligent and skill.

There are two ways to be an intelligent investor: 1) by continually researching, selecting and monitoring a dynamic mix of stocks, bonds, or mutual funds. 2) or by creating a permanent portfolio that runs on autopilot and requires no further effort (but generates very little excitement). Graham calls the first approach "active" or "enterprising"; it takes lots of time and loads of energy. The "passive" of "defensive" strategy takes little time or effort but requires an almost ascetic detachment from the alluring hullabaloo of the market. Charles Ellis has explained, the entreprising approach is physically and intellectually taxing, while the defensive approach is emotionally demanding. If you have time to spare, are highly competitive, think like a sports fan, and relish a complicated intellectual challenge, then the active approach is up your alley. If you always feel rushed, crave simplicity, and don't relish thinking about money, then the passive approach is for you. Some people will feel most comfortable combining both methods - creating a portfolio that is mainly and partly passive, or vice versa. Both approaches are equally intelligent, and you can be successful with either - but only if you know yourself well enough to pick the right one, stick with it over the course of your investing lifetime, and keep your costs and emotions under control.

Rules for the Common-Stock Component for Defensive Investor:
1) There should be adequate though not excessive diversification. This might mean a minimum of then different issues and a maximum of about thirty.
2) Each company selected should be large, prominent, and conservatively financed. Indefinite as these adjectives must be, their general sense is clear.
3) Each company should have a long record of continuous dividend payments.
4) The investor should impose some limit on the price he will pay for an issue in relation to its average earnings over, say, the past seven years. We suggest that this limit be set at 25 times such average earnings, and not more than 20 times those of the last twelve-month period. But such a restriction would eliminate nearly all the strongest and most popular companies from the portfolio. In particular, it would ban virtually the entire category of "growth stocks", which have for some years past been the favorites of both speculators and institutional investors.

An industrial company's finances are not conservative unless the common stock (at book value) represent at least half of the total capitalization, including all bank debt.

Insiders (people who work for the company) often possess only the illusion of knowledge, not the real thing. Psychologists led by Baruch Fischhoff of Carnegie Mellon University have documented a disturbing fact: becoming more familiar with a subject does not significantly reduce people's tendency to exaggerate how much they actually know about it. That's why "investing in what you know" can be so dangerous; the more you know going in, the less likely you are to probe a stock for weaknesses. The pernicious form of overconfidence is called "home bias", or the habit of sticking to what is already familiar: 1) individual investors own three times more shares in their local phone company than in all other phone companies combined. 2) The typical mutual fund owns stocks whose HQ are 115 miles closer to the fund's main office than the average U.S. company is. 3) 401(k) investors keep between 25%-30% of their retirement assets in the stock of their own company.

Once you build a permanent autopilot with index funds as its heart and core, you'll be able to answer every market question with the most powerful response a defensive investor could ever have: "I don't know and I don't care".

The knowledge of how little you can know about the future, coupled with the acceptance of your ignorance, is a defensive investor's most powerful weapon.

Buying a bond only for its yield is like getting married only for the sex.

Weighting the evidence objectively, the intelligent investor should conclude that IPO does not stand only for "initial public offering". More accurately, it is also shorthand for: It's Probably Overpriced, Imaginary Profits Only, Insiders' Private Opportunity, or Idiotic, Preposterous and Outrageous.

Operations in Common Stocks for Active Investor

The activities specially characteristics of the enterprising investor in the common-stock field may be classified under four heads:
1) Buying in low markets and selling in high markets
2) Buying carefully chosen "growth stocks".
3) Buying bargain issues of various types
4) Buying into "special situations".

We have two major sources of undervaluation: 1) currenlty disappointing results and 2) protacted neglet or unpopularity.

The ideal combination is a large and prominent company selling both well below its past average price and its past average price/earnings multiplier.

There is a world of difference between "hindsight profits" and "real-money profits".

As an investor you cannot soundly become "half a businessman", expecting thereby to achieve half the normal rate of business profits on your funds. It follows from this reasoning that the majority of security owners should elect the defensive classification. They do not have the time, or the determination, or the mental equipment to embark upon investing as a quasi-business. They should therefore be satisfied with the excellent return now obtainable from a defensive portfolio (and even with less), and they should stoutly resist the recurrent temptation to increase this return by deviating into other paths.

"It requires a great deal of boldness and a great deal od caution to make a great fortune; and when you have got it, it requires ten times as much with to keep it". -Nathan Mayer Rothschild

A great company is not a great investment if you pay too much for the stock.

"Put all your eggs into one basket and then watch that basket" proclaimed Andrew Carnegie a century ago. "Do not scatter your shot. ...The great successes of life are made by concentration." As Graham points out, "the really big fortunes from common stock" have been made by people whp packed all their money into one investment they knew supremely well. Nearly all the richest people in America trace their wealth to a concentrated investment in a single industry or even a single company (Bill Gates, Sam Walton, Rockefellers...). The Forbes 400 list has been dominated by undiversified fortunes since it was first compiled in 1982. However, almost no small fortunes have been made this way - and not many big fortunes have been kept this way. What Carnegie neglected to mention is that concentration also makes of the great failures of life.

It is absurd to think that the general public can ever make money out of market forecasts. For who will you buy when the general public, at a given signal, rushes to sell out at a profit? If you, the reader, expect to get rich over the years by following some system or leadership in market forecasting, you must be expecting to try to do what countless others are aiming at, and to be able to do it better than your numerous competitors in the market. There is no basis either in logic or in experience for assuming that any typical or average investor can anticipate market movements more successfully than the general public, of which he is himself a part.

Nearly all the bull markets had a number of well-defined characteristics in common, such as 1) a historically high price level, 2) high price/earnings ratios, 3) low dividend yields as against bond yields, (4) much speculation on margin, and (5) many offerings of new common-stock issues of poor quality. (193)

The better a company's record and prospects, the less relationship the price of its shares will have to their book value. But the greater the premium above the book value, the less certain the basis of determining its intrinsic value, i.e., the more this "value" will depend on the changing moods and measurements of the stock market. Thus we reach the final paradox, that the more successful the company, the greater are likely to be the fluctuations in the price of its shares. (198)

Net asset value, book value, balance-sheet value, and tangible-asset value are all synonyms for net worth, or the total value of a company's physical and financial assets minus all its liabilities. It can be calculated using the balance sheet in a company's annual and quarterly reports; from total shareholder's equity, subtract all "soft" assets such as goodwill, trademarks, and other intangibles. Divide by the fully diluted number of shares outstanding to arrive at book value per share. (198)

A stock does not become a sound investment merely because it can be bought at close to its asset value. The investor should demand, in addition, a satisfactory ratio of earnings to price, a sufficient strong financial position, and the prospect that its earnings will at least be maintained over the years. (200)

Investing intelligently is about controlling the controllable. (219)

Investing isn't about beating others at their game. It's about controlling yourself at your own game. (219)

If your investment horizon is long - at least 25 or 30 years - there is only one sensible approach: Buy every month, automatically, and whenever else you can spare some money. The single best choice for this lifelong holding is a total stock-market index fund. Sell only when you need the cash. (219)

After all, the whole point of investing is not to earn more money than average, but to earn enough money to meet your own needs. The best way to measure your investing success is not by whether you're beating the market but by whether you've put in place a financial plan and a behavioral discipline that are likely to get you where you want to go. (220)

Late in his life, Graham praised index funds as the best choice for individual investor, as does Warren Buffet. (249)

As the investmen consultant Charles Ellis puts it, "If you are not prepared to stay married, you shouldn't get married." Fund investing is no different. If you're not prepared to stick with a fund through at least three lean years, you shouldn't buy it in the first place. Patience is the fund invetor's single most powerful ally. (256)

Formula for valuation of growth stocks: Value = Current (Normal) Earnings X (8.5 plus twice the expected annual growth rate). (295)

The most basic possible definition of a good business is this: It generates more cash than it consumes. Good managers keep finding ways of putting that cash to productive use. In the long run, companies that meet this definition are virtually certain to grow in value, no matter what the stock market does. (308)

If owners earnings per share have grown at a steady average of at least 6% or 7% over the past 10 years, the company is a stable generator of cash, and its prospects for growth are good. (308)

Don't take a single year's earnings seriously. (310)

In short, pro forma earnings enable companies to show how well they might have done if they hadn't done as badly as they did. As an intelligent investor, the only thing you should do with pro forma earnings is to ignore them. (323)

Stock Selection for the Defensive Investor: 1) Adequate Size of the Enterprise, 2) A Sufficient Strong Financial Condition (Current assets should be at least twiec current liabilities), 3) Earnings Stability (for the past 10 years), 4) Dividend Record (uninterrupted payments for at least the past 20 years), 5) Earnings Growth (a minimum increase of at least one-third in per-share earnings in the past ten years using three-years averages at the beginning and end), 6) Moderate Price/Earnings Ratio (current price should not be more than 15 times average earnings of the past three years). (349)

As a rule of thumb we suggest that the product of the multiplier times the ratio of price to book value should not exceed 22.5. This figure corresponds to 15 times earnings and 1.5 times book value. It would admit an issue selling at only 9 times earnings and 2.5 times asset value etc. (349)

We invest in the present, but we invest for the future. (364)

In the short run the market is a voting machine, but in the long run it is a weighnig machine. (477)

Graham begins his original (1949) discussion "The Investor as Business Owner" by pointing out that, in theory, "the stockholders as a class are king. Acting as a majority they can hire and fire management and bend them completely to their will". But, in practice, says Graham, the shareholders are a complete washout. As a class they show neither intelligence nor alertness. They vote in sheeplike fashion for whatever the management recommends and no matter how poor the management's record of accomplishment may be... The only way to inspire the average American shareholder to take any independently intelligent action would be by exloiding out the paradoxical fact that Jesus seems to have been a more practical businessman than are American shareholders. (498)

Today's investors have forgotten Graham's message. They put most of their effort into buying a stock, a little into selling it - but none into owning it. "Certainly", Graham reminds us, "there is just as much reason to exercise care and judgement in being as in becoming a stockholder". Then, how to be an intelligent owner? There are just two basic questions to which stockholders should turn their attention: 1) Is the management reasonably efficient? 2) Are the interest of the average outside shareholder receiving proper recognition? (499)

Graham succests that every company's independet board member should have to report to the shareholders in writing on whether the business is properly managed on behalf of its true owners. (511)

The function of the margin of safety is, in essence, that of rendering unnecessary an accurate estimate of the future. If the margin will not fall far below those of the past in order for an investor to feel sufficiently protected against the vicissitudes of time. The margin of safety for bonds can be calculated, alternatively, by comparing the total value of the enterprise with the amount of debt. If the business owes 10 million and is fairly worth 30 million, there is room for a shrinkage of two-thirds in value - at least theoretically - before the bondholders will suffer loss. (513)

The risk of paying too high price for a good-quality stocks - while a real one - is not the chief hazard confronting the average buyer of securities. Observations over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions. (516)

There is no such thing as a good or a bad stock; there are only cheap stocks and expensive stocks. Even the best company becomes a "sell" when its stock price goes too high, while the worst company is worth buing if its stock goes low enough. (521)

Investment is most intelligent when it is most businesslike. (523)

Every corporate security may best be viewed, in the first instance, as an ownership interest in, or a claim against, a specific business enterprise. (523)

"Know what you are doing - know your business." Do not try to make "business profits" out of securities - that is, returns in excess of normal interest and dividend income - unless you know as much about security values as you would need to know about the value of merchandise that you proposed to manufacture or deal in. (523)

"Do not let anyone else run your business, unless (1) you can supervise his performance with adequate care and comprehension or (2) you ahve unusually strong reasons for placing implicit confidence in his integrity and ability." (523)

"Do not enter upon an operation - that is, manufacturing or trading in an item - unless a reliable calculations shows that it has a fair chance to yield a reasonable profit. In particular, keep away from ventures in which you have little to gain and much to lose". (523)

"Have the courage of your knowledge and experience. If you have formed a conclusion from the facts and if you know your judgment is sound, act on it - even though others may hesitate of differ." (523)

To achieve satisfactory investment results is easier that most people realize; to achieve superior results is harder than it looks. (523)

Successful investing is about managing risks, not avoiding it. (535)

Without a saving faith in the future, no onw would ever invest at all. To be an investor, you must be a believer in a better tomorrow. (535)

To keep investing from decaying into cambling, you must diversify. (535)

Dynastiat

Dynastia on suvun hallussa vähintään kolmen polven ajan pysynyt yritys, jolle on ominaista identiteetin ja omistuksen jatkuvuus. Näiden merkittävimpien dynastioiden historiaa David S Landes tarkastelee teoksessa Dynastiat - Maailman kuuluisimpien sukuyritysten kohtaloita. Teos on erinomainen kuvaus perhekapitalismista eli omistus- ja yritysmuodosta, jossa varallisuus syntyy ensin yritteliään sukupolven toimesta ja sen jälkeen sitä pyritään vaalimaan ja kasvattamaan siten, että se siirtyy aina parempana seuraavalle sukupolvelle. Dynastiat ovat perheyrittäjyyttä parhaimmillaan. Tällaisesta mallista ja asemasta monet perheyritykset uneksivat. 

David Landes: Dynastiat - Maailman kuuluisimpien sukuyritysten kohtaloita

Pankiirit

Landes luokittelee kirjassaan dynastiat kolmeen liiketoiminta-alueeseen, koska merkittävimmät yksityiset vauraudet on luotu näillä sektoreilla.  Ensimmäisenä hän tarkastele pankkitoimintaa esittelemällä Baringien, Rothschildien ja Morganien tarinat. Nämä suvut ovat luoneet vaurautensa lainaamalla rahaa sitä tarvinneille tahoille. Landesin mukaan, jos liiketoiminnassa on jotain sääntöjä, niin ainakin se, että ennemmin tai myöhemmin jokainen tarvitsee rahaa. Ja se merkitsee, että jokainen tarvitsee pankkiiria. Baringit loivat omaisuutensa sodan rahoittamisella. Valtiot olivat parhaita velallisia; ne saattoivat yhtenä päivänä olla vähissä varoissa, mutta ajan mittaan ne pystyivät maksamaan velkansa korkojen kera. Rothschildista taas on käytetty nimitystä "World's banker", niin merkittävä rahan järjestelijä suku on ollut maailman eri valtioille. Morganit sen sijaan ovat ennen kaikkea liikepankkiireita. Heitä voi hyvin kutsua Amerikan teollistumisen rahoittajiksi. Esimerkiksi U.S.Steelin synty oli Morganien järjestelyjä. Morgan ei niinkään järjestellyt luottoja vaan onnistui haalimaan omistukseensa merkittävimpiä yrityksiä, joiden kasvun myötä myös Morganien oma varallisuus kehittyi kohti kaakkoa. 

Automiehet

Toisessa osassa Landes tarkastelee autosukuja. Yhä edelleen merkittävimmät automerkit ovat suurien sukujen omistuksessa ja nimet näkyvät automerkeissä. Jännä huomata, että monessa maassa autoiluun liittyy paljon kansallisuuden tunnetta ja oman merkin kehittymistä imperiumiksi. Fordin tarinan perustaja Henry Fordin osalta on useampi varmasti kuullut tai lukenut. Melkoinen persoona oli kyseessä! Hänellä oli ennen kaikkea vahva visio siitä, että kaikki kulkevat jatkossa pyörien päällä. Tätä visiota hän toteutti tinkimättömästi ja kun autoistuminen otti tuulta purjeisiin, nousi myös Ford alan pioneerina valtakunnan merkkihenkilöihin. Italiassa Agnellien suku Fiat-konsernin taustalla toimivat ennen kaikkea omistajan roolistaan, ja ovat jättäneet konsernin operatiivisen johtamisen ammattijohtajille. Silti viimeinen sana tulee aina heiltä omistajilta. Ranskassa Peogeotin, Renaultin ja Citroënin merkit juontavat juurensa omistajasukujen nimistä. Erityisesti Peogeotin suku on nimellänsä Ranskassa yhä suurimmassa kunnia-arvossa ja osa kansallista ylpeyttä. Japanilaisten autojen esiinmarssi maailman markkinoille kulmioituu ennen kaikkea Toyotaan. Toyotan tarina ei alkanut autoista vaan tekstiilialalta ja muusta teollisuudesta ja vasta autoistumisen osoittauduttua kasvualaksi, aloitti yhtiö autojen teollisen tehotuotannon, joka osoittautui maailmanmenestykseksi. Toyotan tarina on ennen kaikkea esimerkki japanilaisesta sinnikkyydestä johdolla. Matka ei ole ollut helppo, mutta nyt automerkki on todellinen alansa mammutti. 

Maan mineraalit

Kolmas osio käsittelee sukuja, jotka ovat luoneet omaisuutensa maaperän rikkauksilla. Luonnonvarojen - puun, malmien, maaöljyn - hyödyntäminen raaka-aineena on myös ala, jolla sukuyritykset ovat menestyneet. Toisin kuin pankkitoiminnassa, jossa liikesuhteet ja maine ovat tärkeimpiä, tai autoalalla, missä henkilökohtaiset suhteet tuottajien, välikäsien ja kuluttajien välillä ovat ensisijaisia, raaka-aineiden ollessa kyseessä olennaista on sekä onni että kyky havaita tilaisuudet ja tarttua niihin, kun ne ilmaantuvat. Kuka omistaa maan, jossa rikkaudet ovat? Kuka on selvillä, mitä arvokkaita mineraaleja siinä maassa piilee? Kuka voi hankkia oikeudet noihin raaka-aineisiin? Perimmältään raaka-aineiden muodostama varallisuus riippuu maan omistamisesta ja siinä maassa olevien hyödynnettävien rikkauksien löytämisestä. Historian kuluessa ovat erityisesti kahden lajin raaka-aineet kerryttäneet rikkautta suuressa määrin: aseiden ja työkalujen valmistuksessa käytettävät materiaalit eli metalleja sisältävät malmit, joista juontuvat Wendelien ja Guggenheimien omaisuudet ja polttoaineena käytettävät materiaalit kuten hiili ja öljy, joille rakentuvat Rockefellerien ja Schlumbergerien dynastiat. Guggenheimin nimi on Suomessakin ollut viime aikoina esillä taidemuseon yhteydessä. Rockefellerien nimeen voi taas törmätä erityisesi New Yorkissa. 

Mistä kasvaa uusia dynastioita?

Landesin kirja on kiinnostava taustakertomus monen yhä toiminnassa olevan ja tunnetun yrityksen taustahistoriaan. Se tarjoaa myös yhden hyvän näkökulman yritystoiminnan ja omistajuuden kehittymiselle tarkastelemalla perhekapitalismia ja perheyrittäjyyttä. Useissa dynastioissa yksi sukupolvi oli yrittäjiä, toinen liikkeenjohtajia ja kolmas sitten omistajia. Suhde liiketoimintaan on usein etääntynyt ajan myötä ja jakajajoukon laajentuessa. Landes toteaakin dynastioista hyvin, sanoessaan että niissä yrittäjyys on muuttunut omaisuuden perimiseksi. 

Nykyaikana perheyritykset vieroksuvat usein pörssiyrityksiä, kritisoiden erityisesti pörssin "kvartaalikapitalismin mallia", jossa tuloksia vaaditaan vuosineljänneksestä toiseen. Tämä vieroksuminen lienee osittain turhaa, sillä kun tarkastelee tässäkin kirjassa esitettyjä yrityksiä, suuri osa on listattuja yrityksiä. Voisi ennemminkin sanoa, että listautuminen ja pörssipääoma ovat mahdollistaneet näille yrityksille harppauksen perheyrityksestä maailman luokan dynastiaksi kuitenkin siten, että valta, juuret ja sosiaalinen yhteys suvun ja yrityksen välillä ovat säilyneet vahvana. Ehkä siis tämänkin teoksen pohjalta rohkaisisin perheyrityksiä harkitsemaan vieläkin vakavammin kasvua pääomamarkkinoiden kautta. 

Kirjassa esitellyt dynastiat ovat syntyneet 1900-luvun alkupuolella tai jopa sitä aikaisemmin. Voi yleisesti sanoa, että menee vuosisata dynastian rakentamiseen, onhan dynastian määritelmänäkin kolmas sukupolvi. Mitkä sitten olisivat uudempia dynastoita tai yrityksiä, joista voisi tulla dynastioita? Warren Buffetin Berkshire Hathaway on kasvanut puolessa vuosisadassa mammutiksi, mutta Buffetilta jäänee puuttumaan jatkuvuus, koska hän on pääosin lahjoittanut omaisuutensa pois. Samoin Bill Gatesin Microsoftin tapauksessa jäänee seuraavat sukupolvet varakkaiksi toki, mutta eivät perheyrittäjiksi. Donald Trumpin kiinteistöomaisuus siirtynee hyvin seuraavalle sukupolvelle, joten siitä voisi kasvaa dynastia. Ivanka Trump on omaisuudenhoidossa vastuullisempi liikenainen kuin Paris Hilton. Britanniassa Sir Richard Branson on luonut muutamassa vuosikymmenessä oman imperiumin, jolla voisi olla edellytyksiä jatkua. Italiassa Silvio Berlusconista voi olla montaa mieltä, mutta valtavan liikeomaisuusimperiumin hän on onnistunut luomaan. Forbesin mukaan hän oli vuonna 2005 Italian rikkain ja maailman 25. rikkain ihminen. Jatkuessaan jälkipolville dynastian aineksia. Suomessa dynastiakastiin voidaan luokitella lähinnä Herlinit ja Ehnroothit. 

Poiminnot

• Pankkitoiminta on kaupan sivuhaara. Jotkut kauppiaat löytävät tilaisuuksia auttaa toisia lainaamalla heille rahaa korkoa tai muunlaista tuottoa vastaan, ja toiset kauppiaat, joilla on pulaa käteisestä, kuulevat näistä mahdollisuuksista ja hyötyvät niistä. 
• Jatkuvuuden pahimpana uhkana on rikastuminen ja menestys. 
• Pankkiirin ammatti on perinnöllinen; pankin nauttima luottamus siirtyy isältä pojalle; tämä peritty varakkuus tuo mukanaan perityn hienostuksen eli "työnämme on lisääntyä viisaasti".
• Jos pankkiireja ei nähdä ehdolla poliittisissa vaaleissa, se johtuu siitä, että heistä pitävät vain harvat, jos kukaan. 
• Mitä itua on rikkaana olemisessa, ellei voi ostaa mitä haluaa?
• Epäonnistuminen on liiketoiminnan surma, mutta niin on menestyskin, omaisuuden tarjotessa kaikenlaisia houkutuksia ja ajanvietteitä. 
• Ei ole kirjoitettuja sääntöjä siitä, miten tehdään hyvää bisnestä. Vanhoina aikoina, kun asiakas tuli tapaamaan pankkiiriaan, liikepankkiirin taito perustui hyviin tietoihin ja hyvään arvostelukykyyn. Nykypäivänä liikepankkiiri menee useammin tapaamaan asiakasta; ja koska nykyiset kommunikaatiovälineet ovat niin moninaisia ja nopeita, ei yksinomaisia tietolähteitä juuri enää ole. Arvostelukyvystä tulee siksi aina vain tärkeämpää. On oltava ihmistuntuja - jos erehtyy ihmisestä, häviää. Ja jos häviää, voi kärsiä raskaan tappion. 
• Naidessaan suvun sisältä saattoi olla varma, että sai arvoisensa puolison. Rothschildille vain Rothschild oli kyllin hyvä. "Meidän perheessämme olemme aina kasvattaneet lapset pienestä pitäen rajoittamaan rakkautensa suvun jäseniin. Näin heidän kiintymyksensä toisiaan kohtaan estää heitä naimasta suvun ulkopuolelta. Ja näin omaisuus säilyy suvussa. 
• Rothschildin suku on kenties kaikkein merkittävin ja kestävin dynastia nykyaikaisen liiketoiminnan historiassa. 
• Ammattijohtajien ei pidä katsoa, että heillä on valtuudet päättää yksin suurista perustavista ja strategisista kysymyksistä, jotka kuuluvat omistajille. Liikkeenjohdon ja omistamisen välillä pitää olla ero. - Gianni Agnelli
• Öljy on ollut eräiden suunnattomien yksityisomaisuuksien alkulähteenä. Suurimpia voittajia tällä teollisuudenalalla ovat olleet öljynjalostajat, öljylähteiden omistajat sekä porausyhtiöt, siis yksilöt ja firmat, jotka ovat koonneet omaisuutensa yhdistämällä onnen ja liikeälyn ja ylläpitäneet näitä omaisuuksia hankkimalla vaikutusvallallaan etuuksia öljyä janoavilta hallituksilta. 
• Rockefellerien suunnaton omaisuus asetti heille haasteen, sillä se oli liian suuri, jotta sitä olisi tarvinnut kasvattaa lisää, ja liian suuri, jotta sen olisi voinut jättää kesannolle. 
• Herra Rockefellerin tärkein syy pelata golfia on, että hän eläisi kauemmin ja voisi näin ansaita enemmän rahaa. 
• Ranskan yhteiskunta ei vanhastaan ole ollut kovin teollisuusmyönteinen, varsinkaan verrattuna Iso-Britanniaan ja Yhdysvaltoihin. Ranskalaisten mielestä on niin paljon muuta kiinnostavampaa ja hohdokkaampaa tekemistä kuin raataa verstaassa tai istua toimistossa ansaitakseen rahaa. Lisäksi Ranska on voittopuolin katolinen maa, ja katolisen kirkon opit eivät yleensä suosi rahan tavoittelua ja materialismia, jotka ovat omiaan kääntämään huomion pois korkeammista, hengellisemmistä asioista. Aatelisto taas usein korosti ylpeää ja mahtavaa historiaansa halveksimalla "nousukkaita" (les nouveaux venus)
• Tavallaan kaikki dynastiat ovat samanlaisia. Ne ovat verisukulaisuuten perustuvia rakenteita, joiden lisätukena ovat usein aviositeet ja adoptiot. Suhdetta sävyttää isällisen ohjauksen luonne; on isä, myöhemmin isoisä, jonka auktoriteetti nojautuu ikään, rakkauteen, vanhastaan tunnustettuun valtaan sekä kokemuksen, laillisen omistuksen ja omaisuuden hallinnon tuomaan johtoasemaan. 
• Erona rikkaan ja ei-rikkaan valtion välillä on se vaurauden määrä, joka on säästetty ja muutettu pääomaksi. 
• Ranskassa kansallisvarallisuuden lisääntymistä haittasi ennen muuta rikastuneen porvariston typerä turhamaisuus, sillä he ostivat ylhäisiä arvoja ja tuhlasivat samalla säästönsä hovin ylettömyyksiin.

Goldman Sachs - The Culture of Success

If I had to name a company I like the most in the world, I'm sure Goldman Sachs would be on my TOP3 list. You just can't talk about investment banking without mentioning Goldman Sachs. It is perhaps the greatest success stories in the field of finance, and especially in investment banking. 

Lisa Endlich: Goldman Sachs - The Culture of Success

What makes Goldman Sachs so special? To give you a short answer: the culture. There is something special in the culture of Goldman Sachs. Luckily, Lisa Endlich opens this mystery in her book Goldman Sachs - The Culture of Success. Endlich explains the history of the firm from the very beginning when the company was founded by two families - Goldmans and Sachs. In the beginning the firm had a family business culture and a pretty conservative approach to finance. They really wanted to build long-term, lasting customer relationships. 

However, fairly early on, the company was not operationally run by the funding families, instead they had professional managers to lead the company. One very interesting fact is that Goldman Sachs has typically had two persons in similar leading positions at the same time. It has most often been a leader pair, not just one leader. For many, especially for leadership consultant, this may sound strange, but in Goldman Sachs' case, it has worked out well. One could say extraordinary well, taking into account that during the World War I, the Goldmans were on the German side and Sachs on the Alliance's side, and almost throughout the history, the one leader has been a Republican and the other a Democrat. 

But still what is so special in Goldman Sachs' culture? Well, according to Endlich it's a culture of hard working. Goldman Sachs hires the very most talented young people from the best universities, but to be brilliant and wise is not enough, the more important is that you fit into the house's culture. There is a great competition to get in, but when you get in, the really competition only starts, if - and as almost everyone is - you are aiming to become a partner someday. It's not just office hours you are entitled to work at Goldman Sachs, it's more like 24/7. You must be able to give away many other thins in your life if you are willing to succeed at GS. It's more like a life style and a whole life career than just a job. 

Although Endlich highlights the importance of culture to Goldman Sachs, one can easily notice that the culture has also changed a lot during the years, while the company itself has changed a lot. Nowadays it's a global market leader in many fields of finance. It takes great risks and it has also suffered from bad reputation in some cases. Before it was a partnership and proud of it, nowadays it is a publicly listed company like the others. Still today, there is some speciality, if your business card is of Goldman Sachs. 

The book is a fascinating story of the company's great history. I would say it is a must read for everyone working in the finance, or especially in investment banking. Goldman Sachs has launched many successful innovations, although they have never been the pioneers of innovation. There is a lot to learn for many about how the investment bank operates, and especially how to lead an investment bank into success. 

Key points:

• Goldman Sachs began the century as a little-known family business with a minor reputation and a huge dream. It ends the century as perhaps the best-known investment bank in the world, one of the greatest financial success stories of the twentieth century.
• The firm's success has rested solidly on three legs: its leadership, its people and its culture. Great companies have great leaders -men and women who stand out in their own age and then go on to secure a place in history. Goldman Sachs has been run by men of extraordinary vision and ability. Each senior partner has stamped his world view on the firm in a way that fit remarkably well with the times. And whether speaking to partners, competitors, former employees, or clients, the conclusion is always the same: Goldman Sachs hires the very best people in the industry, seeking out the brightest and most ambitious recruits who will fit into the confines of its culture. That culture, widely emulated across the industry, has been the blueprint for the firm's success and has remained unique. 
• Goldman Sachs's traditional strengths lay in the field of investment banking, in raising capital for large corporations or arranging mergers and acquisitions.
• A partnership is a much more personal organization structure than a corporation. 
• Everyone here knows we have restraints on capital. Capital should be a restraint. It helps you make selections. You have to make choices. - John Whitehead
• Not everyone can be the first with a new idea, but there is no excuse for not copying a good idea quickly.
• Clients are simply in your custody. Someone before you established the relationship and someone after you will carry it on.
• Greed, the second deadly killer on Wall Street, is best contained by focusing attention on the business five years hence rather than on the size of this year's Christmas bonus. "Greedy, but long-term greedy".
• Steve Friedman has summed up the value of ownership by saying, "No one ever washes a rental car."
• The firm's culture, the sum of its shared beliefs, is legendary on Wall Street. This more than anything else sets Goldman Sachs apart from its competitors. Widely envied and copied, the firm sometimes vilified for being too conformist. Yet there can be little doubt that the firm's culture has worked to remarkable effect. 
• The economic and cultural interest is to cooperate. 
• The interest of the partners, while diverging on some matters, were entirely coincident on the issue of profitability. There was one pot from which all partners drew their income. Partners' compensation was by and large tied to the overall profitability of the firm (individual share holdings were reallocated every two years, but in any given year, the percentages already set, a partner's compensation was a direct function of the whole firm's profitability). 
• Culture is taken very seriously at Goldman Sachs. It begins in the recruitment process, long before a formal offer is extended. Brains are not enough. The first couple of interviews determine whether a candidate meets the firm's intellectual standards; the remainder, where far more candidates stumble, are used to determine "fit". 
• Fitting into the firm's culture is essential at Goldman Sachs, and rugged individualism has no place. 
• At Goldman Sachs we say "we", we never say I. 
• "You cannot be just an employee at Goldman Sachs". The firm demands that you be a contributor. Total commitment to the firm is expected. The firm is special, and you are special or you would not be here. Simply doing the job you were hired to do is not enough.
• Partners own and run the company, so management is up close and personal. They sit on the trading desks, work on the deals, and labor as hard or harder than their staff. Their focus is unmatched, their commitment unfettered. 
• One of the most visible manifestations of the firm's culture is its emphasis on understatement. 
• Money is for bank accounts, not for flashing about. 
• The emphasis at Goldman Sachs is on creating wealth rather than displaying it. There is nothing to betray that this is the center of America's wealthiest companies and the workplace of some of its richest men and women. Discretion is everything. "The men in they gray suits"
• It's a combination of outstanding people and a strong culture. 
• For most of its long and illustrious history Goldman Sachs was run by three families: the intermarried Goldmans and Saches and the upstart Weinbergs. 
• Money is always fashionable. 
• From 1890s until World War I, investment banking as it is now known came into being. The country needed capital, and a new breed of investment banker was there to help to provide. 
• The established banking firms of the day - J.P.Morgan, Kuhn Loeb & Co, and Speyer & Co - were financing the massive expansion of the utilities and the railroads. 
• Henry Goldman argued that the value of retail business should be calculated based on the rate at which it turned over its inventory, or how rapidly it generated cash. This, not the value of its physical assets, would determine its ability to meet debt obligations and secure a profit. From there he went on to develop more fully the notion of valuing a company on the basis of its earning power and hence its price-earnings ratio - this is still the most widely used method for valuing common stocks. 
• Most men can stand adversity; very few can stand success.
• The trick to successful investment banking was to line up a buyer for any issue before you bought it. "Something well bought is half sold." - Gus Levy
• Sidney Weinberg attended an average of two hundred fifty board or corporation committee meeting a year. Fortune magazine dubbed him "the directors' director", but to many he was known as "Mr Wall Street". 
• Weinberg was fanatical about using only the products manufactured by companies he represented. 
• "I'm an investment banker. I don't shoot craps. If I had been a speculator and taken advantage of what I knew I could have five times as much as I have today". But Weinberg's highest priority was establishing a top investment bank with first-rate client list - not making money for himself or Goldman Sachs. 
• Levy, a man without a degree, had his own system for staff recruitment. Early in the morning, before the markets opened, he would invite high schools seniors into office to play bridge or poker with him. He would play whichever game each visitor knew best, watching how his opponent's mind worked. 
• During the first hour in the office Levy wrote his plan for the day on a yellow legal pad and would not rest until every item of the plan was crossed off. 
• Troubles or not, no Goldman Sachs partner should begin his career in debt. 
• Watch of the excesses
• Success comes only to those who could recognize and correctly value risk. 
• Goldman Sachs's success in the 1980s can be attributed not only to what it did but perhaps, more important, to what it did no do. 
• "Arrogance and politics will kill you, someday it will kill you." - Weinberg
• Friedman considered 3 a.m. part of the working day for anyone committed to a career at Goldman Sachs. 
• Prior to the 1970s, a company or its banker might propose a merger with another firm, it might even cajole or attempt to persuade its target, but it would never actively and openly pursue to merger uninvited. But beginning in the early 1970s, the civilized world of investment banking came to an abrupt end as major U.S. companies and their investment bankers cast aside more than a century of tradition that dictated all takeovers must be friendly. "The notion that you would raid a company was so ungentlemanly that in the early stages it was almost considered an immoral act. In the late 1960s and early 1970s it was considered improper by the generalist banker to even suggest to a CEO that he consider selling his business. It was like asking him to sell one of his children. It was worst that you could suggest."
• In 1966 Goldman Sachs M&A revenues were USD 600 000. In 1980, M&A revenues had risen to about USD 90 million. By 1989, M&A was bringing in USD 350 million, and eight years later it would be a billion-dollar business. 
• M&A was hugely profitable on its own, but now it had become a new business development arm of the firm. 
• Our clients' interest always come first. Our experience shows that if we serve our clients well, our own success will follow. 
• Our assets are people, capital and reputation. If any of these are ever lost, the last is the most difficult to remain. 
• We stress teamwork in everything we do. We have no room for those who put their personal interest ahead of the interest of the firm and its clients. 
• Our profits are key to our success. They replenish our capital and attract and keep our best people. 
• It is our practice to share our profits generously with all who helped create them. Profitability is crucial to our future. 
• An unwritten yet closely adhered to fifteenth principle is that of secrecy; it is understood by almost every employee that the firm's business is confidential.
• "Never tell anyone how much money you make, just smile on the way to the bank. "- J. Aron
• Losing money from time to time was to be expected, but losing without knowing why was a very serious concern. 
• Goldman Sachs facilitated the highly complex process of selling government-owned assets to the public in twenty-five different counties including Argentina, Germany, Mexico, Finland, India and Thailand. Only a handful of other investment banks had the international research, trading, and sales expertise to complete these major asset sales. 
• "The minute you exchange the role of agent for one as principal, you change the traditions of your business. If you're looking for deals for yourself, you can't do the best for your client". - John Whitehead
• Goldman Sachs had a number of distinct competitive advantages: close industry relationships, sophisticated financial knowledge and resources, and an unmatched window on the flow of deals. Capitalizing on these advantages, the firm would invest in minority stakes in established operating companies through negotiated transactions that were friendly on both sides. Many viewed Goldman Sachs as an ideal financial partner. 
• Principal investments  helped the firm in its client business. When a client was looking for capital the firm's banker could now offer it an equity underwriting, a bond underwriting, or an investment from one of the firm's own funds. In the fall of 1991 the firm raised an investment fund, called GS Partners I, and this time committed USD 300 million of the USD 1 billion fund. In 1995 the firm raised USD 1,75 billion for GS Partners II, contributing a second USD 300 million. Principal investment revenues rose almost tenfold between 1990 and 1993, while investment banking division as a whole saw its revenues double. 
• The goal of the principal investments are is to seek investment opportunities - generally between USD 25 million and USD 250 million, located anywhere in the world - that will yield an excess return. Desirable investments have a five to seven year time horizon after which the firm, through public offering, sale, or merger, can exit with its cash. These are not venture capital opportunities, but rather partnerships with existing operating companies looking to expand. The area has become central to Goldman Sachs, spinning off new business opportunities to many other departments.
• The firm's investments are eclectic and opportunistic. 
• The returns from the principal investments business would far outstrip what could be achieved simply serving clients. The principal investment area has grown to between USD 4 billion and 4.5 billion in assets, and its annual compounding return exceeds 30 percent. 
• Unlike income generated by client fees, these transactions involve risking the firm's own capital. The importance of the change was lost on no one, and top management readily acknowledged that the firm would not prosper simply by doing agency and advisory business for clients. 
• Losses are part of trading, learn something from them and move on. As long as there are risks there will be losses. If the day ever comes when there are no risks, there will also be no profits. 
• The Goldman Sachs mystique was born secrecy and success. The mystique only grew with financial success. Everyone on Wall Street wanted to be a Goldman Sachs partner. There was no better-paying job in the world than working on Wall Street. And there was no better-paying job on Wall Street than being a partner of Goldman Sachs. 
• The first rule of Wall Street: Know your client. 
• By the early 1990s investment banking was an information processing business, not in the technical sense but in the sense of moving valuable information around the globe to the greatest advantage of the firm and its clients. 
• The work ethic at Goldman Sachs is exceedingly strong. Secretaries answer the phones from 7a.m. on, and meeting often begin earlier or are scheduled for as late as 10 at night. Because of the firm's global coverage, conference calls can occur any time of the day or night. Breakfast, lunch, and sometimes even dinner are eaten at one's desk, unless there is a client involved. Increased seniority only heightens the time demands. 
• The culture of Goldman Sachs - the team ethic and long-term approach to business - had acted as a force for self-restraint, mitigating the need for rigid and formal controls. Long workweeks, business suits, and accountability to management were all part of the package. Loyalty to the firm and its partners meant that almost everyone had traded the firm's capital as if it were their own. 
• What is the difference between Tanzania and Goldman Sachs? One is an African country that makes USD 2.2 billion a year and shares it among 2.5 million people. The other is an investment bank that makes USD 2.6 billion and shares most of it between 161 people. 
• A leader passes on a culture not just by what he says and does, but also by whom he selects for succeeding generation of leadership. 
• "Good firms worry about competition. Great firms worry about their clients". - Paulson

Mistä raha syntyy?

Jo vuonna 1892, Carl Menger, itävaltalaisen taloustieteen perustaja ja rajahyötyteorian kehittäjä, pystyi selittämään loogisesti ja ymmärrettävästi, miten ja miksi raha syntyy teoksessaan The Origins of Money. Raha on ihmisten luoma vaihdon väline. Ihmisten toiminnassa tietty hyödyke tai tietyt hyödykkeet tulevat muita hyödykkeitä helpommin vaihdettaviksi ja tämän kehityksen lopputuloksena syntyy laajasti hyväksytty vaihdon väline eli raha. 

Carl Menger, 1892, The Origins of Money

Käytännössä tämä tarkoittaa yksinkertaistetusti sitä, että jos A tuottaa viljaa, B lihaa ja C on kalastaja, pystytään vaihdantaa toteuttamaan suoran vaihdannan (kalasta lihaan) lisäksi myös siten, että kalastaja C vaihtaa kalat viljaan ja hankkii viljalla lihaa, jos lihan tuottaja B ei halua ottaa kalaa vaihdossa. Tällöin viljasta on muodostunut vaihdon väline, koska se hyväksytään vastikkeena laajasti ja koska sen vaihtaminen on helppoa. Viljaa voidaan myös jakaa pienempiin yksiköihin kuin kalaa tai lihaa. Siispä viljasta muodostuu käytettävän hyödykkeen lisäksi vaihdon väline eli raha. 

Jotta hyödyke voi saavuttaa rahan aseman, on sillä oltava tiettyjä ominaisuuksia, joita tarkastelemalla Menger päätyi selittämään rahan synnyn. Tällaisia ominaisuuksia on kuvattu kappaleessa "Concerning the Causes of the Different Degrees of Saleableness in Commodies", joka on Mengerin teoksen ydinkappale ja löytyy kokonaisuudessaan alta. Menger päätyy johtopäätöksissän siihen, että kulta ja metallit ovat luonnollisia vaihdon välineitä eli rahoja, koska ne täyttävät hyvän vaihdettavuuden kriteerit eli hyvän rahan ominaisuudet. Vastakohta Mengerin "luonnolliselle rahalle" on valtion luomat paperirahat, jotka eivät ole hyödykkeitä itsessään, ja joilla ei siten ole arvoa itsessään. Koska paperirahaa voidaan painaa rajattomasti, niiden arvo ei määräydy markkinoilla ihmisten vaihtaessa hyödykkeitä toisiin vapaaehtoisessa vaihdannassa vaan niiden arvo määräytyy rahan kokonaismäärän kehityksen ja siitä, kuinka uskottavana ja hyväksyttävänä kyseinen paperiraha toimii vaihdon välineenä. 

Mengerin teos on siinä mielessä legendaarinen, että se innoitti Ludwig von Misesin kehittämään oman teoriansa rahasta ja luotosta (Theory of Money and Credit). Mises viittaa useasti Mengeriin oppi-isänään ja Itävaltalaisen koulukunnan perustajana. Mengerin kirja on hyvin lyhyt, 52 sivua, ja sen voi ladata PDF:nä luettavaksi ilmaiseksi täältä. Mengerin lukemisen arvoinen laajempi biografia löytyy täältä. Hyvä analyysi Mengerin rahateorian ja Cartalistin rahateorian väliltä löytyy täältä. 

Concerning the Causes of the Different Degrees of Saleableness in Commodities

The degree to which a commodity is found by experience to command a sale, at a given market, at any time, at prices corresponding to the economic situation (economic prices), depends upon the following circumstances.

1.  Upon the number of persons who are still in want of the commodity in question, and upon the extent and intensity of that want, which is unsupplied, or is constantly recurring.

2.  Upon the purchasing power of those persons.

3.  Upon the available quantity of the commodity in relation to the yet unsupplied (total) want of it.

4.  Upon the divisibility of the commodity, and any other ways in which it may be adjusted to the needs of individual customers.

5.  Upon the development of the market, and of speculation in particular. And finally.

6.  Upon the number and nature of the limitations imposed politically and socially

upon exchange and consumption with respect to the commodity in question.

We may proceed, in the same way in which we considered the degree of the saleableness in commodities at definite markets and definite points of time, to set out the spatial and temporal limits of their saleableness. In these respects also we observe in our markets some commodities, the saleableness of which is almost unlimited by place or time, and others the sale of which is more or less limited.

The spatial limits of the saleableness of commodities are mainly conditioned—

1.  By the degree to which the want of the commodities is disturbed in space.

2.  By the degree to which the goods lend themselves to transport, and the cost of transport incurred in proportion to their value.

3.  By the extent to which the  means of transport and of commerce generally are developed with respect to different classes of commodities.

4.  By the local extension of organised markets and their inter-communication by “arbitrage.”

5.  By the differences in the restrictions imposed upon commercial inter-communication with respect to different goods, to interlocal and, in particular, in international trade.

The time limits to the saleableness of commodities are mainly conditioned—

1.  By permanence in the need of them (their independence of fluctuation in the same).

2.  Their durability, i.e., their suitableness for preservation.

3.  The cost of preserving and storing them.

4.  The rate of interest.

5.  The periodicity of a market for the same.

6.  The development of speculation and in particular of time-bargains in connection with the same.

7.  The restrictions imposed politically and socially on their being transferred from one period of time to another.

All these circumstances, on which depend the different degrees of, and the different local and temporal limits to, the saleableness of commodities, explain why it is that certain commodities can be disposed of with ease and certainty in definite markets, i.e., within local and temporal limits, at any time and in practically any quantities, at prices corresponding to the general economic situation, while the saleableness of other commodities is confined within narrow spatial, and again, temporal, limits: and even within these the disposal of the commodities in question is difficult, and, in so far as the demand cannot be waited for, is not to be brought about without a more or less sensible diminution in price.

Poiminnot

• Individuals decide what the most marketable good is for use as a medium of exchange. 
• The theory of money necessarily presupposes a theory of the saleableness of goods.
• It is an error in economics, as prevalent as it is patent, that all commodities, at a definite point of time and in a given market, may be assumed to stand to each other in a definite relation of exchange, in other words, may be mutually exchanged in definite quantities at will. The truth is, that even in the best organized markets, while we may be able to purchase when and what we like at a definite price, viz.: the purchasing price, we can only dispose of it again when and as we like at a loss, viz.: at the selling price.
• A high rate of saleableness in a commodity consists in the fact that it may at every moment be easily and surely disposed of at a price corresponding to, or at least not discrepant from, the general economic situation—at an economic, or approximately economic, price.
• Men have been led, with increasing knowledge of their individual interests, each by his own economic interests, without convention, without legal compulsion, nay, even without any regard to the common interest, to exchange goods destined for exchange (their “wares”) for other goods equally destined for exchange, but more saleable.
• It lies in the economic interest of each trafficking individual to exchange less saleable for more saleable commodities.
• When the relatively most saleable commodities have become “money,” the great event has in the first place the effect of substantially increasing their originally high saleableness.
• The less saleable are the goods brought by an economic subject to market, the more unfavourably, for his own purposes, will his economic position compare with the position of those who bring money to market.
• The practice of every-day life, as well as jurisprudence, which closely adheres for the most part to the notions prevalent in every-day life, distinguish two categories in the wherewithal of traffic— goods which have become money and goods which have not. And the ground of this distinction, we find, lies essentially in that difference in the saleableness of commodities set forth above.
• Money has not been generated by law. In its origin it is a social, and not a state institution. sanction by the authority of the state is a notion alien to it. On the other hand, however, by state recognition and state regulation, this social institution of money has been perfected and adjusted to the manifold and varying needs of an evolving commerce, just as customary rights have been perfected and adjusted by statute law.