tjbresearch.com
  1. Monday, May 18th, 2015
    picking winners

    Many elements of investment practice were born out of what we call “academic research.”  For instance, such widely used concepts as modern portfolio theory and the Sharpe ratio.the research puzzle | Many of the ideas get extended beyond where their authors intended them to go.  The Sharpe ratio is a case in point.  “Active share” is a more contemporary case study, having gone from a little-discussed conceptthe research puzzle | This is the essay I wrote about it in 2010. to a hotly debated one.InvestmentNews | Here is an article about that change.

    Among practitioners and journalists, more and more attention is being paid to the flow of working papers coming from professors.  A good recent example is “Picking Winners? Investment Consultants’ Recommendations of Fund Managers,” by Tim Jenkinson, Howard Jones, and Jose Vicente Martinez.SSRN | At the time of this writing, the paper is identified as slated to be published in the Journal of ... continues

  2. Tuesday, April 28th, 2015
    look in the fridge

    Last week, I posed this question on Twitter:  “I’m in the midst of doing some independent reviews of asset managers (where I have full access); what would you look for at yours?”Twitter | Most of my tweeting involves providing links to interesting reading from around the investment ecosystem.

    There were a few responses, including ones about the need to understand the interplay of narrative and events, and the worth (or lack thereof) of onsite due diligence.  Then, a person who tweets under the name Unrelated Nonsense replied by saying, “Look in the fridge.”Twitter | Here is that response.

    I got a chuckle out of that.  I assume that others who have witnessed the surprises and mysteries inside refrigerators in the kitchens of organizations did too.  But, in addition to being funny, the tweet served as a metaphor for the craft of due diligence:  you need to seek out that which is hidden.  No one is going to show you the inside of the refrigerator, and ... continues

  3. Thursday, April 16th, 2015
    welcome to the machine

    Ray Dalio founded the hedge-fund colossus Bridgewater some four decades ago.  He stands out among the leaders of investment firms for his unusual thoughts about how things work.

    To wit:  economies, organizations, and individuals are machines.  They can be analyzed by how well they operate, by how well they produce outcomes to meet particular goals.  In some instances, there are opportunities to design and improve a machine (for example, an asset management organization) while in other cases (think of the world economy) what you need most are the ability to understand and to adapt.

    Dalio’s economic ideas and investment practices are worthy of study, but it is his organizational thinking that usually commands attention and divides those who have looked closely at Bridgewater into three categories:  the believers, the confused/uncertain, and those that see a cult of sorts.

    A 2011 New Yorker article by John CassidyNew Yorker | Titled, “Mastering the Machine.” is a ... continues

  4. Tuesday, April 7th, 2015
    a way in

    Investigative research, such as investment due diligence,the research puzzle | My last posting was about “defining due diligence.” requires an objective look at the evidence at hand.  In addition, if your goal is original, independent work, it helps to have conceptual avenues to pursue that might yield differential information.  In doing due diligence, you should always be looking for “a way in” that aids in understanding the organization under review.

    Often, one presents itself when you least expect it.  Some little thing that seems inconsequential at first doesn’t fit the pattern of the whole.  The range of possibilities is endless, especially if you are doing an on-site visit and are open to clues in the environment.  Thus, finding that gateway to understanding can be quite unexpected.

    But you can’t count on that happening.  Therefore, a list of prepared questions can help you control the agenda and avoid the standard topics that ... continues

  5. Tuesday, March 24th, 2015
    defining due diligence

    What is “due diligence”?

    The term is used constantly in the investment business.  We are told that we should do our due diligence before investing in something, and often, when presenting an idea, someone will say, “I’ve done my due diligence.”

    We hire advisors and consultants and gatekeepers of all kinds because we expect them to perform due diligence.  Their pitch books have a page or two about what they say they do in that regard, usually showing a filtering process of some sort that is rooted in “rigorous due diligence,” or some similar phrase.

    But what is due diligence, anyway?

    One definition:  “Reasonable steps taken by a person in order to satisfy a legal requirement, especially in buying or selling something.”Oxford Dictionaries | The definition comes from the online cousin of the OED.  Notice the legal aspect.  Recently, someone said to me that much of the investment business is based “not on giving advice but ... continues