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Advantage of Youth: ignorance

Young people make better entrepreneurs because they're too inexperienced to know that their ideas are silly:

The mistakes novices make come from a lack of experience. They overestimate mere fads, seeing revolution everywhere, and they make this kind of mistake a thousand times before they learn better. But the experts make the opposite mistake, so that when a real once-in-a-lifetime change comes along, they regard it as a fad. As a result of this asymmetry, the novice makes their one good call during an actual revolution, at exactly the same time the expert makes their one big mistake, but at that moment, that’s all that is needed to give the newcomer a considerable edge.

» corante.com [ Contribute: submit link / submit article / submit company ]

How To Beat The Stock Market: Buy Companies With High Customer Satisfaction Scores

A study in the Journal of Marketing concludes that you can beat the market consistently by buying stock in companies with high customer satisfaction ratings:

Using a back-tested paper portfolio and an actual case, the authors of a study published in the Journal of Marketing found that companies at the top 20% of the the American Customer Satisfaction Index (ACSI) greatly outperformed the the stock market, generating a 40% return. From 1996-2003, the portfolio outperformed the Dow Jones Industrial Average by 93%, the S&P 500 by 201%, and NASDAQ by 335%.

[ PDF ] view document » consumerist.com [ Contribute: submit link / submit article / submit company ]

Rising Exports Putting Dent in Trade Gap

Over half of the 9.1 million vehicles General Motors produced last year were sold in foreign countries... With the slumping housing market taking a toll on its business at home, Caterpillar is counting on sales of equipment and diesel engines in Europe, Asia and the Middle East to keep growing… Faster growth in Europe and Asia is helping to cushion the blow of a collapsing housing boom that has hampered domestic consumer spending, creating more demand from elsewhere for goods and services made in the United States.

» nytimes.com [ Contribute: submit link / submit article / submit company ]

US Fed Survey: Subprime Lenders Tightening Standards; Prime Lending Business As Usual

In its periodic Senior Loan Officer Opinion Survey on Bank Lending Practices released Monday, the Fed found that while bankers have become more stringent when dealing with subprime and nontraditional mortgages, policy toward standard loans remains largely unchanged. 56% of the banks responding reported tightening standards on subprime loans, and 46% did the same on nontraditional mortgages (such as interest-only loans and loans with minimal income verification), while only 15% said they changed requirements for prime residential mortgages (see graphic; click to enlarge). About one-third said they had tightened lending standards on commercial real estate. 36% said loan demand for all loans was softer while 52% said it was unchanged. 10% said business loan requests dropped, hinting to a possible pullback in business spending. The Mortgage Bankers Association expects home-purchase loan activity to fall 7% this year and refinancing activity to drop 10%.

» federalreserve.gov [ Contribute: submit link / submit article / submit company ]

SEC steps up action on insider trading

International stock ex­changes and electronic trading are changing the way US regulators detect and punish insider trading, forcing them to speed up their investigations and take court action more quickly. During the past year and a half, the US Securities and Exchange Commission has gone to court to freeze accounts belonging to residents of Croatia, Pakistan and Switzerland in an effort to stop the profits of suspected insider trading from disappearing overseas.

Wharton: Are Hedge Funds out of Control?

If you go to Amazon.com and search for books about venture capital, you get 14,114 responses, which include many text books. Andrew Metrick, a professor of finance at Wharton, has just written a new book on the subject titled, "Venture Capital and the Finance of Innovation." Unlike the thousands of other books, though, this one offers a different approach, especially in areas such as valuing startup companies and IPOs, by bridging the gap between finance fundamentals and venture capital practice. Knowledge@Wharton spoke to Metrick about his new book and also about the increasing power and presence of hedge funds.

[ mp3 ] listen or download / Knowledge@Wharton

Steve Forbes says the American economy is stable, but anxiety remains.

“There may be yet another villain at work: inflation. Many of us are familiar with John Maynard Keynes' quote, "There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose." True, prices are not rising in the fashion in which they rose in the 1970s and early 1980s. But the inflation the Fed mistakenly fired up three years ago has certainly distorted the economy, thereby unnecessarily stirring up anxieties.”

Steve focuses on housing.

“Housing construction was crackling before 2004 because of Congress' virtual elimination of the capital gains tax on primary residences in 1997. But the Fed-fed inflation fired up the housing boom to white-hot levels. Flush with cash, lenders lowered loan standards, and new players entered the mortgage market. Fraud blossomed--why examine too closely a borrower's 1040 when rising prices will bail you out if the borrower gets in trouble? Speculators paid people to file mortgage applications to buy houses and apartments and quickly flip them. Now the sale price of houses is falling in many parts of the country. To add insult to injury, property taxes continue to climb as assessments catch up with housing values.”

» forbes.com

Courtroom intelligence: Hedge fund investment strategies

Hedge fund managers are always looking for an edge. Lately they've found one by sending patent litigators to court -- not to try a case, but as highly informed (and highly paid) observers. Their task: to pick up and quickly report back to the money managers any intelligence that could move a stock.

Litigators have often been called in to evaluate the investment impact of a patent conflict during the course of due diligence for an acquisition. Now hedge funds are moving earlier and faster. They are putting lawyers in the courtroom to report on the outcome of a trial as it is happening. "I hear these stories of Markman hearings; the minute the ruling comes down, 15 guys jump up and run out of the room," says Ron Laurie, of Inflexion Point Strategy, an IP investment bank. "These guys are texting the hedge fund, so they can short the stock." By the time the market-moving information hits financial news services like Bloomberg, the investors get to take their gains.

» law.com

Big rise in suspicious trades

US stock and options exchanges are spotting more suspicious trading connected to high-profile deals, such as News Corp’s bid for Dow Jones, and are making more referrals to US regulators for investigation of possible insider trading.

Between January 1 and April 20 of this year, the New York Stock Exchange referred 45 potential instances of insider trading to the Securities and Exchange Commission, compared with 111 for all of last year. The NASD, which monitors Nasdaq, the American Stock Exchange and the over-the-counter markets, has not released any 2007 data. But it referred 119 instances of suspicious trading to the SEC last year, up from 102 in 2005.

» ft.com

Regulators probe trading in Dow Jones before Murdoch's bid

US authorities have reportedly launched investigations into suspicious trading in Dow Jones Co. before a bid for the company by Rupert Murdoch's News Corp.

Dow Jones received a subpoena from the New York state attorney general's office and an inquiry from the Securities and Exchange Commission (SEC), a company spokesman told the Wall Street Journal.

Hedge funds pose a risk, but less alarming, says Federal Reserve Bank of New York

The Federal Reserve Bank of New York said on Wednesday that the risk hedge funds pose to the global financial system has reached levels by some measures comparable to those just before the Long Term Capital Management fund imploded in 1998. But the New York Fed said the similarities - involving close correlation among hedge fund returns seen before the LTCM crisis and again recently - had different causes, making the current environment less alarming.

Dow Stocks: Best winning streak since '55...

The Dow Jones industrial average hit another record high Wednesday, capping its longest winning stretch in almost 52 years as investors welcomed strong earnings, lower oil prices, media merger news and a strong reading on manufacturing.

The Dow (up 75.74 to 13,211.88, Charts) rose 0.6 percent to close at an all-time high for the fifth time in the last six sessions. The Dow also hit an intraday record high of 13,256.33 during the session before retreating near the close.

» money.cnn.com

Citigroup to buy Bisys Group, for $1.45bn

Citigroup and hedge funds. The US uber-bank can't decide whether it wants to get into bed with the industry - or hide under it, for fear that it starts asking awkward questions about how the component parts of the world's biggest financial services company fit together. Today is a day for the former. Citi has said it will buy Bisys Group, a hedge fund administrator, for $1.45bn in cash, plus the $20m of final dividend - after shedding the retirement and insurance services units to private equity group JC Flowers, the net cost of the deal for Citi comes out at £800m. That leaves the bank with the investment services business of Bisys, which provides administration for mutual funds, hedge funds and private equity.

» Alphaville

Where the Next Big Bets Lie for Venture Capitalists

The venture capital sector is finally bouncing back from its post-bubble blues, although it's still a long way from the euphoria of the late 1990s. Blockbuster deals -- like YouTube's recent sale to Google for $1.65 billion and Skype's sale last year to eBay for $2.6 billion -- are giving venture investors new confidence in their ability to cash out, said a group of venture capitalists who spoke on a panel at the 2007 Wharton Economic Summit. In addition, new sectors like "clean tech," an umbrella term for environmentally friendly technologies, and trends like the aging of populations in the developed world are creating promising investment opportunities.

Even so, times remain challenging for many venture capitalists, the panelists warned. According to David Mathias, a managing partner at the Washington, D.C.-based Carlyle Group, "15% of the firms have provided something like 90% of the returns." One leading firm, Sevin Rosen in Dallas, Tex., decided last year to abort plans to raise money for a new investment fund, telling its investors that the industry's business model was broken. The New York Times called the decision "a kink in venture capital's gold chain."

[ mp3 ] listen or download / » wharton.upenn.edu