John P. Crowley

Designing risk management systems in Ghana

6/21/2018

“You are welcome,”

This is how you are greeted pretty much everywhere you go in Ghana, and especially as you enter a shop. It is always said in a lilting, whispery voice that is typical of the warmth of the people here. I would love to extend the same embracing hospitality to you, but my Anglo-Saxon personality may not be up to the task. Nevertheless, you are welcome.

Obviously I’m back in Accra, doing a consulting project on behalf of Palladium, to introduce better risk management at the pension funds. It’s going quite well, and certainly the funds are very receptive. But being realistic, establishing good risk management principles is easier than putting them into practice. This stems from the very narrow capital markets in this country. As in so many countries there is a good supply of government paper, but the corporate bond market is tiny. Equities are available but there are only forty or so names, and volume is low, often less than 250,000 shares traded per day. On the plus side there are a number of private equity funds available and some unlisted REITS but of course valuation and liquidity lead one to minimize those asset classes. Still, I’m doing what I love to do, making incremental improvements and working with professional and friendly people. So we rate this as good news.

As earlier blurbs have reported I have many friends in Ghana, some going back more than twenty years. As seen below, I have been out and about, so to speak, with Kwame. We did some shopping within the constraint that I have to avoid the equatorial sun whenever possible. I usually wait until sunset to do my laps in the pool for example. But indoor fun is pretty much unlimited!

This trip I also discovered a really great gallery; Artists Alliance Gallery, near Labadi Beach. The gallery is right on an Atlantic beach with plenty of sunshine, south facing and yet from each stairway landing I look out and see no one. It’s the most amazing thing that there are beaches here on par with Miami that are pretty much undeveloped. Obviously it’s partly cultural, but this represents a great asset that could boost tourism. If you are ever introduced to a business opportunity in Ghana, the legal and regulatory environment is decent, and by regional standards corruption is low. Anyway, back to the gallery, I bought a portrait and the antique Ashanti icon below. The portrait isn’t on the wall because I haven’t got the room, will have to either upsize or take down something else.

Within work constraints I’ve been able to work out nearly as often as at home. Every other day I lift weights then run on the elliptical and on the intervening days a mile or more in the pool. As it’s an outdoor pool, scheduling around the strong sun is essential, so it’s usually early morning or just before sunset. Below is my swim coach, the great Kwame.

Finally, a recommendation. My friend Jorapha is about to graduate from University of Ghana with a degree in IT hardware and software. He is as smart a guy as I have come across in a long time, as well as hard-working and friendly. Any team would benefit from his expertise and energy. If you want his contact details just ask me.
On that subject I will be unemployed again soon, so if you need assistance in finance, restructuring, or strategy, then just ask me for MY contact details. Wishing you all the best,
J

Developing Shariah compliant finance

9/12/2017

A short update,

This has been a summer of real accomplishment. The BIGGEST SUCCESS is that the Securities and Exchange Commission of Pakistan has approved new rules for the issuance of Islamic securities, one each for listed securities and private placements. For much of this year I have been working closely with the professionals at the SECP to design regulations that facilitate the market among both investors and corporates while moving toward structures that protect creditors and getting the right balance of disclosure. Several efficiencies introduced into the process, I think, will result in more paper in the market and greater creativity in structuring. The iterations among corporates, banks, asset managers and civil servants have resulted in a good outcome that will serve the market for years to come. I could go on and on about this but that isn’t what the blurb is about (or is it? OK, maybe it is.).

So, to a bit of tourism. A combination of marketing to the big sukuk issuers and teaching a seminar on fixed income markets (also a form of marketing) brought me to Lahore recently. We tacked on a Sunday to the trip to see more of this fascinating city. Some of the most beautiful parts of Lahore date back to the colonial era but the place I could go back to over and over is the old walled city. Parts of the fort and palace date to the 1500s and 1600s and the era of the Mughal emperors. Someone told me that the palace was built by the grandson of Shah Jehan, who built the Taj Mahal. In the photograph below I am standing well out in front of the Roshnai gate; at one time, there were nearly twenty gates to the original city. Of course, Lahore has grown well beyond those earlier boundaries as it now has a population put conservatively at eleven million. As with all Pakistani cities there is a hustle and bustle, often more after sunset, and everywhere you look there are crowds of people. Friendliest people on earth so it is good fun to wander around and talk to everyone.

Within the fort the most interesting parts are often the little architectural details. Some of the arches have intricate mosaics on the inner surfaces, many walls have metal and stone inlays of flowers and the red sandstone has geometric carvings in the structural features. You can get a sense of the beauty in this photo at the entrance to the Badshahi Masjid (Royal Mosque) and the mosaic that fills the inside of the arches. Contrasting the high art and great craftmanship is the concertina wire at the right; sadly, there are almost constant reminders of the security situation everywhere you go in Pakistan.

Speaking of security, I have long wanted to go to the Wagah border gate. Located not far from Lahore, this is the main land border between Pakistan and India. Each evening they briefly open the gate and then there is a famous and elaborate ceremony to close the gate. Both sides have built viewing stands and absolutely blast patriotic music (kind of an aural arms race) to drown out the other side. Impeccably dressed soldiers, that look to have been chosen for height, march, issue orders, present flags, glare across the border and then slam the gates shut (on both sides). It’s all very dramatic and exciting, and in fact there are military police scanning the crowd and firmly maintaining order. This is both a great show and a reminder of rumbling tensions in this part of the world. Here are Amir Khan, Shouket Awan and me standing in front of the border shortly before the ceremony. As you can see from the condition of our shirts, the heat hasn’t lifted from Pakistan quite yet.

Then over Eid I did a quick trip to Dubai for some shopping; the second most popular reason to go there (after money laundering). The malls have all the expected brands and a few very high-end names as well. My interest was in the warehouse district and its many art galleries and restaurants. This is the non-descript area between downtown and the Palm, and has become somewhat funky. Maybe I’m showing how conventional I really am because I found the art a bit too conceptual and didn’t buy anything. I never have that problem in the former Soviet Union but you’ll agree that doesn’t make me a communist. Still, the trip broke the routine and I look pretty relaxed here overlooking one of the lagoons. Pardon the obvious, but that isn’t Islamabad.

Well the coming weeks look like work, work, work so may be a little light on news, then again you may have felt that way four paragraphs back. Please fill me in on what you are doing and I hope we can find a way to get together soon, at least electronically but even better in person.

All the best,

A long weekend in Karachi

5/26/2017

Hello,

And very best wishes for the holy month of Ramadan, which starts at sunset today. For those of you unfamiliar, this is a period of fasting that is meant to remind us of our blessings and increase our empathy for the poor. From sunrise to sunset there is no eating, no drinking, no smoking and aversion from entertainments (cinemas are closed for example). Exceptions are allowed for children and old people, so at this time of year I’m sure to remind people of my age; something that is ordinarily a closely guarded secret. Because of the heat, by mid-afternoon my friends will look very tired and uncomfortable but I respect their piety. Late next month this will end with Eid, three days of celebration including gifts of money and food to the poor.

Shakeel and I decided to get in a trip to the beach while he could eat and drink (water and juice only, of course) so we flew down to Karachi for a long weekend. It was as crowded and chaotic as ever but we had a few nice meals and visited some of the historic sites that I had been wanting to see. This included Muhammad Ali Jinnah’s (the father of Pakistan) house and memorial. I had seen Mazar-e-Quaid, his mausoleum, from a distance in the course of various travels in Karachi. However, it turns out it is set far back from the road and is much bigger than I realized. The walk across the plaza to the monument itself on a hot afternoon is quite an experience as the white marble intensifies the power of the sun. It is an elegant design with grand arches in a typical Moorish style. We arrived just as the honor guard was changing, an impressive ceremony of marching soldiers and intricate movements of weapons. His sarcophagus sits above ground in the center of the dome, which is in turn at the center of a grand plaza. Sadly, he only lived a few years after the birth of Pakistan, but what a great legacy to have achieved.

Below I am seated on the plaza in front of Mazar-e-Quaid as the bright, hot sun reflects off my very white forehead.

Earlier we toured the Mohatta Palace Museum, which had great exhibitions of textiles, coins and maps (and is conveniently located near the beach). The Indus River basin (which reaches the Arabian Sea at Karachi) is home to one of the world’s oldest civilizations. It is fascinating to see coins and map reproductions from the earliest days. Karachi has its share of glass and steel office towers, but not very far upriver you can see people living in the timeless manner of daily routines tied to the sun, the rivers and the crops.

Apropos of that scene, a friend of mine told me that most people in the villages don’t read a newspaper, don’t have television, may not even know the name of the Prime Minister (Nawaz Sharif) and go to bed when the sun sets. He is from such a village, expects that his Mom will soon select his wife from there and that she is likely to stay there upon marriage while he works in Islamabad. Timeless.

By four o’clock the heat had just become too much, and maybe we were cultured out, so Shakeel and I retreated to the hotel. It was such a pleasure to cool off in the pool and here we are happy and comfortable but still the sun is reflecting off my very pale forehead. As you may imagine, by morning it was more red than pale; the price you pay for an outdoor lifestyle.

While Karachi has its charms, it probably doesn’t justify a long-haul flight to visit. For us “locals” it’s just a two-hour flight so a nice weekend escape. Lahore on the other hand is a fascinating and beautiful city with a much longer history, so if you have the opportunity, give it a try.

In addition to Ramadan, this weekend also marks Memorial Day, the unofficial start of summer in the US. So, I hope you all have beach, mountain, pool or barbecue plans. Life is short so enjoy yourselves and cherish your friends and family,

Peshawar and KPK

3/20/2017

Hello again,

The latest from Pakistan is that we are making good progress but against a backdrop of increased security threats. There are much better sources than me about the militants and the reaction from government (Tribune and Dawn newspapers are good) so I’ll stick to talking about my specialty, corporate finance.

We have been able to negotiate some significant improvements to the environment for private placement and bond financings, especially for sukuk (Shariah compliant) issues. The government has approved important changes to the tax treatment of sukuks that serve to level the playing field. In addition, we have strengthened the discipline of trustees in bond indentures to enhance protection to investors. Currently we are working to improve asset backed securities (ABS) regulations to make that form of financing much more attractive and secure.

Meantime the economy has been broadly helpful with most statistics quite reasonable although moving in the wrong direction. GDP growth this year is running nearly 5% and CPI inflation is at about 4% but rising. The current account deficit is only 1-2% of GDP, while the fiscal deficit is at about 5% of GDP, with both measures growing. These have led to increases in external debt, something currency traders are watching very closely.
The real bellwether for the market is the PKR 100 billion sukuk for the Water and Power Development Authority (WAPDA). This long-term financing was structured to complete the Neelum Jhelum hydroelectric project. To sell a ten-year deal at effectively 1% over an adjustable short term interbank rate is a testament to market liquidity and risk appetite. Admittedly it is also an indication of inflation expectations.

In parallel, last month we were asked to present a series of seminars on corporate bonds and sukuks. These were targeted to institutional investors and bankers with a view toward a more sensible, sophisticated approach to risk and investing.

One of the courses was offered in Peshawar, which is right up near the tribal areas. This particular seminar took place the day before the recent upsurge in violence, which public opinion pins on Afghans coming across the border in that area. We had no problems at all but I’m hesitant to return in the short term. In fact, we had a very warm welcome as indicated by the photograph below.

Here, Iftikar Ul Amin, Deputy Director of the Institute of Management Sciences, greets us as we arrive at the seminar venue, a very modern auditorium on the campus. Note that we are accompanied into the building by an armed guard at the left of the frame. You can see his hand is grasping the gun barrel.

The hospitable environment continued inside as the audience took the coursework very seriously, with good questions and a healthy back and forth on some of our ideas. There were a lot of concepts to explain and data to present, summarize and interpret but the participants kept up the pace. My central thesis is that corporate bonds in Pakistan offer a return that more than justifies the attendant risk. When we put this into an international context of competing investments, the point is magnified and strengthens our case. I’m not aware that there has been any immediate rebalancing of institutional portfolios as a result, but the idea has been planted and justified, to be reinforced by market action, the best teacher.

While in the event the reaction was excellent, it wasn’t until several days later that I saw this picture.

This is perhaps not the most flattering photograph of me, but note the close attention of the MBA candidates in the hall. Sometimes as a speaker you are so focused on your arguments and data that you miss the reactions. The body language here of the participants says to me that they want to understand and internalize the lessons. The tea break conversations confirmed their interest.

All of this has kept me busy but I’m always happy to hear from you. So please send me a line with your news and ideas. Until then, all the best.

Selling, selling, selling

1/20/2017

Greetings from beautiful downtown Karachi,

Which is being a bit sarcastic in truth, but it has its merits. This time of year, the weather is much better than Islamabad, which can get cold, while here it is usually 60s or 70s and sunny. Also, Karachi has that big city energy, that commerce and trading vibe, that let’s do a deal attitude that makes just crossing the street seem important. And then there are the people; this is true across Pakistan, friendliest people in the world. No kidding, of the more than one hundred countries I’ve been to, Pakistan is the most welcoming. This morning I was walking past a Meezan Bank branch and the manager invited me in for coffee. I don’t have an account there and had never seen him before, but he knew from looking at me that I’m a guest here so he wanted to offer me a conversation and a snack. My guess is that out in the villages it will be even more hospitable. Naturally, I’ll report.

The main reason I’m in Karachi is for marketing. We managed to convince the Pakistan Stock Exchange to let us make a big presentation to their members on investment opportunities in fixed income. We, not so subtly, made a case that institutional investors here should take more risk by rotating from government bonds to corporate bonds and sukuks. I believe that risk is amply rewarded in the current market, and I made a specific trade recommendation; to short government paper with a 2 ½ year maturity and go long the matching Engro sukuk due July 2019. I’ve publicly committed to valuing the trade on April 21st and reporting the outcome here on the website. Surprise, surprise, if it goes well I will broadcast the outcome, big time, as Shakeel would say. If it goes wrong I won’t exactly shut down the website but might just mumble the result, maybe even take a vacation. So, watch this space.

In the picture below you can see me pitching my thesis.

A friend commented that this was probably the usual advice to buy low, and sell high, implying that it was mostly hot air. Sort of true, but when you offer specific trading positions and prices there is enough value added to justify listening. Again, time will tell.

There was quite a lot of comment on the previous blurb, with particular interest in travel in KPK and questions about security. The funniest response was a friend that wrote, “let’s play spot the white guy.” Looking at the photos now, you notice that I do look awfully pale. That is partly explained by the heat of Islamabad at that time of year and staying inside to keep cool. I’ll be in Thailand next week so the next edition should have me nice and brown. May also take advantage of my heart Shakeel’s photo software expertise and ask him to sweeten my look with whatever enhancements he can think of. Supposedly the big stars have Vaseline put on the lens to reduce ageing; that would be nice. Real contentment probably comes from facing reality and redirecting your vanity to better pursuits.

Apropos of that transition, I must mention a great book I’ve just finished, The Boys in the Boat by Daniel James Brown. This is the story of the US eight-man rowing team at the Berlin Olympics in 1936. You’ll be surprised at how interesting he makes the various movement techniques and training as well as the boat construction and strategy. But for me the fascinating part is the description of life in both countries during the Great Depression. Yet another reminder of how lucky we are (so far). This is one of the best books I’ve read in years, a recommendation.

Well, it’s a little late to say it, but nevertheless, Happy New Year. Hoping it is a good one for all of us and many more to come.

See you soon,

Foothills of the Himalayas

10/28/2016

Recently we had the time to do a little sightseeing. As I had already been to parts of Sindh and Punjab, and as summer has not really lifted yet, we chose the mountains. It was such a pleasure to be above the heat, hiking out in the fresh air and of course to see the amazing vistas. It always fills me with optimism to be in a place where you can see a great distance. Perhaps it has to do with the sense that boundaries are falling away, and many of you know about my tenuous relationship to boundaries. Endless natural beauty and a surrounding scent of pine needles helps the mood too, of course.
So, to a long weekend in Bhurban. The location is high up in the western foothills of the Himalayas, in Khyber-Pakhtunkhwa and near the border with Kashmir. I always chuckle when I hear Pakhtunkhwa; known until a few years ago as North-West Frontier Province. It was a lawless area and the name change is meant to convey a more civilization-friendly attitude. To be fair it is more than just re-branding, the area has a lot of military oversight now and I felt reasonably safe. But let’s be real, this isn’t Colorado we’re talking about here.

The main activity at this time of year is hiking, and of course eating (to provide the energy for hiking, don’t you know). Also, Shakeel loves photography so we got a lot of pictures of hiking and eating. There are many routes to choose from but I really wanted to head east and look down into Kashmir. We did reach a hilltop with such a view but it had become hazy by then and the pictures could just as easily be of the Los Angeles basin. But earlier in the day we got this picture to the north. Just over that ridge behind us is Abbottabad.

On that subject, one of my conversational parries is to ask people where they’re from, as almost no one is from Islamabad. The most common answers are Lahore, Peshawar, Faisalabad, or some village in Punjab or Sindh. One guy, after telling me he’s from Abbottabad, asked if I’d ever heard of it. That gave me a good laugh, although I think he was serious. I explained that EVERYONE in America knows Abbottabad as it was the hideout of Bin Laden, and the scene of his well-publicized execution. The house has recently been demolished so no pictures to offer.

On Saturday, we drove down into Murree, which was the British summer capital of Punjab during colonial times. There are many Victorian era buildings, including churches, amidst the haphazard Pakistani construction of more recent years. The streets, really just lanes, have to follow the contour of the mountain so it is really quite a jumble. As the only town of size for some distance, it is constantly crowded with stands of produce, live and slaughtered animals, textiles, clothing, car parts and lots and lots of shoppers. It’s a fun place, with interesting stores and at least one great restaurant (the mutton karahi is excellent).

As I’ve mentioned before I am often the only blonde person for miles so I always get a welcome greeting and, this being the 21st century, a request for a selfie. Sometimes I think I must be on every Pakistani’s Facebook page. Walking down Bank Road in Murree I felt like a celebrity at times, good laughs.

The return trip constitutes a story in itself. Our backup driver was due to drive up from Islamabad and collect us at ten in the morning. At about 9:30 he called to say he broke down on the way with a busted tie rod (this becomes a key detail). So, in a change of plans Kamal, our regular driver, was just leaving Islamabad to pick us up and bring up a replacement part for driver number two. On arriving at the breakdown, they discovered that the replacement was a left tie rod, while the broken part was a right tie rod (who knew?). So, in yet another change of plans Kamal was to take us home and then bring the correct part all the way up from Islamabad. At that point I remonstrated (that’s the polite word for it). It turned out they wanted to buy the part from a specific supplier because of a relationship of some sort. I insisted (again the polite word) they grow up and buy a part locally, as we had passed any number of repair shops on the way to the scene of the crime. The repair was surprisingly quick at that point and we got back to Islamabad only about two hours late (including a roadside stop for lunch, of course; Namkeen boti). Below we are celebrating the repair; flanking me are the mechanics, Pervez and Rajeesh. Shakeel took the picture as he was not in a smiling mood. All part of the fabric of life.

Completely off the topic – the best thing I can say about the US election is that it will be over soon.

Wishing you the very best,

Dining my way across Asia

8/21/2016

Life in Islamabad is motoring along. Of all the places I’ve lived (which are many) Pakistan is probably the friendliest. Even compared to America, which many visitors consider intrusively friendly, people here are quick to talk to strangers. In my case there may be a bit of novelty to encourage a connection. I am often the only blond, or blondish, or formerly blond, guy within miles. It has led to a lot of fun encounters and interesting conversations. In just six months I feel I have more friends here than I did at the same point in the UK, or Serbia or Ukraine, maybe even a little ahead of Ghana, and more than when moving to Denver, Charlotte or Miami.
Broadly my circle is either from the gym, or work contacts and the office. Our business is getting some momentum now and initial contacts are starting to produce further introductions and referrals. People in executive and senior positions here are smart and very professional and there is a good spirit of optimism throughout. All the components for success are in place to varying degrees, I think the only thing holding back Pakistan is investor’s concern for event risk. This neighborhood is unpredictable and some unimaginable surprise can’t be quantified if it can’t even be identified. Probably it will take a peaceful passage of time and a continuation of the 4% growth rate before the world sees us as the next Vietnam.
Meanwhile, money is being made by a hardy few. And to be clear, one doesn’t have to be all that hardy. My lifestyle is very pleasant, thanks to air conditioning, with good art galleries, book stores (supplemented by kindle), a coffee bar culture, fast wifi, and great restaurants - loving the food. I see the regular gang at the gym every day for a nice workout and a harmless gossip, and there are plenty of good clothing stores to feed my gym-trained vanity. Textiles are a big industry of Pakistan (watch for future modelling sets).
Weaving (pun intended) these themes together, recently the team from the office went to dinner at a popular restaurant high up in the Margalla hills, just north of the city. This is a smart, hard-working, dedicated group but still always ready to laugh and have fun. Also I must salute their instinct for and deeds of generosity and kindness to others. During and after dinner we played with the cameras and this great shot resulted.

From left to right you will recognize me, the incomparable Abdul Qayyum, and global financier Werner Riecke. On the night I didn’t believe the city lights would register on film (an anachronism I can’t lose) but as you can see Islamabad is bright, geometrical and stretches on for a great distance. And to repeat the food is amazing, though from the photograph below you would think I hadn’t eaten for a while. Not true, believe me.

Life in Islamabad

5/8/2016

Today I report to you from beautiful Islamabad, my new home. Of course I am keeping my perfectly comfortable place in Charlotte and expect to visit there from time to time. But Pakistan is my base for now and I am really enjoying it.
The environment and lifestyle in Islamabad is quite comfortable, as far as weather I would compare it to Denver. The air is generally dry and skies clear, and while the winters are less extreme, it does occasionally snow and the city is set against the backdrop of the Margalla hills. There is quite a bit of greenery around town, and although it is certainly a big city the traffic isn’t bad. People are welcoming and very friendly, so I feel comfortable and like it a lot.
One of the biggest surprises to me is how much I like Karachi (official population: 24 million). It is the business and finance center so I am down there all the time. Bernie Sanders might describe it as “huge,” and it is rather dusty, crowded and frenetic. Also the extreme poverty is right in front of you at every turn. But there is an energy to the city, and an ambition among the people that is palpable, and life affirming. Everything about it makes me want to root for the underdog and see people succeed. Though to be fair it’s always a bit of a relief to return to Islamabad.
Our aim is to build a new issues business in the capital markets, especially corporate bonds, securitizations and Sukuks, which are Sharia compliant debt. Pakistan is growing at about 4½%, the budget deficit is shrinking, and fiscal and monetary policy are not out of line with other countries that are in stimulus mode. Financing costs are getting more attractive all the time so I think we have a great product to sell and am optimistic.
There are some very interesting opportunities here. The textile industry is big, successful and growing, and that naturally means apparel has a major presence as well. Many people don’t realize that Pakistan has real tech expertise too. There is a lot of domestic software, and in a big coincidence a local company is a processing center on an outsource basis for my former client in Ghana.
One opportunity that intrigues me is the area of privatizations. Private equity has done well in power generation and distribution and there are more coming up. The government handling of electric tariffs has not provided the stability that investors like, and they have also fiddled with fuel inputs (the entire economy is clearly overregulated) but looking beyond that I sense there is money to be made.
Another positive sign is the China Pakistan Economic Corridor (CPEC). This is a series of infrastructure projects to connect China to the port of Gwadar on the Arabian Sea. This is likely to generate a lot of trade through and with Pakistan and accelerate all the related service industries. Think New York City in 1825, at the time the Erie Canal opened.
Well watch this space for future updates on business and fun stuff too. And come on by for a visit anytime. Meanwhile here is a photo of yours truly from the office balcony, set against a backdrop of the Margalla hills, immediately north of Islamabad. Note at far left the dome and minarets of the King Faisal Mosque, at one time the largest in the world.

Current project

3/8/2016

Some of you may know that last year I was asked to teach a course on Risk Management at the University of North Carolina. Scheduling and other difficulties meant that after quite a bit of preparation I had to turn it down. However, developing the material, the anticipation and a very good experience teaching at Kiev Mohyla University a few years ago got me excited about teaching.

So for the past few months I have been teaching Securities Analysis. Well, private tutoring is probably a better description as there is only one student. You will know him, as I talk about him all the time; it’s my grandson, Viktor.

He’s eleven.

In my defense, this is not a chore that I am foisting on him. He’s sincerely interested and inspired the whole thing when he told me he thought Nike (NKE) made great stuff and recommended the stock. We have since turned that initial discussion into a sort of colloquium on securities and investing.

Each week I send him a 4-5 page note on the basics, with references to SEC filings, or financial news websites as examples (via click-through, very techie of me). We discuss real world cases, though I’ve tried to keep the focus on companies with a product he might know so he can relate. Then there is homework (for which he is currently running a perfect record) and follow-up discussion. I must confess that the calls, meant to enrich the material, often (well, usually) ramble to football, basketball, cars and girls, but come on I’m trying to ditch my reputation as a boring grandpa.

At this writing we are about half way through the syllabus below. I’m posting all this in the hope that if you see any gaps you will let me know. We don’t want to send him into the jungle unarmed.

Syllabus

What is a share of stock
Value derives from earnings
Exploiting company assets
Calculating net income
Earnings per share
Price/earnings ratio
Asset classes
Comparing returns
Risk/reward
Earnings predictability
Trends in revenues, expenses and profit
Forecasting*
Companies that aren’t yet profitable
What is a bond
Bond risk: interest rate, credit, term, currency
How to calculate simple yield
Bond prices
Yield curve
Risk premium, effect of interest rates on stocks
Funds flow, market conditions, psychology and fads
Balance sheets
Effect of leverage
Income statements, quality of earnings, profit margins
Effect of multiple currencies
Operating leverage, effect of growth
Total return, dividends
Corporate governance
Business cycle
Short selling
Uncertainty and strength of opinions

* I shamelessly pitched this as similar to solving a crime mystery to make it seem more exciting, probably an overreach.

This has been a lot of fun for me in so many ways. Clearly spending time with Viktor has been great, and it is fascinating to see how much he knows about a broad range of subjects. For example, at his instigation we have talked about the bizarre state of American politics. Reminder: he’s eleven.

I think it is also useful to revisit securities analysis basics from time to time. Generally I think I’m pretty disciplined about investing but very few of us can fully tune out the cocktail party chatter. The objectivity of returning to first principles gets a good reboot from this process. And of course the structure of writing something down forces a recognition and justification of nearly all my assumptions and biases. I recommend it, though it is very time consuming.

Maybe there will be a silver lining and Viktor will hire me for his hedge fund in ten years, or thereabouts.

On a related note I also have a book recommendation, though more likely aimed at adults: Dear Chairman by Jeff Gramm. It is broadly about corporate governance, a topic that would seem very dry, even to someone like me who has quite a bit of expertise and interest. However it is a fun romp through eight specific cases, mostly proxy battles.

I promise that anyone with a basic business knowledge will easily follow the stories and even the mechanics. The shareholder letters, which yield the title, are included in full at the back. My suggestion would be to read the letters after each chapter rather than at the end.

It may also enhance your securities valuation skills, which anyone with a 401K should welcome. A useful lesson is that not all activism benefits shareholders and there is one absolutely disastrous case as an example. It reminds me that owning a company where the most valuable assets walk out the door every day at 5:00 is, as the saying goes, an asymmetric risk!

One case relates to the notorious Tino DeAngelis and the salad oil swindle. Even though this was before my business career it was somehow in my consciousness, and now I know more of the story. Included is a letter from Warren Buffett in support of the management that was defrauded. While most of us are already fans of Buffett, the investing logic and principles demonstrated in this case raise him to an even higher plinth.

I recommend.

Hoping you are all well, and please let me know if you see anything I’ve missed in my syllabus.

Available and back in Charlotte

12/2/2015

I’m back in Charlotte again. Cannot repeat often enough how much I love Ghana, both as a fulfilling professional experience and a great place to visit. Everyone there was so warm and welcoming that I hope to return on my own when I have more time to enjoy it.

As a possible business opportunity let me pass along an observation. At one point, driving along the coast, it occurred to me that there is no modern development along the beaches. These are nice beaches along the Atlantic Ocean, in a country that gets good weather. If this were Florida or South Carolina there would be lines of twenty story hotels and condos all the way to the border, yet in and near Accra there are pretty much just shacks. Surely that will change over time. When I asked about this, Ghanaians guessed it related to the country’s agricultural heritage, that they would rather own and live on farmland. Interesting.

On the last day in Accra my friend Kokui invited me to lunch at her favorite Nigerian restaurant, Buka. Just as at most of the other places I’ve been there, the food was great; my favorite is still the grilled Tilapia at Au Grand Ecuyer. Lots of fresh seafood, vegetables and interesting spices. At left we are mugging for the camera while getting ready to order. And at right I am digging into a mostly local meal, the one exception is the San Pellegrino sneaking in to the picture! Though the coconut water, which is available at every street corner, is also amazing.

Now that I’m unemployed I have the time to get very fit again. It’s back to an hour of cardio every morning and an hour of lifting weights most afternoons. In tandem with cutting way back on sugar and carbohydrates I’m feeling quite healthy and energized. My goal for the next job or contract is to keep up the discipline to stay fit while still working hard and having a good time (something I usually find wherever I travel).

Give me a call to discuss any problems you’re having in your business, maybe I can be part of the solution. Even if things are going well, which is never permanent, one of my strengths is to question every strategy and business process but in a constructive way. Hoping to hear from you, all the best.

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