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Career Strategy for the Sell Side

I read a research report this morning from JP Morgan analyst Ehud Gelblum regarding the Qualcomm settlement with Nokia. The report was dated 25 July 2008 but used the stock price from 18 July 2008 to justify the Buy rating. If I knew that the stock was going to pop 15% then I would have bought more of it last week too. Usually, I would not be surprised given my complete lack of respect for sell side analysts but I met Dr. Gelblum at the JP Morgan Tech conference earlier this year and left with the impression of a sharp guy who actually understands technology rather than the usual cream puffs that JP Morgan calls financial analysts. I’m sure there is some jealousy involved in this post. As a buy side analyst I am evaluated on actual results and it would certainly be easier to get paid twice as much to tell people to buy stocks last week. If you want to be a historian, stop calling yourself an analyst. It’s embarrassing to the rest of us.

Reflections on the 2008 CES

This was my first visit to the Consumer Electronics Show in Las Vegas, NV. I spent everyday wandering through the endless displays of gadgetry goodness but was hard pressed to find any truly innovative products. I found the presentations to be the most useful for understanding how the industry thinks and what they can realistically deliver. Paul Otellini’s presentation was a good show but couldn’t deliver details on how or when the translation and GPS capabilities could be incorporated into real products because the whole thing was a simulation run on servers located backstage. Jerry Yang’s keynote was exciting but I doubt that the full platform will be released on time as presented. After a depressing presentation by several private equity investors, I realized that no one is interested in building a consumer centric company which is why Apple will probably continue to succeed in the consumer electronics space despite their rushed product life cycles and lack of respect for early adopters. It seems that consumer electronics firms succeed more on marketing and management capability than technological innovation.

R.I.S.E. VII Symposium

I’ve spent the last few days in Dayton, OH attending the R.I.S.E. Symposium. Over one hundred student run investment funds were represented as well as many industry professionals. The economic session featured:

Dr. James Glassman – Senior Policy Strategist, J.P. Morgan Chase

Dr. Jan Hatzius – Chief Economist, Goldman Sachs

Dr. Myron Scholes – 1997 Nobel Laureate in Economics

Dr. John Silva – Chief Economist, Wachovia

Dr. Silva was outstanding! He discussed how the problems in the sub-prime market should not be helped by government because they were mostly due to both consumer and business stupidity. People who cannot afford a house should not receive government assistance because they decided to get a mortgage rather than renting. Businesses that provide these loans should not be compensated for their greed when it backfires. Dr. Scholes was late and tended to ramble in his comments. The next session focused on the markets. The speakers were:

Robert Doll – Global Chief Investment Officer, Blackrock

Knight Kiplinger – Kiplinger’s Personal Finance

Louis Navellier – Navellier & Associates

Liz Ann Sonders – Chair of Investment Strategy Council, Charles Schwab

Mr. Kiplinger gave a rather lengthy opening comment on personal financial discipline which was valuable but boring. Although it was a valuable session, the markets talk was not quite as good as the economy. Gary Stern (President, Minneapolis Federal Reserve Bank) gave a brief speech but was careful to avoided any substantial predictions or observations other than to focus on long term trends rather than the weekly data releases. The next session covered corporate governance and featured:

Ralph Alvarez – COO, McDonalds

Paul Atkins – SEC Commissioner

Peter Coors – Chairman, Molson Brewing Company

Patrick Dorsey, CFA – Director of Stock Analysis, Morningstar

I had some sympathy for both Mr. Alvarez and Mr. Coors because they were expected to address some difficult issues which could not be adequately answered without disclosing some of the problems their respective companies have faced. Mr Dorsey was very articulate while Commissioner Atkins often tossed out some political jibes at his fellow administration officials. The final session of the day was supposed to be a discussion on public policy. The speakers were:

Dr. Daniel Chiquiar – Research Manger, Banco de Mexico

L’Ubomir Jahnatek – Minister of the Economy, Slovak Republic

Witold Jurek – President, Conference of Rectors of Universities of Economics in Poland

Gintaras Steponavicius – Deputy Speaker of Parliament, Republic of Lithuania

Mr. Jurek never appeared and Mr. Jahnatek refused to utilize his interpreter so his comments were completely unintelligible and seemed to go on forever. The discussion never quite covered any public policy and basically focused on each speaker describing his country’s finance system like a foreign investment commercial.

Our fund presentation was excellent however, we did not win and the decision criteria were never disclosed. During the networking event, I noticed that no other schools came close to matching our risk adjusted return while most of them beat us on total returns. It seems rather absurd to discount risk when evaluating performance but who am I to argue.

Jesse Jackson was the keynote speaker on Friday night at the Air Force Museum. While I admire Mr. Jackson’s oration skills, his speech did not relate to economics, finance, or anything else business related. His message could be summarized as follows: All you rich, educated white kids need to remember the minorities who do not the same opportunities. I was personally rather put off by this since I went to public school and the only reason I have this opportunity is because I joined the military in order to get money for college. There are plenty of minorities in the military with the same educational benefits as me who simply do not utilize them.

Pinguoyuan

Tanzhesi29-300x226Here is an outstanding view from Tanzhe Temple 潭柘寺 about 30 km west of Beijing. The tower is one of many tombs of monks who have studied here throughout the centuries. I also visited Jietaisi 戒台寺,but it was becoming very commercialized with a conference area and museum. My guide was a student I met shortly after arriving at Tanzhesi. His name is 刘天元,but his English name is Owen. He wanted to practice English with a native speaker so he translated many of the inscriptions in order for me to better appreciate the temples’ history. Owen’s mother is a high school Biology teacher and was very hospitable. She invited me to lunch with them while we waited for the bus to take us to Jietaisi.

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Pictures inside the temple buildings are forbidden so I only have outdoor scenic shots. The smell of incense is pervasive even outdoors. Here is one of the temples at Jeitaisi. The covered table on the right would normally have at least one clerk pushing incense on tourists. The lack of tourists and salespeople in the picture show just how empty Jietaisi was compared to Tanzhesi. I only encountered two other western visitors and a handful of Chinese tourists here.

Beijing

CNU2-300x226While in Beijing I stayed in a four-person room at the foreign exchange building of Capital Normal University (CNU). My roommates were other foreign exchange students from Mongolia, Malaysia, and South Korea. This is a picture of the library. For any map freaks out there, CNU is located on West Third Ring Road IVO of 39 56’08″N 116 18’10″E. The foreign exchange building is new so the Google Earth imagery only shows a construction site.

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The foreign exchange dormitories are also used to provide lodging for numerous conferences in the summer. Unfortunately, the front stairs are roped off whenever it rains to prevent slipping I suppose. A typical meal costs about four yuan which is about 50 cents. The tap water is not suitable for drinking so each floor has a boiler to disinfect the water and each room has thermoses to keep some drinking water in the room in case you don’t feel like paying the 3 yuan for bottled water.

Guangzhou

Guangzhou13.1-226x300This picture is an example of the neighborhood where an upper middle class family lives in Guangzhou. The interior is a three bedroom and one bathroom apartment. The kitchen and dining room is open to a cozy living room which seats 4 people comfortably. While the building’s exterior is well worn, the interior is newly refurbished with recessed lighting in the ceiling, marble surfaces, and wood floors.

We were there to visit Sun Yat-Sen University. Upon arriving at the university, we learned that a student debate had been scheduled that evening between us and some Chinese students

who had been preparing for a few weeks. There were banners everywhere advertising the event and a local politician was invited as a special guest.

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Despite having no time to prepare, I believe our group performed reasonably largely due to the lack of international news available in China. Chinese students tend to repeat government talking points not particularly out of a desire to

reinforce the government, but because it is the only informed position available. This reinforced the need not just for more international news, but for journalism with primary sourcing.