Wednesday, February 10, 2016

034. Analyzing Differences in Performance of Two Comparable Banks

How IT spending is related to profitability is to find two comparable enterprises and observe their differences. These findings do not support that long-health view that increased IT spending will improve income.

Good data about IT spending as well as for other financial indicators is available from the Annual Reports of US banks. That shows initially similar financial results but continuation of major differences between IT spending and other financial results.
Figure 1 - CITI and JPM Chase Started with Comparable Revenues in 2007 (GFILE1)

During the recession of 2008 CITI lost revenue from which it never recovered.

Figure 2 - CITI Profitability Continues Below JPM Chase (GFILE2)

During the recession of 2008 CITI incurred loss in profit from which it could not recover for matching JPM Chase profits.

Figure 3 - After the Recession CITI Continues Higher IT Costs (GFILE3)

CITI IT costs exceed the in JPMorgan Chase (GFILE3)

Figure 4 - JPMorgan Chase IT Are Consistently Lower (GFILE4)

JPMorgan IT costs continue steadily in line with the profitability. CITI IT as subject to major disturbances.

Figure 5 – Lower Compensation Does not Appear to Reduce IT Budgets (GFILE5)

Compensation at JPMorgan Chase does not appear to influence IT spending.

Figure 6 - Lower CITI Headcount Does Not Lower IT Costs (GFILES6).

The equalization of bank headcount after 2011 did not reduce in a reduction in IT spending.

Figure 7 - A Rise in IT Spending per Employee Cost is Unusual (GFILE7)

A steep increased in IT spending per payroll dollar should be used as a significant indicator of IT performance.


This comparison of audited amounts for comparable firms (e.g. CITI and JPMorgan  Chase) shows that there is no correlation between IT spending and any other financial indicators.

This conclusion demonstrates that the long held assumption from the MIT Sloan School about correlation of IT with profits does  not hold.

Wednesday, January 20, 2016

033. Buffett buys 8.35% of the current capitalization worth of IBM

Warren Buffett has bought 81 million shares of IBM, representing 8.35% of the market capitalization of the firm.

That should not be a surprise.  IBM shares can be purchased for $128.11 while they represent a current fair value of $288.66, with a potential of large appreciation.

Ownership of IBM is consistent with Warren Buffett's policy of buying undervalued assets of well established firms.

Saturday, December 19, 2015

032. Stock Market Has Exceeded Prior Peaks

We endorse the evaluation make by James W. Paulson of  Wells Capital who states that the stock market is overvalued and that an adjustment will take place. It is not clear what event  may precipitate such adjustment, whether it will be minor or major, or wether it will take place tomorrow or in a few months.

Meanwhile, well funded investors, with sufficient funds for at least a year's living expenses, would be well advised to keep most of their assets in insured interest bearing cash deposits.

Tuesday, December 15, 2015

031. Capital Investment Sets the Direction for the Future Economy

One of the most startling developments is the enormous concentration the Chinese taking a very large share of their GNP and to make long-term capital investments.

Chinese labor and Chinese firms are able to build their national infrastructure at low cost. U.S. capital infrastructure investment, particularly for highways, railroads and energy services are made at a much higher cost

The economic race is on. Investment capital should go into long-term project that build up the capacity to create GNP growth. That is how we build America from 1860 through 2000.


Friday, December 11, 2015

030. Where Should Retired Seniors Keep Their Assets?

When  various countries are ranked according to GDP/Capita, of Income/Capita (for New Canaan) it appears that where wealth is located a residence would be preferred.

The following is a ranking of attractive countries that take political stability and a legal regime as preferred locations. Though retirees may prefer isolated locations, such as islands in the  Pacific or in Latin America, general prevailing political conditions would have excluded such locations from a preferred ranking.

New Canaan Source:

Monday, December 7, 2015

029. Fixing Social Media Will not Diminish JIHAD Threats

Improved social media will only stimulate the growth and cyber capabilities of the JIHAD.

You can find in the demographics of Western Asia and Africa the root causes. There is  a growing population of over one billion now maturing into angry (and well informed) young men and women who have no employment or no prospects for social advancement except through the adoption of medieval doctrines. 

Fixing Google, Facebook or Twitter are not the right topics to address for dealing with the  rise of JIHAD. And neither is Obama's address to make gun ownership more difficult or airline travel more onerous.

Tuesday, November 24, 2015

028. Investing With Private Equity Managers

The financial services industry engages the talents of individual investors who can accumulate large fortunes from the stock market by making investments through unconventional methods. These operators, often labeled as “gurus” manage portfolios by charging large fees on the investor’s investments (usually 2%) plus earning a 20% of all of the profits earned. There are over 100 private capital investors also known sometimes as “hedge” fund investors.

Large investment returns and huge personal fortunes are realized over an extended period that is measured in decades. The largest gain was accumulated by Warren Buffett because superior returns were realized over a more extended time than by the other private investors.

Should seniors try to improve their portfolio through investments with well known private managers or should they keep their funds with well managed and low-cost mutual funds?

With shorter longevity, the risky returns could be also realized through selection of superior mutual funds or ETFs while maintaining greater liquidity as well as flexibility to include IRA funds in a portfolio.