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The MBA Myth and the Cult of the CEO

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Re: The MBA Myth and the Cult of the CEO

#101

Post by mrep »

pembrook wrote: post #77
AznHisoka wrote: post #76

Earlier quoted context omitted.

“If 99% of people who buy corporations for a living can't beat a monkey throwing darts over time...why do we believe people who run corporations for a living are any smarter?“ Because the 1st requires predicting what other investors think about a company or the economy (after all, the stock price doesn’t move in align with its profits/revenues). Not whether a company will be successful. The 2nd simply requires knowin…

What you're describing is the "Greater Fool Theory" of asset pricing...where the emotional temperature of other investors sets the price for an asset. This is true only for assets that don't produce cash flows and thus can't be valued using traditional valuation models (ie. like gold, crypto, etc). Businesses on the other hand are properly valued for their profit/revenue potential given the available information at t…

IIRC, this is one of Warren Buffets main strategies and why he beats the market. He mainly invests in companies that are undervalued and with good cash flows. He doesn't have to risk the market coming to their senses like with shorting because even if the stock price goes down, he just holds onto it and rakes in those cash flows.

Re: The MBA Myth and the Cult of the CEO

#102

Post by throwawaymath »

pembrook wrote: post #79
darawk wrote: post #52

I've done these same analyses before as well, and more. This is the correct analysis to do if you're looking to build an alpha-generative trading strategy. It is not necessarily the correct analysis to do if you want to measure actual CEO performance. If you want to measure CEO performance, you need to look at growth in fundamentals, not share price. The share price is going to reflect the market's beliefs about the…

Except, we've learned via a robust body of research over the last 5 decades that the market is largely efficient. Therefore, a change in share price over time (not measured in quarters, but over 3+ year periods...as was done in this study) is an excellent proxy for change in fundamentals.

> Except, we've learned via a robust body of research over the last 5 decades that the market is largely efficient.

Oh? Care to cite some of that research? And let me preempt a few common citations which don't actually work:

1. Warren Buffett's hedge fund bet does not prove this. Among other reasons, he made a bet concerning the performance of a fund of funds, not any particular outlier.

2. Eugene Fama's research on the Efficient Market Hypothesis (EMH) does not prove this (while we're at it, Fama would disagree with you that the market is efficient). His work applies the EMH as a means of studying efficiency, not asserting efficiency. One of the most common misconceptions of Fama's work is that it's descriptive instead of prescriptive.

3. When you actually do the math, the number of hedge funds that has ever existed is nowhere near what you'd need to explain the outliers like RenTech or Baupost. So the common coin flipping analogy actually doesn't prove it either.

I can save you a trip to look for citations - the "robust" body of research you're talking about doesn't exist. There is no such consensus. The efficient market is a model which only approximates real world conditions - it do so imperfectly, and in the best case it only works locally.

Here is an article [1] written by Cliff Asness on the topic of the EMH which might be educational. Asness earned his PhD under Fama and founded AQR, one of the more successful hedge funds. He also regularly comments on, and published, research. There remains a great feal of inefficiency at the macro level, even on horizons measured in years.

______________________

1. https://www.institutionalinvestor.com/article/b14zbgrj5pflsc...

Re: The MBA Myth and the Cult of the CEO

#103

Post by zeroname »

gallerdude wrote: post #3

The basic unit of information for a human being is a story, not a number or a fact. So it doesn't surprise me that we're obsessed with something as trivial as how Elon Musk's $1/day diet shaped him into an entrepreneur[1]. I don't think it's a bad thing to have a vague awareness of the things that make people successful: unafraid of failure, hard work & dedication, true passion about what you're creating. But I think…

> unafraid of failure, hard work & dedication, true passion about what you're creating

I would say those are in equal measure things that make people unsuccessful. You better be afraid to fail or you will follow too many stupid ideas. You can burn yourself out working too hard on the wrong thing. You can be really passionate about something that basically nobody except you wants or needs. Conversely, a lot of things that nobody really is passionate about can make a lot of money.

I will also say that Elon Musk has not been successful in real business terms (creating a sustainable, profitable company) except that one time with PayPal and that could be down to good luck and timing. Nowadays, there's too much cheap and dumb money chasing too many "next big things", so it's hard to tell fact from fiction.

In my estimation, success really comes down to:

1) showing up

2) timing

3) luck

There's lots of people that are almost Elon Musk or almost Mark Zuckerberg or almost Steve Jobs. It's a gamble, but at least you get to choose which table to play on.

Re: The MBA Myth and the Cult of the CEO

#104

Post by MrTonyD »

hitekker wrote: post #58
lordnacho wrote: post #6

Earlier quoted context omitted.

> The primary function of a manager is to say "No". I'm a manager, and I can't really see this being the key job description. But if it was, why would that have gotten harder in the last few decades?

Agreed. Being a decision maker means saying "yes" and "no", with the awareness that saying "yes" to some things, means saying "no" to others. In my experience, those who say "the primacy function of manager is to say no" have either failed at management, or are working in organizations so conservative that they are immobile.

I think it varies with the group being managed. I've managed groups where many other groups hoped to benefit from our time, resources, and work products. In such groups a manager really does need to say "no" dozens of times for every "yes".

Re: The MBA Myth and the Cult of the CEO

#105

Post by thisisit »

sokoloff wrote: post #75
cm2012 wrote: post #14

Earlier quoted context omitted.

Warren Buffet famously says he likes to invest in businesses that could be run by a ham sandwich.

"I try to invest in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will." --Warren Buffett

I think the quote is by Peter Lynch from the book - One Up on Wall Street.

Re: The MBA Myth and the Cult of the CEO

#106

Post by logifail »

75dvtwin wrote: post #84
lordnacho wrote: post #2

This is great work. It's a real job gathering and analysing all that CEO performance data. My guess is that most people were suspecting this anyway. The fact is the CEO is there for a few years making a few key decisions, a large company is like an oil tanker, and markets are quite hard to predict. Taleb has cooked a fair bit of soup on the fooled by randomness idea, but in this case his observations are correct. It…

What most long-term investors would prefer is a cult of a 'process', rather than a cult of 'personality'. A process' is a combination of know-how + culture + rules + compliance. Every business goes through cycles (eg startup, growth, pivot, then repeat) At every cycle, different personal qualities of a CEO would be more beneficial. However, a property of a company with a cult of 'process', is that the process will or…

> I would challenge that, and say that it is quite abnormal, historically, for entertainers to get paid this much.

Take a look at the salaries (certain) movie stars made in the 1930s

Re: The MBA Myth and the Cult of the CEO

#107

Post by [deleted] »

Gibbon1 wrote: post #81
UncleMeat wrote: post #50

Earlier quoted context omitted.

Lots of people come to my team asking for work on X. If I said yes to everything my team would collapse from being spread too thinly. Being able to say that X is lower priority than what I am currently working on and leave the door open for re-evaluating priorities if needed is a key part of my job. My team also frequently comes to me with ideas for interesting work that also isn't contributing to our vision. If we j…

My experience after 35 years is nothing scares me more than when a team of out of control developers are adding more and more features to the spec. Most baffling is it's obvious they think they are accomplishing something and you're a meanie for trying to rein them in. It always ends the same way. A lot of things can go wrong in a project. But that's that one 100% guaranteed to sink it.

[deleted]

Re: The MBA Myth and the Cult of the CEO

#108

Post by gotocake »

75dvtwin wrote: post #84
lordnacho wrote: post #2

This is great work. It's a real job gathering and analysing all that CEO performance data. My guess is that most people were suspecting this anyway. The fact is the CEO is there for a few years making a few key decisions, a large company is like an oil tanker, and markets are quite hard to predict. Taleb has cooked a fair bit of soup on the fooled by randomness idea, but in this case his observations are correct. It…

What most long-term investors would prefer is a cult of a 'process', rather than a cult of 'personality'. A process' is a combination of know-how + culture + rules + compliance. Every business goes through cycles (eg startup, growth, pivot, then repeat) At every cycle, different personal qualities of a CEO would be more beneficial. However, a property of a company with a cult of 'process', is that the process will or…

Athletes and entertainers being paid insane amounts isn’t as new as you might think, although fashions do wax and wane.

https://en.m.wikipedia.org/wiki/Gaius_Appuleius_Diocles

Gaius Appuleius Diocles was born in approximately 104 A.D in Lamecum... Diocles is believed to have started racing at the age of 18 in Ilerda... Records show that he won 1,462 out of the 4,257 four-horse races he competed in and was placed in an additional 1,438 races (mostly finishing in second place). The ‘champion of charioteers’ is one of the best-documented ancient athletes, most likely because he was such a star at the famous Roman Circus Maximus. [1] Being the best in the field also seems to have allowed Diocles to perfect his showmanship. Many of his victories took the form of a ‘come from behind’ crossing of the finish line at the last possible moment. The crowds loved it. Any race with Diocles quickly became the ‘featured event’ of the day. This naturally helped Diocles make even more money. His winnings reportedly totaled 35,863,120 sesterces, equivalent to 358,631.20 gold aureus or 2,600 kg of gold, allegedly, over $15 billion in today’s dollars, an amount which could provide a year's supply of grain to the entire city of Rome, or pay the Roman army at its height for a fifth of a year. Classics professor Peter Struck describes him as "the best paid athlete of all time".

Re: The MBA Myth and the Cult of the CEO

#109

Post by vasilipupkin »

I just want to point out to those who are excited about confirming their preconceived bias that MBAs don’t matter: according to this result, MBA CEOs outperformed non MBA CEOs by 0.04% per month. That’s quite a bit of alpha.

EDIT: yes, the individual means are not statistically significant but given the large effect

a) where is the p-value b) there is no statistical significance reported of the difference between MBA and non-MBA performance, only of individual means

Re: The MBA Myth and the Cult of the CEO

#110

Post by com2kid »

Gibbon1 wrote: post #81
UncleMeat wrote: post #50

Earlier quoted context omitted.

Lots of people come to my team asking for work on X. If I said yes to everything my team would collapse from being spread too thinly. Being able to say that X is lower priority than what I am currently working on and leave the door open for re-evaluating priorities if needed is a key part of my job. My team also frequently comes to me with ideas for interesting work that also isn't contributing to our vision. If we j…

My experience after 35 years is nothing scares me more than when a team of out of control developers are adding more and more features to the spec. Most baffling is it's obvious they think they are accomplishing something and you're a meanie for trying to rein them in. It always ends the same way. A lot of things can go wrong in a project. But that's that one 100% guaranteed to sink it.

On the flip side, a team of developers who aren't even interested in adding anything of their own volition is also a bad sign.

There has to be a balance.

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