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Arguments for private equity are not always convincing

Private equity promoters propose layer upon layer of debt, leveraged by non-recourse finance. But the same finance theory also tells us that you do not increase the value of an investment portfolio by increasing gearing.

Watching share prices will not make you happy

The paradox is that if you do not have complete control over your emotions, you can have too much information for your own good.

Why poker can beat investment management hands down

If the measure of skill is how often good performance repeats itself, poker is a more skilful activity than investment management.

Why the winner’s curse could hit complex finance

In financial markets, the more complex the instrument, and the more uncertain the outlook, the greater the likely range of views of common value. More often, trading puts assets in the hands of those who think the assets are more valuable than they really are.

Big Bang shows the power of competition to surprise

The instinct that favours competitive solutions to problems of industrial structure is almost always sound. But the evolution of competitive markets is a process of experiment and discovery whose outcome is unpredictable.

Don’t box yourself in when making decisions

For people in business and in financial services it might be a disturbing conclusion, but even in very simple cases, it is impossible to be certain that a particular mathematical representation of a real problem is a correct description.

The past is a poor guide to future share earnings

An average long run value of the equity premium of up to 8% is arithmetically unsustainable: within a few decades, profits and dividends would absorb the whole of national income.

Empty talk of the world’s leading nations

Just as the World Trade Organisation does not manage world trade, the World Bank is not the world's banker and the International Monetary Fund does not manage the world's money, the influence political leaders have over international macroeconomic questions is marginal at best.

Investors must force change on analysts

There should be less equity research, of higher quality, focused on strategic direction and market position, rather than earnings guidance and market tittle-tattle. Institutions need to be willing to pay for what is valuable to them, and able to refuse to pay for what is not.

Business is not like playing monopoly

The paradox of the private equity business today is that although it permits long-termism it encourages short-termism. Companies move between public and private sectors, sweeping money out of pension funds into the hands of managers and advisers at every rotation.

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