Sunday, 26 January 2014

Social media – why be involved?

Musings prompted by a conference I attended last Thursday. No matter if you embrace or reject the presence of social media in the life, you should not disregard them and if you have ambitions to be an all-rounder, you should understand how the function.

Quite often in business, if your company refuses to participate in a social media fad, its web-present competitors get the edge over it, by dint of being more recognisable. As a few years ago you could hear if you do not have a facebook profile, you do not exist. I would still argue this is untrue, as life goes on mostly beyond facebook, but with time, as social media evolve, it seems to be useful to leave one’s mark there.

With time more folks realise it might be beneficial to be involved in the social media, but as the speaker at the conference I attended pointed out, one should eschew two major pitfalls. Firstly, do not get involved because others do. Secondly, do not get involved because everyone else claims it is appropriate to do so, etc. Making use of social media must be natural to bear fruits. If you do not feel the need to twit or run your company’s facebook page, better hold back, as inept doings might do more harm than good. In order not to spoil the effect, many businesses hire experts in social media and give them a free hand to do the job.

Once you are present in the social media, others begin to follow you and expect you to show up there more or less frequently. Living up to your followers’ expectations is a measure of your content’s quality. Expectations vary, depending on kind of social media utility you use.

On LinkedIn which helps you build a professional network, very infrequent appearances are acceptable. For professional and practical reasons, you hardly ever need to constantly share any stuff, so even if profile upgrades appear with delay and when you are just about to look for a new job, there is nothing to worry about.

Twitter requires more attention. On account of the utility’s nature a single involvement should be short (as much as it takes an idea to spring to your mind and then for you to squeeze it into no more than 140 characters to twit it to the world), but frequent. Messages should be concise, up-to-date and posted frequently. If you do not follow these rules, do not expect your twits to be followed by many.

Facebook, according to the speaker, requires even more attention than a twitter account. I do not know whether he referred to a private facebook profile, or a company’s / organisation’s facebook page. The latter, in order to gain and later not to lose exposure, does involve frequent updates and new postings. As for the former, judging by my friends’ and mine facebook profile, frequent sings of life are not a must. Many people choose facebook to be one of oddly used life-enhancers, not a utility which tells their friends they are just visiting coffee shop, sunbathing on a beach or struggling boredom at work.

Blogs are said to be the most “resource-intensive”. As a blogger with almost five-years’ experience behind the keyboard I could not agree more. Out of all social media blogs are the biggest timesucks – not only should they be update frequently, but also each involvement is time-consuming. Amount of time spent blogging does not automatically qualify a blog as attractive. Unlike social networking or twitting, blogging requires skill. Only a skilful and passionate blogger can grow the blog outstanding and establish a long-lasting rapport with their readership.

Out of all the stuff described above I only do not have a twitter account. As I still use my old, always reliable Nokia 3110 Classic, I am not capable of twitting whenever and wherever I am. LinkedIn account is what I use for practical reasons, two or three times in a month. Facebook is visited everyday, but there is not really much trace of my activity there, and if I happen to do something on facebook, it is about liking something, someone else’s content, or sharing links to noteworthy stuff. As a matter of principle I hardly every share details of my private life on facebook. It is rather the blog, where, with the narrower audience I seldom wash my dirty linen in public.

One topic which has not been brought up during the conference was the savoir-vivre in using the social media, in particular if the existence of pecking order among its users. If somebody joins a social network utility, it is customary they connect to incumbent users. But what if two settled users get to know each other in real world and are about to connect via LinkedIn, facebook or any other social media page? Should the younger invite the older? Should a man add a woman to his circle? Should a subordinate connect to their superior? Or the other way round? Or given the equanimity social media offer, it does not matter at all?

If you are to fully embrace the social media and make the most of the opportunities they offer, it is crucial to stay online all the time. If so, a portable device, such as smartphone, tablet, or another contraption is what you need. I do not possess any of them and, oddly enough, I am not attracted by them. I somehow prefer to be offline, in the real world only and dose out my visits to the Internet. I realise I am not keeping up with the rest of the civilisation and one day I will have to give in and catch up.

Sunday, 19 January 2014

Safe bets on stock market?

Risk-averse investors tend to put all their money into safe instruments – mainly bank deposits and government bonds. The stock market, on account of its characteristics, exposes investors to much bigger variability of returns, tempting with gains much higher than on bank deposits, but also scaring away with prospects of losses that can wipe out large chunks of invested capital.

Risk profile of investments in equities is not homogenous. The two factors affecting the risk undertaken by an investor are, in my opinion: type of security an investor trades in and timing of transactions.

As for the former, the risk, commonly measured by volatility of returns, is lower for: bigger (blue-chips), counter-cyclical (sectors such as telecommunication or utilities) and sound (i.e. not grappling with financial difficulties) companies. The low-risk stocks usually are said to be a good-quality equity investments and offer expected return a few percentage points above risk-free rate and relatively low standard deviation of returns.

In the case of the latter, the issue is far more interesting. In terms of risk, timing of trade might matter more than other characteristics of an asset. You may pick out an excellent security, with absolutely firm fundamentals, no skeleton in the cupboard, etc. and lose money on the investment, if you pay over the odds. This is what happened to investors who were buying shares of sound IT or telecom companies at the peak of dot-com bubble in late 1999 / early 2000 and lost over 90% of invested capital. The companies whose stocks were trading at sky-high levels are still alive and generate profits, but fourteen years ago were… mispriced.

Now let’s consider two concepts essential in comprehending what I am getting at – the value and the price.

There are plenty of definitions of value put forward by economics academics, in my consideration I will narrow down to only one – the intrinsic value, or fundamental value, which is to some extent objectively justified by characteristic features of an asset. In the case of a share of a company, it is primarily determined by the company’s capacity to generate income to its owner, or in simplest words, to make profits. In valuation theory, a company is worth as much as discounted stream of positive cash flows it can generate to its equityholders.

The price, in turn, is the amount of money one party (a buyer) pays to another party (a seller) when they trade in an asset. The price is driven by several factors, including two of utmost importance – demand and supply. For a stock-listed security, a price is technically set by forces of demand and supply and most of the time (except for extreme cases when trading is on hold to prevent extreme movements) reflects the balance between supply and demand, which in turn is unstable over time. If supply exceeds demand, the equilibrium goes down, if the opposite holds, the equilibrium goes up.

It has to be underlined price does not have to equal value. In the long run, if a market is efficient, the equation above should hold true. In the shorter run deviations are very likely to occur and, if discernible and evident, can be exploited to earn.

Let’s look at two examples from the Polish stock market.

First days of September 2013. The Polish government unfolds its plan to curtail operations of private-run pension funds operating under the public pension system. Market participants react with panic sell-off. Let’s examine the motives / rationale behind the sell-off. This could have been an act of revenge of foreign financial institutions, whose risk-free business in Poland had just been undercut. 

The mini-crash could have also been sparked by fears that pension funds would dispose of some of the stocks they hold and that they would not generate additional demand for stocks in the future. The former argument could have served as incentive for speculators who could sell (short) stocks in order to buy them back at cheaper prices from pension funds. The latter theory was actually favourable for the stock market, as without artificial demand from pension funds, risk of overvaluation and market bubbles on Warsaw Stock Exchange diminishes.

A cool-headed analyst should ask a question, whether existence and scale of operations of private-run pension funds in Poland has any impact on fundamental value of stock-listed companies. For some financial services companies who deal with pension fund management, the answer could be affirmative, but for overwhelming majority of companies, dismantling of pension system has no impact on value. The conclusion is then simple – even if forces of supply and demand bring prices of some securities down, the situation creates investment opportunity – you can get the same value for lower price! A wise investor should grab such opportunity.

14 January 2014. Before trading commenced, Vattenfall announces it intends to dispose of its stake in Enea quickly. Trading opens 8% below previous day’s close, then the price of Enea slides further down, total 1-day loss reaches 14%. The accelerated book-building ends on the same day. The next day stocks of Enea rebound, yet still trade at discount to 13 January 2014 close. 

The rationale behind the sudden drop was the fear of increased supply of stocks from Vattenfall, or expectation if the stake is to change hands quickly, the vendor would have to accept a discount and market quotations would follow the price at which Vattenfall transacted with its counterparties. You could argue the price at which the vendor and several buyers agreed is an indicator of the company’s intrinsic value. I would counter-argue price in a fire sale is a poor valuation measure. Again, does the increased supply of stocks from Vattenfall affect income generation capacity of Enea? My answer is ‘no’. Does Vattenfall’s presence in Enea’s shareholder structure affect its income generation capacity? Given all facts and circumstances shaping the company’s operations, my answer is ‘no’ Again, probably the price deviated negatively from value. A shrewd investor should have grabbed this opportunity.

The strategy illustrated above is not foolproof though. There are 3 major traps an imprudent investor can fall into.

Firstly, you should be considerably confident the when price of a security plummets, it drops below its intrinsic value. Such sudden shock can occur as well when an asset is overpriced and its price is being abruptly adjusted towards the fundamental value. You have to carefully analyse the information that triggered the sell-off – maybe on second thoughts you realise it affects not only price but also value. Upward potential is then limited.

Secondly, the rebound might not be a matter of days. It might take weeks or months for a security to climb back to pre-plummet levels. In September 2013 losses of stockholders were quickly offset by subsequent gains, but it I would treat it as an exception that proves the rule. If you cannot accept the fact your money might be frozen for a few months before it fetches a decent profit, better give up on this strategy. Remember the market might stay irrational longer than you can stay liquid.

Thirdly, even if you are pretty sure you have just spotted an underpriced security and you will not need some portion of your money for a while, do not execute the strategy in one shot. Do not buy securities for all the cash you have at hand. Divide your holdings and be prepared to buy even more at even lower prices if the decline continues. Such approach reduces both potential gains if the price bounces back quickly, but can maximise them if the price keeps falling, as your average buy price also gets lower. Anyway, remember you are playing with turbulent market, so caution, cool head and restraint are advised.

Sunday, 12 January 2014

When can you say you are young?

A man is as young as he feels, not as he is… Age is much better determined by one’s behaviour than by date of birth. Context also matters. 30-year-old man who still studies is an old student, but his peer becoming a prime minister would be considered extremely young.

The question on perception of youth has been prompted by the article published in“Polityka” several weeks ago, dwelling on political careers of four well-recognised politicians, all in their 30s, deemed, not only in that instance, “young”.

The ‘young’ tag was quite reassuring for me – if they are 7.5 to 13 years older than me, long before my youth goes by.

The oldest of all those guys is Sławomir Nowak, born in 1974. He first became a deputy in 2004 (after elections to the Euro parliament). In 2010 he was responsible for running presidential campaign of current president Bronisław Komorowski, then for a year and a half he was in charge of president’s office. In November 2011 subsequently he was appointed minister of transport and infrastructure, shortly before Euro 2012 opening. Many considered this nomination a nail to his coffin, as the area of his ministry’s responsibility was a huge mess. Delays in road contracts completion, bankruptcies of contractors and subcontractors of road-building projects have not dragged him down, but he fell into a trap of the fondness for expensive watches he would exchange with his friends. Mr Nowak was charged with concealing in his financial disclosure statement a watch worth 17,000 PLN and submitted resignation. The watch worth more than yearly after-tax minimum pay had to bring about indignation in Poland. Most Poles held it against him he had flaunted stuff an average Pole cannot afford to buy, but in fact this is just a tip of the iceberg and something not really meaningful. What should have really called into question his political career were tie-ups with businessmen (Cam-media, etc.) and mismanagement…

Tomasz Kaczmarek, born in 1976, became famous in 2007, when as an anti-corruption agency officer he seduced and then (within the letter of law) bribed a Civic Platform deputy. His mission and its aftermath was exposed to the public five days before parliamentary elections. The move, astonishingly, tipped the scales in favour of Civic Platform. In 2010, aged 34, he retired. As a 35-year-old (!!! here the term “young” is so apposite !!!) pensioner was elected a deputy from Law and Justice list. In November 2013, while driving his girlfriend’s Porsche Cayenne he was so preoccupied with pondering upon the situation of Poland that he rear-ended another car. In December 2013 recordings of Mr Kaczmarek threatening his partner’s ex-husband in foul language leaked to the media. Recently he was ousted from the grouping nurturing law and justice. Mr Błaszczak told today the party could not put up with his misconduct. They began to see the light, belatedly…

Przemysław Wipler, born in 1978, Polish conservative politician, formerly a member of Law and Justice. He left Kaczyński’s party of account of its inadequate economic liberalism and sometime ago joined Jarosław Gowin’s fledging grouping. In late October 2013 the exemplary husband and father to five children (including the one unborn, counted in, in accordance with Catholic doctrine) picked up a fight with policemen outside a posh club (as befits a conservative politician) on ul. Sienkiewicza in Warsaw. Then, during public appearances he tried to make himself a martyr. To no avail… He was really young when he took charge of one departments in the ministry of economy. He was only 27 then… Did he have, three years of university graduation, pertinent experience to be in charge of a unit in a ministry or did he owe the appointment his political tie-ups?

Adam Hofman, born in 1980 is the youngest and the most remarkable politician out of the four described by “Polityka”. His political career picked up speed when, aged 25, he was elected to the parliament in September 2005. He emerged as Law and Justice’s rising star by virtue of being the brains of the party’s electoral campaigns and PR. Brash and bold, insolent and over-confident, there is no barefaced lie, accusation, nor absurdity that would not flow out of his mouth without a moment of hesitation. The guy is not likeable, even ardent believers of PiS, on Toyah’s blog have not embrace his doings in politics. In 2013 he became infamous for boasting about the size of his penis during party’s off-site and then, for concealing in his financial disclosure statement a 100,000 PLN loan (a move quite common among money launderers). As the charges against have lapsed, the investigation has been discontinued and he was reinstated as the party’s spokesman. I foresee one day JarKacz will regret allowing him to play second fiddle in the party.

When speaking about “youngsters” in politics it is hard to fail to mention the new finance minister. This “very young” man is 38 and has 16 years’ experience in banking, including serving as chief economist for several years. Since taking the office, the new minister made very few public appearances. Judging by the sparse evidence of them, it has to be noted he is nowhere as good as his predecessor in terms of speaking in public and coming under fire from detractors. Mr Rostowski could not be denied outstanding composure. When attacked, he would always stay even-tempered, calmly and clearly made his point and, if necessary, retorted his opponents incisively. The new minister seems to have focused on turnaround of the tax system, convoluted and taxpayer-unfriendly. A stride should be made when comes to simplifying and ‘humanising’ the taxation system, but the recent proposal that tax returns will be filled by tax office clerks rather than taxpayers immediately triggers a question “who will pay for this?” – we are talking about millions of tax returns – it takes workforce that have to be paid from taxes paid by us… Well, my ideal finance minister would a down-to-earth, pragmatic practitioner, not a starry-eyed scholar. For Mr Szczurek the new position is a enormous challenge and will have to learn a lot.

The “juvenile” minister backs youngsters in his office – he hired a 21-year-old student with little experience and 23-year-old ruling party member. This gets more controversial – my perspective changes, as I am witness thriving careers of people younger than me. But try to imagine what an average reader of a Polish tabloid (much older than me, not well-educated and not well-off) thinks, when they read that a 21-year-old student will earn twice as much as them after twenty or thirty years of work, or a 23-year-old distinguished party member will earn 8,000 PLN a month before tax, salary out of reach for over 95% of Poles.

Also Mr Sienkiewicz, internal affairs minister also follows the practice of giving chances to youngsters. This is a great fodder for tabloids and their readership. The key questions is how those people were selected. If they are party henchmen or children of friends, then the practice is condemnable. If they were the most skilled and up-and-coming out of hundreds of applicants, chosen in a candidly carried out recruitment proceedings, why not. Salary of 4,000 PLN before taxes, some 10% above national average (but 100% above national median salary!) is (subjectively) not a reason for outrage. Many of my peers and I earned more when we were 23.

The post is aimed to raise a question, whether age should be a criterion when assessing someone’s competencies for a certain position. In some cultures, for example in Japan, seniority is an important determinant of one’s rank in a hierarchy, in other how quickly one can climb the ladder of career is a matter of their skills, hard work and other factors. Undeniably, the younger you are, the more likely you lack experience, because it simply takes time to gain it. But if out of two candidates with similar competencies for a specific position the older one is selected, because it seems more appropriate for a decision-maker, this looks like age discrimination.

Sunday, 5 January 2014

Going downhill?

The New Year’s gloom is slowly abating, it definitely will go away for good with advent of regular daily grind in the corpo-world, due to commence the day after tomorrow.

Daily dose of news does not fill one with overly optimism though. Headlines in recent days were dominated by tidings of ‘carnage’ in Kamien Pomorski in north-west Poland, where on New Year’s Day an inebriated and intoxicated 26-year-old male murdered six people and left two other injured. The fatalities are members of two families who went with children for a New Year’s Day stroll. They were out of luck to be smashed by a somersaulting red BMW. In fact every one of us could have lost life in such brutal way.

The massacre gave rise to public outrage for many reasons. Not only because the culprit was guilty of drunk-driving, not only because in 2006 he was once deprived of his driving license for driving under influence (recidivist), not only because in seconds he took away several human beings’ lives. The most appalling was that he would be subject to up to 15 years of imprisonment, and charged with drunk-driving and causing fatal accident, while many believe he should be held accountable of murder and his 20-year-old female passenger (sober at the time of accident), who had done nothing to prevent him from sitting behind the wheel and argued with during the journey, should be accomplice. (BTW – what virtues has that man had to impress a woman?)

After the senseless death of six people, problem of drunk-driving has come under fire in the media and among politicians. The government intends to put forth far more severe punishments for drunk-driving and thus crack down on plague of pinheads sitting behind the wheel under influence.

Whether the stricter penalties serve their purpose is a debatable issue. The problem of drunk-driving is more social than political or legal (although if such crime as the one committed by 26-year-old bandit is not categorised as murder, it lays bare an evident shortcoming of the Polish penal code). The heart of the problem has been rightly located by Michael, who points out it is the ‘tacit consent’ / ‘acquiescence’ for drinking alcohol and sitting behind the wheel thereafter in the Polish society. Written law might fulfil its role better or worse, but it will surely do it better, if certain behaviours become intolerable. Drafting a new, restrictive law with severe punishments for drunk-driving and enacting it is a matter of weeks. Eradicating the ‘tacit consent’ for minds of millions of Poles is a task for years.

As correctly noted, people sit behind the wheel tanked-up, not because they are not precluded from it by gentle punishment, it is because they expect not to be caught. From economic perspective, a drunk driver considers the situation in their intoxicated brain in the following way: expected punishment = punishment times odds of being caught. If the latter is low, even if the former is high, the outcome is low and they are more likely to drive…

A law which is not enforceable is worth nothing… What is the point for irreversible loss of driving licence? Maybe my way of thinking is weird, but this measure simply does not work. If somebody is to sit behind the wheel, they will do this, no matter if they possess the document or not. Forfeiture of property (vehicle) and pecuniary penalties should serve as primary measures against inebriated drivers.

That ‘carnage’ is not the only incident from recent days which called into question faith in people…

On 28 December 2013 a 22-year-old male killed with a hammer his 30-year-old friend and his 8-year-old son, who accidentally witnessed the murder. Then the criminal stole 1,000 PLN and the victim’s car and dashed off. His escaped did not last long – soon after he crashed the car and was detained by the police. The murder was committed with cold blood.

On New Year’s Eve, in Łódź, a drunk pregnant (9th month) 31-year-old woman, was run down by a car. Circumstances of the accident still remain unclear, but from the picture that emerges it transpires she was a member of gang which threatened to damage cars in order to wheedle out money from their owns. One of their victims was a 67-year-old man returning from fireworks show. While trying to run away, he probably did not see the pregnant woman lying on the street and mowed her down. The woman died on the same day, her child passed away two days after (this is the most probably scenario presented in the media)

On the same day, somewhere in southern Poland a drunk 33-year-old man almost trounced to death a 3-month-old infant. The child is fighting for life.

On New Year’s Day three men in their 20’s threw a firework into a house inhabited by a disabled man. For kicks. The firework set the fire. The man with first and second degree burns was taken to hospital, his dwelling is uninhabitable. For kicks…

And while I was writing it, a drunk driver in Bytom hit into a group of people. Fortunately, nobody was killed, nor severely injured.

Down in the dumps, I was surely oversensitive to such news. These eye-popping examples of cruelty and idiocy, although gruesome and unacceptable, should not spoil the overall picture of Poland. It is not the country of widespread criminality, full of drunk murderers, albeit in terms of common sense behind the wheel, catching up with more civilised nations would improve safety on Polish roads. The only alarming common denominator of all misdeeds mentioned above is that they were committed by relatively young (aged less than 35) people. This does not cast good light on generation which in decade or two should become Poland’s elite.

I wish such accident do not recur. I can merely wish, as I fail to come up with a prescription for successful measures decreasing criminality. I only hazard a guess it is not a task for politicians or lawmakers. It is a task for social engineers and everyone who could tamper with people’s mindsets…