The Secret Service free essay sample

Tips, Tools Resources to Find Great Freelance Writers for Hire

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Typing or Writing Notes Which Is Best

Typing or Writing Notes Which Is Best (0) You’ve probably taken a bajillion notes in your life by now. It’s how you absorb and remember class lectures, organize research, and study for tests. But even though you’ve taken notes for years, there’s one big question that might still stump you: is it better to type or handwrite notes? Let’s take a look at the advantages of each before making our decision. The case for typing Typing notes on the computer is increasingly common. After all, its potential for quick, efficient note-taking is incredibly high. For most of us, who have been typing from the time we were kids, typing on a computer keyboard is much faster than writing by hand. A related benefit? Notes quickly typed out are sure to still be legible when you go back to study them, while notes that were quickly written down by hand may not always be tidy enough to read back, especially if you know that you have less-than-impeccable handwriting. If you’re using your computer to take notes, you also have the benefit of all the interactive features that digital notes can offer: You can link to sources or further reading and even prepare your citations right there ahead of time, whether in MLA format or APA format. It’s quick and easy to highlight corresponding notes or jot down a side note without making a mess of the page. Changes can easily be undone with the click of a button. For convenience, you can’t beat typed notes. If you’re looking for a convenient grammar checker, there’s EasyBib Plus! The case for writing Handwritten notes are a classic for a reason. Remember when you were in elementary school and your teachers made you write out your vocab words over and over? That’s because there are proven benefits to the repetitive actionâ€"namely, its positive effect on memory. But handwritten notes aren’t just about having the memory of writing it down, it’s also about the physical act of writing itself. Studies, such as this analysis from Scientific American, have shown that there is something about the action of writing that helps the brain more clearly remember what is written. For many people, this is just part of their learning style: just like some people learn best from visual cues or from listening to something, others learn best by interacting with the lessons in a tactile way. In this case, the action of forming the individual words with your own handwriting may be preferable to the interchangeable, repetitive motion of typing on a keyboard. The best choice is… You guessed it: the winner is writing notes by hand. While digital notes may be convenient, that’s pretty much their only advantage. Let’s explain. When you’re taking notes by hand, chances are good that you’ll have little to distract you from the lecture in front of you. Using the computer, however good the intentions, is a lot likelier to lead to distraction. Think about it: how easy is it to give in to temptation and check your email or Facebook page for just a second, then look up fifteen minutes later without even realizing it? Handwriting notes, although there’s always that temptation to doodle, requires more concentration and has fewer opportunities to tune out of the lesson. Taking notes on the computer may also allow for more speed, but that’s not necessarily a good thing, as a 2014 study by Pam A. Mueller and Daniel M. Oppenheimer demonstrated. When you’re taking fast notes by typing, what you’re actually doingâ€"maybe without even realizing itâ€"is more like transcription than note-taking. Because of this, students who use this method aren’t processing and synthesizing the information in the moment; they’re just making a record without really thinking about it. In contrast, the slower process of handwriting notes forces students to listen actively, prioritize and summarize information in the moment, and then rewrite it in a way they’ll understand later. This process allows them to figure out what’s important and how to convey it. In many ways, taking notes by hand is another layer of learning, which another study by Dung C. Bui, Joel Myerson, and Sandra Hale also showed. Developing good note-taking skills will help you throughout your academic and professional careers. Be sure to find a style that works best for you! Works Cited Bui, Dung C., et al. “Note-Taking With Computers: Exploring Alternative Strategies for Improved Recall.” Journal of Educational Psychology, 2012. May, Cindi. “A Learning Secret: Don’t Take Notes with a Laptop.” Scientifica American, https://www.scientificamerican.com/article/a-learning-secret-don-t-take-notes-with-a-laptop/ Mueller, Pam A., and Daniel M. Oppenheimer. “The Pen Is Mightier Than The Keyboard: Advantages of Longhand Over Keyboard Note Taking.” Psychological Science, vol. 25, no. 6, 2014, pp. 1159-1168. Looking for quick notes on grammar? Check our EasyBib grammar guides and learn about these parts of speech: verb, noun, conjunction, determiner, and more!

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When we think about society, there is often a stark...

When we think about society, there is often a stark contrast between the controversy projected in the media that our society faces, and the mellow, safe view we have of our own smaller, more tangible, ‘local’ society. This leads us to believe that our way of life is protected, and our rights secured by that concept of society that has been fabricated and built upon. However, what if society were not what we perceive it to be, and the government chose to exercise its power in an oppressive manner? As a society we would like to think that we are above such cruelty, yet as The Lonely Crossing of Juan Cabrera by J. Joaquin Fraxedas recounts the state of Cuba in the 1990’s, we must also remember that all societies and governments view the†¦show more content†¦Juan vividly recalled the image of â€Å"the red and white splatter as a bullet smashed into Andres’s skull, scattering pieces of his brain on the water.† (Fraxedas 23). Andres lost his lif e doing something that could be perceived in numerous different ways. The severity of breaking the statuesque is primarily a matter of perception, and as seen in this book, the government often determines the perspective that its society sees and is exposed to. As the story progresses, the examples of risks change from those of the society rejected, to those that an individual faces when they do not belong to a society at all. There is safety in numbers and power in a group. Juan and Raul braved the fierce weather conditions without any protection that a vessel made by a larger group would offer, food that society could provide had to be left far behind, and yet, worst of all, after living the last few days of his life in these hellish conditions, Raul fell victim to the most primitive risk of all. It is almost like Raul knew it was going to happen, as if his demise was inevitable. At one point he voiced his concerns to Juan, uttering â€Å"I felt like I was never going to see land again.† (Fraxedas 51). Death by nature is not something that is considered to be a major risk from within the well-structured walls of safety that a society provides, and yet the absence of medical facilities, modern weapons, protection, or communication c an pose a major riskShow MoreRelatedThe Lonely Crossing of Juan Cabrera by Joaquin Fraxedas762 Words   |  3 PagesWhen we think about society there is often a stark contrast between the controversy projected in our media about the issues that our society faces and the mellow, safe view we have of our own smaller, more tangible ‘local’ society. This leads us to believe that our way of life is protected and our rights secured by that concept of society that has been fabricated and built upon during the course of our short lives. However, what if society were not what we perceive it to be, and the government choseRead MoreRacism in Disney Movies Essay5488 Words   |  22 Pagescreated especially for children can indoctrinate entire generations. Disney movies, like all other media â€Å"are powerful vehicles for certain notions about our culture,† such as racism. (Giroux 32). Racist scenes in Disney movies are often identified as simply being â€Å"symbols of th e time† when the films were produced. Furthermore, Disney racism is often passed over as simple humor, or as a simple guide to childrens understanding of cultures. These explanations of racism in the films are incompleteRead MoreOrganisational Theory230255 Words   |  922 Pagesshould we understand the organization? Jan Ole Similà ¤, Assistant Professor, Nord-Trà ¸ndelag University College, Norway I really enjoyed this new text and I am sure my students will enjoy it, too. It combines rigorous theoretical argument with application and consideration of how managment practice is formed and shaped by ideas and concepts. The authors have brought their wealth of experience and understanding and provided the field with an imaginative resource to address the dynamics between theoryRead MoreLanguage and the Destiny of Man12402 Words   |  50 Pagesdid not originate with Descartes; it was formulated much earlier, and repeated by a disciple of Descartes’, Henry Leroy, known as Regius. When Descartes became aware of this bizarre interpretation he was dismayed and sought to clarify the matter. He sought to distinguish between two terms, â€Å"distinction† and â€Å"separation† and to illuminate the relationship between body and soul at three different levels, i.e. ordinary experience, analytical mind and metaphysical meditation. Eventually, he embraced theRead MoreOne Significant Change That Has Occurred in the World Between 1900 and 2005. Explain the Impact This Change Has Made on Our Lives and Why It Is an Important Change.163893 Words   |  656 PagesLandscape Sam Wineburg, Historical Thinking and Other Unnatural Acts: Charting the Future of Teaching the Past Sharon Hartman Strom, Political Woman: Florence Luscomb and the Legacy of Radical Reform Michael Adas, ed., Agricultural and Pastoral Societies in Ancient and Classical History Jack Metzgar, Striking Steel: Solidarity Remembered Janis Appier, Policing Women: The Sexual Politics of Law Enforcement and the LAPD Allen Hunter, ed., Rethinking the Cold War Eric Foner, ed., The New AmericanRead MoreMarketing Mistakes and Successes175322 Words   |  702 Pagesfew even for decades. I hope you will find this new edition a worthy successor to earlier editions. I think this may even be my best book. The new Google and Starbucks cases should arouse keen student interest, and may even inspire another generation of entrepreneurs. A fair number of the older cases have faced significant changes in the last few years, for better or for worse, and these we have captured to add to learning insights. After so many years of investigating mistakes, and more recentlyRead MoreContemporary Issues in Management Accounting211377 Words   |  846 PagesFOREWORD ‘ Michael Bromwich is an exemplar of all that is good about the British tradition of academic accounting. Serious in intent, he has striven both to illuminate practice and to provide ways of improving it. Although always appealing to his economic understandings, he has been open to a wide variety of other ideas, recognizing their intellectual strengths and capabilities rather than making artificial distinctions between what is acceptable and what is not. He also has contributed widelyRead MoreHbr When Your Core Business Is Dying74686 Words   |  299 PagesTOP-TEAM POLITICS†¦page 90 WHEN YOUR CORE BUSINESS IS DYING†¦page 66 Y GE SE PA IN DS CK R M WA A 53 www.hbr.org April 2007 58 What Your Leader Expects of You Larry Bossidy 66 Finding Your Next Core Business Chris Zook 78 Promise-Based Management: The Essence of Execution Donald N. Sull and Charles Spinosa 90 The Leadership Team: Complementary Strengths or Conï ¬â€šicting Agendas? Stephen A. Miles and Michael D. Watkins 100 Avoiding Integrity Land Mines BenRead MoreStrategic Marketing Management337596 Words   |  1351 Pagesnature of marketing The management process Strategic decisions and the nature of strategy The marketing/strategy interface Summary xi xiii 1 3 3 7 11 19 37 41 43 45 45 50 53 70 71 75 77 79 79 80 81 86 88 89 101 102 104 107 109 Stage One: Where are we now? Strategic and marketing analysis 2 Marketing auditing and the analysis of capability 2.1 2.2 2.3 2.4 2.5 2.6 2.7 Learning objectives Introduction Reviewing marketing effectiveness The role of SWOT analysis Competitive advantage and the value chainRead MoreStrategic Human Resource Management View.Pdf Uploaded Successfully133347 Words   |  534 Pageswhile physical assets are treated as investments. When employees are viewed as variable costs, there is little recognition of the firm’s contribution to their training or the costs of recruiting and training their replacements. Likewise, there is less incentive to provide training or make other investments in them. A respected human resource scholar described the existing state of affairs as follows: I am constantly amazed at the contrast between the concern that strategists show for potential capital

Electronic Grading System Free Essays

The purpose of this study is to support and improve the grading system of NDNI (Notre Dame of New Iloilo). The current grading system of NDNI, which uses Excel is difficult on the part of the user. Not all of the users are fully computer literate and they have to process the student grade by themselves without proper monitoring of the Principal. We will write a custom essay sample on Electronic Grading System or any similar topic only for you Order Now Moreover E. G. S (Electronic Grading System) is fixed. In response to this problem, the solution is a user- friendly program, well guided system operation. The E. G.S is a system that can help to process the grading system of NDNI. It is a system version improved by the IT Students of Notre Dame of Marbel University last 2009-2010. The flow of system is when the registrar finished initialize the user accounts of (teachers only), the registrar can import class list from the teachers record. As the imported data is gather from the teachers record, it will saved. Then the teacher can now update class record. And the registrar can view class record to monitor the performance of the teacher students. II. Project Description A . Background of the StudyThe current system of NDNI which uses Excel is difficult on the part of user. Not all the users are computer literate and they have to process the students’ grade by themselves without the proper monitoring of the Principal. The problem also in Excel is that environmental that can cause error in case the user clicked or pressed accidentally. While E. G. S is fixed to use by user. However the teacher has option to do computing manually if the E. G. S can’t support their needs. In response to this, the solution is a user-friendly program that can be accessed by the user.NDNI is currently using Excel as means of computing student grades. In terms of Excel, it is not easy to the part of the teachers’ to access the grade of the students immediately as needed, because sometimes it can cause environmental error. B. Statement of the Problem The current grading system used by NDNI in Excel. It is not easy for the part of the teacher’s to access the grade of the students. C. Objectives a. General Objectives This project aims to automate the grading system of Notre Dame of New Iloilo by providing an Electronic Grading System. b. Specific Objectives – To help the users to easily access the grades of the students. D. Significance of the Study This study is significant as stated for the following reasons: -It is user-friendly and adds convenience -Certain grading criteria can be set w/o adding formulas in every spreadsheet cell. -Faster transactions. -Easier records transfer (import and export) -Ease of accessibility E. Scope and Limitations of the Study – The coverage of the study includes entities such as Registrar and Teachers. However, the students are also included as a receiver. The proposed project is relying on the exported excel file of the students record from the teacher record. Also, it will only process the grade of the students for a period of time. Common concept for a class records are being observed and applied for this application. Registrar and Principal can view all records . The teachers can only view their own records. F. Methodology Phase I (Preliminary Investigation) †¢Conducting a survey and interview -Required to get information needed to identify and organized process of the system to be developed. †¢Define the new system objective †¢Set the scope and limitation How to cite Electronic Grading System, Papers

Power of Children in the Tourism Industry

Introduction Across the world, tourism is a major economic activity, which contributes significantly to the economic growth of many countries that have tourist attractions. Since people are social beings, they like travelling to various tourism destinations as tourists.Advertising We will write a custom essay sample on Power of Children in the Tourism Industry specifically for you for only $16.05 $11/page Learn More Since routine schedules of workplace and businesses are boring, people use tourism as a means of rejuvenating, gaining motivation, and reflecting about their lives. Over the recent past, tourism has experienced outstanding changes in terms of consumers and their preferences. One of the main entrants into the tourism and hospitality market is the set of consumers that comprise of families and young children. As opposed to the past, where fathers made major decisions concerning holiday destinations, mothers and children are now active participa nts in decision-making and even have the power to influence the choice of destinations that families visit during holidays. Therefore, the essay describes the families as potential consumers of tourism products and cites the influence that children have in choosing tourism destinations. Influence of Children in Holiday Decision Making Children are part of the family and make up an influential segment of decision makers in the family and thus they participate actively in decision-making. Remarkably, the number of families that visit tourist destinations and hospitality facilities has risen over the recent past to a significant level. The rising demand for tourism and hospitality products that cater for the needs of families has led to shifts and adjustments in various establishments, which provide tourism and hospitality products in the quest to meet family expectations.Advertising Looking for essay on communications media? Let's see if we can help you! Get your first paper wit h 15% OFF Learn More Some of the ways that children affect the decisions that families make on holiday destinations include their preferences, purchasing decision, buying behaviours, choice of locations, accommodations, activities, and influences from their peers. According to Blichfeldt et al. (2010), children have varied preferences in terms of location and activities, as well as the types of products that they like consuming. These differences usually determine the holiday choices of parents since they have to consider the differences when making decision about holiday destinations. Purchasing decisions and buying behaviours of children are different from that of adults. As opposed to adults, who do not engage in impulse buying, children tend to purchase various products irrespective of the holiday budget. Additionally, children love products such as snacks and games, which may not be in the set of adult preferences. Due to the existing differences in buying patterns and behaviours, families decide holiday destinations to visit based on the differences. Several hospitality and tourism establishments are currently aligning their services so that they can provide services that do not only meet requirements of adults, but also satisfy the needs of children (Kang, Hsu, Wolfe 2003). The alignment of services by hospitality and tourism facilities happens because children are currently among the major consumers of tourism products. The influence of children in families has compelled several families to visit those destinations that offer services, which match the desires of both adults and children. Children influence the choice of locations, accommodation facilities, and the type of activities that families engage in during the holiday. The influence that children exert transpires because of the diverse tastes, likes, and dislikes of adults and children.Advertising We will write a custom essay sample on Power of Children in the Tourism Industry spe cifically for you for only $16.05 $11/page Learn More Families that are on holidays usually try to ensure that each individual in the family enjoys the holiday. Therefore, families prefer visiting a destination that has the facilities, which satisfy adult and child requirements. Theme parks, arboretums and other tourism facilities and establishments, which offer services such as face painting and bouncing castles, make up the main types of destinations that families prefer visiting. Conversely, destinations that only meet requirements of adults receive several adults as opposed to families. Philips, Canter, and Abbott (2011) argue that the numbers of hotels that provide family facilities are increasing in several tourism and hospitality establishments. The power of children in families implies that they dictate the locations that families visit, the type of accommodation facilities, and the type of activities that families undertake during the holiday. Peer influence is another factor that affects the choice of holidays among families, especially children. Since children are vulnerable to influences and coercions from their friends, they are likely to use the pressure from friends to determine holiday destination for families. Children can compel a family to visit a destination that their colleagues visit, as they need the company of their friends and peers. As a result, children are currently dictating the choices that families make concerning the locations and places to visit during holidays (Marino 2003). In some instances, families compromise their likes and preferences with a view of satisfying the needs and demands of their children. The compromise that parents make regarding their preferences and needs evidently outlines the force and power that children have on the holiday choices.Advertising Looking for essay on communications media? Let's see if we can help you! Get your first paper with 15% OFF Learn More Probability of Common Decision Making Due to the diverse perceptions, motives and interests towards tourism and hospitality establishments, parents and children often vary in terms of locations to visit. The variance can lead to dissatisfaction among parties in the family, who feels oppressed or undermined in line with the choice of place or holiday destination (Boterhill Haven 2003). However, there is a chance of families coming to a mutual agreement on the destination that they want to visit during the holiday. Compromise, involvement, safety, and attractions are some of the factors that families can use to achieve a common decision on the place to visit. Since it is impossible to satisfy the needs of all individuals in a family, parents can compromise and adjust their perceptions, likes, and preferences so that they ensure that their children enjoy their holiday and the choices they make. Families can involve their children in the decision-making process as it enables them to un derstand various needs and expectations that their children have concerning the choice of place to visit during holidays. Poor participation of children in families on aspects like holiday destinations results in assumptions from parents, who believe that a certain place is good for their children when children hold contrary opinions. Therefore, it is very crucial to involve all the stakeholders in the family, which are the children and parents, in holiday decision-making. When all individuals in a family take part in the decision-making process and present their opinions, feelings of satisfaction and fulfilment develops in their minds. The feelings develop because the individuals know that other people in the family respect and honour their points of view. According to Goh et al. (2010), every individual has diverse opinions and perspectives on the types of tourism products that they love consuming. Therefore, child involvement in decision-making is very instrumental in achieving a common decision in the choice of place to visit during family holidays. Safety is another factor that compels families to make a common decision as it overrides personal preferences and likes. Regardless of the tourism and hospitality products offered by a tourism attraction, insecurity renders the subject location unsuitable for tourism. Children and parents in the family opt to visit destinations, which are safe and secure for the safety of their families is crucial factor that they cannot overlook. Onder, Yoldorom, and Ozdemir (2013) explain that safety is one of the major factors that determine consumer’s choices of tourism locations. Presence of insecurity in a destination drives tourists away from the region because it is a push factor in tourism. Travel advisories, and embassies are very important in the passage of information to the society on safe locations to visit. The common agreement is obtainable in the context of safety because parents and children believe in the importance of peace and tranquillity and loathe the outcomes orchestrated by insecurity. External Factors that Prompt Holiday Decision-Making Families just like other types of tourists respond in similar ways to externalities that affect other tourists in decision-making. Some of the externalities that affect families in deciding the locations to visit include induced image of a destination, push and pull factors, pricing, and flexibility of tourism and hospitality establishments. Families are likely to visit regions or establishments that have good reputation and image. Good reputation and image emerge due to the services provided by the facilities to consumers, who market them through a word of mouth to other potential consumers (Bjork Jansson 2008). The marketing image that a destination receives from past consumers and the level of advertisement influence the willingness of consumers, especially families. It is imperative to understand that the image of a destination is dep endent on factors such as security, economy, and the interrelationships among countries that service providers cannot manipulate or change. Push and pull factors are those factors that either drive tourists away from the tourist attraction or bring them to the attraction. Goodrich (2014) asserts that the push factors scare tourists away from the attraction, while the pull factors attract tourists to an attraction. Insecurity and conflicts among countries, recession, language barriers, and the inflations are some of the push factors that increase unwillingness of families to visit certain tourist destinations. On the other hand, good relationships among countries, economic balance, and good security are among the factors that increase the willingness and the tendency of families to visit and consume tourism products in subject regions. Remarkably, push and pull factors are not within the control of service providers in the tourism and hospitality industry, and thus, they have no cont rol or power over the factors. Pricing determines the choice of destination that families choose to visit because families are among the types of tourists, who value their money and need effective utility. As opposed to past consumers, who focussed on the quantity of products that facilities offered, modern consumers emphasise on the quality of the services in relation to their attached value (Marino 2003). In this regard, consumers often go for services that promise value for their money. Costs associated with labour and raw materials determine the price charged on a good or service. The rise in cost of raw materials causes a corresponding increase in the cost of production (Ballantyne Packer 2009). The increase compels service providers to increase the cost of services that they offer. The fact that food prices and the prices of other tourist services like sightseeing and transport depend on the changes in the economy and global product prices implies that service providers have very little influence on the price. Flexibility of service providers in the tourism and hospitality industry is one of the essential factors that influence families using certain facilities and consume the services offered. If a facility is flexible, then it quickly adjusts to the prevailing consumer requirements and provides consumers with what they expect, and thus, satisfy them (Ballantyne Packer 2009). Tourism destinations also need to be flexible so that they can deliver what is best for the consumers, who comprise of children and adults. When families realise that a destination quickly adopts modern technologies and copes with their changing requirements, their willingness to visit the destination increases. According to Fuller et al. (2007), consumers in the tourism and hospitality industries are very trendy and ever changing, therefore, service providers in the industry must be flexible and adaptive. The need for flexibility in hospitality and tourism establishments is due to the changes that consumers portray in the industry, which are unstoppable, uncontrollable, and unpredictable. Conclusion In the recent past, a new type of tourism has developed in the field of tourism. The new type of tourism comprises of families, which are increasingly travelling to various destinations and consuming the services provided by the establishments of tourism and hospitality. As a new entrant in the tourism and hospitality market, families pose a challenge to the industry since they require the creation of new facilities that cater for the requirements of children and adults. Remarkably, children have also changed the choice of holiday destinations that families visit as they dictate the families to choose places that meet their needs and preferences. References Ballantyne, R, Packer, J 2009, ‘Trends in Tourism Research’, Annals of Tourism Research, vol. 36, no. 1, pp. 149-152. Bjork, P, Jansson, T 2008, ‘Travel Decision Making: The Role of Habi t’, An International Multidisciplinary Journal of Tourism, vol. 3, no. 2, pp. 11-34. Blichfeldt, B, Johansen, A, Pederson, B, Hansen, L 2010, ‘Teens and Vacation Decision Making’, Journal of Tourism Consumption and Practice, vol. 2, no. 1, pp. 1-20. Boterhill, D, Haven, C 2003, ‘Virtual Learning Environment in Hospitality, Leisure, Tourism, and Sport’, Journal of Hospitality, Leisure, Sport, and Tourism Education, vol. 2, no. 1, pp. 75-92. Fuller, D, Wilde, S, Henlon, J, Mason, S, Armstrong, B 2007, ‘Destination Choice An Exploratory Examination of Visitor Behaviour in Coastal Tourism Destination on Australia’s East Coast’, Journal of Travel and Tourism Marketing, vol. 5, no. 1, pp. 45-52. Goh, D, Ang, R, Lee, C, Lee, K 2010, ‘Determining Services for the Mobile Tourists’, Journal of Computer Information Systems, vol. 51, no. 1, pp. 31-40. Goodrich, J 2014, ‘The Relationships between Preferences and Percepti ons of Vacations, Destination: Application of a Choice Model’, Journal of Travel Research, vol. 53, no. 3, pp. 8-13. Kang, S, Hsu, C, Wolfe, K 2003, ‘Family Traveller Segmentation by Vacation Decision Making Patterns’, Journal of Hospitality and Tourism Research, vol. 27, no. 4, pp. 448-469. Marino, E 2003, ‘The Strategic Dimension of a Destination Image. An Analysis from the Italian Tourists Perceptions’, Journal of Travel and Tourism Marketing, vol. 9, no. 4, pp. 47-67. Onder, E, Yoldorom, B, Ozdemir, M 2013, ‘Multi-Criteria Approach for Evaluating Tourism Destinations in Turkey’, Academic Journal of Tourism and Management Research, vol. 1, no. 1, pp. 1-15. Philips, W, Canter, D, Abbott, J 2011, ‘Hospitality and Tourism Research Ranking’, Journal of Hospitality and Tourism Research, vol. 35, no. 3, pp. 381-416. This essay on Power of Children in the Tourism Industry was written and submitted by user Isabell Wilkinson to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here.

Eritrea Today

Eritrea Today In the 1990s, great things were expected of Eritrea, then a brand new country, but today Eritrea is most often referenced in the news for the flood of refugees fleeing its authoritarian government, and the government has discouraged foreign travelers from visiting. What is the news out of Eritrea and how did it get to this point? Rise of an Authoritarian State: Eritreas recent history After a 30-year war of independence, Eritrea achieved independence from Ethiopia in 1991 and began the difficult process of state building. By 1994, the new country had held its first - and only - national elections, and Isaias Afwerki was chosen as the President of Ethiopia. Hopes for the new nation were high. Foreign governments dubbed it one of the renaissance countries of Africa expected to chart a new path away from the corruption and state failures that seemed endemic in the 1980s and 90s.   This image collapsed though by 2001, when a promised constitution and national elections both failed to materialize and the government, still under the leadership of Afwerki, began to crack down on Eritreans. Development in a Command Economy The shift to authoritarianism came during a border dispute with Ethiopia that erupted in 1998 into a two-year war. The government has cited the ongoing stalemate over the border and the need to build the state as justifications for its authoritarian policies, particularly  the much-hated national service requirement. The  border war and droughts reversed many of Eritreas earlier economic gains, and while the economy - under the governments strict controls - has grown since, its growth has been below that of sub-Saharan Africa as a whole (with the notable exceptions of 2011 and 2012, when mining boosted Eritreas growth to higher levels). That growth has not been felt equally either, and the poor economic outlook is another contributing factor to Eritreas high emigration rate. Health Improvements There are positive indicators. Eritrea is one of the few states in Africa to achieve the United Nations Millennium Development Goals 4, 5, and 6. According to the UN, they have drastically reduced infant and young child mortality (having cut mortality of children under 5 by 67%) as well as maternal mortality. Exponentially more children are getting important vaccines (a shift from 10 to 98% of children between 1990 and 2013) and more women are receiving medical care during and after delivery. There have also been reductions in HIV and TB. All of this has made Eritrea an important case study in how to implement successful change, though there are continued concerns about neonatal care and the prevalence of TB. National Service: forced labor? Since 1995, all Eritreans (men and women) are forced to enter national service when they turn 16. Initially, they were expected to serve for 18 months, but the government stopped releasing conscripts in 1998 and in 2002, made the term of service indefinite.   New recruits receive military training and education, and afterwards are tested. The select few who score well enter coveted positions, but still have no choice about their occupations or wages. Everyone else is sent into what are described as menial and degrading jobs with extremely low pay, as part of an economic development plan named  Warsai-Yikealo. Punishments for infractions and evasions are also extreme; some say they are torture.   According to Gaim Kibreab the involuntary, indefinite nature of service, coerced through threat of punishment, qualifies as forced labor, and therefore is, according to international conventions, a modern form of slavery, as many in the news have described it. Eritrea in the News: Refugees (and cyclists) Events in Eritrea have gained international attention largely due to the large numbers of Eritrean refugees seeking asylum in neighboring countries and Europe. Eritrean emigrants and youth have also at high risk of human trafficking. Those who manage to escape and establish themselves elsewhere send back much-needed remittances and have sought to raise awareness about and concern for the plight of Eritreans. While refugees by nature represent the disaffected within a country, their claims have been borne out by third party studies. In a very different note, in July 2015, Eritrean cyclists strong performance in the  Tour de France  brought positive media coverage to the country, highlighting its strong cycling culture. The Future While it is believed that opposition to Aswerkis government is high, there is no clear alternative in place and analysts do not see change coming in the near future. Sources: Kibreab, Gaim. Forced Labour in Eritrea.  Journal of Modern African Studies  47.1 (March 2009): 41-72. United Nations Development Project, Eritrea Abridged MDG Report, Abridged Version, September 2014. Woldemikael, Tekle M. Introduction: postliberation Eritrea. Africa Today 60.2 (2013)

Formality on ACT English Strategies and Tips

Formality on ACT English Strategies and Tips SAT / ACT Prep Online Guides and Tips You wouldn’t wear a tux on a first date or jeans to a wedding. The ACT also tests you on whether or not you understand what level of formality is appropriate in different circumstances. Read on to learn more about one of the most unusual topics covered on the ACT! Formality questions are some of the least common on ACT English, so you shouldn't be too concerned about this topic. Nonetheless, in this article, I'll cover everything you need to know to tackle any formality questions you might see: What is formality and how is it tested on the ACT? The"normal" level of formality on the ACT Key signs of a formality error Examples of formalityissues Top tips for tackling formality questions on ACT English What Is Formality on the ACT? â€Å"Formality† refers to the idea that different textsare written with different audiences in mind, sosome are more casual whileothers are more formal. Usually, ACT English passages are written very similarly to a textbook or a newspaper article. You will notice that the author usually doesn't talk as if the reader is his best friend nor does he speak as if drafting a speech to read in front of Congress. The key to formality questions is that your answer choicesshould follow the patterns laid out by the original author. What Do "Normal" ACT English Passages Look Like? Passages on the ACT fall into the middle of the formality scale. There are two main types of passages that you will see: factual/historical passages and personal narratives. The example belowis what a factual/historical passage looks like. You will notice that it is written in a very straightforward fashion, similar to what you might see in a high school textbook or a newspaper. Benjamin Banneker, African American inventor and astronomer, grew up on his family's farm in colonial Maryland. Though he had limited access to formal education, Banneker nevertheless demonstrated a keen curiosity and a consuming interest in acquiring knowledge. The personal narratives may seem slightly more casual than the factual/historical passages: they are written in the first person (using the pronoun "I") and include more contractions. However, overall they're still in the middle on the formality scale. If you see overly casual language, such as slang, it will also be incorrect here. I live with my father in the summer, when I'm on vacation from school. Last week, he told me he had to go on a business trip in connection with his work and that I'd be staying with his sister for three days. Although I love my aunt, I wasn't happy about the prospect of three days at her house with nothing to do. It turns out I was in for a surprise. Now that you know what ACT English passagesshould look like, let's discuss why formality questions can be difficult and some strategies to attack them. What Makes Formality Questions Difficult? Formality questions can trip up some test takers because they are all about style, not grammar. In fact, the incorrect answer choices for these questions will usually be grammatically correct! Furthermore, there are no specific rules you can learn that will let you answer these questions correctly every time. Understanding the formality level of writingis a skillthat you acquire over the long term, through reading lots of different kinds of documents in English and learning how people communicate to different audiences. As such, these questions arelikely to be most difficult for non-native speakers of English. Despite the challenges posed by formality question, there are some signs you can look for in order to see if a phraseor sentence is written too casually and is therefore incorrect. What Are Some Signs of Overly Casual Language? The following types of language generally signal an overly casual style and, thus, a wrong answer: Slang.Slang isa word or phrase that has a cultural meaning different fromits literal meaning. Examples include "cool," "sketchy," and "crush." Vague language.Ideas could be expressed much more clearly and directly, with more detail. Wordy language.Oftentimes, casual language will take more words than necessary to make a point. Unnecessary commentary.When an author writes casually, they may alsoadd unnecessary comments, such as personal thoughts or opinions about the topic. Beware of slang. What Are Some Examples of Formality Issues? Here is an example of a few sentences written with mid-level formality, whichis the type of writing that is normal on ACT English. Although Tolstoy preached abstinence to his many followers, he actually had thirteen children of his own. His wife, Sofia, was offended by his stories that insulted their married life and implied that she had been unfaithful to him. And here are the same sentences written more casually. If you see something written this casually, it will always be incorrect on ACT English. Tolstoy told his followers that they shouldn’t have lots of kids, but actually he had a load of his own. Unfortunately for him, his wife, Sofia, got pissed off when he implied through a story that their marriage was a sham and that she had been messing around. Can you spot the key signs mentioned above? Slang: â€Å"a load of his own," â€Å"got pissed off," â€Å"messing around† Vague and lacking detail: â€Å"a load of his own† Wordiness: â€Å"that they shouldn’t have lots of kids† instead of â€Å"abstinence† Unnecessary commentary: â€Å"Unfortunately for him† The ACT won’t usually be this obvious with their errors. But now that you know what mistakes to look for, keep an eye out when you think you’re being asked a formality question! Top Tips for Formality Questions on ACT English #1: Remember that all ACT passages will be in the middle on the formality scale. While it's technically possible for a passage to be written more formally or casually,we have never seen an example of this actually occurring on the ACT. #2:Eliminate grammatically incorrect answers first. Formality questions are extremely rare, so you shouldn't rule out answers based on their level of formality until you're certain there aren't any other errors in the choices. Always focus on grammatical errors and more common style errors like redundancy and relevancefirst, and only worry about using formality to narrow down your choices if you don't see those other types of issues. #3: Cross out any answers that strike you as overly formal or overly casual. If you're reading a sentence that sounds like something you might say to a friend, then it iscasual. These choices may strike you as colloquial and friendly, or may use the signs of casual language that we discussed above. If you see an answerchoice with these qualities, it will be incorrect. On the flip side, if a sentence or answer choice seems quite stuffy and high-brow for the ACT, then it'soverly formal.These options will also beincorrect because they don't match the rest of the passage. #4: Re-read the sentence with your answer choice. Does it seem to flow? Make sure that your answer seems to fit in with the rest of the sentence. Remember passages will be written in the middle of the formality scale. Let’s Look at an Example Together In 1970, the school board in Pittsfield, New Hampshire, approved a dress code that prohibited students from wearing certain types of clothing. The school board members believed that wearing â€Å"play clothes† to school made the students inefficient toward their school work, while more formal attire established a positive educational climate. A. NO CHANGEB. lazy and bored to tears withC. blow offD. lax and indifferent toward As I'm reading through this passage, it feels like it is at a standard formality level for the ACT. The language is not overly complex and flowery nor is it extremely casual. Let’s start withthe underlined section. â€Å"Inefficient toward† is idiomatically incorrect, so A is out. (Idiomatic errors can be tricky to detect - see our article on them here.) Nowlet’s turn to the answers. Option B uses the phrase â€Å"bored to tears." This expression is a very casual phrase used to express extreme boredom. It’s far too casual to fit with the rest of the paragraph, so we can eliminate B. Similarly, the phrase â€Å"blow off† in C is slang, whichdoesn’t fit in with the formality of the rest of the passage. We can rule out C as well. D is the only option that’s left. When you put it in the sentence, it reads, â€Å"The school board members believed that wearing â€Å"play clothes† to school made the students lax and indifferent toward their school work, while more formal attire established a positive educational climate.† This option matches the rest of the paragraph in formality, and it’s also grammatically and idiomatically correct. Therefore, D is the correct choice. Here Are Some Practice Questions to Try on Your Own! Choose the answer that correctly completes each sentence, paying particular attention to formality. I've explained the answers at the end of the article. Smith’s example has inspired architects to donate their skills towards charitable projects. (1) Since 1998, the Association of Professional Contractors has presented an annual award recognizing the professional who best showcases a spirit of giving and community service. In 2004, the award was renamed the Robert Smith award. His parents, who were so instrumental in Smith’s professional success, were bursting with pride. (2) While Smith’s architectural achievements remain prominent in Chicago for passersby to enjoy, it’s really great that the effects (3) of his generosity continue to make an impact and inspire others to follow his example. 1. A. NO CHANGE B. into projects that are really good for other people C. into charitable projects D. to charitable projects 2. A. NO CHANGE B. were super proud C. were proud of their son D. were appreciative of the illustrious honor bestowed upon their son 3. A. NO CHANGE B. the effects C. it is good that the effects D. DELETE the underlined portion Answers: 1. D; 2. C; 3. B Explanations: 1. As written, the sentence is idiomatically incorrect. We say that we "donate to," not "donate towards." Therefore, D is going to be the correct answer. But even if that didn't jump out at you right away (idioms can be difficult!) there was at least one answer choice that you could have eliminated: choice B. This answer is an example of unnecessary wordiness, which is one of the signs of overly casual language. The other choices all use the word "charitable," which succinctly describes the projects being donated to. Choice B, in contrast, says "projects that are really good for other people." Though this means the same thing, it is a much longer and more casual way of expressing the information, so this answer is incorrect. 2. As written, this sentence usesoverly casual language. "Bursting with pride" is slang - it has an implied meaning that is differentfrom its literal meaning (I hope his parents weren't literally exploding!). Choice B is also slang. The real definition of "super" is "good or excellent," but here it is used to mean "very" - which is a common casual use of the word. On the other hand, choice D is too formal - it uses unnecessarily formal words (and is also too wordy!) to express a simple idea. Choice C is the best answer here. It's grammatically correct, and also directly and succintly completes the sentence without being too casual or too formal. 3. Here's another example of a too casual sentence. Can you see which trap of casual language it's falling into? It has unnecessary commentary. It's very casual for the author of the passage to tell us that he thinks "it's really great." We can rule outA. Looking at the answer choices, you can see that C falls into the same trap, by telling us that "it is good." We're down to B or D. D suggests that we should delete the underlined portion. However, if you read the sentence with the underlined portion eliminated, it's obvious that you create a fragment. Therefore the answer is B, which states the information clearly and directly, is grammatically correct, and is in the middle of the formality scale. What’s Next? Now that you know how to tackle one of the trickier subjects on the ACT English, try another: here is how to take on idioms on the ACT. Not sure what else you’ll be up against? Here is a full breakdown of what you will find on ACT English. Aiming high? Here are some top tips to get a 36 on ACT English. Want to improve your ACT score by 4 points? Check out our best-in-class online ACT prep program. We guarantee your money back if you don't improve your ACT score by 4 points or more. Our program is entirely online, and it customizes what you study to your strengths and weaknesses. If you liked this English lesson, you'll love our program.Along with more detailed lessons, you'll get thousands ofpractice problems organized by individual skills so you learn most effectively. We'll also give you a step-by-step program to follow so you'll never be confused about what to study next. Check out our 5-day free trial:

BYD Company analyse Essay Example | Topics and Well Written Essays - 3000 words

BYD Company analyse - Essay Example Furthermore, the organisation has also marked its presence in the automobile industry during the year 2003 and since, then this Strategic Business Unit (SBU) has witnessed a robust growth. In the current day context, the organisation has also earned the reputation of being the fastest growing automobile organisation during the last few years. It also has been the global pioneer in manufacturing energy vehicles, which includes pure electric models and Dual Mode electric models (BYD Company Limited 2015). In is also worth mentioning that the organisational growth is largely because of the development of Research and Development (R&D) team of the organisation. The R&D team of the organisation has largely contributed in the development of energy storage system, LED lighting, and solar energy products, amongst others (BYD Company Limited 2015). Contextually, the objective of the current study is to prepare a business report that would guide the organisation in effective expansion in the c ontinent of Europe by targeting the car market operating in Germany. Analysis of the macro and microenvironment of European hybrid-car industry is extremely important for the current study. However, in the study special emphasis is provided to the German market. In order to conduct effective environment analysis, PESTEL and Porter’s Five Forces analysis are considered most suitable to increase the transparency and ensure effective development. Therefore, the underlying subheads address the analyses of the external as well as internal environment using these marketing tools. Alike most of the nations in Europe, Germany is also a democratic nation. It is notable that the political environment of Germany along with other nations of Europe is mostly stable. This considerably encourages investors from different nations to invest in European nations including Germany (Jerez-Mir and Vazquez 2009). Besides these, it is notable that the governments of

CONTEMPORARY BRAND MANAGEMENT REPORT Case Study

CONTEMPORARY BRAND MANAGEMENT REPORT - Case Study Example The company took full advantage of the many synergies generated within the group while retaining its own identity and remaining faithful to its distinctive difference (Louis Vuitton.com). Louis Vuitton, the founder of the famous French luxury goods brand, began manufacturing trunks in Paris in 1854, and the company he started went on to become one of the world's most famous makers of luxury goods, known especially for its designer luggage pattern: a beige-on-chestnut monogram, "LV." Vuitton's high-quality travelling trunks were such a hit that he had to expand his factory within a few years, relocating to Asnires in 1860. As the years went by the Vuitton line gained international recognition, thanks in part to a bronze medal at the 1867 World's Fair and a gold medal at the 1889 World's Fair, both held in Paris. After Louis died in 1892, his son, Georges, took the company to new heights, developing what is recognized as the first "designer label" on a product. Widespread copying of Vuitton patterns pushed Georges to design the distinctive "LV" monogram. Vuitton's luggage company has since become a world leader in luxury consumer goods, with products that include trave l books, perfume, distilled spirits and designer clothing (Answers.com). Louis Vuitton is a truly global brand associated with lux... he stylish LV Monogram canvas that was carried on in the year 1896 and the soft Steamer Bag that was introduced in the year 1901 prefigured the opening of the Louis Vuitton building on the Champs-Elyses in Paris, the largest travel goods store in the world. The famous Keepall Bag, often seen as a forerunner of the duffel bag, was launched in 1924 and was followed by similar products. In the last quarter of the 20th century Louis Vuitton developed as a truly global brand: the first LV stores opened in Tokyo and Osaka in Japan in 1978, in South Korea in 1984, in China in 1992, in Marrakesh in the year 2000, in Moscow during 2003, and in New Delhi during 2003 (Answers.com). 3. Brand Analysis Consumers identify a brand's distinctive capabilities based on their perceptions that have themselves been created by the marketers over a period of time. A genuine brand is "the internalized sum of all the impressions received by the customers and consumers resulting in a distinctive position in their mind's eye based on perceived emotional and functional benefits" (Knapp). A brand, in general, conveys certain aspects like attributes, benefits, values, culture, personality and user each one of which are discussed below. Attributes: Attributes are things that usually speak about the product. A brand usually conveys attributes of the product in order to inform existing customers and at the same time attract new potential customers. If this aspect is compared with Louis Vuitton, the brand that is being discussed in this paper, the attributes of Louis Vuitton products' are stylish, fashionable and modern and are made of high quality premium leather. Benefits: In order for a brand to be successful in the market, it is necessary that the product attributes eventually transform into

Maslow Essays -- essays research papers

Maslow’s Hierarchy of Needs & Myers-Briggs Type Indicator Introduction Like in sports, in business the performance of team is not just based on the individual talents. It is also, and maybe even more, based on the global efficiency of the team. To be efficient, a team leader needs to ensure that all the team players are pulling at the same rope, towards the same direction. That first step ensures that all the energy that is spent, is used in favor of the objective and not against it. A second step is to set the team organization, in a way that each team member is in the position to deliver its maximum performance. To make this possible, a team leader has to understand the individuals’ and interpersonal dynamics of the team. Personality tests and concepts such as the Maslow’s Hierarchy of Needs and the Myers-Briggs Type Indicator are two of the most used tools used by leaders to understand and manage these dynamics. Criteria to use when selecting a team member   Ã‚  Ã‚  Ã‚  Ã‚  An individual’s resume will tell what one can do, but it will not tell how well one will be able to do it, in a given team and situation. Team leaders have to select team members for skills but also for their potential to fit and perform well in the team. As Kris Frieswick says â€Å"companies are increasingly taking steps to ensure that the hires they make are a good fit, not only with the job description but also with the people whom they will be working† (Frieswick, 2004). While making sure that one will fit well in a work environment, it is also important to ensure that one will be motivated to perform well. â€Å"Since management is all about getting things done through others, knowing [what motivates] and how to motivate others can improve the effectiveness of the managers†. (Buhler, 2003). The selection process used in the simulation   Ã‚  Ã‚  Ã‚  Ã‚  The members selected in the simulation are Daniel Nichols, Lisa Stafford, Nicola Minelli and John Connor. They all are good performers at work, which demonstrate that put in the right situation they can achieve and exceed their objectives. They all have different levels of aptitudes in areas such as manage conflicts, communicate with others, meet a deadline, analyze and report on a situation or take the appropriate actions to solve a problem. All these aptitudes were required at different levels to complete the... ...while â€Å"Perceivers† will keep their mind opened for new discussion and analysis. The Maslow’s Hierarchy of Needs   Ã‚  Ã‚  Ã‚  Ã‚  As George Hayhoe says, â€Å"Abraham Maslow's theory of the hierarchy of needs holds that much of human behavior is motivated by unsatisfied needs and the lower-level needs must be satisfied before higher-level needs can be addressed.† (Hayhoe, 2004). Maslow defines the human needs in five categories, often represented as a pyramid. From the bottom, one can find the â€Å"physiological† need such as food and water. The second level is the need for â€Å"safety†, which includes physical and emotional needs for safety. The third level is the â€Å"social† need, the need to belong to a group such as family or friends. The fourth level is the need for â€Å"esteem† such as being appreciated and being confident. The fifth and last level is the need for â€Å"self-actualization†. In this highest category, the objective is to achieve a level of competency in a certain activity or mastery of a skill (Jones, 2004). It is not for in dividuals to feel being better than others are, is to â€Å"have peace and satisfaction in who they are and what they are capable of doing† (Jones, 2004).

Do we have global culture? Essay

There are significant resonances here with academic depictions of globalization. I have argued elsewhere that an ‘economic-homogenization’ model of globalization is becoming increasingly dominant, in both academic and popular usage, which focuses attention on the improved combination of the global economy and its homogenizing effects on state policy and culture (Eschle 2004). Such a model is prevalent in International Relation (IR). It is characteristic of liberal IR approaches that support globalization, skeptical refutations of globalization as exaggerated and ideological, and critical IR theories that condemn globalization as profoundly damaging. It is with this last, critical, approach in IR that we find the strongest resonance with activist discourses. Both activist and academic critics share the assumption that globalization equates with the neo-liberal economic developments described above. Then, in an extremely significant move, these developments might be linked to the underlying structures of the economy and globalization reinterpreted as the latest stage of capitalism. According to Klein, ‘the critique of â€Å"capitalism† just saw a comeback of Santana-like proportions’ (2002:12). The global culture is usually used in contemporary academic discourse to distinguish the experience of everyday life in specific, exclusive localities. It reflects ordinary peoples’ feelings of suitability, comfort, and precision attributes that define personal preferences and rapidly varying tastes. In this framework, it is hard to argue that an overarching, global culture in fact exists. Jet-setting sophisticates can feel comfortable operating in a global network severed from specific localities, but the numbers involved are, as yet, insufficient to comprise a rational cultural system. For the majority people, place and locality still matter. Even the diasporic discussed by Appadurai are entrenched in local communities (sometimes several) tied together by universal perceptions of what constitutes a proper and fulfilling lifestyle. Many software engineers and Internet entrepreneurs who live and work in Silicon Valley, California, maintain homes (and strong social ties) in the Indian states of Maharashtra and Punjab. Rather than searching for substantiation that a world culture already exists, a more productive approach is to focus on features of life that are affected by the globalizing process. Modern research by anthropologists and media specialists makes obvious that globalism is not an invincible, unidirectional force that levels everything in its path. David and Anthony McGrew have depicted recent debates over globalization as divided among three general positions: the hyperglobalist, the skeptic, and the transformationalist. Briefly, the hyperglobalist understands contemporary globalization as heralding a new epoch of human history driven by the free movement of global capital and characterized by the inevitable rise of a world civilization that will result in the end of the nation-state. The skeptic, on the other hand, argues that this understanding of globalization is greatly exaggerated. Focusing on economic factors, the skeptic argues that there is nothing unprecedented about current levels of national interdependence, and that nation-states continue to be and will remain the primary political and economic actors in international affairs for the foreseeable future. In contrast, the transformationalist understands the current epoch as one of unprecedented change. But unlike the hyperglobalist, the transformationalist argues that the direction of this process remains uncertain and in contest. The transformationalist disputes the claim that the sovereign state is a thing of the past, but also challenges the claim that states remain as strong as ever. He argues rather that globalization transforms the relationship between states, markets, sovereignty, and the transnational sphere. It challenges the governing and legitimating capacities of old political arrangements, domestically and internationally. And it thus adds new incentives to the search for political innovation. (David and Anthony McGrew, 2002) To understand cultural changes one must draw a feature between form and content. Outward appearance and first impressions are approximately always deceptive; what matters most is the inner meaning that people consign to a cultural innovation. numerous theorists, including both opponents and proponents of globalism, task their own attitudes onto the people they assert to represent assuming that all humans see the world in the similar way. The perceived â€Å"sameness† of global culture often reveals the expectations of the analysts, relatively than the perceptions of those who are the subjects of analysis. Misunderstandings of this nature thrive in the literature devoted to globalism.

What Makes One Human and What Makes One Animal Essay

Gulliver’s Travels exposes the interdependency between both human and animalistic behaviors. In these travels, the word â€Å"human† does not necessarily belong to a certain species, but is rather a characteristic of reason based on the social norms of a particular society. It also claims that animals lack reason and therefore are subdued by those with reason. Since Gulliver finds that humans are the only animals capable of reason, he sees humanity in the Houyhnhnms, who are completely governed by reason, as these noble Houyhnhnms are endowed by Nature with a general disposition to all virtues, and have no conceptions or ideas of what is evil in a rational creature, so their grand maxim is, to cultivate Reason, and to be wholly governed by†¦show more content†¦The enemy was so frightened when they saw me, they leaped out of their ships† (Swift 50). Gulliver facilities the attack of on the Blefuscians, showing his animalistic inclinations in the processs . In other instances, Gulliver behaves like an animal outside of the war zone, especially in his social interactions with the Lilliputians. He defecates in public gatherings, leaving his fecal matter to be disposed of by the Lilliputians (Humans). This shows their human civility by illustrating their tendency to attend to the needs of something animals (such as Gulliver, in this case) cannot. Like an animal, Gulliver is treated as an inferior species; his uncivilized inclination to urinate on the Queen’s chambers causes him to face charges of being executed execution at the hands of the Lilliputians, â€Å"the heat I had contracted by coming very near the flames, and by my labouring to quench them, made the wine begin to operate by urine; †¦. In three minutes the fire was wholly extinguished, and the rest of that noble pile, which had cost so many ages in erecting, preserved from destruction† ( Swift 92). Gulliver tries to appeal to the compassion of the Lil liputians at hand, but his action, like that of an animal, is portrayed as rash. He not only puts himself in danger by nearly self-immolating, but also puts the whole society in danger by making the queens chambers uninhabitable and hazardous for anyone to dwell in. On his second journey, toShow MoreRelatedThe On The Begging Of Time1147 Words   |  5 Pageswhere animals land animals lived, a liquid planet where amphibious animals lived, and a gas planet where winged animals lived. All three planets were connected by bridges that were made of pure energy. There was a problem Spicious only allowed humans to travel between the planets the other animals had to stay on their planet. Spicious gave all of the animals enough to survive for a period of time but after the resources were depleted the animals would die. 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Value Investing Predicting Long-Term Protability Based on Fundamental Data Free Essays

string(38) " States iii Chapter 1 Introduction 1\." Value Investing: Predicting Long-term Pro? tability Based on Fundamental Data An Empirical Study in the Manufacturing Industry by Vital Schwander (05-609-136) Master’s Thesis supervised by Prof. Dr. Andreas Gruner University of St. We will write a custom essay sample on Value Investing: Predicting Long-Term Pro?tability Based on Fundamental Data or any similar topic only for you Order Now Gallen May 23, 2011 Master in Law Economics Abstract Warren Bu? ett (1992) classi? es the discussion about value and growth stocks as fuzzy thinking. With that statement, he argues that value investors must consider growth in their value calculations. This thesis shows in a ? rst step that growth is only valuable if the company enjoys a durable competitive advantage. By examining the fundamental characteristics of companies with a durable competitive advantage, this thesis intends in a second step to assess the predictability of long-term pro? tability. The DuPont Identity serves as framework for that purpose. The objects of this investigation are companies within the manufacturing industry (Primary SIC Code between 2000-3999) that were listed in the United States between 1979 and 2009. The results show that companies with a durable competitive advantage exhibit speci? c characteristics in operating e? ciency, asset use e? ciency, and in the ability to meet short-term obligations. Furthermore, the thesis shows that long-term pro? tability, based on the investigated characteristics, is predictable to some extent. This thesis concludes by assembling the insights to a value strategy that is applied to manufacturing companies listed in Switzerland. The strategy exhibits an outstanding SMI-adj. compound annual growth rate of 13. 19% over a period of 17. 5 years. ii Acknowledgement I would like to express my gratitude to Prof. Dr. Andreas Gruner for supervising this thesis and his assistant Lucia Ehn for her conceptual advices. I have furthermore to thank Mr. Hans Ulrich Jost for giving me insight into the daily business of a value fund at UBS AG. My sister Daria introduced me to R and Latex. I want to thank her for her help and support. I want to thank my great family who has been always supportive and motivating. Finally, I also would like to thank friends and colleagues for making life such an enjoyable experience. iii Contents 1 Introduction 1. 1 1. 2 Issues, Goals and Limitations . . . . . . . . . . . . . . . . . . . . . . . . . Structure and Empirical Approach . . . . . . . . . . . . . . . . . . . . . . 1 1 2 4 4 5 7 7 8 2 Value Investing—An Investment Paradigm 2. 2. 2 2. 3 The Origin of Value Investing . . . . . . . . . . . . . . . . . . . . . . . . . Value and Other Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . Four Value Strategies by Illustration . . . . . . . . . . . . . . . . . . . . . 2. 3. 1 2. 3. 2 2. 3. 3 2. 3. 4 2. 4 2. 5 Piotroski’s F_Score . . . . . . . . . . . . . . . . . . . . . . . . . . Walter and Edwin Schloss . . . . . . . . . . . . . . . . . . . . . . . Warren Bu? ett . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 UBS EMU Value Focus Fund . . . . . . . . . . . . . . . . . . . . . 12 Value vs Growth—Fuzzy Thinking! . . . . . . . . . . . . . . . . . . . . . 13 Value Anomaly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2. 5. 1 2. 5. 2 2. 5. 3 Behavioral Approach . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Risk-based Approach . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Competitive Advantage Based Approach . . . . . . . . . . . . . . . 16 17 3 Literature Review 3. 1 3. 2 3. 3 Competitive Advantage . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Pro? tability Measurements . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Research Gap and General Approach . . . . . . . . . . . . . . . . . . . . 21 22 4 Analysis of Long-term Pro? tability 4. 1 4. 2 Data Sample . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Analysis of Return on Equity Measure . . . . . . . . . . . . . . . . . . . . 26 4. 2. 1 Superior Performers . . . . . . . . . . . . . . . . . . . . . . . . . . 26 iv 4. 2. 2 4. 2. 3 4. 3 4. 4 4. 5 4. 6 Analysis of Performance Persistence . . . . . . . . . . . . . . . . . 28 Analysis of SPP Deciles in respect of ROE . . . . . . . . . . . . . . 30 Analysis of SPP Deciles in respect of other Financial Measures . . . . . 33 Predictability of Long-term Pro? tability . . . . . . . . . . . . . . . . . . . 41 Discussion of the Interim Results . . . . . . . . . . . . . . . . . . . . . . . 43 Market Analysis 4. 6. 1 4. 6. 2 4. 6. 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Subdivision-speci? c Market Analysis . . . . . . . . . . . . . . . . . 45 Analysis of SPP Deciles in respect of Market Multiples . . . . . . . 45 Market Performance Analysis . . . . . . . . . . . . . . . . . . . . . 46 48 5 Value Strategy 5. 1 5. 1. 1 5. 1. 2 5. 1. 3 5. 2 Strategy Composition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Sample Descriptives and Strategy Composition . . . . . . . . . . . 48 Portfolio Formation . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Performance Measurement . . . . . . . . . . . . . . . . . . . . . . . 49 Portfolio Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 53 6 Conclusion and Further Research 6. 1 6. 2 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Further Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 56 i v x xv Bibliography A Data Input B Financial Measures C Subdivisions D Market Analysis List of Tables 4. 1 4. 2 4. 3 4. 4 4. 5 4. 6 4. 7 4. 8 4. 9 5. 1 COMPUSTAT Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Distribution of Firm Years Distribution of Superior Performance Years . . . . . . . . . . . . . . . . . 27 Probability Distribution of Superior Performance Persistence . . . . . . . 29 ROE Distribution for each SPP Decile . . . . . . . . . . . . . . . . . . . . 31 ROE Distribution for each SPP Decile (Subdivision-adjusted) . . . . . . . 32 Financial Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 . . . . . . . . . . . . . . . . . . 47 Predictability of Future Pro? tability . . . . . . . . . . . . . . . . . . . . . 42 Market Performance for each SPP Decile Portfolio Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 . . . . . . . . . . . . . . . . . . . . . . . . i ii v A. 1 Data Input for US Companies A. 2 Data Input for Swiss Companies . . . . . . . . . . . . . . . . . . . . . . . B. 1 Calculation of the Financial Measures . . . . . . . . . . . . . . . . . . . . B. 2 SPP Deciles (Subdivision-adjusted) regarding Financial Measures . . . . vii x xi C. Overview of Subdivision . . . . . . . . . . . . . . . . . . . . . . . . . . . . C. 2 Subdivision Comparison regarding ROE . . . . . . . . . . . . . . . . . . . C. 4 Composition of SPP Deciles regarding Subdivisions C. 3 Subdivision Distribution in respect of SPP Deciles . . . . . . . . . . . . . xii . . . . . . . . . . . . xiii D. 1 Average Price-Earnings Ratio per Subdivision . . . . . . . . . . . . . . . . xvi D. 2 Average Book-to-Market Ratio per Subdivision . . . . . . . . . . . . . . . xvii D. 3 Average Price-Earning Ratio per SPP Decile D. 4 Average Book-to-Market Ratio per SPP Decile . . . . . . . . . . . . . . . xviii . . . . . . . . . . . . . . . xix vi List of Figures 3. 1 4. 1 4. 2 4. 3 5. 1 Three Slices of Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 . . . . . . . . . . . . . . . . . . . . . . . 33 . . . . . . . . . . . . . . . . . . 47 Mean ROE for each SPP Decile SPP Deciles in terms of Financial Measures . . . . . . . . . . . . . . . . . 40 Market Performance for each SPP Decile Performance of the Value Strategy . . . . . . . . . . . . . . . . . . . . . . 51 . . . . . . . . . . . . . . . . . . . . . . . . . . . xiv C. 1 Subdivision Distribution vii List of Abbreviations vg. B/M CAP CAGR CAPM COGS DA EBITDA etc. e. g. EV FCF IE i. e. IPO LT p. a. P/E ROA ROE SGA SMI ST US average Book-to-Market Competitive Advantage Period Compound Annual Growth Rate Capital Asset Pricing Model Cost of Goods Sold Depreciation and Amortization Earnings before Interest, Taxes, Depreciation and Amortization et cetera exempli gratio – for example Enterprise Value Free Cash Flow Interest Expense id est – that is Initial Public O? ering Long-term per annum Price-Earnings Return on Assets Return on Equity Selling, General, and Administration Swiss Market Index Short-term United States iii Chapter 1 Introduction 1. You read "Value Investing: Predicting Long-Term Pro?tability Based on Fundamental Data" in category "Papers" 1 Issues, Goals and Limitations Every investor is looking to buy low and sell high. This do es not yet characterize a value investor. Although value investing has become a widely used term, it has been stamped in particular by a small group of academics. They associate stock-speci? c fundamentals such as a low P/E ratio, low cash-? ow-to-price ratio, and high B/M ratio to value stocks. These stock-speci? c fundamentals have become characterizing for value investing and embody the basis for many research studies about value investing (see Damodaran, 2011). For example, Piotroski (2000) developed the F_Score to separate losers from winners among value stocks (i. e. high B/M-stocks). On the other hand, research has been conducted on growth stocks (i. e. high P/E ratio, high cash-? ow-to-price ratio, and low B/M ratio). Mohanram (2005) developed the GSCORE to separate losers from winners among growth stocks, for instance. As a consequence, many investors feel compelled to decide between value and growth stocks. However, in the heated discussion it is often ignored that growth has an impact on the value of a company. This impact of growth varies according to the particular company from negligible to very important, and its impact can be negative as well as positive. Growth is valuable in particular if a company enjoys a durable competitive advantage and remains very pro? table over a long period of time. There are many books about the competitive advantage (e. g. Porter, 1998; Shapiro, 1999). However, it has never been discussed related to value investing. Only Mauboussin and Johnson (1997) have raised a discussion about the competitive advantage period within the valuation process of stocks. They point out in their paper „Competitive Advantage Period: The Neglected Value Driver† that the persistence of competitive 1 advantage has a huge impact on the value of a ? rm. Yet there is little literature on this topic (see Fritz, 2008) and the bulk of academics as well as practitioners still rely mainly on the di? erentiation between value and growth stocks. This thesis gives priority to the competitive advantage, though, and intends to lay the groundwork for valuing competitive advantage. It is important to understand how a competitive advantage can be captured and if it is possible to predict long-term pro? ability, before starting to value the growth potential of a company. Hence, the aim of the thesis is con? ned to the predictability of long-term pro? tability and does not intend to value the competitive advantage as such. The ? rst question that arises in this context is whether it is possible that a company can exhibit long-term pro? tability. The answer to t his question is of interest, as most economists maintain the contrary. According to economic theory, pro? tability is mean reverting in a competitive environment (Chan, Karceski and Lakonishiok, 2003). However, reality teaches us the contrary every day. Mircrosoft’s products, for instance, are everything else but innovative. Nevertheless, the company earns excessive returns for decades, and so do others like The Coca-Cola Company. Thus, this thesis investigates the possibility that a company is able to sustain its competitive advantage over several years. Thereupon, the second issue addresses whether companies with a durable competitive advantage exhibit stock-speci? c fundamental characteristics. Therefore, the DuPont Identity serves as framework. The companies are classi? ed into deciles in terms of pro? tability (i. e. ROE) and persistence. Upon this, the companies are tested for the characteristics regarding various measures, which are derived mainly from the DuPont Identity. All companies that are objects of the investigation are listed in the United States and constrained to manufacturing companies only. The third question addresses whether it is possible to identify companies with a durable competitive advantage based on the observed characteristics. Finally, a simple strategy is composed that implements the investigated characteristics of companies with a durable competitive advantage. The strategy is conducted on manufacturing companies that are listed on a Swiss stock exchange. 1. 2 Structure and Empirical Approach The present thesis is structured in mainly four parts: Chapter 2 reviews literature on value investing and points out the broad range of value strategies by the mean of four examples. The reader shall gain an overview of value investing (i. e. the origin of value investing, dissociation from other investors, and current value discussion). Additionally, 2 this chapter shall point out the link between value investing and the competitive advantage period. Chapter 3 contains a literature review about competitive advantage, pro? tability measures and the persistence of pro? tability. Moreover, chapter 3 shows the research gap as well as the general approach to ? ll this gap. The empirical part in chapter 4 deals mainly with three issues: (1) persistence of superior performance, (2) characteristics of companies with a competitive advantage, and (3) predictability of future long-term pro? tability. Finally, in chapter 5 a value strategy will be composed that builds on the insights of chapter 4. 3 Chapter 2 Value Investing—An Investment Paradigm 2. 1 The Origin of Value Investing Value investing is an investment paradigm that derives its origin from the ideas on investment and speculation subsequently developed and re? ned by Benjamin Graham and David Dodd through various editions of their famous book Security Analysis. Starting in 1928, Graham began to teach a course on security analysis at Columbia University. The book emerged from that course, and appeared in 1934. Graham and Dodd mainly summed up lessons learned from the previous economic crisis in 1929 and provided readers with inevitable principles and techniques by focusing on the analysis of fundamental ? gures to estimate the value lying behind securities. By publishing the ? rst professional book about investing, they laid the foundation of value investing. In 1949, Graham published his second book, The Intelligent Investor, which was described by Warren Bu? ett (Graham, 2003) as „by far the best book on investing ever written. † It contains mainly the same ideas as in its predecessor Security Analysis, but focuses more on the emotional aspects of stock markets, rather than on analyzing techniques. The techniques to determine investment opportunities that Graham and Dodd have developed are based on two fundamental assumptions about the market: 1. Market prices of securities are sometimes subject to signi? cant and unforeseeable movements. 2. As opposed to the e? cient market hypothesis, which assumes that all stocks are correctly priced by the market at any one point in time, market prices of some 4 securities deviate from their intrinsic values from time to time despite the fact that their underlying economic values do not justify such signi? cant deviation. Hence, an intelligent investment is characterized as paying less for a security then its intrinsic value. Paying more for a stock than its intrinsic value in the hope that it can be sold for a higher price is speculative. In other words, an intelligent investor should not attempt to forecast future stock market movements; instead, such movements provide opportunities to purchase undervalued stocks. Moreover, investors are encouraged to purchase securities only when the market price is su? ciently below its intrinsic value. Graham (2003) referred to this signi? cant gap between price and intrinsic value as the margin of safety, and quali? ed it as central concept of investment. In practice, investors lay down di? erent margins of safety that are appropriate to their fundamental analysis. A super? ial analysis requires a higher margin of safety than a deep and broad analysis. Additionally, market conditions as well as the sizes of funds gives reason for di? erent margins of safety. Bu? ett states in his letters to the shareholders of Berkshire Hathaway, Inc. in 1992: „We have seen cause to make only one change in this creed: Because of both market conditions and our size, we now substitute ,an att ractive price’ for ,a very attractive price’ (p. 12). † Yee (2008) suggests a margin of safety between 10% and 25% of the share price. Larger margins are justi? ed for especially risky stocks. Accordingly, the margin of safety is not a rigid safety net but rather a ? exible net with meshes, which must be properly adjusted to the speci? c needs and conditions from time to time. 2. 2 Value and Other Investors Classic value investors—in the sense of Graham and Dodd—are rare. Every investor is looking to buy low and sell high, but what exactly di? erentiates a real value investor from all the other investors? According to Greenwald, Kahn, Sonkin, van Biema (2001), investors can be di? erentiated into two main categories. The ? rst category pays no attention to fundamental analysis. Instead, these investors analyze charts; in particular they construct charts to represent trading data (e. g. price movements and volume ? gures). In other words, they intend to predict future price movements referring to previous events regardless of its fundamental value (pp. 5-6). Graham and Dodd qualify these investments as highly speculative. 5 Although the second category focuses admittedly on fundamental analysis, Graham and Dood value investors are still a minuscule minority. Greenwald, Kahn, Sonkin, van Biema (2001) divide these fundamentalists into those who ocus on macroeconomics and those who deal with the microeconomics of securities. Macro-fundamentalists often pursue a top-down approach by considering ? rst broad economic factors such as interest rate, in? ation rate, exchange rate, unemployment rate, and the like. They forecast economic trends on a broad national or even worldwide basis. Upon this, they decide whether a group or even a speci? c security is a? ected by this trend. They do not calculate the value of individual securities, though. In particular, they monitor policy makers, such as the central bank, and try then to determine the impact on a speci? industry or group of securities. As any other investor, they attempt to forecast price movements before other investors recognize them and subsequently buy low and sell high, but they do not calculate the intrinsic value of an individual security directly (pp. 6-7). Graham and Dodd originally established value investing as a comprehensive analysis of securities in order to estimate the intrinsic value as accurately as possible, but in the group of micro-fundamentalists, traditional value investors are still a minority. According to Greenwald, Kahn, Sonkin, van Biema (2001), a more common approach takes the current price of a stock as the point of departure. These investors analyze the history of a security, considering how the stock price was in? uenced by changes in the underlying economic factors. In a second step they then attempt to predict the probability and impact of such changes in order to forecast future development of the speci? c security. These kind of investors often forecast future earnings or free cash ? ows. If they ? d that their predictions are more optimistic than the market’s expectation, they buy the security; if they ? nd that the market’s overall expectation is to high compared to their forecast they sell the security (p. 7). Indeed, most value investors—in the sense of Graham and Dodd—start their analysis from the bottom up by calculating ? rst the intrinsic value of a ? rm and subsequently they estimate the macroeconomic exposure of the ? rmâ₠¬â€similar to the micro-fundamentalists. Although there are some similarities, Graham and Dodd value investors distinguish themselves from micro-fundamentalists in many ways. Greenwald, Kahn, Sonkin, van Biema (2001) mention two reasons why most micro-fundamentalists are not value investors: First, they focus on prior and anticipated changes in prices, and not on the level of prices relative to underlying values. The second and even more decisive di? erence is the absence of a margin of safety to safeguard investors from unpredictable market movements (pp. 7-8). Accordingly, a true value investor in the classical sense is one whose point of de6 parture is the fundamental data of a company. Although macro-economic factors play a signi? cant role in the analysis, they are of secondary importance. Furthermore, this investor does not predict future developments of key factors that cause price changes. Instead, a classic value investor values a company based on current fundamentals and buys a security at a bargain price. In the following section, four value strategies are outlined in order to give an idea by the way of illustration. 2. 3 Four Value Strategies by Illustration The range of value strategies is broad enough that it makes it impossible to sum up all of them. Thus, the following selection intends to show the large variety of aspects that these strategies characterize. These aspects range from fundamental analysis only (e. . Piotroski) to more sophisticated investigation of companies (e. g. Bu? ett), from concentrated portfolios (e. g. UBS EMU Value Focus Fund) to diversi? ed portfolios (e. g. Schloss). 2. 3. 1 Piotroski’s F_Score Piotroski started his career as a professor at the University of Chicago Graduate School, and since 2007 he has taught accounting at the Stanford University Graduate School of Business. In April 2000, Piotroski published a paper in the Journal of Accounting research titled „Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers. In this paper, Piotroski classi? es distressed companies in winners and losers by means of nine fundamental criteria. Four criteria (ROA, ? ROA, CFO, and ACCRUAL) re? ect the pro? tability, three criteria (? LEVER, ? LIQUID, future debt obligations, and two criteria (? MARGIN, and ? TURN) measure changes F_Score is composed as follows: F _Score =F _ROA + F _ ? ROA + F _CF O + F _ACCRU AL + F _ ? LIQU ID + EQ_OF F ER and EQ_OFFER) measure changes in capital structure and the ? rm’s ability to meet in the e? ciency of the ? rm’s operations (Piotroski, 2000, pp. 10-14). The equation of the + F _ ? M ARGIN + F _ ? T U RN + F _ ? LEV ER (2. 1) where a low F_Score signals a ? rm with less recovering potential and a high score indicates the ? rm as having mostly good prospects to recover. If a company ful? lls a criteria, 7 the F_criteria equals 1, otherwise 0. With that, Piotroski translates the criteria into binary signals. The sum of all F_criteria subsequently leads to the F_Score, which can range from a low of 0 to a high of 9. Due to the fact that it is very di? cult to obtain the maximal score, companies with a minimum score of 8 will be classi? d as high F_Score whereas as companies with a score of 0 or 1 are classi? ed as low F_Score (Piotroski, 2000, pp. 14-18). Piotroski (2000) reevaluates the stocks every year and decides whether a stock belongs to the losers or to the winners. Finally, the investment strategy buys high F_Score and sells short the low F_Score. This simple strategy generates over two decades an astonishing 23% average annual return. It appears that the strategy is also robust in crisis. In 2008, the American Association of Individual Investors tested the strategy among 50 other investment strategies. With a performance through to the end of 2008 of 32. 6%, it was not only the only stock strategy that would have generated positive returns but has also outperformed the median performance (-41. 7%) of all tested strategies by far (Thorp, 2009). Due to the fact that the portfolio is construed each year on actual data, it is often the case that the portfolio is turning over correspondingly. Once a ? rm is recovering and the market has recognized the improvements the B/M ratio increases and the stock does not appear any more on the screen, although the company has even more growth potential. That is why many ? ms remain no longer than one or two years in the portfolio. Admittedly, buying winners and short-selling losers is one big advantage of the strategy. Companies that are classi? ed as losers may transform in a subsequent period from a low F_Score to a high F_Score ? rm. Therefore, the strategy makes double use of a company’s development or business cycle. But the strategy a lso implies a disadvantage; why should an investor sell an excellent business that bought at a bargain price? Based on a competitive advantage, the business could thrive to a superstar and yield high returns on the initial investment. A top manager also keeps the good business also when others o? er more than its current value because the manager knows that the business will contribute also in the future to the ? rm and its shareholders. 2. 3. 2 Walter and Edwin Schloss Walter Schloss and his son Edwin are very conservative value investors whose motto is to keep things simple and cheap. Walter Schloss attended a course of Graham’s and worked for the Graham-Newman Partnership until 1955. Afterward, he ran his own investment ? rm and in 1973 his son Edwin joined the partnership. From the formation of the limited 8 artnership until 2000, the Schloss have provided their investors an annual compound return of 15. 3%. They outperformed the SP Industrial Index by 4. 2% annually. In other words, they have created a return of 66,200% while the SP Industrial Index performed 11,800% (Greenwald, Kahn, Sonkin, van Biema, 2001, p. 263). Walter Schloss has been titled by Warren Bu? ett as „superinvestor† (Forb es, 2008). What distinguishes the Schlosses from other value investors is their simple, and almost rudimentary method choosing stocks. They are among the few investors that stick to the principles of the father of value investing. Like Graham, they seek for stocks that are priced lower than their working capital (net assets minus current liabilities). They start their investigation by putting their feelers out to stocks that are unloved, distressed, and unheeded from other investors. Most of these stocks are in a downward trend either by a rapid plunge or a continually decreasing price. The longer the company has gone through such hard times, the more they call the Schloss’s attention. Once they have invested in such a unloved stock they hold it on average for four to ? ve years until the stock has recovered. Sometimes they also sell a stock earlier when they ? d a better opportunity (Greenwald, Kahn, Sonkin, van Biema, 2001, pp. 266-269). Edwin Schloss focuses on asset values, but is also willing to buy a company that has a strong earnings power. Greenwald, Kahn, Sonkin, van Biema (2001) describe the investment philosophy of Edwin Schloss as follows: „Edwin Schloss pays attention to asset values, but he is more willing to look at a company’s earnings power. He does want some asset protection. If he ? nds a cheap stock based on normalized earnings power, he generally will not consider it if he has to pay more than three times book value. [†¦ Depending on his estimate of what the companies can earn, Edwin may still ? nd the stock cheap enough to buy (p. 268). † Although Edwin pursues a more liberal value approach by taking the earnings power value into account, he is still very conservative. Both father and son do not include in their valuation process other than fundamental data. In their analysis, they rely entirely on annual and quarterly reports—they keep things simple but with a relatively high margin of safety. The diversi? cation of their portfolio also varies. They do not determine a threshold in advance to which they stick. Similar to Warren Bu? ett, their approach leads them to industries, which are not exposed too much to rapid changes that can undermine the value of these stocks (Greenwald, Kahn, Sonkin, van Biema, 2001, p. 269). 9 2. 3. 3 Warren Bu? ett Warren Bu? ett, who is doubtless the most famous student of Graham and one of the most successful investors, too, pursues a simple strategy, which is complex and di? cult in its execution. Bu? ett started his career in Graham’s investment ? rm. In 1964, he then bought shares of Berkshire, when its book value per share was $19. 46 and its intrinsic value even lower (Bu? tt and Cunningham, 1997, p. 6). In the period from 1964 to 2009, book value per share increased at an annual compound rate of 20. 3% that is an overall gain of 434,057 %. Adjusted by the SP with dividends included, Berkshire has a compound annual growth rate of 11%. During the period, Berkshire reported only twice a negative change in book value—in 2001 and 2008—co mpared to the SP that incurred during the same period eight negative results (Bu? ett, 2009, p. 2). Unlike other investors, Bu? ett feels obliged to share his knowledge that he gained mainly from Graham. Moreover, and opposed to the bulk of successful investors, he teaches his wisdom to the world of investors—and those who are interested in his activity— by an annual letter to the shareholders of Berkshire Hathaway, Inc. To attain this knowledge it is not necessary to buy a share of Berkshire Hathaway, Inc. —which costs currently over $125,000, nor is it necessary to pay any money for it. Bu? ett gives access to his letter on the Berkshire’s website for free. Additionally, in the book called The Essays Of Warren Bu? ett—Lessons For Corporate America, Cunningham organizes the information in Bu? tt’s letters in a thematic way. This book is also accessible online and can be downloaded for free. Bu? ett is aware that he creates potential investment competitors by passing his wisdom to everyone but imitating Bu? ett’s strategy is everything but simple. His explanations are logical and easy to understand, but the execution requires much expe rience and a distinctive comprehension of the industry and costumer behavior. In contrast to what Piotroski and other academics and money managers postulate, Bu? ett buys not only high B/M stocks. This amazes readers in many ways. In particular, because Bu? tt refers in several passages of his letters to Graham’s conception. It also contradicts the conceptions of most academics, which assign a high B/M ratio to value stocks. Nonetheless, Bu? ett puts emphasis not only on the book value of a company but more on the competitive advantage that a company enjoys. Like Graham, he is looking primarily for very cheap businesses, which are traded far under their intrinsic values. As opposed to Graham, Bu? ett buys not every stock that Mr. Market o? ers him for a bargain price. Additionally, he seeks for businesses with a high competitive advantage. While most ? rms in Graham’s portfolio are distressed, Graham diversi? es the risk. Bu? ett, on the other hand, holds that an investor should not buy second-class stocks 10 in the hope that they will recover. The awareness of less investment opportunities does not bother Bu? ett; au contraire, he avoids purchases that he will regret later. According to him, every transaction that is based on a wrong decision is unnecessary, and thus, to be avoided. One could say that transaction costs (e. g. trading costs) are tiny, that they carry no weight. But what most people disregard are taxes. With every transaction, book value is going to be reevaluated and governments levy taxes on the new value. Holding a share does not cause any taxes, as long as the investment will be sold. Therewith, Bu? ett did not pay taxes as much as his colleagues that trade frequently. Either way, Bu? ett’s preferred holding period is forever. This strategy particularly bene? ts private investors that have bought stocks of Berkshire Hathaway. At least in Switzerland, the government does not impose taxes on capital gains. In the shareholder letter from 1992, Bu? tt breaks his strategy down to a few cornerstones of the valuation process: „We select our marketable equity securities in much the way we would evaluate a business for acquisition in its entirety. We want the business to be one (a) that we can understand; (b) with favorable long-term prospects; (c) operated by honest and competent people; and (d) available at a very attractive price (p. 12). † First, Bu? ett never buys a business that he does not understand entirely. This requires a full comprehension about the industry such as competitors, value chain, costumers, and so on. For this reason, Bu? tt avoids industries with a high rate of change (e. g. technology industry). The second criterion that a business must live up to is a competitive advantage. Preferably, he is looking for businesses that have potential to improve their competitive positions within the industry. Third, but less important, Buffett is looking for competent management. It is less important, because according to him a company with a durable competitive advantage can even operate with ordinary managers and generate extraordinary returns (Bu? ett and Cunningham, 1997, p. 21). Finally, a margin of safety prevents Warren Bu? tt from mistakes or unforeseeable developments. It seems that soft factors play an important role for him in the valuation process. Correspondingly, fundamental analysis is only half the battle. The following quote from Warren Bu? ett in the context of the hostile takeover of RJR Nabisco outlines the kind of business Bu? ett likes: „I’ll tell you why I like the cigarette business. It costs a penny to make. Sell it for a dollar. It’s addictive. And there’s fantastic brand loyalty (Burrough and Helyar, 1991, p. 218). † 11 For this reason, Bu? ett also accepts businesses that do not always have a high B/M ratio. Moreover, he seeks for businesses that have potential for improvements and buys them at a relative bargain price in the hope the business remains its advantage and yields high returns in the future. 2. 3. 4 UBS EMU Value Focus Fund The UBS EMU Value Focus Fund is a highly concentrated and actively managed European equity fund, which holds maximally ten stocks, where each has an initial weight of 10%. The investment process is divided into seven steps (Screening process; Short list; Pre due diligence; Full due diligence; Watch list; Entry, increase/reduce position; and Exit). First, the stock universe is screened by a quantitative approach (EV/EBITDA, P/E, B/M, FCF yield) and by a qualitative approach. Second, in the due diligence process the team meets the management of the target company, they compare the company within the peer group, and determine the fair value and entry level. The team gives particular importance to the within-industry comparisons and a margin of safety of 30%. After the stock is over the due diligence, the stock is deposited on the watch list until the entry level is reached. The stock remains in the portfolio until the stock has recovered and the calculated air value is reached and the weight of the stock is less than 15% of the portfolio. If there is a more promising investment opportunity, a position will be changed. Based on the high portfolio concentration, a sector limitation makes sure that stocks which are stemming from the same sector do not surpass the threshold of 33%. If a stock’s price plunges after its purchase more than 15%, the management also pulls the trigger for safety reasons and sells the stock (UBS, 2010). The strategy of the UBS EMU Value Focus Fund equals in some aspects Warren Bu? ett’s strategy. Both distinguish themselves from Piotroski’s and Schlosser’s strategy insofar as they include a due diligence process that goes beyond a fundamental analysis (e. g. valuation of the management). Furthermore, both strategies do not strive for diversi? cation, although the UBS EMU Value Focus Fund includes some risk management factors that compel the management to exit in certain circumstances. Warren Bu? ett, on the other hand, restricts himself by avoiding complex businesses. The two strategies also di? er insofar as the UBS EMU Value Focus Fund has a relatively short investment horizon of 18 months, whereas Bu? tt holds a stock over decades. 12 2. 4 Value vs Growth—Fuzzy Thinking! Although there is a broad variety of value strategies, it seems that the discussion about value investing leaves little room for interpretation. Nowadays, the bulk of academics di? erentiate between value and growth (glamour) stocks. They ? nd that stock-speci? c fundamental attributes such as a low P/E ratio (Basu, 1977; Ja? e, Keim, and Wester? eld, 1989), low cash-? ow-to-price ratio (Chan, Hamao, and Lakonishok, 1991), and high B/M ratio (Rosenberg, Reid, and Lanstein, 1985; Fama and French, 1992) earn substantially higher returns than glamour stocks. Hence, often one feels compelled to decide between value investing and growth investing. In particular, academic work has upheld the distinction, and thus, has had a strong impact on investment professionals. Furthermore, academic research developed style-speci? c benchmarks (Chan and Lakonishok, 2004, p. 71). In that sense, value stocks are referred to a high B/M ratio, a low P/E ratio and a high dividend yield, whereas opposite characteristics—a low B/M ratio, a high P/E ratio and a low dividend yield—are assigned to growth stocks. Some professional investment managers even see a mix of the two approaches as a smart cross-dressing. Among others, Warren Bu? ett labels this classi? cation as fuzzy thinking. Bu? ett argues that growth is always a component in the calculation of value. Nonetheless, he does not neglect that the importance of the growth component varies from negligible to very important and its impact can be positive as well as negative. Thus, a low B/M ratio, a high P/E ratio, and a low dividend yield is not per se inconsistent with „value† purchases. Business growth has often a positive impact on value but tells us little about the intrinsic value of growth (Bu? ett, 1992, p. 12). All growth is not created equal, and thus must be di? erentiated. There is also value-destroying growth, which is not worth a penny. Bu? ett goes even further and scrutinizes the term value investing as such. According to him, the term is redundant because investing implies to pay less then the value of something (Bu? ett and Cunningham, 1998, p. 85). The origin of this fuzzy thinking constitutes the value anomaly that will be discussed in the following section. 2. 5 Value Anomaly Already Graham and Dodd (2008) hint at the discrepancy between market price and intrinsic value and the fact that the market often underestimates value stocks. This mispricing is called in the literature Value Anomaly. In the following section three explanations are outlined: i) a behavioral approach, ii) a risk-based approach, and iii) a competitive advantage based approach. 13 2. 5. 1 Behavioral Approach According to Graham and Dodd (2008), the irrational behavior of market participants can drive the price of a security in the wrong direction. As Graham outlined in his book the Intelligent Investor, emotions take part in the participant’s decisions, thus he rejects the E? cient-Market Hypothesis as well as the assumption of Homo Oeconomicus. Market participants are swayed either by positive emotions pushing up prices, or uncertainty and ? rce emotions cause a decline in prices. In general, both results in ine? cient and undesirable market upshots. De Bondt and Thaler (1985) already ? nd evidence that markets overact to unexpected and dramatic news events. Moreover, contagion ampli? es this process of counter-productive behavior, taking a central part of the game, especially in crisis when panics gain the upper hand and investors disinvest despite of existing reasons to act to the contrary. 1 Not only irrational behavior induces a discrepancy between market prices and intrinsic value. Discrepancies can also result from ? ms of little interest, and thus, small liquidity. In particular, small companies fall through the screening raster of professional investors. Once a professional investor manages a fund of a certain size, small investments are out of range. First, small companies are like gold dust, as a consequence thereof di? cult to ? nd, and second, the monitoring costs come along with the number of investments, which makes such companies unappealing. 2. 5. 2 Risk-based Approach Whereas Graham showed that behavioral aspects distort markets and cause a gap between intrinsic value and market value, many academics hold that the di? rence does not necessarily contradict the e? cient-market hypothesis. Some argue that higher returns simply compensate higher risk (Fama and French, 1994). As basis of this argumentation line served the Capital Asset Pricing Model (CAPM), which was developed independently by Sharpe (1964) and Linter (1965) in the 60’s based on Markovitz’s portfolio theory. The model shows the coherence between the expected return of individual securities and systematic risk (market risk). Whereby ? of a security is a parameter describing the relation of its return with that of the overall market. The equation of the CAPM can be summarized as follows: 1 Cella, Ellul, and Giannetti (2010) write in their paper about „Investors’ Horizon and the Ampli? cation of Market Shocks† that stocks which are held in a large part by short-term investors are more likely to plunge under their intrinsic value. They also instance that fund managers often follow restrictions, which do not lead to optimal purchases or sales. 14 E(Ri ) = Rf + ? i (E(Rm ) ? Rf ) (2. 2) where E(Ri ) is the expected return of a speci? c asset, Rf is the risk-free return rate, and E(Rm ) is the expected return of the market. Already Rosenberg, Reid, and Lanstein (1985) give rise to the assumption that the CAPM can not fully explain the correlation between expected returns and the risk of an individual security. As a one factor model implies, the CAPM oversimpli? es the complex market. Therefore, Fama and French (1992) introduced a three-factor model that is an extension of the CAPM. Basically, they improved the CAPM by adding two more factors: (i) they distinguished between high and low B/M ratio, and (ii) classi? ed stocks according to market capitalization (price per stock times number of shares outstanding). The equation of the extended CAPM can be summarized as following: r = Rf + (Km ? Rf ) + bs ? SM B + bv ? HM L + ? (2. 3) where Rf is the risk-free return rate, Km is the return of the entire stock market, SM B (small minus big) is the di? erence between small and big ? rms according to their market capitalization, HM L (high minus low) is the di? erence between high and low B/M ? rms, bs is the corresponding coe? cient to SM B, and bv is the corresponding coe? cient to HM L. Based on this, Fama and French (1992) argue that high B/M ? rms’ prospects are judged relative poorly to ? ms with low B/M ratios. As already postulated by Chan and Chen (1991), Fama and French also interpret high B/M ? rms as ? nancially distressed (see also Piotroski, 2000). They adduce the explanation that a high B/M ratio inheres in a relatively high ? rm’s market leverage compared to its book leverage. Furthermore, they ? nd that during some periods (at least ? ve years) low B/M ? rms remain m ore pro? table than high B/M ? rms. Fama and French (1992) argue that more risk is inherent with a higher B/M ratio. In other words, value stocks are riskier than „glamour† stocks. Opposed to this, Gri? and Lemmon (2002) show that large returns of high B/M ? rms are inconsistent with a risk-based explanation. Arshanapalli et al. (1998) show 15 that value stocks generally have a risk-adjusted performance superior to that of growth stocks (p. 23). Thus, the value anomaly can be traced back to a mispricing of stocks due to overly optimistic valuations of „glamour† ? rms. Once this mispricing is revealed, these ? rms earn negative excess returns. According to Chan and Lakonishok (2004), investors, in particular professional investment managers, focus their attention on apparent „glamour† stocks while stock prices of high B/M ? ms plunge under their fundamental value. Hence, investing in high B/M ? rms is likely to be a rewarded long-term investment st rategy (p. 85). Moreover, Anderson and Smith (2006) ? nd that a portfolio of the most admirable companies substantially outperforms the market, and thus contradicts the e? cient market hypothesis. As a consequence, the risk-based explanation has lost many of its supporters over the last years and the value anomaly remained unexplained. 2. 5. 3 Competitive Advantage Based Approach Although it is probably the closest explanation, academics rarely make the competitive advantage of a company accountable for the superior performance and excess returns of a company. According to them, competitive advantages must theoretically fade away. But in reality this is not always the case. New academic research indicates that the risk driver refers more to the riskiness of losing the competitive advantage (Mauboussin and Johnson, 1997; Greenwald, Kahn, Sonkin, and van Biema, 2001). This could be the case if new competitors enter the market and/or in industries where the rate of technology changes is high. On the one hand, new technologies open up new opportunities for existing players, but on the other hand, they also carry the risk that entrants come up with new products and technologies that force existing players to keep up with the changes. This kind of competition is often quite expensive and indicates that excess returns can be wrest away easily. Therefore the risk of businesses, which are exposed to such changes, is higher than of businesses that sell products with marginal changes. Of course, some companies even maintain their competitive advantages in fast-changing industries over decades (e. g. Microsoft, Inc. r maybe Facebook) due to customer retention and network e? ects, which create switching costs on the demand side and enormous costs to enter the market on the supply side. The mispricing of such companies that exhibit a durable competitive advantage originates from the complexity in identifying such companies in advance. The following chapter elaborates a bit more on t his and points out the state of the art as well as the existing research gap. 16 Chapter 3 Literature Review 3. 1 Competitive Advantage Competitive advantage is a central theme in value investing that has often gone forgotten in the heated debate about the value anomaly. Although an immense number of books and papers have been written about competitive advantage, it has not found proper entrance into the value discussion. Nonetheless, it is an essential part in the valuation process of a company. Greenwald, Kahn, Sonkin, and van Biema (2001) break the Graham and Dodd framework down to three main sources of value (see Figure 3. 1): (1) the asset value, (2) the earning power value, and (3) the value of growth. All three elements must be involved in the calculation of value—also growth (pp. 35-47). The asset value equals the reproduction costs of the assets and is therefore the most reliable source of value. The second most reliable measure of a ? rm’s intrinsic value is the value of its current earnings (earning power value). The earning power value equals current earnings divided by the cost of capital, assuming that the growth rate is zero. The deviation between the asset value and the earning power value equals the franchise of a company. What they call Franchise is referring to the competitive advantage and describes the same phenomenon—the ability to earn more on a ? rm’s assets than it is possible under perfect competition (p. 41). The least reliable source of value is growth, because it is the most di? ult element of value to estimate and therefore obtains last priority in the valuation process. According to Greenwald, Kahn, Sonkin, and van Biema (2001), growth is only valuable if it is within the franchise. Correspondingly, growth that only increases revenues, earnings or the assets of a ? rm does not create additional value. Growth is valuable only if a com pany can extend its pro? tability by the means of its competitive advantage. 17 Figure 3. 1: Three Slices of Value Nevertheless, excess returns, which exceed the cost of reproducing a ? rm’s assets, are under the assumption of perfect competition not possible (see Mankiw, 2004, pp. 4-65). As soon as a company earns more on its assets than its reproduction cost, it will attract new competitors, and thus, erode the excess returns until the earning power value equals the value of assets. However that may be, economic theory about perfect competition is seldom the case in reality. Some companies have enjoyed a competitive advantage even over decades (e. g. The Coca-Cola Company or Microsoft, Inc). There have been many research studies conducted on competitive advantage and a huge number of drivers have been found. 1 Without going too deeply into the di? rent drivers, it might be worth to mention the most common: searching costs, switching costs, and economies of scale. By the mea ns of switching costs, a company can create a lock-in: once somebody has chosen a technology, switching can be very expensive (Shapiro 1999, pp. 11-13). Microsoft, Inc. is probably the best example to illustrate a lock-in e? ect. Changing from MS O? ce Word to another writing program is costly. It raises the annoying problem that the formats are not compatible, and thus requires much e? ort that is more costly than remaining with MS O? ce Word. Switching costs can hange over time as buyers alter their products Thomas Fritz (2008) has conducted an extensive literature review of over 140 empirical investigations published between 1951 and 2007. He comes to the conclusion that the di? erent drivers for a competitive advantage are as manifold as the number of studies and that there is no such as a universally valid driver as one could assume. 1 18 and processes (Porter, 1998, p. 296). Another kind of lock-in occurs by search costs. Search costs occur as buyers and sellers attempt to ? n d each other and establish a business relationship (Shapiro, 1999, p. 26). Finally, a competitive advantage arises by economies of scale. Porter (1998) describes economies of scale as the ability to produce more e? ciently at a larger volume (p. 70). But one should note that economies of scale by themselves do not constitute a competitive advantage. In addition to economies of scale, it needs a demand advantage, which does not have to be big. Once a demand advantage exists, economies of scale in the cost structure will transform superior market share into lower costs, higher margins, and higher pro? tability (Greenwald, Kahn, Sonkin, and van Biema, 2001, p. 0). Correspondingly, products or services that pro? t from high purchase frequency often enjoy a demand advantage that derives from a habit (e. g. the cigarette industry). Still, it is not written in stone that a competitive advantage lasts for an in? nite period if once achieved. Although a vast number of studies examined the at tributes of a ? rm with a competitive advantage, considerably less studies have elaborated on the sustainability of a competitive advantage and the reason why some ? rms enjoy a competitive advantage for decades and other only over a short period. The in? ence of the Competitive Advantage Period (CAP) on the valuation of a ? rm’s shares has also been largely ignored by the literature, although the notion derives its origin from Miller and Modigliani (1961). The term itself appeared in the 90’s in numerous writings. The concept that was developed in Miller and Modigliani (1961)’s seminal paper on valuation can be summarized as follows: V alue = N OP AT I(ROIC ? W ACC)CAP + W ACC (W ACC) (1 + W ACC) (3. 1) where NOPAT represents net operating pro? t after tax, WACC represents weighted average cost of capital, I represents annualized new investment in working and ? ed capital, ROIC represents rate of return on invested capital, and CAP represents the competitive ad vantage period. The CAP can be identi? ed, as shown in Equation 3. 1, as a fundamental value driver among risk and cash ? ow. In order to get the CAP we can rearrange Equation 3. 1 as follows: CAP = V alue (W ACC ? N OP AT ) (1 + W ACC) I (ROIC ? W ACC) (3. 2) As Mauboussin and Johnson (1997) assert correctly, this equation has some shortcomings that constrain its practical scope, but it illustrates how the CAP can be con19 ceptualized in the valuation process. According to Mauboussin and Johnson, the key determinants of CAP can be captured by a handful of drivers. The ? rst key determinant is ROIC that re? ects the competitive position within an industry, whereas a high ROIC indicates a strong competitive position. Generally, it is costly for competitors to snatch competitive advantage from high-return companies. The second key determinant is equally important, and measures the rate of industry change. High returns in a fastgrowing industry do not have the same signi? cance as returns created in a stagnated or even shrinking industry. The third driver re? cts the barriers to entry, which is essential for sustainable high returns on invested capital (pp. 68-69). 3. 2 Pro? tability Measurements High-return companies, which have returns in excess of the cost of capital, also capture Warren Bu? ett’s attention. As Mauboussin and Johnson (1997) note, a constant CAP is contrary to economic theory, but it might be achieved through outstand ing management. However, companies with a stable CAP are everything but simple to ? nd (p. 71). As mentioned above, Equation 3. 2 has limited practical scope; thus, in order to evade this problem other performance measures have to be found. In practice, there are many di? erent performance measures, but this thesis will focus in particular on ROE. Fritz (2008) shows in his investigation that ROA and ROE are two of the most frequently applied accounting-based performance measures (p. 31) regarding competitive advantage investigations. Both are pro? tability measurements and capture the relation of return on applied capital. ROE measures how much pro? t a company generates for shareholders while ROA states how e? cient the asset management is. The higher the pro? tability, the better is a ? rm’s economy and the stronger its competitive advantage. Nowadays, less attention is paid to the ROE. Sharpe, Alexander and Bailey (1999) mention the ROE only marginally and Spremann (2007) devote less than one page to it. Nonetheless, ROE has not lost its usability entirely, but Spremann sees the reason for the decreasing importance in the fact that shareholders orient themselves more toward market values instead of book values. Provided that, market ratios (e. g. P/E ratio) gained increasingly attention. But since superior earnings are generated based on a competitive advantage, it must remain a core theme in the valuation process, in particular for the long-term investor. Pro? tability measurements tend to change over time; thus, forecasting future profitability is a task that many practitioners and academics would label speculative. On 20 the other side, pro? tability is mean reverting in a competitive environment. Thus, nothing is simpler than predicting long-term pro? tability, which must be zero in the long run. Freeman, Ohlson and Penman (1982) already found evidence that ROE follows a mean-reverting process. Almost twenty years later, Fama and French (2000) found strong evidence of mean-reverting process in terms of pro? ability and estimated a rate of mean reversion of 38% per year. Assuming a ? rm’s ROE of 20% above mean will shrink below one percent after ten years and therefore lose its competitive advantage—,this corresponds to 38% reversion rate. This is also in line with Chan, Karceski and Lakonishok (2003)’s expectation that superior operating performance cannot be sustained for more than ten consecutive years. Furth ermore, Fama and French (2000) show that mean reversion is faster below its mean and when it is further from its mean in either direction. However, Penman (1991) scrutinizes ROE regarding its su? iency to predict future pro? tability. According to him, ROE indeed exhibits a mean-reverting tendency, but it proves a too-strong persistence over time. Hence, he suggests that B/M multiples are better indicators of future ROE than current ROE, and a combination of both increases persistence in ROE even further. 3. 3 Research Gap and General Approach Some research has been conducted about predicting future pro? tability. Though these studies deal in particular with the issue of predicting the near future. Thus, this study claims high expectations by predicting long-term pro? ability, with the notion that „longterm† means in this study a period of ten years. There are several papers that postulate a mean reversion of pro? tability measures (Freeman, Ohlson and Penman, 1982; Penm an, 1991; Lipe and Kormendi, 1994; Fama and French, 2000; Nissim and Penman, 2001). Soliman (2008) forecasts out-of-sample future changes in RNOA ? ve years into the future by applying the DuPont analysis. All these studies have in common that they investigate one ? nancial measure (or two) in time. Thus, this study intends to close these two gaps. In the following chapter, ? rst, several ? ancial measures will be considered regarding companies with a durable competitive advantage, and second, it will be hypothesized that predicting long-term pro? tability (up to ten years) is possible. 21 Chapter 4 Analysis of Long-term Pro? tability The following chapter aims to determine indicators in order to forecast long-term profitability. Thus, the chapter is structured in four sections: Section 4. 1 describes the data sample and the adjustments. Section 4. 2 deals with the classi? cation of superior performers in terms of ROE and analysis of the persistence of superior performance. Subsequently, the analysis of ROE performance deciles according to persistence is centre stage. Section 4. 3 involves the analysis of further ? nancial measures regarding the ROE persistence deciles. The starting point of this section is the DuPont Identity, which breaks the ROE measure down into further ? nancial measures. The aim of this section is to ? nd speci? c characteristics that will serve in Section 4. 4 to separate ? rms in advance according to future superior performance years. Finally, Section 4. 6 investigates the ROE persistence deciles according to market ratios (i. e. B/M ratio and P/E ratio). . 1 Data Sample A reliable analysis depends to a great extent on the size of the data sample. The size, in turn, is determined by company years (i. e. number of companies times number of years) that are considered. All data in this study originates from COMPUSTAT if there is no explicit mention of it. COMPUSTAT provides historical data of US companies with available historical annual data from 1950. For this study, the dataset on COMPUSTAT was screened for all companies that were listed on any stock exchange in the United States (including inactive companies) with a primary SIC classi? ation between 2000 and 3999. The data was selected at the end of each calendar year between 1979 and 2009. Hence, historical data for the following investigation is available for thirty-one years. Similar to McGahan and Porter (2002), all records from the dataset that do not 22 contain a primary SIC designation after extraction or any that were not within the stated range were dropped out of the sample. The restriction to companies containing a primary SIC classi? cation between 2000-3999 corresponds to the manufacturing division, which contains twenty subdivisions (see Table C. ). Focusing on one division has the advantage that the ? rms have a similar value chain. All manufacturing ? rms have in common that they purchase raw materials or components and manufacture these m aterials to more mature products, which will be sold to a seller or for further processing. Seldom, do these companies sell the product directly to the ? nal consumer. Drawing comparisons among ? rms with similarities regarding their value chain is simpler and also more reliable. Given this restriction to manufacturing companies, 3844 companies are available. It is art of a dynamic industry process that listed companies disappear and new companies appear on trading lists of stock exchanges. This fact leads to certain problems, which were not always considered properly in prior studies. For the sake of convenience, some researchers have considered only companies with available data for the entire sample period. Thus, they have excluded companies that were passing through either a delisting or an initial public o? ering (IPO). Others have ignored in their investigation only inactive companies. In this category fall two cases, in particular: Either a company did not survive the entire period due to ? ancial distress and subsequent bankruptcy or it was the target of an acquisition by another company. Ignoring inactive companies would distort the relative ? nancial performance of other companies in the same group in the same period. Not least, since pro? tability depends on competition, it is important to include inactive companies to reduce the e? ect of survivorship bias as it is important to take new competitors into consideration. COMPUSTAT provides the option to also include inactive companies into the sample. Many researchers assume that newly-listed companies show high growth rates that are not economically signi? ant for the comparison to other companies, and thus, lead to distortions (see McGahan and Porter, 2002; Rumelt, 1991; Schmalensee, 1985). Hence, they exclude all companies from the data sample that exhibit less than $10 million in sales. Following these researchers, the sample in this study contains only companies with sales of at least $10 million during the entire sample period. All companies that come below this threshold for any year in the sample period were excluded. After these adjustments, the sample comprises 1905 companies. In order to avoid the possibility that companies distort the calculation of growth rates through short-term measurements, companies with less than ? ve years of ? nancial history were excluded. There is evidence that suggests that window-dressing before an IPO a? ects the performance of subsequent years after the IPO. For instance, Jain and 23 Kini (1994) ? nd that IPO ? rms exhibit a decline in post-issue operating performance (see also Degeorge and Zeckhauser, 1993). Therefore, only ? rms with at least ? ve years of ? nancial data on COMPUSTAT items listed in Table 4. 1 were included. Table 4. 1: COMPUSTAT Items This table shows all items hat are downloaded from COMPUSTAT. A more detailed description is given in Appendix A. Companies that have missing data on one of these items are excluded fr How to cite Value Investing: Predicting Long-Term Pro?tability Based on Fundamental Data, Papers