Reba Tull's Comments

Reba Tull is an administrative user set up as a literary device. Reba provides trenchant rebuttals of articles. Her intent is to remind readers that recommendations in the articles, though intellectually honest, are tentative. Success only comes from the quality with which recommendations in the articles are executed.

World Class R&D articles take into account behaviors commonly found in R&D players (investors, researchers, funding agents), and in doing so probably provides the best advice currently available. But behaviors are fickle, and charlatans are clever. Reba's comments help keep these challenges in mind as we read the articles.

Reba Tull

 ...today's investment system (NYSE, NASDAQ) is imperfect, but it is the best we can do with a mass of illiterate investors. That's precisely why a vigorous market for intermediaries has emerged (e.g., mutual funds, investment houses, brokers). We depend on the intermediaries to do the best they can with the imperfect information they receive about the investment targets (e.g., the firms behind the stocks and bonds). It's the same with voters and their government.

[We suffer from] a confusion of ideas about what people need to know. ...We cannot get out of the dilemma by:

(1) making a great effort to educate everyone to the point where they know enough to make these [business] decisions, nor
(2) by restricting participation to the people who do know about all these [business] matters.

No one [person] knows enough ... to run the [business]. People are able to survive ... by learning to distinguish between what they must know and what they do not need to know. ... This is a problem of leadership, organization, alternatives and systems of responsibility and confidence. E. E. Schattschneider (1960). The Semisovereign People

 

Citizens
Reba Tull

One Share - One Vote still allows insiders to rig investor votes in a manner that gives them disporportionate private benefits.

You haven't addressed Derivative Investment Vehicles+ which make it beneficial for contrarian investors to bet against the success of a firm. Profits vs. Productivity doesn't matter when sophisticated investors can profit by trashing measures of a firm's productivity. As discussed, they'll borrow money before a big investor vote, buy voting shares, vote to trash productivity, sell the shares, and then subsequently they reap windfall+ profits by selling the firm's shares short (or less obviously, by holding shares in a competitor's firm).

The best we can do is to identify management and investor actions that quash productivity and then deal with them on a one-off basis. There can be no one-size-fits-all+ solution to the problem of stagnate productivity.

Productivity Not Profits
Reba Tull

Millionaires want to feel like big fish. The one person, one vote+ rule makes everyone small fish. You need to come up with some pretty enticing perks for large investors as a recompense. Agency management+ will also need outrageous enticements if you expect to get the best people and to get the best out of those people. One share, one vote at least gives the appearance of fairness to non-millionaires, while stroking the egos of the millionaires.

You can't ignore the psychology of wealthy investors when divvying up the goodies. To think you can do this without them is just braggadocio.

One Person, One Vote, No Proxies
Reba Tull

Despite assurances it’s hard to see how this differs fundamentally from a Ponzi+ scheme. You are going to impute a ‘premium price’ for assets that are by definition unpredictable in their returns. You offer above market share price appreciation at what seems to be no risk. No risk by definition means no returns, which means somebody’s going to get burned eventually – there has never been and will never be a free lunch. Your call for an accelerating growth rate of blockbuster+ success (which you hid in a footnote) sounds like a ‘suck-in technique’ to lure in later investors in order to pay off earlier. You make an unsubstantiated claim for increasing portfolio asset quality as a basis for increasing share price. You know quite well advancements+ in these investments are, by their very nature, unpredictable.

Early investors into this Ponzi scheme will do fine, if they’re smart enough to leave while the share price is still rising. Investors around for the collapse will haul you into court and you can share a cell with Bernie Madoff and the many others before him. The intricacy of a Ponzi scheme, and yours is quite intricate, does not a valid defense make.

Valuation of Intellectual Capital
Reba Tull

Hard to see how any current hazard insurance agency would take up this challenge. Insurance agents look to bundle risks across several firms or industries. There is no bundling in this example and the insurance agent looks to be taking on the largest portion of the risks.

Investing into unpredictable R&D+ is a very risky business. You attract capital to this business by offering premium returns on that capital. You can’t reduce these premiums by sloughing off risks to another firm. The other firm will in essence charge you the same amount as if you kept the risks in-house. Maybe even more since they want to make a profit.

Insurance
Reba Tull

Cute engineering analogy, but I don’t see its application. A crumple-zone is hardly a good analogy for a protection of our funding agency+ reputation. The car is destroyed but the occupants (agency management+) walk away.

Perfect Storms
Reba Tull

Sounds quite expensive. Are you sure there will be money left over for profit distribution after you’ve paid all this protection money?

Systemic Risks
Reba Tull

This is one study (article) that comes to a very substantial conclusion (i.e., that scientific method doesn’t work). I’ll wait for a larger body of evidence+ better supporting this conclusion.

Ouch!
Reba Tull

You’re asking investors to be better engaged in the activities of the funding agency+, and now you want them engaged in activities of special interest groups. This is an investment, not a career. Individuals will not take the time required to develop needed expertise as outlined in this article. Political entrepreneurs will co-opt these groups for their own personal enrichment.

Special Interest Groups
Reba Tull

You need even more details. What about agency managers who leave? What about funds that mature and level out? What about agency managers who switch between funds? What about ambiguity in the assignment of blame for an agency failure? There are many more open questions that must be resolved before this ‘phrase’ can be accepted at face value.

Reba Tull

The key distinction is found in the phrase "can only purchase one, non-transferable Class A share". This will grate on agency management+ who will feel they deserve a greater voice given their much greater expertise and responsibilities. As discussed elsewhere perhaps it is better to show greater flexibility in the definition of ‘vote’ – giving management greater voice for issues in which they have unequivocal and unique advantages. Class C shares anyone?

Joe-investor will have little incentive to acquire the information needed to effectively monitor funding agency+ management. Managers will enjoy considerable latitude in running the firm, which they can abuse to pursue their own interest (e.g., using the firm's funds to finance the election of their preferred national government candidates). One mechanism for mitigating this outcome is to allow a larger vote for a few large shareholders. That is to say, we should consider at least a partial deviation from one person, one vote+.

Reba Tull

Brokerage firms have spent decades building up their client lists and procedures. And even more challenging, you’re not selling commodity investment vehicles – it takes a very sophisticated clientele to purchase ‘derivative investment vehicles’ (i.e., what you call the perpetual fund+). They will demand a very high return on their investment and won’t give much of a discount simply because you allow them to come and go.

JIT acquisition? Seems much more ‘effective’ to grab as much cheap capital as you can when the larger markets tank. That's what GM did after the 2008 economic crisis. Recessions may be a good time to start a new fund.

I must admit this approach, allowing investors to come and go at will, does somewhat allay my fears of being caught up in a Ponzi+ scheme.

Reba Tull

You’ll spend too much time explaining why results from these convoluted voting constructs+ are different from a simple yes-no majority, and in the process you’ll lose the confidence (and participation) of investors. We not only vote for officials, we later have to accept the officials’ decisions, whether we support those decisions or not. When people don’t support a decision they look for a reason, any reason, to invalidate the decision. Convoluted voting constructs can lead to insurrection in these cases.

Voting Constructs
Reba Tull

Instructive, but not very actionable.

Intellectual Capital
Reba Tull

The investment community, except a few contrarian investors, has not abandoned diversification as one of its pillars of investing despite the 2008 market failure. Instead they argue for more sophistication in diversification of the portfolio. Diversification was tainted by investors being too simplistic in selecting their baskets, i.e., without considering the manufacturer of those baskets. They got into trouble because all their baskets contained a few rotten eggs (e.g., investments overly reliant on securitized mortgages). It’s going to be impossible to erase this way of thinking from investor mindsets.

All Your Eggs in One Basket