Flawed Analytics and "Training Programs"

I recently discussed my post of last week concerning Home Depot with my partner. In it, I contrasted Lee Cooperman's cheery view of the company, in which his hedge fund has a sizable position, with the rather downbeat view of the firm, based simply upon its sales and NIAT numbers for the past five years. My partner and I wondered how such basic, obvious quantitative evidence could simply be ignored, and/or swept aside, by both Cooperman and Bartiromo.

He asked me if I thought Cooperman or Bartiromo even looked at HD's overall numbers? Or if I thought Bartiromo did anything more than simply reinforce, agree with, and mouth assent to Cooperman's selective factoids? On both counts, I admitted that I doubt it.

It would be one thing for this to occur in the course of private investment determinations. But to air such a shallow attempt at "analysis" on a major business medium such as CNBC seems to both observe the commonality of, and countenance, such shoddy work.

How much of this, do you suppose, goes on? Partial views of company performance? Selective factoid presentations? Skewed, biased 'analysis' in place of a clear presentation of information known to have a significant statistical relationship to the consistent attainment of superior total returns?

As we discussed the Cooperman-Bartiromo interview, we segued into a related matter- the ever-popular Wall Street two year 'training programs.' He wonders how anyone can really learn much of value, when worked to death like his son. A close friend and business associate of long standing also has a son who is about to enter one of these two-year prison camps. His son referred to it as "two years of hell."

I ask a different question,

'How can something which can be learned by anyone, in two short years, be of much lasting and unique value?' If so many go through these programs, how valuable can they be?'

Personally, I don't even think most MBAs learn all that much in two years.

First, consider that many, if not most, MBA candidates enter from non-business fields. So they spend the first year catching up to what a business undergrad spends his or her first two years learning. Then they interview for jobs beginning in the fall of the second year. Having landed an offer, their academic focus typically wanes. From my experience at a Top Five business school, I would estimate that the average MBA candidate actually focuses on learning anything considered 'advanced,' as opposed to simply passing basic courses or studying in their concentration area, for about six months.

Does this sound like a recipe for churning out unique, creative, value-adding managers?

Some years ago, I considered returning to my alma mater for a PhD in Marketing, the field in which I studied for my two business degrees. My former mentor and advisor took me to lunch at the Penn faculty club to discuss the idea. While we chatted, I observed that, in the decade or so since I had graduated with my MBA, leveraged buyouts and corporate restructurings had eviscerated almost, if not every, function and sector in corporate America. How could this have been emblematic of a corps of well-trained, competent, creative business grads making their productive and successful mark on the American business world?

He replied that, finally, at that time, circa 1990, MBAs were "finally" having an effect in the business world. Really? Only then?

Take the top five business school programs for the twenty-year period from 1970-90, and assume 500 members for each class. You get roughly 50,000 MBAs being disgorged into the US management ranks just from the top five B-schools alone.

No, I think most "two-year" programs, even for intelligent people, don't do much more than provide a rather common, universal business background. The Wall Street programs are more about finance, and less about real "business." The MBA programs seem to be a sort of business "boot camp" to winnow out the less capable, in order to provide a corps of semi-trained people eligible for further managerial 'training.'

My proprietary research has shown a remarkably stable average total return for the S&P500 over time. It does not seem to be the case that this influx of business school graduates or Wall Street trainees has enabled companies to return more to their shareholders.

Rather, I suspect that it simply provides a large pool of average managers to take their places in mostly non-high-value-adding positions in corporate America. Most of these graduates don't challenge what they've been taught, or even think much about it.

Where's the font of uniquely-skilled, creative, motivated business leaders who will make a difference for their shareholders? My guess is, they are rarely cut from the normal B-school or "training program" cloth. It's people with inspiration and ideas, not trained bean-counters and "managers," who will likely invigorate a company and earn its shareholders consistently superior total returns.

The good news, I guess, is that, as these "trained" robots continue to flood the financial markets, I have a sustained flow of similarly-thinking, non-creative counterparties with which to 'trade.'