Korva is a scroll of the internet’s best ideas.
Simple does not mean easy
Simple to explain
Value investing can be explained in 15 minutes, and a person who doesn't gravitate toward it right away is unlikely ever to. The ideas in The Outsiders work the same way. Across a fair number of conversations with CEOs, the ideas resonated or didn't, quickly, and when they didn't, no amount of additional detail was likely to sway the CEO.
The board problem
Public companies add a second layer. Even a CEO fully on board has to convince the board, which is complicated and difficult, particularly now that boards are larger and include more members who are not business people and are very risk averse. Unconventional decision making is harder to get support for at the board level.
Two experiments
Two public companies serve as experiments. CNX Resources, a natural gas company centered in Appalachia, spun off its coal business early on, repurchased stock aggressively, changed its compensation, and kept its board at seven people by design. Perimeter Solutions, the leading provider of fire retardants for wildfires, has eight directors, I believe.
Why does value investing click instantly or never?
In his 1984 essay "The Superinvestors of Graham-and-Doddsville," Warren Buffett observed that the idea of paying far less than a business is worth takes hold at once with some people and never with others. He said he had seen no one adopt it gradually over the years. He also said intelligence and training did not seem to decide who took to it. The essay was adapted from a talk at Columbia Business School marking the fiftieth anniversary of Graham and Dodd's Security Analysis.
Why do boards resist unconventional ideas?
Social psychologist Solomon Asch ran experiments in the 1950s showing that many people will give an answer they know is wrong to match a group. A decision that follows common practice is easier to defend afterward, so directors can find it safer than an unusual one. A director who backs something unusual and sees it fail stands alone with the result. In Asch's studies, roughly three quarters of participants conformed at least once.
Why can buybacks lift earnings per share?
Earnings per share is net income divided by the number of shares outstanding. When a company retires shares it has repurchased, the same profit is divided among fewer shares. The per-share figure can rise even when total profit stays flat. In the United States, public companies report earnings per share on their income statements.
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