". . . the best trading book of the young millenium. . . offersmore trading 'truth' than a dozen typical market books combined. It's in a league of it's own.„ (Active Trader magazine)
At last, some modest proof of what some of us have longsuspected - beware of lords on boards. Authors Victor Niederhofferand Laurel Kenner* studied the relationship between stock returnsand the number of board members with titles in the 50 largestcompanies by market value in the FTSE 100. Over a five year period, the more titles on the board, the worse the performance of theshares.
Niederhoffer and Kenner even invented a valuation indicator, theearnings/lords ratio, dividing the earnings per share by the numberof titles in the boardroom. At the time they did the study, Powergen, with just one lord, looked the most attractive stock onthis basis.
The finding raises the obvious question of causality. As theauthors write: “Was it the lords who caused the lacklusterperformance or the lackluster performance that prompted thecompanies to use lords as window-dressing?"
That comment, however, suggests a possible Americanmisunderstanding of the British honors system. The presence oftitles on UK boards does not simply indicate the lingeringinfluence of the ancient British aristocracy. Charities may stillwant to recruit Lord Ponsonby-Snodgrass just to make the notepaperlook respectable; boards of FTSE 100 companies don't really need todo so.
Instead, the preponderance of titles shows the tendency for thehonours system to reward people for business success. Rise to thetop of a FTSE 100 company and you can be pretty sure a gong isheading your way, especially if you have the foresight to make somepolitical donations.
The „lords on boards“ effect may thus be merely another indicationof the old rule of „reversion to the mean“. Executives get awardedtitles when profits are strong and the share price is rising, notin the aftermath of profit warnings and failed acquisitions. Sinceall companies eventually suffer some sort of bad news, thedisasters are more likely to occur after the honours are awarded. When the queen brings the sword down on an executive's shoulder, the blade of Damocles may not be far behind it. *PracticalSpeculation, published by John Wiley & Sons (TheFinancial Times, June 4, 2003)
„... At last, some modest proof of what some of us have longsuspected - beware of lords on boards...“ (Financial Times,3 June 2003)
„... will enable the investor to make independent decisions abouttheir investments with confidence...“ (PortfolioInternational, June 2003)
„... shows how far pension fund figures are out of line with long-term share market expectation...“ (Liverpool Daily Post, 6August 2003)
"Niederhoffer and Kenner dispense pearls of wisdom for both theseasoned professional and the novice about investing and much more. Though you may not agree with all that they write - Ican't imagine anyone would - they will compel you tothink and very often, cause you to smile." --Mark P. Kritzman
I consider Victor Neiderhoffer's highly entertainingPractical Speculation to be a modern classic. InPractical Speculation, Neiderhoffer explores a wide range offascinating topics ranging from the wisdom of value investing tothe implications of a company slapping its name on a shiny newstadium. - Street. com"Niederhoffer and Kenner dispense pearls of wisdom for both the seasoned professional and the novice about investing and much more. Though you may not agree with all that they write - I can't imagine anyone would - they will compel you to think and very often, cause you to smile."--Mark P. Kritzman