Weekend Reading

24 June 2016 | by Paul Perrino, CFA

A summary of this week’s best articles. Follow us on Twitter (@INTRINSICINV) for similar ongoing posts and shares.

Million-dollar babies (The Economist)

As we’ve mentioned in previous editions of Weekend Reading (here and here), technology companies are allocating large budgets to build out their AI departments. The industry is still in its infancy; so much so, there aren’t enough working professionals to satisfy the need. Students are getting job offers before they graduate and highly sought faculty and students are getting “big salaries similar to those fetched by professional athletes.” Aside from big salaries, many AI specialists are joining private firms because they’re able “to see their ideas reach markets quickly.”

How to Gauge a C.E.O.’s Value? Hint: It’s Not the Share Price (Gretchen Morgenson, @gmorgenson, NYT)

One of the reasons it is important to measure the value of a CEO is to determine their large compensation packages, which can tend to be very complex. One of the top 200 companies took 20 pages of a 65 page proxy just to explain how the CEO was compensated.  We agree with the author, “A better way to measure whether a C.E.O. has created value at a company is to look at its return on capital over a period of years. This reveals how effectively a company is using its own money to generate profit in its operations.” If you would like to learn more about the importance of return on invested capital, please see our post Return on Invested Capital: Why it matters & how we calculate it.

Ask Not What the President Can Do for the Economy (Bryce Covert, @brycecovert, NYT)

Promises to grow the economy is the staple of many political campaigns. This year’s presumptive nominees are no different. The author references the papers of economists Alan S. Blinder and Mark Watson. They found that historically, acting president had little impact on the performance of the economy. Oil shocks, changes to productivity, and changes to interest rates all have a more material impact. These factors are out of the control of standing president’s actions. It is not to say that their actions have no impact on the economy. Tax rates, spending, etc certainly have an impact; just not as much as they would have you think. Presidents also need Congress to make laws, and there has been a decline in the number of new laws enacted over the past several years.

On a lighter note…

Twitter Can Now Target Ads Based on What Emoji You Use (Alyssa Newcomb, @AlyssaNewcomb, ABC News)

Imagine texting a pizza emoji and getting an ad for a nearby pizza shop. That’s the new marketing strategies for some companies.

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