Fun Topics For Writing a Process Essay

<h1>Fun Topics For Writing a Process Essay</h1><p>When you are scanning for no particular reason points for composing a procedure article, you may see that there are a great deal of decisions. This implies it will be difficult to pick the correct theme for your point. While picking a theme, the principal thing you have to consider is the manner by which you need to compose the paper. This can assist you with narrowing down the best theme for you.</p><p></p><p>The substance of the subject is significant, as it is the premise of the exposition and how you compose it. Be that as it may, it isn't sufficient to write in the request you feel the point is required. This can prompt a great deal of potential points to pick from.</p><p></p><p>In the primary passage of your paper, you should recognize the fundamental subject that you need to discuss. On the off chance that you have more than one theme to look over, this will make it simpler for you to pick one for the whole paper. This permits you to allow for questions, which can be addressed later on. The most ideal approach to begin on a theme is to concocted thoughts before you start writing.</p><p></p><p>Then you have to consider the sort of subject you need to expound on. Contingent upon your crowd, you can pick an alternate point. You can likewise decide to expound on a similar point for various crowds. This will permit you to adopt a somewhat extraordinary strategy to a similar subject so you don't lose focus.</p><p></p><p>After you settle on the sort of theme you need to expound on, you will at that point need to pick a decent theme for your procedure exposition. The subject must be new and special, as it is the base of the article. You will need to avoid things that you have just composed or discussed in different articles, which is the motivation behind why this is such an incredible subject for com posing a procedure paper. Since the theme is new, you can make an intriguing title for your paper and this will assist you with the eventual fate of your essay.</p><p></p><p>You can help make the exposition fascinating by having a review on the work stream of the organization. This incorporates the succession of occasions and a rundown of undertakings you have to finish. This will give you a few instances of errands and assist you with placing your thoughts into words.</p><p></p><p>Writing an article is anything but a straightforward undertaking. You should have great composing abilities, yet you likewise should be imaginative in certain regions of the paper. Having a smart thought about what you need to compose will assist you with narrowing down your decisions and begin on your project.</p>

Lies Youve Been Told About Research Paper about Management Topics

Lies You've Been Told About Research Paper about Management Topics Attempting to compose a research paper on a topic that doesn't have a lot of research on it's incredibly hard, so before you choose a topic, do a little bit of preliminary searching and be certain you will have all the info you must compose your paper. The most significant thing is to produce the title concise without sacrificing any crucial element. A superb paper topic needs to be interesting and ought to incorporate an original idea or position try to prevent cliche topics which will likely bore your reader. The most significant thing, nevertheless, is to pick a cool or intriguing topic for the management paper. As previously noted, the standard of your topic shapes the standard of your topic. You must choose your topic carefully and filter all of the unrelated info. To reach such directedness, it's important to restrict your topic. If your topic is too broad, you won't have the ability to focus your paper since there is simply too much info to cover. The Research Paper about Management Topics Game You don't even have to sign up. You obtain your topic and paper in time and free up time for some other pursuits. Picking a great service isn't simple, and students can occasionally wind up disappointed, or issued with plagiarised or duplicated material. A good deal of students have a tendency to undermine the writing procedure and leave for the past few days. Selecting an intriguing topic is vital for the success of your research project because it is going to send you in the proper direction and help you to stay interested and motivated during the whole writing process. Management is an extensive region of knowledge. Management of innovation and technology is of specific importance at the moment, states Sabatier. All About Research Paper about Management Topics The paper seeks to supply a blueprint which other investors can emulate and implement. Management isn't only about creating specific functions and delegating them to certain groups or an individual. It is a complex process, which consists of personnel management and overseeing projects from start to finish. Human resource management is all about the folks inside an organization. Needless to say, everything sounds very straightforward and interesting, but if you get started working on your research paper, you face lots of challenges. In case you're feeling badly-prepared to settle on a topic, you can also have trouble preparing the proposal and producing a great paper. The process of picking great research paper topics is an important commitment. So you will need to scale down to be certain th at you will be able to run a research within a limited time period. Sports research paper topics cover a wide variety of fields. Discuss tips to prevent performance anxiety prior to a huge game. Examine the evolution of sports for the disabled in your nation. Finding the Best Research Paper about Management Topics There are an assortment of methods in which a sample term paper can assist you. When evaluating a paper, it is important to bear in mind that there are various types of assignments. Choosing appropriate techniques for investigation is essential because unreliable methods will cause unreliable outcomes. It is very important to be aware that the collection of research topic entirely is dependent upon the interest of researcher but the researcher has to know the sources of information collection and the kind of statistical technique employed in the analysis. What You Can Do About Research Paper about Management Topics Starting in the Next 7 Minutes To approach the p aper with at least anxiety, you should choose a topic that you are feeling comfortable writing about, and one which you're confident that you may grasp the appropriate scholarship on. Choosing one of our suggested topics will enable you to commence writing a thriving research paper. In the event you have problems writing the paper yourself, please don't hesitate to get in touch with us for more details. Keep on reading to discover ideas for a few of the most common worldwide small business research topic tips that you can use and make your very own, distinctive and productive research paper. By taking a look at a well-written case of research proposal paper, you will learn that topics which are too broad can be difficult to manage as you will probably have different, and frequently conflicting, ideas about how to tackle the issue. There are scores of interesting small business topics for research paper writing. You may even secure fantastic examples of research paper topics to help you limit your pick. Management is regarded as a constantly evolving science and you have to write something cool that reflects the reversal of time. Additionally, make certain that the topic isn't too broad as it might be difficult to cover comprehensively in the time and space allowed. It's also important to pick a topic that's interesting for you. The Fight Against Research Paper about Managem ent Topics When you decide on a research topic, make certain it is one which you understand and have a firm grasp on. So, it's extremely crucial for you to pick the most suitable research topic. Needless to say, selecting a research topic is merely the startwriting a thriving research paper is hard. Many management paper topics may be helpful for more research in the area. The New Fuss About Research Paper about Management Topics There are many other strategies for strategic management for you to research too. The variety of topics you'll be able to choose increases daily due to the rise of ethics issues in the industry world. It is possible to also benefit from working on topics linked to your present-day job since you'll have a good chance to collect the main data. The objective of management research is to investigate how to increase business performance and achieve far better results.

About the Duties of Husband and Wives free essay sample

By Benjamin Wadsworth, A Well Ordered Family About the Duties of Husbands and Wives Concerning the obligations of this connection we may declare a couple of things. It is their obligation to abide along with each other. Doubtlessly they ought to abide together; in the event that one house can't hold them, unquestionably they are not influenced to one another as they ought to be. They ought to have an incredible and delicate love and warmth to each other. This is doubtlessly told by god. This obligation of adoration is shared; it ought to be performed b y one another, to one another. When, consequently, they squabble or dissent, at that point they accomplish the Devil’s work; he is please at it, happy of it. Be that as it may, such dispute incites God; it shames Him; it is a despicable model before inferiors in the family; it will in general forestall family petition. As to outward things. On the off chance that the one is debilitated, grieved or upset, the other should show care, delicacy, pity, and sympathy, and bear the cost of all conceivable alleviation and aid. We will compose a custom exposition test on About the Duties of Husband and Wives or on the other hand any comparable subject explicitly for you Don't WasteYour Time Recruit WRITER Just 13.90/page They ought to in like manner join together and their judicious direction and attempt serenely to keep up themselves and the family under their joint consideration. A couple ought to show restraint toward another. On the off chance that both are genuinely devout, yet neither of them is splendidly blessed, in such cases a patient, pardoning, abstaining soul is needful. You, accordingly, that are married couples, don't bother each blunder or misstep, each off-base or rushed word, each wry advance just as it were a stubbornly structured excruciating wrongdoing; for this would before long break all to pieces: yet rather put the best development on things, and hold on for and excuse one another’s failings. The husband’s government should be delicate and simple, and the wife’s acquiescence prepared and bright. The spouse is known as the leader of the lady. It has a place with the head to control and oversee. Spouses are a piece of the house and family, and should be under the husband’s government. However his administration ought not be with meticulousness, haughtiness, cruelty, seriousness, yet the best love, delicacy, thoughtfulness, delicacy that might be. In spite of the fact that he administers her, he much not treat her as a hireling, yet as his own substance; he should adore her as himself. Those spouses are a lot to accuse who don't convey it affectionately and sympathetic to their wives. O Man, if your significant other isn't so your, wonderful, sound, all around tempered, and qualified as you would wish: on the off chance that she didn't carry a huge home to you, or can't accomplish such a great deal for you, as certain ladies have accomplished for their spouses; yet she is your better half, nd the incomparable God orders you to cherish her, be not harsh yet kind to her. What came be all the more plain and expressive that that? Those spouses are a lot to accuse who don't convey it affectionately and loyally to their own husbands. O lady, if your better half isn't as youthful, wonderful, sound, so all around tempered, and qualified as you could wish; on the off chance that he has not such capacities, wealth, praises, as some other have; yet he is your significant other, and the incomparable God orders you to love, respect and obey him. Truly, however perhaps you have more noteworthy capacities of psyche than he has, are of some high birth, and he of a progressively basic birth, or brought more domain, yet since he is your better half, God has made him your head, and set him above you, and made it your obligation to love and love him. Guardians should act astutely and judiciously in the coordinating of their kids. They should try that they may wed somebody who is progressively legitimate to them, well on the way to carry gifts to them.

Wilfred Owen Essay Example for Free

Wilfred Owen Essay Wilfred Edward Salter Owen was conceived on 18 March 1893 and kicked the bucket on 4 November 1918. He was an English writer and trooper, one of the main artists of the First World War. His stunning, realistic verse about the First World War was intensely affected by his companion, Siegfried Sassoon. There was an immense differentiation between his verse about the war and that of others, for example, Rupert Brooke, as his took on a totally alternate point of view, and indicated the perusers an entirely different side of the war. This wasn’t how he generally took a gander at the war however. It was out of his own free decision that he joined the military, yet it was two horrible encounters that caused his view point to change so radically. Right off the bat, he was tossed into the air when hit by a channel mortar and arrived in the remaining parts of an individual officer. At that point, he was caught for quite a long time in a German burrow. It was these two repulsive encounters that caused his sensational difference as a main priority, and made him experience the ill effects of ‘shell shock’, which prompted him being sent to a clinic for treatment. That was the place he met individual writer Siegfried Sassoon, and this gathering transformed him. In March 1918, he was sent to an order terminal in Ripon, and here, various sonnets were composed. After he had recouped, he was sent back to the cutting edge, and deplorably, a simple week before the war finished, he was shot in the head and passed on. Owen began composing sonnets well before the war, and he expressed that he began at ten years old. His companion, Siegfried Sassoon largy affected his verse, particularly in ‘Dulce et Decorum est’ and ‘Anthem for Doomed Youth’. These show direct aftereffects of Sassoon’s impact. A sonnet by Pat Barker was expounded on their relationship. His verse changed altogether in 1917, where as a feature of his treatment his primary care physician got him to record his encounters into sonnets. Despite the fact that a huge number of sonnets were distributed during the war, not many were recognized, and significantly less were cherished, yet Owen was one of them. Just 5 of Wilfred’s sonnets were distributed before he kicked the bucket. It was a prevalent view that Owen was a gay, and there were a few components of homoeroticism in his sonnets, however he never really said this. History specialists have estimated concerning whether he had an unsanctioned romance with Scott-Moncrieff, as Scott had committed a large number of his attempts to ‘Mr. W.O.’, however Owen never reacted on this issue. It was distinctly because of Sassoon being shot that prompted his choice to come back to the forefront back in France, despite the fact that he could have decided not to. He believed he expected to ‘take Sassoon’s place’. Be that as it may, Sassoon was firmly restricted to the thought, and even threatened to ‘stab him in the leg’ on the off chance that he attempted it. Mindful of what Sassoon thought, Owen didn’t disclose to him he proceeded with it and came back to the cutting edge. He was slaughtered while crossing the trench on 4 November 1918.

Format for a College Essay

<h1>Format for a College Essay</h1><p>There are three primary organizations for a school paper. To start with, the understudy is required to set up a subject. The topic of the exposition can be anything; it tends to be one's job as a pioneer, something that the individual has picked up by doing extra-curricular exercises, for example, chipping in at an adolescent organization.</p><p></p><p>This is the subject that undergrads ought to consistently remember, when composing their own article. In view of this, an understudy should begin to figure a thought of what they need to state. The fundamental goal of this school paper is to respond to the inquiry, 'What is your assessment about this point?' as it were, the objective of the school exposition is to build up a solid feeling regarding a matter that the understudy is studying.</p><p></p><p>As referenced, the understudy ought to set up the subject before the real composit ion. After the subject is chosen, the undergrad must concoct the substance of the paper. It is ideal to have the undergrad conceptualize and expound on a subject that intrigues the person in question. Be that as it may, once more, you might need to mull over composing your own article. You might need to allude to a school book, or even utilize the assistance of a professional writer, when you need to do this.</p><p></p><p>Next, an understudy must concoct a title for their paper. This is frequently alluded to as the prologue to the exposition. Be that as it may, the title will just have importance to the genuine substance of the article. This implies the title might be somewhat long, yet it won't be excessively extensive. An understudy might need to go with a title that identifies with the subject of the article, while as yet making it short and concise.</p><p></p><p>As an undergrad, you should realize that there is nothing of the sort as the ideal title. The best thought is pick a title that will get the consideration of your peruser. A title that is short and doesn't get the peruser to stop and read the whole paper isn't very appealing.</p><p></p><p>Another position for a school article is to initially characterize the subject of the exposition. After the definition is done, the understudy should then sort out the subject of the paper. The coordinator is where the understudy will substance out the subtleties of the theme that was characterized in the title.</p><p></p><p>Lastly, when composing a school article, an undergrad should utilize all the apparatuses available to them. For instance, the person in question ought to consistently utilize references that identify with the subject of the article. A reference ought to likewise consistently be presented at the absolute starting point of the essay.</p><p></p><p>Finally, a school exposition is an artistic expression. On the off chance that you set aside some effort to rehearse the best possible arrangement for a school exposition, it will turn out to be natural to you.</p>

Finding Ideas For Writing An Essay

Finding Ideas For Writing An EssayWriting an essay is not always easy, but it does not mean you have to do it by yourself. You can ask a friend or colleague to write your essay for you, or if you can't find any, you can search online for free essays. The key is to be certain that the person you choose to write your essay is actually an expert in writing such. Otherwise, your essay will be quite different from the one written by someone else who might not be as good in writing.However, writing an essay does not necessarily need to be a complicated thing to do. It's really just a matter of being more familiar with the things that you should not include in your essay. And since there are many grammar tips available, that should not be a problem. After all, even grammar experts may encounter a few minor problems in grammar.Just remember to properly proofread and revise your essay as soon as you finish it. You should try to make sure that the grammar is correct, that the sentence structur es are correct, and that the content is accurate. Once this is done, review it again. Rewrite the essay and make sure that the grammar is correct and the content is accurate. And once you feel that it's absolutely perfect, then you can consider submitting it for publication.Or you can also have an essay evaluator read your essay before you submit it. They can give you some tips on how to improve your essay in the future. And the idea is to constantly practice with your essay, in order to improve it further.Finally, it would be wise to keep in mind that the essay is essentially a reflection of you. And you should know that there are certain ways that you can express yourself without sacrificing the truth. Sometimes, the most important thing in writing an essay is to find the right tone. The writer, who is able to do this will find success in writing an essay.The truth that you want to present in your essay should be conveyed using the right tone. Be sincere when you are writing an es say, or else it won't work. It's just like putting your thoughts down on paper, but it needs to be a well-thought-out one.Know that an essay is not a simple thing to do. In fact, it requires a lot of effort on your part. But knowing the value of essay writing helps you understand why you should consider it, especially if you want to get your essay read.Essay writing is a great tool for communication, especially for students. Through essay writing, they are able to express their thoughts and ideas. So it would be best to give it a try, especially if you are in college.

Racial Profiling Is A Necessary Evil - 1100 Words

Racial Profiling In order to understand racial profiling, it must first be correctly defined. Although different authors use different criteria for the term racial profiling, the definition for the word racial is â€Å"of, relating to, or based on a race The definition the dictionary puts forth for profiling is â€Å"the act of suspecting or targeting a person solely on the basis of observed characteristics or behavior.† Based on these definitions, racial profiling could be defined for criminal justice purposes as targeting a person based solely on the characteristic of race. Most people, law enforcement officers included, would consider racial profiling based on this definition as ethically wrong. However, a case must be made for the use of profiling based on race in some circumstances. Racial profiling a sore topic when it comes to policing, it is a necessary evil. Racial profiling is a term used to describe the practice of targeting or stopping an individual based primarily on race or ethn icity, rather than on individualized suspicion or probable cause. It became particularly politicized in the late 1990s as police departments came under media and political scrutiny for disproportionately targeting minority drivers (Farrell, McDevitt, Cronin, and Pierce, 2003; Harris, 2002; Weitzer and Brunson, in press). Civil rights organizations such as the American Civil Liberties Union (ACLU) and the National Association for the Advancement of Colored People (NAACP) launched national mediaShow MoreRelatedRacial Profiling in Canada1166 Words   |  5 PagesRacial profiling is the act of selecting targets for criminal investigation not on behavioural merit, but exclusively on markers of personal identity such as race, ethnicity, and religious orientation (Perry, 2011, p.9). In other words, racial profiling is the by-product of subjecting individuals who are from a particular racial community to a higher degree of scrutiny and surveillance by criminal justice system agents when co mpared to other racial communities (Wortley and Owusu-Bempah, 2011, p.135)Read MoreRacial Profiling Is Necessary For The Police Force And Civilians Of These Areas1084 Words   |  5 Pagesto one side depending on the conditions. An example of this being racial profiling which, in the last few years has become a very touchy subject which most people can relate to in some way. Although people believe racial profiling is pure hate towards those of another race, many sources have shown minorities in certain areas have a high percentage of illegal weapons and drugs which is why in these areas racial profiling is necessary to protect the police force and civilians of these areas. In today’sRead MoreRacial Profiling And The War On Terrorism1341 Words   |  6 Pages Racial Profiling applied in the War on Terrorism Ian J Watterson HSM 311: Ethics Homeland Security Instructor: Christina Spoons July 13th, 2017 Racial profiling is a futile method in preventing domestic and international terrorism. But regardless of this fact, the United States has attempted to employ this technique in its counter-terror and espionage efforts dating back as early as World War II. And as long as this has been present in has been a point of contention and discussionRead MoreMoreover, The Excepted Institutional Racism Devastatingly1699 Words   |  7 PagesMoreover, the excepted institutional racism devastatingly affects Latin Americans. Even throughout the past century, racial profiling ruthlessly affected Latin American: â€Å"During the period 1929-1937, some 458,000 Mexicans were arrested and expelled from the United States without due process, including many legal resident aliens and their U.S. citizen children. By 1940, only 377,000 Mexican immigrants were left in the country. Those who remained were pushed to the margins of society, segregated intoRead MoreEssay on Deviance and Society969 Words   |  4 PagesFindings on Deviance The functionalist sociologist would see deviance as a necessary evil for society to function. This may seem contradictory to their belief that any form of conflict (deviance being a form of conflict) in society would be considered abnormal and should be removed or cured but deviance does help keep a form of structure in our society. The functionalist believe that this evil is necessary because deviance helps keeps balance, because it provides jobs for judgesRead MoreThe Patriot Act Essay1618 Words   |  7 Pageswatch what people are searching on the internet. Since the passing of the patriot act racial profiling has grown in the past years especially towards Muslims. The patriot act may have seemed like a good idea at the time but in reality it just gives the government a way to strip citizens of their rights, is unconstitutional, and it needs to be removed. Once the patriot act was enacted racial and ethnic profiling spiked. Now Muslim men are 65% more likely to be stopped for â€Å"random searches† at transportationRead MoreChange: Racial Tensions Since Obama’s Presidency1402 Words   |  6 PagesRacial tensions are a prominent issue in today’s society. Barack Obama being the first elected African American president has led America to a cultural evolution. As our country grows in diversity everyday it is important for citizens to recognize the change in racial tensions across the nation. Racial tension has always existed, especially here in the South, but it has changed particularly during Obama’s presidency. Racial tensions have changed in both positive and negative ways that affect everyoneRead MoreBackground of Social Darwinism2454 Words   |  10 Pagesï » ¿Racial profiling is not new, however, and was a theory of sociology in the late 19th century known as Social Darwinism. Incorrectly using Darwins theory of evolution, the Social Darwinists believed that some species were morally superior to others, and even some races superior to others ADDIN EN.CITE Johnson200813(Johnson)13136Johnson, D.P.The Historical Background of Social DarwinismContemporary Sociological Theories2008New YorkSpringer ( HYPERLINK l _ENREF_4 o Johnson, 2008 #13 Johnson)Read MoreRacial Profiling : Hoods And Badges2061 Words   |  9 PagesDuChein Fox 6-29-15 2015SU-ENGL-1302-45402 Racial Profiling: Hoods and Badges Poughkeepsie, NY- An African- American professor at Vassar College, a predominantly white university, is sitting in his office with the door open. Other professors are in their office as well nearby. A campus security officer walks by the professor’s office and notices him. Shortly after, the campus officer requests to see the professor’s identification and papers that would verify his reasoning for being in that officeRead MoreRacial Profiling Is Wrong Or Wrong?1826 Words   |  8 Pages Racial profiling has been a touchy subject for United States citizens. Racial profiling has been around for quite some time in America and it more than often benefits the majority population (white America). More recently, the controversial topic has been brought to light. The debate over Racial Profiling topic is whether or not racial profiling is wrong or right. Multiple opinions from notable sources have been debating over this topic for decades. Some sources give reasons and examples in order

An Argumentative Essay Template For College Application Essays

<h1>An Argumentative Essay Template For College Application Essays</h1><p>If you are attempting to choose what to compose on your school application articles, a factious paper format is a decent spot to begin. The thought behind a contentious article is to get over a perspective. Contentions are not a similar thing as realities, yet they can show how you base your perspectives on hard evidence.</p><p></p><p>Even on the off chance that you feel that you know the data that you have to tell in the article, you may experience difficulty with composing the paper. Contentious article layouts are an extraordinary spot to begin. They offer a structure to your article and guide you through the various points that you can cover. This is particularly useful on the off chance that you feel lost in the ocean of data you need to browse when rounding out your application. You should consider it a compressed lesson on school essays.</p><p></p& gt;<p>Don't stress that a paper dependent on contention layouts will be excessively specialized or confounding. Indeed, many contend that they are a lot simpler to peruse than the ordinary school paper on the grounds that the information is introduced in a direct organization. This implies you will have the option to get a greater amount of your point across when perusing your paper than if you simply toss the entirety of your focuses in one passage. It likewise gives a structure that you can use all through the remainder of your essay.</p><p></p><p>Finding the correct article format for school is straightforward. Most use 'contention' as their subject. You should choose a contentious paper layout that has a contention identified with the subject of your school exposition. A few models include: The Civil War Was Necessary, the American Family Was Suppressed, etc.</p><p></p><p>To assist you with picking which layouts are accessibl e, you should look at the significant article destinations. Some furnish you with a free download so you can see precisely what sort of contention you need to utilize and the sort of format that you should work with.</p><p></p><p>Before picking your paper layout, you should set aside some effort to consider the subject that you might want to expound on. A contentious paper format will assist you with finding the best response for that specific question.</p><p></p><p>When picking an article layout for school, ensure that you remember that you will utilize it for a long time. Pick a format that will be anything but difficult to refresh and keep up as well.</p><p></p><p>An pugnacious exposition layout for school application articles can assist you with the confounded inquiries that you may wind up replying on your school application. They can likewise give you a decent structure to follow when composing the essay.& lt;/p>

You Can Use the Services of an Anonymous Essay Writer

<h1>You Can Use the Services of an Anonymous Essay Writer</h1><p>An unknown exposition author is an individual who is paid to compose papers. They compose online articles for organizations or they get paid to compose short, yet influential expositions that will draw in the consideration of readers.</p><p></p><p>It isn't only the customers of unknown paper authors who need these scholars either. There are numerous understudies who require such an assistance as a component of their prerequisites for college.</p><p></p><p>You can even compose your own articles with the expectation of complimentary substance and post them on the web. On the off chance that you can get enough adherents to post your articles, you can procure a decent living out of it.</p><p></p><p>You don't have to have a lot of information about the field of writing so as to compose a sentiment piece or a specialized article. In any case, you can take a couple of courses with the goal that you can be better prepared.</p><p></p><p>A distinctive sort of administration exists called independent composition, which is offered by numerous offices. These organizations enlist consultants who need to compose articles and messages in different fields. They pay their authors for these projects.</p><p></p><p>Writing articles is certainly not a basic errand however. There are different things that must be deliberately done so as to cause it to show up professional.</p><p></p><p>The articles must be intriguing enough for the peruser to need to keep perusing the piece, with the goal that the person in question can arrive at their decision in the time given. There ought to be a circle that has been set up with the goal that the article doesn't get exhausting for the peruser. It is significant that the author offers significance to a subject that the person has mastery in, with the goal that the article sounds fascinating and simultaneously doesn't exhaust the reader.</p><p></p><p>Although the best essayists in many cases utilize terrible points in their articles, you have to guarantee that you convey great articles. It isn't feasible for each author to be an ace in each field, so attempt to get a field and have some expertise in it.</p>

Finding the Right Term Paper Writers

<h1>Finding the Right Term Paper Writers</h1><p>College research project authors are significant individuals from the scholarly network. Their degree of greatness in their scholastic composing is prove by the way that they get their own showing assistantships, which is comparable to a full time educator compensation. It is considerably progressively unique whenever they likewise find the opportunity to be given the duty of composing the school research projects that their instructors are allocated for them.</p><p></p><p>Not all school research paper authors are equipped for this degree of scholastic greatness. So how would you pick the correct school research project author for your specific situation?</p><p></p><p>The first and most significant thing you have to consider when you are searching for research project scholars is the capability necessities. This will assist you with narrowing down your decisions. For inst ance, if your instructors have requested that you compose a paper on a specific topic and you need more composing experience, at that point you should consider who has adequate composing experience and preparing. You should consider searching for research project authors with experience composing on a certain topic.</p><p></p><p>The other thing you have to see when searching for research paper scholars is their involvement with your specific field. At the point when you are shy of data, request references or ask the school research project journalists straightforwardly for their encounters. On the off chance that you have no clue about what your subject ought to be about, you can generally look for research paper essayists in a similar field. This is likely a superior choice, since you can exploit their regular advantages and experiences.</p><p></p><p>Another angle you can use to limit your research paper essayist's inquiry is the kind of subjects they have some expertise in. Do they compose on the particular subject that you wish to have canvassed in your paper?</p><p></p><p>You can likewise ask your school research project journalists to give you a hand with your examination. They ought to have the option to assist you with ordering the necessary data for your paper, just as offer proposals for additional examination. Obviously, this ought not be an issue for a decent research project essayist, since the person as of now has their hands full setting up the paper.</p><p></p><p>You may likewise need to discover from your research paper scholars the various sorts of assignments they offer. Do they offer various sorts of scholarly administrative work, or simply a similar sort of paper work?</p><p></p><p>Look for research paper journalists who offer examples of their desk work for your reference. This will permit you to think about the nature of their neutralize comparable papers, making it simple for you to settle on which school research project essayist will be best for your paper. By utilizing these tips, you can have yourself a noteworthy scholastic paper prepared in no time.</p>

Value Investing Predicting Long-Term Protability Based on Fundamental Data Free Essays

string(38) " States iii Chapter 1 Introduction 1\." Value Investing: Predicting Long-term Pro? tability Based on Fundamental Data An Empirical Study in the Manufacturing Industry by Vital Schwander (05-609-136) Master’s Thesis supervised by Prof. Dr. Andreas Gruner University of St. We will write a custom essay sample on Value Investing: Predicting Long-Term Pro?tability Based on Fundamental Data or any similar topic only for you Order Now Gallen May 23, 2011 Master in Law Economics Abstract Warren Bu? ett (1992) classi? es the discussion about value and growth stocks as fuzzy thinking. With that statement, he argues that value investors must consider growth in their value calculations. This thesis shows in a ? rst step that growth is only valuable if the company enjoys a durable competitive advantage. By examining the fundamental characteristics of companies with a durable competitive advantage, this thesis intends in a second step to assess the predictability of long-term pro? tability. The DuPont Identity serves as framework for that purpose. The objects of this investigation are companies within the manufacturing industry (Primary SIC Code between 2000-3999) that were listed in the United States between 1979 and 2009. The results show that companies with a durable competitive advantage exhibit speci? c characteristics in operating e? ciency, asset use e? ciency, and in the ability to meet short-term obligations. Furthermore, the thesis shows that long-term pro? tability, based on the investigated characteristics, is predictable to some extent. This thesis concludes by assembling the insights to a value strategy that is applied to manufacturing companies listed in Switzerland. The strategy exhibits an outstanding SMI-adj. compound annual growth rate of 13. 19% over a period of 17. 5 years. ii Acknowledgement I would like to express my gratitude to Prof. Dr. Andreas Gruner for supervising this thesis and his assistant Lucia Ehn for her conceptual advices. I have furthermore to thank Mr. Hans Ulrich Jost for giving me insight into the daily business of a value fund at UBS AG. My sister Daria introduced me to R and Latex. I want to thank her for her help and support. I want to thank my great family who has been always supportive and motivating. Finally, I also would like to thank friends and colleagues for making life such an enjoyable experience. iii Contents 1 Introduction 1. 1 1. 2 Issues, Goals and Limitations . . . . . . . . . . . . . . . . . . . . . . . . . Structure and Empirical Approach . . . . . . . . . . . . . . . . . . . . . . 1 1 2 4 4 5 7 7 8 2 Value Investing—An Investment Paradigm 2. 2. 2 2. 3 The Origin of Value Investing . . . . . . . . . . . . . . . . . . . . . . . . . Value and Other Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . Four Value Strategies by Illustration . . . . . . . . . . . . . . . . . . . . . 2. 3. 1 2. 3. 2 2. 3. 3 2. 3. 4 2. 4 2. 5 Piotroski’s F_Score . . . . . . . . . . . . . . . . . . . . . . . . . . Walter and Edwin Schloss . . . . . . . . . . . . . . . . . . . . . . . Warren Bu? ett . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 UBS EMU Value Focus Fund . . . . . . . . . . . . . . . . . . . . . 12 Value vs Growth—Fuzzy Thinking! . . . . . . . . . . . . . . . . . . . . . 13 Value Anomaly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2. 5. 1 2. 5. 2 2. 5. 3 Behavioral Approach . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Risk-based Approach . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Competitive Advantage Based Approach . . . . . . . . . . . . . . . 16 17 3 Literature Review 3. 1 3. 2 3. 3 Competitive Advantage . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Pro? tability Measurements . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Research Gap and General Approach . . . . . . . . . . . . . . . . . . . . 21 22 4 Analysis of Long-term Pro? tability 4. 1 4. 2 Data Sample . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Analysis of Return on Equity Measure . . . . . . . . . . . . . . . . . . . . 26 4. 2. 1 Superior Performers . . . . . . . . . . . . . . . . . . . . . . . . . . 26 iv 4. 2. 2 4. 2. 3 4. 3 4. 4 4. 5 4. 6 Analysis of Performance Persistence . . . . . . . . . . . . . . . . . 28 Analysis of SPP Deciles in respect of ROE . . . . . . . . . . . . . . 30 Analysis of SPP Deciles in respect of other Financial Measures . . . . . 33 Predictability of Long-term Pro? tability . . . . . . . . . . . . . . . . . . . 41 Discussion of the Interim Results . . . . . . . . . . . . . . . . . . . . . . . 43 Market Analysis 4. 6. 1 4. 6. 2 4. 6. 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Subdivision-speci? c Market Analysis . . . . . . . . . . . . . . . . . 45 Analysis of SPP Deciles in respect of Market Multiples . . . . . . . 45 Market Performance Analysis . . . . . . . . . . . . . . . . . . . . . 46 48 5 Value Strategy 5. 1 5. 1. 1 5. 1. 2 5. 1. 3 5. 2 Strategy Composition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Sample Descriptives and Strategy Composition . . . . . . . . . . . 48 Portfolio Formation . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Performance Measurement . . . . . . . . . . . . . . . . . . . . . . . 49 Portfolio Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 53 6 Conclusion and Further Research 6. 1 6. 2 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Further Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 56 i v x xv Bibliography A Data Input B Financial Measures C Subdivisions D Market Analysis List of Tables 4. 1 4. 2 4. 3 4. 4 4. 5 4. 6 4. 7 4. 8 4. 9 5. 1 COMPUSTAT Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Distribution of Firm Years Distribution of Superior Performance Years . . . . . . . . . . . . . . . . . 27 Probability Distribution of Superior Performance Persistence . . . . . . . 29 ROE Distribution for each SPP Decile . . . . . . . . . . . . . . . . . . . . 31 ROE Distribution for each SPP Decile (Subdivision-adjusted) . . . . . . . 32 Financial Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 . . . . . . . . . . . . . . . . . . 47 Predictability of Future Pro? tability . . . . . . . . . . . . . . . . . . . . . 42 Market Performance for each SPP Decile Portfolio Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 . . . . . . . . . . . . . . . . . . . . . . . . i ii v A. 1 Data Input for US Companies A. 2 Data Input for Swiss Companies . . . . . . . . . . . . . . . . . . . . . . . B. 1 Calculation of the Financial Measures . . . . . . . . . . . . . . . . . . . . B. 2 SPP Deciles (Subdivision-adjusted) regarding Financial Measures . . . . vii x xi C. Overview of Subdivision . . . . . . . . . . . . . . . . . . . . . . . . . . . . C. 2 Subdivision Comparison regarding ROE . . . . . . . . . . . . . . . . . . . C. 4 Composition of SPP Deciles regarding Subdivisions C. 3 Subdivision Distribution in respect of SPP Deciles . . . . . . . . . . . . . xii . . . . . . . . . . . . xiii D. 1 Average Price-Earnings Ratio per Subdivision . . . . . . . . . . . . . . . . xvi D. 2 Average Book-to-Market Ratio per Subdivision . . . . . . . . . . . . . . . xvii D. 3 Average Price-Earning Ratio per SPP Decile D. 4 Average Book-to-Market Ratio per SPP Decile . . . . . . . . . . . . . . . xviii . . . . . . . . . . . . . . . xix vi List of Figures 3. 1 4. 1 4. 2 4. 3 5. 1 Three Slices of Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 . . . . . . . . . . . . . . . . . . . . . . . 33 . . . . . . . . . . . . . . . . . . 47 Mean ROE for each SPP Decile SPP Deciles in terms of Financial Measures . . . . . . . . . . . . . . . . . 40 Market Performance for each SPP Decile Performance of the Value Strategy . . . . . . . . . . . . . . . . . . . . . . 51 . . . . . . . . . . . . . . . . . . . . . . . . . . . xiv C. 1 Subdivision Distribution vii List of Abbreviations vg. B/M CAP CAGR CAPM COGS DA EBITDA etc. e. g. EV FCF IE i. e. IPO LT p. a. P/E ROA ROE SGA SMI ST US average Book-to-Market Competitive Advantage Period Compound Annual Growth Rate Capital Asset Pricing Model Cost of Goods Sold Depreciation and Amortization Earnings before Interest, Taxes, Depreciation and Amortization et cetera exempli gratio – for example Enterprise Value Free Cash Flow Interest Expense id est – that is Initial Public O? ering Long-term per annum Price-Earnings Return on Assets Return on Equity Selling, General, and Administration Swiss Market Index Short-term United States iii Chapter 1 Introduction 1. You read "Value Investing: Predicting Long-Term Pro?tability Based on Fundamental Data" in category "Papers" 1 Issues, Goals and Limitations Every investor is looking to buy low and sell high. This do es not yet characterize a value investor. Although value investing has become a widely used term, it has been stamped in particular by a small group of academics. They associate stock-speci? c fundamentals such as a low P/E ratio, low cash-? ow-to-price ratio, and high B/M ratio to value stocks. These stock-speci? c fundamentals have become characterizing for value investing and embody the basis for many research studies about value investing (see Damodaran, 2011). For example, Piotroski (2000) developed the F_Score to separate losers from winners among value stocks (i. e. high B/M-stocks). On the other hand, research has been conducted on growth stocks (i. e. high P/E ratio, high cash-? ow-to-price ratio, and low B/M ratio). Mohanram (2005) developed the GSCORE to separate losers from winners among growth stocks, for instance. As a consequence, many investors feel compelled to decide between value and growth stocks. However, in the heated discussion it is often ignored that growth has an impact on the value of a company. This impact of growth varies according to the particular company from negligible to very important, and its impact can be negative as well as positive. Growth is valuable in particular if a company enjoys a durable competitive advantage and remains very pro? table over a long period of time. There are many books about the competitive advantage (e. g. Porter, 1998; Shapiro, 1999). However, it has never been discussed related to value investing. Only Mauboussin and Johnson (1997) have raised a discussion about the competitive advantage period within the valuation process of stocks. They point out in their paper „Competitive Advantage Period: The Neglected Value Driver† that the persistence of competitive 1 advantage has a huge impact on the value of a ? rm. Yet there is little literature on this topic (see Fritz, 2008) and the bulk of academics as well as practitioners still rely mainly on the di? erentiation between value and growth stocks. This thesis gives priority to the competitive advantage, though, and intends to lay the groundwork for valuing competitive advantage. It is important to understand how a competitive advantage can be captured and if it is possible to predict long-term pro? ability, before starting to value the growth potential of a company. Hence, the aim of the thesis is con? ned to the predictability of long-term pro? tability and does not intend to value the competitive advantage as such. The ? rst question that arises in this context is whether it is possible that a company can exhibit long-term pro? tability. The answer to t his question is of interest, as most economists maintain the contrary. According to economic theory, pro? tability is mean reverting in a competitive environment (Chan, Karceski and Lakonishiok, 2003). However, reality teaches us the contrary every day. Mircrosoft’s products, for instance, are everything else but innovative. Nevertheless, the company earns excessive returns for decades, and so do others like The Coca-Cola Company. Thus, this thesis investigates the possibility that a company is able to sustain its competitive advantage over several years. Thereupon, the second issue addresses whether companies with a durable competitive advantage exhibit stock-speci? c fundamental characteristics. Therefore, the DuPont Identity serves as framework. The companies are classi? ed into deciles in terms of pro? tability (i. e. ROE) and persistence. Upon this, the companies are tested for the characteristics regarding various measures, which are derived mainly from the DuPont Identity. All companies that are objects of the investigation are listed in the United States and constrained to manufacturing companies only. The third question addresses whether it is possible to identify companies with a durable competitive advantage based on the observed characteristics. Finally, a simple strategy is composed that implements the investigated characteristics of companies with a durable competitive advantage. The strategy is conducted on manufacturing companies that are listed on a Swiss stock exchange. 1. 2 Structure and Empirical Approach The present thesis is structured in mainly four parts: Chapter 2 reviews literature on value investing and points out the broad range of value strategies by the mean of four examples. The reader shall gain an overview of value investing (i. e. the origin of value investing, dissociation from other investors, and current value discussion). Additionally, 2 this chapter shall point out the link between value investing and the competitive advantage period. Chapter 3 contains a literature review about competitive advantage, pro? tability measures and the persistence of pro? tability. Moreover, chapter 3 shows the research gap as well as the general approach to ? ll this gap. The empirical part in chapter 4 deals mainly with three issues: (1) persistence of superior performance, (2) characteristics of companies with a competitive advantage, and (3) predictability of future long-term pro? tability. Finally, in chapter 5 a value strategy will be composed that builds on the insights of chapter 4. 3 Chapter 2 Value Investing—An Investment Paradigm 2. 1 The Origin of Value Investing Value investing is an investment paradigm that derives its origin from the ideas on investment and speculation subsequently developed and re? ned by Benjamin Graham and David Dodd through various editions of their famous book Security Analysis. Starting in 1928, Graham began to teach a course on security analysis at Columbia University. The book emerged from that course, and appeared in 1934. Graham and Dodd mainly summed up lessons learned from the previous economic crisis in 1929 and provided readers with inevitable principles and techniques by focusing on the analysis of fundamental ? gures to estimate the value lying behind securities. By publishing the ? rst professional book about investing, they laid the foundation of value investing. In 1949, Graham published his second book, The Intelligent Investor, which was described by Warren Bu? ett (Graham, 2003) as „by far the best book on investing ever written. † It contains mainly the same ideas as in its predecessor Security Analysis, but focuses more on the emotional aspects of stock markets, rather than on analyzing techniques. The techniques to determine investment opportunities that Graham and Dodd have developed are based on two fundamental assumptions about the market: 1. Market prices of securities are sometimes subject to signi? cant and unforeseeable movements. 2. As opposed to the e? cient market hypothesis, which assumes that all stocks are correctly priced by the market at any one point in time, market prices of some 4 securities deviate from their intrinsic values from time to time despite the fact that their underlying economic values do not justify such signi? cant deviation. Hence, an intelligent investment is characterized as paying less for a security then its intrinsic value. Paying more for a stock than its intrinsic value in the hope that it can be sold for a higher price is speculative. In other words, an intelligent investor should not attempt to forecast future stock market movements; instead, such movements provide opportunities to purchase undervalued stocks. Moreover, investors are encouraged to purchase securities only when the market price is su? ciently below its intrinsic value. Graham (2003) referred to this signi? cant gap between price and intrinsic value as the margin of safety, and quali? ed it as central concept of investment. In practice, investors lay down di? erent margins of safety that are appropriate to their fundamental analysis. A super? ial analysis requires a higher margin of safety than a deep and broad analysis. Additionally, market conditions as well as the sizes of funds gives reason for di? erent margins of safety. Bu? ett states in his letters to the shareholders of Berkshire Hathaway, Inc. in 1992: „We have seen cause to make only one change in this creed: Because of both market conditions and our size, we now substitute ,an att ractive price’ for ,a very attractive price’ (p. 12). † Yee (2008) suggests a margin of safety between 10% and 25% of the share price. Larger margins are justi? ed for especially risky stocks. Accordingly, the margin of safety is not a rigid safety net but rather a ? exible net with meshes, which must be properly adjusted to the speci? c needs and conditions from time to time. 2. 2 Value and Other Investors Classic value investors—in the sense of Graham and Dodd—are rare. Every investor is looking to buy low and sell high, but what exactly di? erentiates a real value investor from all the other investors? According to Greenwald, Kahn, Sonkin, van Biema (2001), investors can be di? erentiated into two main categories. The ? rst category pays no attention to fundamental analysis. Instead, these investors analyze charts; in particular they construct charts to represent trading data (e. g. price movements and volume ? gures). In other words, they intend to predict future price movements referring to previous events regardless of its fundamental value (pp. 5-6). Graham and Dodd qualify these investments as highly speculative. 5 Although the second category focuses admittedly on fundamental analysis, Graham and Dood value investors are still a minuscule minority. Greenwald, Kahn, Sonkin, van Biema (2001) divide these fundamentalists into those who ocus on macroeconomics and those who deal with the microeconomics of securities. Macro-fundamentalists often pursue a top-down approach by considering ? rst broad economic factors such as interest rate, in? ation rate, exchange rate, unemployment rate, and the like. They forecast economic trends on a broad national or even worldwide basis. Upon this, they decide whether a group or even a speci? c security is a? ected by this trend. They do not calculate the value of individual securities, though. In particular, they monitor policy makers, such as the central bank, and try then to determine the impact on a speci? industry or group of securities. As any other investor, they attempt to forecast price movements before other investors recognize them and subsequently buy low and sell high, but they do not calculate the intrinsic value of an individual security directly (pp. 6-7). Graham and Dodd originally established value investing as a comprehensive analysis of securities in order to estimate the intrinsic value as accurately as possible, but in the group of micro-fundamentalists, traditional value investors are still a minority. According to Greenwald, Kahn, Sonkin, van Biema (2001), a more common approach takes the current price of a stock as the point of departure. These investors analyze the history of a security, considering how the stock price was in? uenced by changes in the underlying economic factors. In a second step they then attempt to predict the probability and impact of such changes in order to forecast future development of the speci? c security. These kind of investors often forecast future earnings or free cash ? ows. If they ? d that their predictions are more optimistic than the market’s expectation, they buy the security; if they ? nd that the market’s overall expectation is to high compared to their forecast they sell the security (p. 7). Indeed, most value investors—in the sense of Graham and Dodd—start their analysis from the bottom up by calculating ? rst the intrinsic value of a ? rm and subsequently they estimate the macroeconomic exposure of the ? rmâ₠¬â€similar to the micro-fundamentalists. Although there are some similarities, Graham and Dodd value investors distinguish themselves from micro-fundamentalists in many ways. Greenwald, Kahn, Sonkin, van Biema (2001) mention two reasons why most micro-fundamentalists are not value investors: First, they focus on prior and anticipated changes in prices, and not on the level of prices relative to underlying values. The second and even more decisive di? erence is the absence of a margin of safety to safeguard investors from unpredictable market movements (pp. 7-8). Accordingly, a true value investor in the classical sense is one whose point of de6 parture is the fundamental data of a company. Although macro-economic factors play a signi? cant role in the analysis, they are of secondary importance. Furthermore, this investor does not predict future developments of key factors that cause price changes. Instead, a classic value investor values a company based on current fundamentals and buys a security at a bargain price. In the following section, four value strategies are outlined in order to give an idea by the way of illustration. 2. 3 Four Value Strategies by Illustration The range of value strategies is broad enough that it makes it impossible to sum up all of them. Thus, the following selection intends to show the large variety of aspects that these strategies characterize. These aspects range from fundamental analysis only (e. . Piotroski) to more sophisticated investigation of companies (e. g. Bu? ett), from concentrated portfolios (e. g. UBS EMU Value Focus Fund) to diversi? ed portfolios (e. g. Schloss). 2. 3. 1 Piotroski’s F_Score Piotroski started his career as a professor at the University of Chicago Graduate School, and since 2007 he has taught accounting at the Stanford University Graduate School of Business. In April 2000, Piotroski published a paper in the Journal of Accounting research titled „Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers. In this paper, Piotroski classi? es distressed companies in winners and losers by means of nine fundamental criteria. Four criteria (ROA, ? ROA, CFO, and ACCRUAL) re? ect the pro? tability, three criteria (? LEVER, ? LIQUID, future debt obligations, and two criteria (? MARGIN, and ? TURN) measure changes F_Score is composed as follows: F _Score =F _ROA + F _ ? ROA + F _CF O + F _ACCRU AL + F _ ? LIQU ID + EQ_OF F ER and EQ_OFFER) measure changes in capital structure and the ? rm’s ability to meet in the e? ciency of the ? rm’s operations (Piotroski, 2000, pp. 10-14). The equation of the + F _ ? M ARGIN + F _ ? T U RN + F _ ? LEV ER (2. 1) where a low F_Score signals a ? rm with less recovering potential and a high score indicates the ? rm as having mostly good prospects to recover. If a company ful? lls a criteria, 7 the F_criteria equals 1, otherwise 0. With that, Piotroski translates the criteria into binary signals. The sum of all F_criteria subsequently leads to the F_Score, which can range from a low of 0 to a high of 9. Due to the fact that it is very di? cult to obtain the maximal score, companies with a minimum score of 8 will be classi? d as high F_Score whereas as companies with a score of 0 or 1 are classi? ed as low F_Score (Piotroski, 2000, pp. 14-18). Piotroski (2000) reevaluates the stocks every year and decides whether a stock belongs to the losers or to the winners. Finally, the investment strategy buys high F_Score and sells short the low F_Score. This simple strategy generates over two decades an astonishing 23% average annual return. It appears that the strategy is also robust in crisis. In 2008, the American Association of Individual Investors tested the strategy among 50 other investment strategies. With a performance through to the end of 2008 of 32. 6%, it was not only the only stock strategy that would have generated positive returns but has also outperformed the median performance (-41. 7%) of all tested strategies by far (Thorp, 2009). Due to the fact that the portfolio is construed each year on actual data, it is often the case that the portfolio is turning over correspondingly. Once a ? rm is recovering and the market has recognized the improvements the B/M ratio increases and the stock does not appear any more on the screen, although the company has even more growth potential. That is why many ? ms remain no longer than one or two years in the portfolio. Admittedly, buying winners and short-selling losers is one big advantage of the strategy. Companies that are classi? ed as losers may transform in a subsequent period from a low F_Score to a high F_Score ? rm. Therefore, the strategy makes double use of a company’s development or business cycle. But the strategy a lso implies a disadvantage; why should an investor sell an excellent business that bought at a bargain price? Based on a competitive advantage, the business could thrive to a superstar and yield high returns on the initial investment. A top manager also keeps the good business also when others o? er more than its current value because the manager knows that the business will contribute also in the future to the ? rm and its shareholders. 2. 3. 2 Walter and Edwin Schloss Walter Schloss and his son Edwin are very conservative value investors whose motto is to keep things simple and cheap. Walter Schloss attended a course of Graham’s and worked for the Graham-Newman Partnership until 1955. Afterward, he ran his own investment ? rm and in 1973 his son Edwin joined the partnership. From the formation of the limited 8 artnership until 2000, the Schloss have provided their investors an annual compound return of 15. 3%. They outperformed the SP Industrial Index by 4. 2% annually. In other words, they have created a return of 66,200% while the SP Industrial Index performed 11,800% (Greenwald, Kahn, Sonkin, van Biema, 2001, p. 263). Walter Schloss has been titled by Warren Bu? ett as „superinvestor† (Forb es, 2008). What distinguishes the Schlosses from other value investors is their simple, and almost rudimentary method choosing stocks. They are among the few investors that stick to the principles of the father of value investing. Like Graham, they seek for stocks that are priced lower than their working capital (net assets minus current liabilities). They start their investigation by putting their feelers out to stocks that are unloved, distressed, and unheeded from other investors. Most of these stocks are in a downward trend either by a rapid plunge or a continually decreasing price. The longer the company has gone through such hard times, the more they call the Schloss’s attention. Once they have invested in such a unloved stock they hold it on average for four to ? ve years until the stock has recovered. Sometimes they also sell a stock earlier when they ? d a better opportunity (Greenwald, Kahn, Sonkin, van Biema, 2001, pp. 266-269). Edwin Schloss focuses on asset values, but is also willing to buy a company that has a strong earnings power. Greenwald, Kahn, Sonkin, van Biema (2001) describe the investment philosophy of Edwin Schloss as follows: „Edwin Schloss pays attention to asset values, but he is more willing to look at a company’s earnings power. He does want some asset protection. If he ? nds a cheap stock based on normalized earnings power, he generally will not consider it if he has to pay more than three times book value. [†¦ Depending on his estimate of what the companies can earn, Edwin may still ? nd the stock cheap enough to buy (p. 268). † Although Edwin pursues a more liberal value approach by taking the earnings power value into account, he is still very conservative. Both father and son do not include in their valuation process other than fundamental data. In their analysis, they rely entirely on annual and quarterly reports—they keep things simple but with a relatively high margin of safety. The diversi? cation of their portfolio also varies. They do not determine a threshold in advance to which they stick. Similar to Warren Bu? ett, their approach leads them to industries, which are not exposed too much to rapid changes that can undermine the value of these stocks (Greenwald, Kahn, Sonkin, van Biema, 2001, p. 269). 9 2. 3. 3 Warren Bu? ett Warren Bu? ett, who is doubtless the most famous student of Graham and one of the most successful investors, too, pursues a simple strategy, which is complex and di? cult in its execution. Bu? ett started his career in Graham’s investment ? rm. In 1964, he then bought shares of Berkshire, when its book value per share was $19. 46 and its intrinsic value even lower (Bu? tt and Cunningham, 1997, p. 6). In the period from 1964 to 2009, book value per share increased at an annual compound rate of 20. 3% that is an overall gain of 434,057 %. Adjusted by the SP with dividends included, Berkshire has a compound annual growth rate of 11%. During the period, Berkshire reported only twice a negative change in book value—in 2001 and 2008—co mpared to the SP that incurred during the same period eight negative results (Bu? ett, 2009, p. 2). Unlike other investors, Bu? ett feels obliged to share his knowledge that he gained mainly from Graham. Moreover, and opposed to the bulk of successful investors, he teaches his wisdom to the world of investors—and those who are interested in his activity— by an annual letter to the shareholders of Berkshire Hathaway, Inc. To attain this knowledge it is not necessary to buy a share of Berkshire Hathaway, Inc. —which costs currently over $125,000, nor is it necessary to pay any money for it. Bu? ett gives access to his letter on the Berkshire’s website for free. Additionally, in the book called The Essays Of Warren Bu? ett—Lessons For Corporate America, Cunningham organizes the information in Bu? tt’s letters in a thematic way. This book is also accessible online and can be downloaded for free. Bu? ett is aware that he creates potential investment competitors by passing his wisdom to everyone but imitating Bu? ett’s strategy is everything but simple. His explanations are logical and easy to understand, but the execution requires much expe rience and a distinctive comprehension of the industry and costumer behavior. In contrast to what Piotroski and other academics and money managers postulate, Bu? ett buys not only high B/M stocks. This amazes readers in many ways. In particular, because Bu? tt refers in several passages of his letters to Graham’s conception. It also contradicts the conceptions of most academics, which assign a high B/M ratio to value stocks. Nonetheless, Bu? ett puts emphasis not only on the book value of a company but more on the competitive advantage that a company enjoys. Like Graham, he is looking primarily for very cheap businesses, which are traded far under their intrinsic values. As opposed to Graham, Bu? ett buys not every stock that Mr. Market o? ers him for a bargain price. Additionally, he seeks for businesses with a high competitive advantage. While most ? rms in Graham’s portfolio are distressed, Graham diversi? es the risk. Bu? ett, on the other hand, holds that an investor should not buy second-class stocks 10 in the hope that they will recover. The awareness of less investment opportunities does not bother Bu? ett; au contraire, he avoids purchases that he will regret later. According to him, every transaction that is based on a wrong decision is unnecessary, and thus, to be avoided. One could say that transaction costs (e. g. trading costs) are tiny, that they carry no weight. But what most people disregard are taxes. With every transaction, book value is going to be reevaluated and governments levy taxes on the new value. Holding a share does not cause any taxes, as long as the investment will be sold. Therewith, Bu? ett did not pay taxes as much as his colleagues that trade frequently. Either way, Bu? ett’s preferred holding period is forever. This strategy particularly bene? ts private investors that have bought stocks of Berkshire Hathaway. At least in Switzerland, the government does not impose taxes on capital gains. In the shareholder letter from 1992, Bu? tt breaks his strategy down to a few cornerstones of the valuation process: „We select our marketable equity securities in much the way we would evaluate a business for acquisition in its entirety. We want the business to be one (a) that we can understand; (b) with favorable long-term prospects; (c) operated by honest and competent people; and (d) available at a very attractive price (p. 12). † First, Bu? ett never buys a business that he does not understand entirely. This requires a full comprehension about the industry such as competitors, value chain, costumers, and so on. For this reason, Bu? tt avoids industries with a high rate of change (e. g. technology industry). The second criterion that a business must live up to is a competitive advantage. Preferably, he is looking for businesses that have potential to improve their competitive positions within the industry. Third, but less important, Buffett is looking for competent management. It is less important, because according to him a company with a durable competitive advantage can even operate with ordinary managers and generate extraordinary returns (Bu? ett and Cunningham, 1997, p. 21). Finally, a margin of safety prevents Warren Bu? tt from mistakes or unforeseeable developments. It seems that soft factors play an important role for him in the valuation process. Correspondingly, fundamental analysis is only half the battle. The following quote from Warren Bu? ett in the context of the hostile takeover of RJR Nabisco outlines the kind of business Bu? ett likes: „I’ll tell you why I like the cigarette business. It costs a penny to make. Sell it for a dollar. It’s addictive. And there’s fantastic brand loyalty (Burrough and Helyar, 1991, p. 218). † 11 For this reason, Bu? ett also accepts businesses that do not always have a high B/M ratio. Moreover, he seeks for businesses that have potential for improvements and buys them at a relative bargain price in the hope the business remains its advantage and yields high returns in the future. 2. 3. 4 UBS EMU Value Focus Fund The UBS EMU Value Focus Fund is a highly concentrated and actively managed European equity fund, which holds maximally ten stocks, where each has an initial weight of 10%. The investment process is divided into seven steps (Screening process; Short list; Pre due diligence; Full due diligence; Watch list; Entry, increase/reduce position; and Exit). First, the stock universe is screened by a quantitative approach (EV/EBITDA, P/E, B/M, FCF yield) and by a qualitative approach. Second, in the due diligence process the team meets the management of the target company, they compare the company within the peer group, and determine the fair value and entry level. The team gives particular importance to the within-industry comparisons and a margin of safety of 30%. After the stock is over the due diligence, the stock is deposited on the watch list until the entry level is reached. The stock remains in the portfolio until the stock has recovered and the calculated air value is reached and the weight of the stock is less than 15% of the portfolio. If there is a more promising investment opportunity, a position will be changed. Based on the high portfolio concentration, a sector limitation makes sure that stocks which are stemming from the same sector do not surpass the threshold of 33%. If a stock’s price plunges after its purchase more than 15%, the management also pulls the trigger for safety reasons and sells the stock (UBS, 2010). The strategy of the UBS EMU Value Focus Fund equals in some aspects Warren Bu? ett’s strategy. Both distinguish themselves from Piotroski’s and Schlosser’s strategy insofar as they include a due diligence process that goes beyond a fundamental analysis (e. g. valuation of the management). Furthermore, both strategies do not strive for diversi? cation, although the UBS EMU Value Focus Fund includes some risk management factors that compel the management to exit in certain circumstances. Warren Bu? ett, on the other hand, restricts himself by avoiding complex businesses. The two strategies also di? er insofar as the UBS EMU Value Focus Fund has a relatively short investment horizon of 18 months, whereas Bu? tt holds a stock over decades. 12 2. 4 Value vs Growth—Fuzzy Thinking! Although there is a broad variety of value strategies, it seems that the discussion about value investing leaves little room for interpretation. Nowadays, the bulk of academics di? erentiate between value and growth (glamour) stocks. They ? nd that stock-speci? c fundamental attributes such as a low P/E ratio (Basu, 1977; Ja? e, Keim, and Wester? eld, 1989), low cash-? ow-to-price ratio (Chan, Hamao, and Lakonishok, 1991), and high B/M ratio (Rosenberg, Reid, and Lanstein, 1985; Fama and French, 1992) earn substantially higher returns than glamour stocks. Hence, often one feels compelled to decide between value investing and growth investing. In particular, academic work has upheld the distinction, and thus, has had a strong impact on investment professionals. Furthermore, academic research developed style-speci? c benchmarks (Chan and Lakonishok, 2004, p. 71). In that sense, value stocks are referred to a high B/M ratio, a low P/E ratio and a high dividend yield, whereas opposite characteristics—a low B/M ratio, a high P/E ratio and a low dividend yield—are assigned to growth stocks. Some professional investment managers even see a mix of the two approaches as a smart cross-dressing. Among others, Warren Bu? ett labels this classi? cation as fuzzy thinking. Bu? ett argues that growth is always a component in the calculation of value. Nonetheless, he does not neglect that the importance of the growth component varies from negligible to very important and its impact can be positive as well as negative. Thus, a low B/M ratio, a high P/E ratio, and a low dividend yield is not per se inconsistent with „value† purchases. Business growth has often a positive impact on value but tells us little about the intrinsic value of growth (Bu? ett, 1992, p. 12). All growth is not created equal, and thus must be di? erentiated. There is also value-destroying growth, which is not worth a penny. Bu? ett goes even further and scrutinizes the term value investing as such. According to him, the term is redundant because investing implies to pay less then the value of something (Bu? ett and Cunningham, 1998, p. 85). The origin of this fuzzy thinking constitutes the value anomaly that will be discussed in the following section. 2. 5 Value Anomaly Already Graham and Dodd (2008) hint at the discrepancy between market price and intrinsic value and the fact that the market often underestimates value stocks. This mispricing is called in the literature Value Anomaly. In the following section three explanations are outlined: i) a behavioral approach, ii) a risk-based approach, and iii) a competitive advantage based approach. 13 2. 5. 1 Behavioral Approach According to Graham and Dodd (2008), the irrational behavior of market participants can drive the price of a security in the wrong direction. As Graham outlined in his book the Intelligent Investor, emotions take part in the participant’s decisions, thus he rejects the E? cient-Market Hypothesis as well as the assumption of Homo Oeconomicus. Market participants are swayed either by positive emotions pushing up prices, or uncertainty and ? rce emotions cause a decline in prices. In general, both results in ine? cient and undesirable market upshots. De Bondt and Thaler (1985) already ? nd evidence that markets overact to unexpected and dramatic news events. Moreover, contagion ampli? es this process of counter-productive behavior, taking a central part of the game, especially in crisis when panics gain the upper hand and investors disinvest despite of existing reasons to act to the contrary. 1 Not only irrational behavior induces a discrepancy between market prices and intrinsic value. Discrepancies can also result from ? ms of little interest, and thus, small liquidity. In particular, small companies fall through the screening raster of professional investors. Once a professional investor manages a fund of a certain size, small investments are out of range. First, small companies are like gold dust, as a consequence thereof di? cult to ? nd, and second, the monitoring costs come along with the number of investments, which makes such companies unappealing. 2. 5. 2 Risk-based Approach Whereas Graham showed that behavioral aspects distort markets and cause a gap between intrinsic value and market value, many academics hold that the di? rence does not necessarily contradict the e? cient-market hypothesis. Some argue that higher returns simply compensate higher risk (Fama and French, 1994). As basis of this argumentation line served the Capital Asset Pricing Model (CAPM), which was developed independently by Sharpe (1964) and Linter (1965) in the 60’s based on Markovitz’s portfolio theory. The model shows the coherence between the expected return of individual securities and systematic risk (market risk). Whereby ? of a security is a parameter describing the relation of its return with that of the overall market. The equation of the CAPM can be summarized as follows: 1 Cella, Ellul, and Giannetti (2010) write in their paper about „Investors’ Horizon and the Ampli? cation of Market Shocks† that stocks which are held in a large part by short-term investors are more likely to plunge under their intrinsic value. They also instance that fund managers often follow restrictions, which do not lead to optimal purchases or sales. 14 E(Ri ) = Rf + ? i (E(Rm ) ? Rf ) (2. 2) where E(Ri ) is the expected return of a speci? c asset, Rf is the risk-free return rate, and E(Rm ) is the expected return of the market. Already Rosenberg, Reid, and Lanstein (1985) give rise to the assumption that the CAPM can not fully explain the correlation between expected returns and the risk of an individual security. As a one factor model implies, the CAPM oversimpli? es the complex market. Therefore, Fama and French (1992) introduced a three-factor model that is an extension of the CAPM. Basically, they improved the CAPM by adding two more factors: (i) they distinguished between high and low B/M ratio, and (ii) classi? ed stocks according to market capitalization (price per stock times number of shares outstanding). The equation of the extended CAPM can be summarized as following: r = Rf + (Km ? Rf ) + bs ? SM B + bv ? HM L + ? (2. 3) where Rf is the risk-free return rate, Km is the return of the entire stock market, SM B (small minus big) is the di? erence between small and big ? rms according to their market capitalization, HM L (high minus low) is the di? erence between high and low B/M ? rms, bs is the corresponding coe? cient to SM B, and bv is the corresponding coe? cient to HM L. Based on this, Fama and French (1992) argue that high B/M ? rms’ prospects are judged relative poorly to ? ms with low B/M ratios. As already postulated by Chan and Chen (1991), Fama and French also interpret high B/M ? rms as ? nancially distressed (see also Piotroski, 2000). They adduce the explanation that a high B/M ratio inheres in a relatively high ? rm’s market leverage compared to its book leverage. Furthermore, they ? nd that during some periods (at least ? ve years) low B/M ? rms remain m ore pro? table than high B/M ? rms. Fama and French (1992) argue that more risk is inherent with a higher B/M ratio. In other words, value stocks are riskier than „glamour† stocks. Opposed to this, Gri? and Lemmon (2002) show that large returns of high B/M ? rms are inconsistent with a risk-based explanation. Arshanapalli et al. (1998) show 15 that value stocks generally have a risk-adjusted performance superior to that of growth stocks (p. 23). Thus, the value anomaly can be traced back to a mispricing of stocks due to overly optimistic valuations of „glamour† ? rms. Once this mispricing is revealed, these ? rms earn negative excess returns. According to Chan and Lakonishok (2004), investors, in particular professional investment managers, focus their attention on apparent „glamour† stocks while stock prices of high B/M ? ms plunge under their fundamental value. Hence, investing in high B/M ? rms is likely to be a rewarded long-term investment st rategy (p. 85). Moreover, Anderson and Smith (2006) ? nd that a portfolio of the most admirable companies substantially outperforms the market, and thus contradicts the e? cient market hypothesis. As a consequence, the risk-based explanation has lost many of its supporters over the last years and the value anomaly remained unexplained. 2. 5. 3 Competitive Advantage Based Approach Although it is probably the closest explanation, academics rarely make the competitive advantage of a company accountable for the superior performance and excess returns of a company. According to them, competitive advantages must theoretically fade away. But in reality this is not always the case. New academic research indicates that the risk driver refers more to the riskiness of losing the competitive advantage (Mauboussin and Johnson, 1997; Greenwald, Kahn, Sonkin, and van Biema, 2001). This could be the case if new competitors enter the market and/or in industries where the rate of technology changes is high. On the one hand, new technologies open up new opportunities for existing players, but on the other hand, they also carry the risk that entrants come up with new products and technologies that force existing players to keep up with the changes. This kind of competition is often quite expensive and indicates that excess returns can be wrest away easily. Therefore the risk of businesses, which are exposed to such changes, is higher than of businesses that sell products with marginal changes. Of course, some companies even maintain their competitive advantages in fast-changing industries over decades (e. g. Microsoft, Inc. r maybe Facebook) due to customer retention and network e? ects, which create switching costs on the demand side and enormous costs to enter the market on the supply side. The mispricing of such companies that exhibit a durable competitive advantage originates from the complexity in identifying such companies in advance. The following chapter elaborates a bit more on t his and points out the state of the art as well as the existing research gap. 16 Chapter 3 Literature Review 3. 1 Competitive Advantage Competitive advantage is a central theme in value investing that has often gone forgotten in the heated debate about the value anomaly. Although an immense number of books and papers have been written about competitive advantage, it has not found proper entrance into the value discussion. Nonetheless, it is an essential part in the valuation process of a company. Greenwald, Kahn, Sonkin, and van Biema (2001) break the Graham and Dodd framework down to three main sources of value (see Figure 3. 1): (1) the asset value, (2) the earning power value, and (3) the value of growth. All three elements must be involved in the calculation of value—also growth (pp. 35-47). The asset value equals the reproduction costs of the assets and is therefore the most reliable source of value. The second most reliable measure of a ? rm’s intrinsic value is the value of its current earnings (earning power value). The earning power value equals current earnings divided by the cost of capital, assuming that the growth rate is zero. The deviation between the asset value and the earning power value equals the franchise of a company. What they call Franchise is referring to the competitive advantage and describes the same phenomenon—the ability to earn more on a ? rm’s assets than it is possible under perfect competition (p. 41). The least reliable source of value is growth, because it is the most di? ult element of value to estimate and therefore obtains last priority in the valuation process. According to Greenwald, Kahn, Sonkin, and van Biema (2001), growth is only valuable if it is within the franchise. Correspondingly, growth that only increases revenues, earnings or the assets of a ? rm does not create additional value. Growth is valuable only if a com pany can extend its pro? tability by the means of its competitive advantage. 17 Figure 3. 1: Three Slices of Value Nevertheless, excess returns, which exceed the cost of reproducing a ? rm’s assets, are under the assumption of perfect competition not possible (see Mankiw, 2004, pp. 4-65). As soon as a company earns more on its assets than its reproduction cost, it will attract new competitors, and thus, erode the excess returns until the earning power value equals the value of assets. However that may be, economic theory about perfect competition is seldom the case in reality. Some companies have enjoyed a competitive advantage even over decades (e. g. The Coca-Cola Company or Microsoft, Inc). There have been many research studies conducted on competitive advantage and a huge number of drivers have been found. 1 Without going too deeply into the di? rent drivers, it might be worth to mention the most common: searching costs, switching costs, and economies of scale. By the mea ns of switching costs, a company can create a lock-in: once somebody has chosen a technology, switching can be very expensive (Shapiro 1999, pp. 11-13). Microsoft, Inc. is probably the best example to illustrate a lock-in e? ect. Changing from MS O? ce Word to another writing program is costly. It raises the annoying problem that the formats are not compatible, and thus requires much e? ort that is more costly than remaining with MS O? ce Word. Switching costs can hange over time as buyers alter their products Thomas Fritz (2008) has conducted an extensive literature review of over 140 empirical investigations published between 1951 and 2007. He comes to the conclusion that the di? erent drivers for a competitive advantage are as manifold as the number of studies and that there is no such as a universally valid driver as one could assume. 1 18 and processes (Porter, 1998, p. 296). Another kind of lock-in occurs by search costs. Search costs occur as buyers and sellers attempt to ? n d each other and establish a business relationship (Shapiro, 1999, p. 26). Finally, a competitive advantage arises by economies of scale. Porter (1998) describes economies of scale as the ability to produce more e? ciently at a larger volume (p. 70). But one should note that economies of scale by themselves do not constitute a competitive advantage. In addition to economies of scale, it needs a demand advantage, which does not have to be big. Once a demand advantage exists, economies of scale in the cost structure will transform superior market share into lower costs, higher margins, and higher pro? tability (Greenwald, Kahn, Sonkin, and van Biema, 2001, p. 0). Correspondingly, products or services that pro? t from high purchase frequency often enjoy a demand advantage that derives from a habit (e. g. the cigarette industry). Still, it is not written in stone that a competitive advantage lasts for an in? nite period if once achieved. Although a vast number of studies examined the at tributes of a ? rm with a competitive advantage, considerably less studies have elaborated on the sustainability of a competitive advantage and the reason why some ? rms enjoy a competitive advantage for decades and other only over a short period. The in? ence of the Competitive Advantage Period (CAP) on the valuation of a ? rm’s shares has also been largely ignored by the literature, although the notion derives its origin from Miller and Modigliani (1961). The term itself appeared in the 90’s in numerous writings. The concept that was developed in Miller and Modigliani (1961)’s seminal paper on valuation can be summarized as follows: V alue = N OP AT I(ROIC ? W ACC)CAP + W ACC (W ACC) (1 + W ACC) (3. 1) where NOPAT represents net operating pro? t after tax, WACC represents weighted average cost of capital, I represents annualized new investment in working and ? ed capital, ROIC represents rate of return on invested capital, and CAP represents the competitive ad vantage period. The CAP can be identi? ed, as shown in Equation 3. 1, as a fundamental value driver among risk and cash ? ow. In order to get the CAP we can rearrange Equation 3. 1 as follows: CAP = V alue (W ACC ? N OP AT ) (1 + W ACC) I (ROIC ? W ACC) (3. 2) As Mauboussin and Johnson (1997) assert correctly, this equation has some shortcomings that constrain its practical scope, but it illustrates how the CAP can be con19 ceptualized in the valuation process. According to Mauboussin and Johnson, the key determinants of CAP can be captured by a handful of drivers. The ? rst key determinant is ROIC that re? ects the competitive position within an industry, whereas a high ROIC indicates a strong competitive position. Generally, it is costly for competitors to snatch competitive advantage from high-return companies. The second key determinant is equally important, and measures the rate of industry change. High returns in a fastgrowing industry do not have the same signi? cance as returns created in a stagnated or even shrinking industry. The third driver re? cts the barriers to entry, which is essential for sustainable high returns on invested capital (pp. 68-69). 3. 2 Pro? tability Measurements High-return companies, which have returns in excess of the cost of capital, also capture Warren Bu? ett’s attention. As Mauboussin and Johnson (1997) note, a constant CAP is contrary to economic theory, but it might be achieved through outstand ing management. However, companies with a stable CAP are everything but simple to ? nd (p. 71). As mentioned above, Equation 3. 2 has limited practical scope; thus, in order to evade this problem other performance measures have to be found. In practice, there are many di? erent performance measures, but this thesis will focus in particular on ROE. Fritz (2008) shows in his investigation that ROA and ROE are two of the most frequently applied accounting-based performance measures (p. 31) regarding competitive advantage investigations. Both are pro? tability measurements and capture the relation of return on applied capital. ROE measures how much pro? t a company generates for shareholders while ROA states how e? cient the asset management is. The higher the pro? tability, the better is a ? rm’s economy and the stronger its competitive advantage. Nowadays, less attention is paid to the ROE. Sharpe, Alexander and Bailey (1999) mention the ROE only marginally and Spremann (2007) devote less than one page to it. Nonetheless, ROE has not lost its usability entirely, but Spremann sees the reason for the decreasing importance in the fact that shareholders orient themselves more toward market values instead of book values. Provided that, market ratios (e. g. P/E ratio) gained increasingly attention. But since superior earnings are generated based on a competitive advantage, it must remain a core theme in the valuation process, in particular for the long-term investor. Pro? tability measurements tend to change over time; thus, forecasting future profitability is a task that many practitioners and academics would label speculative. On 20 the other side, pro? tability is mean reverting in a competitive environment. Thus, nothing is simpler than predicting long-term pro? tability, which must be zero in the long run. Freeman, Ohlson and Penman (1982) already found evidence that ROE follows a mean-reverting process. Almost twenty years later, Fama and French (2000) found strong evidence of mean-reverting process in terms of pro? ability and estimated a rate of mean reversion of 38% per year. Assuming a ? rm’s ROE of 20% above mean will shrink below one percent after ten years and therefore lose its competitive advantage—,this corresponds to 38% reversion rate. This is also in line with Chan, Karceski and Lakonishok (2003)’s expectation that superior operating performance cannot be sustained for more than ten consecutive years. Furth ermore, Fama and French (2000) show that mean reversion is faster below its mean and when it is further from its mean in either direction. However, Penman (1991) scrutinizes ROE regarding its su? iency to predict future pro? tability. According to him, ROE indeed exhibits a mean-reverting tendency, but it proves a too-strong persistence over time. Hence, he suggests that B/M multiples are better indicators of future ROE than current ROE, and a combination of both increases persistence in ROE even further. 3. 3 Research Gap and General Approach Some research has been conducted about predicting future pro? tability. Though these studies deal in particular with the issue of predicting the near future. Thus, this study claims high expectations by predicting long-term pro? ability, with the notion that „longterm† means in this study a period of ten years. There are several papers that postulate a mean reversion of pro? tability measures (Freeman, Ohlson and Penman, 1982; Penm an, 1991; Lipe and Kormendi, 1994; Fama and French, 2000; Nissim and Penman, 2001). Soliman (2008) forecasts out-of-sample future changes in RNOA ? ve years into the future by applying the DuPont analysis. All these studies have in common that they investigate one ? nancial measure (or two) in time. Thus, this study intends to close these two gaps. In the following chapter, ? rst, several ? ancial measures will be considered regarding companies with a durable competitive advantage, and second, it will be hypothesized that predicting long-term pro? tability (up to ten years) is possible. 21 Chapter 4 Analysis of Long-term Pro? tability The following chapter aims to determine indicators in order to forecast long-term profitability. Thus, the chapter is structured in four sections: Section 4. 1 describes the data sample and the adjustments. Section 4. 2 deals with the classi? cation of superior performers in terms of ROE and analysis of the persistence of superior performance. Subsequently, the analysis of ROE performance deciles according to persistence is centre stage. Section 4. 3 involves the analysis of further ? nancial measures regarding the ROE persistence deciles. The starting point of this section is the DuPont Identity, which breaks the ROE measure down into further ? nancial measures. The aim of this section is to ? nd speci? c characteristics that will serve in Section 4. 4 to separate ? rms in advance according to future superior performance years. Finally, Section 4. 6 investigates the ROE persistence deciles according to market ratios (i. e. B/M ratio and P/E ratio). . 1 Data Sample A reliable analysis depends to a great extent on the size of the data sample. The size, in turn, is determined by company years (i. e. number of companies times number of years) that are considered. All data in this study originates from COMPUSTAT if there is no explicit mention of it. COMPUSTAT provides historical data of US companies with available historical annual data from 1950. For this study, the dataset on COMPUSTAT was screened for all companies that were listed on any stock exchange in the United States (including inactive companies) with a primary SIC classi? ation between 2000 and 3999. The data was selected at the end of each calendar year between 1979 and 2009. Hence, historical data for the following investigation is available for thirty-one years. Similar to McGahan and Porter (2002), all records from the dataset that do not 22 contain a primary SIC designation after extraction or any that were not within the stated range were dropped out of the sample. The restriction to companies containing a primary SIC classi? cation between 2000-3999 corresponds to the manufacturing division, which contains twenty subdivisions (see Table C. ). Focusing on one division has the advantage that the ? rms have a similar value chain. All manufacturing ? rms have in common that they purchase raw materials or components and manufacture these m aterials to more mature products, which will be sold to a seller or for further processing. Seldom, do these companies sell the product directly to the ? nal consumer. Drawing comparisons among ? rms with similarities regarding their value chain is simpler and also more reliable. Given this restriction to manufacturing companies, 3844 companies are available. It is art of a dynamic industry process that listed companies disappear and new companies appear on trading lists of stock exchanges. This fact leads to certain problems, which were not always considered properly in prior studies. For the sake of convenience, some researchers have considered only companies with available data for the entire sample period. Thus, they have excluded companies that were passing through either a delisting or an initial public o? ering (IPO). Others have ignored in their investigation only inactive companies. In this category fall two cases, in particular: Either a company did not survive the entire period due to ? ancial distress and subsequent bankruptcy or it was the target of an acquisition by another company. Ignoring inactive companies would distort the relative ? nancial performance of other companies in the same group in the same period. Not least, since pro? tability depends on competition, it is important to include inactive companies to reduce the e? ect of survivorship bias as it is important to take new competitors into consideration. COMPUSTAT provides the option to also include inactive companies into the sample. Many researchers assume that newly-listed companies show high growth rates that are not economically signi? ant for the comparison to other companies, and thus, lead to distortions (see McGahan and Porter, 2002; Rumelt, 1991; Schmalensee, 1985). Hence, they exclude all companies from the data sample that exhibit less than $10 million in sales. Following these researchers, the sample in this study contains only companies with sales of at least $10 million during the entire sample period. All companies that come below this threshold for any year in the sample period were excluded. After these adjustments, the sample comprises 1905 companies. In order to avoid the possibility that companies distort the calculation of growth rates through short-term measurements, companies with less than ? ve years of ? nancial history were excluded. There is evidence that suggests that window-dressing before an IPO a? ects the performance of subsequent years after the IPO. For instance, Jain and 23 Kini (1994) ? nd that IPO ? rms exhibit a decline in post-issue operating performance (see also Degeorge and Zeckhauser, 1993). Therefore, only ? rms with at least ? ve years of ? nancial data on COMPUSTAT items listed in Table 4. 1 were included. Table 4. 1: COMPUSTAT Items This table shows all items hat are downloaded from COMPUSTAT. A more detailed description is given in Appendix A. Companies that have missing data on one of these items are excluded fr How to cite Value Investing: Predicting Long-Term Pro?tability Based on Fundamental Data, Papers