Week in Review  ·  No. 1

What's this newsletter for?

A short answer, and a longer one.

After four pieces this week each anchored on a peer-reviewed academic paper, I'd guess a few of you are wondering what exactly The Capital Memo is trying to be. Today I want to answer that, briefly.

The short version: it's for people who want to understand what's inside a 10-K, why the academic finance literature exists, and how to use both to make better decisions about money they actually have to deploy. It isn't a stock-tipping service. I don't intend to make it one.

The longer version is below.

What I'm trying to do.

Most finance writing today is built around a recommendation, and the argument behind the call usually matters less than whether the call hits.

I don't have anything against that style. If you trade actively, you probably need it, and there are excellent newsletters that do it well.

I haven't been able to find one for a different reader, though. Someone running a family office, advising a CFO on a capex decision, sitting on an investment committee, or thinking about whether to commit another five percent of net worth to U.S. equities. That reader needs the argument more than the recommendation. They have to be able to walk a colleague or a board chair through the reasoning and have it survive cross-examination.

So this is the newsletter I'd want to read if I were that reader. Each issue takes a peer-reviewed academic paper, walks through what it actually says, and applies it to a current filing or a live decision.

What I'm not going to do, while I'm here, is publish price targets, name short positions, or chase whichever stock moved most overnight. I'll occasionally name a company, but only because its filings are doing something instructive about a broader question. Apple's 2018 10-K and Amazon's depreciation footnote both qualified this week.

Next week.

Monday I'm back with Q1 bank earnings. The big four reported last week, and there are a few footnote items I haven't seen anyone else write about yet.

Wednesday I'm finally going to write a piece I've been wanting to do since Bessembinder's data first came up. Right-tail compounders cluster more in unloved sectors than in obvious ones. Energy and utilities are over-represented among the top 200 wealth creators in Bessembinder's data. Tech is actually under-represented. The piece will explain why.

Have a good weekend.

— Marques

About the author

Marques Blank runs Blank Capital, a fractional CFO and FP&A advisory. Previously Northrop Grumman and Citibank. CMA, MBA, Series 65.

This week's papers

Rajan, R., Servaes, H., & Zingales, L. (2000). The cost of diversity: The diversification discount and inefficient investment. Journal of Finance, 55(1).  ·  Cohen, L., Malloy, C.J., & Nguyen, Q. (2020). Lazy Prices. Journal of Finance, 75(3).  ·  Sloan, R.G. (1996). Do stock prices fully reflect information in accruals and cash flows about future earnings? The Accounting Review, 71(3).  ·  Bessembinder, H. (2018). Do stocks outperform Treasury bills? Journal of Financial Economics, 129(3).

For informational purposes only. Not investment advice. Specific securities mentioned are case studies, not recommendations. Past performance does not predict future results.