Active, opportunistic public equity investors

Today’s investment environment presents an entire set of paradoxes.  Interest rates are rising further while inflation measures have started to decline. 

German economist Horst Siebert originally coined the term “Cobra Effect” to illustrate how unintended consequences can result from well-intentioned solutions.

In the summer of 2000, I used my Merrill Lynch internship money to purchase $5,000 worth of shares in Amazon (AMZN). By summer of the following year, I had lost 61% on my original investment.

Stock-based compensation (“SBC”) is compensation that is based on the value of a company’s equity. It can take the form of securities bearing an equity interest in the company or obligations to pay cash in an amount based on the value of the company’s equity. The latter forms are treated as liabilities since they are settled in cash, while the former are treated as equity. Since equity-classified SBC affects share count, investors can be diluted by the practice and should understand its impact. This paper is intended to serve as a guide to understanding SBC from an investor’s perspective and will focus on equity-classified SBC.

In stark contrast to the preceding three years of above-average positive returns, 2022 was one of the worst years for both stock and bond nominal returns in the last century.

A Wall Street Journal editorial entitled “Schrödinger’s Recession” appropriately describes the financial landscape today. The article compares the state of the economy to a famous thought experiment published in 1935 by Nobel Prize-winning Austrian physicist Erwin Schrödinger.