Examine the Key Factors Influencing Inclusive Teaching and...

Examine the key factors influencing inclusive teaching and learning Inclusive teaching means recognising, accommodating and meeting the learning needs of all students, regardless of age, gender, ethnicity, religion, disability or sexual orientation. This starts with acknowledging that students are members of diverse communities, have a range of individual learning needs, and deserve equal opportunity to access the learning experience. Applying inclusive learning is increasingly important in our diverse society and education should reflect, promote and facilitate this. For example, there are more and more disabled people entering education nowadays than there used to be: an inclusive environment must ensure that they are equally valued and†¦show more content†¦Benjamin Bloom provided the theory of Taxonomy to help tutors choose the appropriate teaching method. He made a classification of learning objectives that educators set for students in order to create a more holistic form of education. Bloom’s Taxonomy divides educational objectives into Cognitive, Affective and Psycho Motor domains. Skills in the cognitive domain revolve around knowledge, comprehension and critical thinking on a particular topic; traditional education tends to emphasize the skills in this domain and uses methods like lectures, small group work and problem solving tasks. Skills in the affective domain describe the way people r eact emotionally and their awareness to other people’s joy or pain; teaching methods in this domain might include discussion, case studies, role play and simulation. Finally, skills in the psychomotor domain describe the ability to physically manipulate a tool or instrument; typical teaching methods in this domain will include demonstration, individual practice and coaching. A tutor must also devise aShow MoreRelatedStudent s Entrepreneurial Intention Towards Entrepreneurship Essay1784 Words   |  8 Pagesentrepreneurship is widely recognized as an engine of economic growth and prosperity. In this connection, diverting intention of individual towards entrepreneurship is essential for every economy. To take into account, the purpose of this study to identify factors that may influence on student’s entrepreneurial intention towards entrepreneurship. This is conceptualized with the support of Entrepreneurial Event Model (EEM) developed by Shapero Sokol (1982). This study proposes quantitative methodology in whichRead MoreWhat Is Multicultural Education2785 Words   |  12 Pagesactivities. Students learn, through their own experiences, that peoples actions make a difference. Education that is multicultural is a continuous, integrated, multiethnic, multidisciplinary process for educating all students about diversity. Diversity factors include but are not limited to race, ethnicity, region, religion, gender, language, socioeconomic status, age, and individuals with disabilities. It encompasses curricular infusion and instructional strategies in all subject areas. Education thatRead MoreSocial Support And Effective Supervisor Nurse Relationships Essay2117 Words   |  9 Pages The quality of working relationships that nurses develop at the unit-level, influences employee attitude. Nurse supervisors, particularly at the unit-level, play an important role in promoting work environments that enhance nurses’ health and influencing the quality of support to the nursing unit, thus ensuring high-quality patient care (Galletta et al., 2013). Working in certain types of environments appears to increase the likelihood that nurses will become burned out; that is, that theyRead MoreStructure and Development of Curriculum Essay2909 Words   |  12 Pagesexpected to teach. They include knowledge, skills and understanding for each learning area and are described for each year level’ (ACARA 2010) this detail to content gives scope and sequence to teaching and learning and so teachers can focus more on how to teach content to individual students interests and needs rather than what to teach from each topic or subject. ‘Achievement standards will describe the quality of learning students should demonstrate in relation to the content for each year of schooling’Read MoreAnalysing Problems with the Implementation of Inclusive Education Policies in India Using Multiple Governance Framework8714 Words   |  35 Pages1 Analysing problems with the implementation of inclusive education policies in India using Multiple Governance Framework DRAFT Monika Nangia EGPA Conference, 7-10 September, 2010, Toulouse France EGPA Permanent Study group XIII on Public Policy Analyzing implementation in the age of governance 2 Analysing problems with the implementation of inclusive education policies in India using Multiple Governance Framework Monika Nangia Abstract Reflecting its deep commitment to universalizing access to andRead MoreMadison Metropolitan School District18559 Words   |  75 Pagesstrategies to render the values expressed in their practice more consistent with the educational values they espouse; record their work in a form which is readily available to and understandable by other teachers; and thus develop a shared theory of teaching by researching practice. - John Elliott What is Action Research? | Five Phases of Action Research | Starting Points | Data Collection: The 5 W s and an H | Writing Prompts for Classroom Action Researchers | Ideas for Your Final Write-up | WhatRead MorePerformance Management in a Human Resources Framework5375 Words   |  22 PagesRudman, 2002) that â€Å"Human resources strategies exist to ensure that the culture, values and structure of the organisation and the quality, motivation and commitment of its members contribute fully to the achievement of its objectives† (p.7), I will examine the extent to which my school’s performance appraisal and professional development policy and practice fit into a human resources framework. Lastly, these examples will be used to identify some of the potential and pitfalls of performance appraisalRead MoreLearning Environment and the Academic Performance of Secondary School Students in Akwa-Ibom State11343 Words   |  46 Pagescourse of their work life. Coombs (1969) remarked that secondary school supplies the person who with one or more years training institution or on the job becomes the labour force of a nation. However, our educational systems (secondary schools inclusive) have failed in the areas of character molding, morals, behaviour and academic output. Various stories abound of students and young people’s vices of vandalization, robbery, pick pocketing, tuggery etc. Furthermore, there is mass disregard and disrespectRead MoreAttrition Rate of Online Learning12302 Words   |  50 Pagesroughly one in every six, were enrolled in at least one online course during the fall of 2006. By 2015, 25 million post-secondary students in the United States will be taking an online class. Universities worldwide are providing some type of online learning by developing courses that are available to both on-campus and off-campus students. Online education is no longer in its infancy. Students, parents, educational institutions, government, and businesses are concerned with the quality of online educationRead MoreAll About Peace Education13195 Words   |  53 Pagesâ€Å"understanding, tole rance and friendship among all nations, racial or religious groups† and furthers â€Å"the activities of the United Nations for the maintenance of peace.† (Article 26, Universal Declaration of Human Rights) Peace education encompasses the key concepts of education and peace. While it is possible to define education as a process of systematic institutionalized transmission of knowledge and skills, as well as of basic values and norms that are accepted in a certain society, the concept of

Multiple Intelligences Free Essays

Most of the greatest intellectual figures of our time were not really achievers in their classes. Winston Churchill was doing poorly with his school assignments, and he always stuttered during recitations. Albert Einstein was told to quit school because he was often caught daydreaming. We will write a custom essay sample on Multiple Intelligences or any similar topic only for you Order Now Thomas Edison was always punished at school because he was asking too much questions. However, they turned out to be the people who have changed the history of humanity. In some ways, this is also the case of high school drop outs. Not all of the students leave school because of domestic problems, alcoholism, drug addiction or any other reason. In fact, there are students who quit school because they feel that school is not supporting their learning abilities. They believe that they are too much for school, or they learn better in the outside world. This notion somehow affects the students’ self-esteem. In an article online, the authors stated that self-esteem has to be grounded in positive achievement. If self-esteem is impaired, students will lose the eagerness to acquire formal education. Learning should always come with positive attitude a well as reinforcement. As Henry Ford would say it, â€Å"If you think you can, or think you can’t, you’re right.† Aside from thinking that these students might have behavioral issues or learning disabilities, should the same thought be directed to the education system which overlooks the individuality of students in terms of their learning? Indeed, there are several types of high school curriculum. However, if a particular high school adapts a certain curriculum, it does not guarantee that every student will successfully learn because of the program. The failure of some students may be actually a good thing. It could be a sign that they are better off in other educational programs, or they might even be exceptionally intelligent. Hence, the popularly known academic excellence does not really mean a summary of References Chapter 8 – the secret heart of learning. The Learning Web. Retrieved December 18, 2007 Chapter 10 – do it in style. The Learning Web. Retrieved December 18, 2007 from the World Wide Web: http://www.thelearningweb.net/chapter10/learning_styles_page341.html â€Å"Multiple Intelligences† as Howard Gardner proposed. According to Gardner, there are seven kinds of intelligences: linguistic intelligence (self-expression through words), logical-mathematical (ability on reasoning and numbers), visual-spatial intelligence (ability on recognition and transformation of spaces), body-kinesthetic intelligence (self-expression using one’s body), musical intelligence (involves skill on perception, creation and performance of musical patterns), interpersonal intelligence (capacity to recognize and comprehend other people’s feelings, motivations, intentions and desires), and intrapersonal intelligence (ability to understand oneself). Thus, every student has its own strengths and weaknesses in relation with such intelligences. Consequently, if Gardner’s concept of multiple intelligences could be applied, the recognition of individual learning abilities would be fostered. Students will have the opportunity to develop and maximize their skills with the appropriate curricula. Students will likely stay in school, because they are encouraged to learn and improve themselves according to their capacities. For instance, students who cut classes and eventually drop out because they want to pursue their rock band could be educated in a musically-directed program. In this way, they will have the chance to be enhanced musically at an advance level rather than just learning the basics in a music class or by being a member of the marching band. As a result, high school kids will enjoy and even love school because their self-esteem is grounded in what they are best doing. Their attention will even be diverted from entertaining external factors that eventually discourage them from going to school. Teenage problems will potentially drop. Intelligence mostly involves focus. If high school students are educated according to their intelligences, they will have more focus in school. Their concern will be primarily excelling and achieving their future goals. References HOWARD GARDNER: Multiple Intelligence Theory Proponent. Retrieved December 18, 2007 from the World Wide Web: http://www.infed.org/thinkers/gardner.htm Smith, Mark. (2002). Howard Gardner, multiple intelligences and education. Infed. Retrieved    December 18, 2007 from the World Wide Web: http://www.infed.org/thinkers/gardner.htm    How to cite Multiple Intelligences, Essay examples

Flu Season Essay Example For Students

Flu Season Essay Each year the winter seasons brings with it cold, snow, holidays, and to a lucky few a break from work or school. To many, however, winter brings the dreaded Influenza virus, a virus which, if left to its own devices, can bring death, especially to the young, the old, and the infirm. This year winter also brought with it a shortage of the Influenza vaccine, which was due to a contamination of one manufacturers supply. (Flaherty A02) The resulting decrease in supply caused a dramatic increase in the price demanded by suppliers (and the price paid by consumers). (Flaherty A02)Flu Vaccine for the United States was produced solely by two foreign manufacturers this year, Aventis Pasteur and Chiron Corp. These two manufacturers sell their vaccine to U.S. distributors like Stat Pharmaceuticals Inc. of El Cajon, CA and Meds-Stat based in Ft. Lauderdale, FL who will go on to sell to hospitals, pharmacies, and health care clinics (Flaherty A02). On October fifth the Chiron Corp. announced that their entire supply of Flu vaccine destined for U.S. markets was unfit for use due to a contamination problem at their British manufacturing plant (Flaherty A02). This contamination effectively reduced the U. S. supply of flu vaccine by half (Flaherty A02). Unfortunately for consumers, though profitable to the distributors the drop in supply did not diminish the demand for the vaccine.The quantity of Flu vaccine demanded in the U. S. was greater than the original supply let alone the reduced supply. The market price for the vaccine was between eight and nine dollars prior to the October announcement by Chiron, that its vaccine was contaminated, and soon afterwards doubled in price (Flaherty A02). By the eighth of October the vaccine was being offered to pharmacies at prices approaching ninety dollars per-dose a tenfold increase over the original price (Flaherty A02). The demand for the Flu vaccine is shown to be inelastic (the quantity demanded before the discovery of contamination was the entire supply (X) and after the announcement was the remaining quantity (X/2), while the price jumped from nine to ninety dollars or Ed = .41}). According to the Washington Post the higher prices simply reflected the heightened demand for a scarce item, though this is not the case, demand did not shift at all, only supply shifted. Not all distributors took advantage of the supply shift as in the case of Stat Pharmaceuticals, which sold its vaccine for fifteen to thirty dollars per-dose. Not all consumers paid the inflated price either, hospitals, according to the Washington post article, were able to get cheaper, although limited, supplies through local public health systems that began redistributing the vaccine they had on hand. The decisions to hike prices are disparaged by many healthcare professionals while distributors seemingly support them. To hospital pharmacists such as Rich Carvotta of Los Robles Hospital and Medical Center in Thousand Oaks, Calif., the price markups are gouging, disgusting and a disgrace to the industry. His counterpart at St. Francis Hospital in Charleston, W.Va., Nate Kahn, deemed the offers aggravating no, make that an outrage, and Im one who believes in the free-enterprise system. Gene Alley, chief executive of Stat Pharmaceuticals Inc.,. said: Its the vaccine a commodity, although some in the medical business dont want to admit that. (Flaherty A02). One of his salesmen mentioned, in an e-mail to pharmacies, that distributors could pretty much ask and get what ever the old market will bare, (Flaherty A02). Alley adds, Its happened for the last seven flu seasons. As a result of this years shortage several government agencies are looking into the problem. The Securities and Exchange Commission is looking into how Chiron handled the disclosure of its contaminated vaccine. .u86a63dec17dcdfdeef5099e00dbb8875 , .u86a63dec17dcdfdeef5099e00dbb8875 .postImageUrl , .u86a63dec17dcdfdeef5099e00dbb8875 .centered-text-area { min-height: 80px; position: relative; } .u86a63dec17dcdfdeef5099e00dbb8875 , .u86a63dec17dcdfdeef5099e00dbb8875:hover , .u86a63dec17dcdfdeef5099e00dbb8875:visited , .u86a63dec17dcdfdeef5099e00dbb8875:active { border:0!important; } .u86a63dec17dcdfdeef5099e00dbb8875 .clearfix:after { content: ""; display: table; clear: both; } .u86a63dec17dcdfdeef5099e00dbb8875 { display: block; transition: background-color 250ms; webkit-transition: background-color 250ms; width: 100%; opacity: 1; transition: opacity 250ms; webkit-transition: opacity 250ms; background-color: #95A5A6; } .u86a63dec17dcdfdeef5099e00dbb8875:active , .u86a63dec17dcdfdeef5099e00dbb8875:hover { opacity: 1; transition: opacity 250ms; webkit-transition: opacity 250ms; background-color: #2C3E50; } .u86a63dec17dcdfdeef5099e00dbb8875 .centered-text-area { width: 100%; position: relative ; } .u86a63dec17dcdfdeef5099e00dbb8875 .ctaText { border-bottom: 0 solid #fff; color: #2980B9; font-size: 16px; font-weight: bold; margin: 0; padding: 0; text-decoration: underline; } .u86a63dec17dcdfdeef5099e00dbb8875 .postTitle { color: #FFFFFF; font-size: 16px; font-weight: 600; margin: 0; padding: 0; width: 100%; } .u86a63dec17dcdfdeef5099e00dbb8875 .ctaButton { background-color: #7F8C8D!important; color: #2980B9; border: none; border-radius: 3px; box-shadow: none; font-size: 14px; font-weight: bold; line-height: 26px; moz-border-radius: 3px; text-align: center; text-decoration: none; text-shadow: none; width: 80px; min-height: 80px; background: url(https://artscolumbia.org/wp-content/plugins/intelly-related-posts/assets/images/simple-arrow.png)no-repeat; position: absolute; right: 0; top: 0; } .u86a63dec17dcdfdeef5099e00dbb8875:hover .ctaButton { background-color: #34495E!important; } .u86a63dec17dcdfdeef5099e00dbb8875 .centered-text { display: table; height: 80px; padding-left : 18px; top: 0; } .u86a63dec17dcdfdeef5099e00dbb8875 .u86a63dec17dcdfdeef5099e00dbb8875-content { display: table-cell; margin: 0; padding: 0; padding-right: 108px; position: relative; vertical-align: middle; width: 100%; } .u86a63dec17dcdfdeef5099e00dbb8875:after { content: ""; display: block; clear: both; } READ: Sexual Harrassement Essay (Flaherty A02) While the FDA and the British Medicines and Healthcare Products Regulatory Agency are cooperating to address the concerns related to Chirons production problems. (Flaherty A02)washingtonpost.com Some Suppliers Jack Up Flu Vaccine Price By Mary Pat FlahertyWashington Post Staff WriterThursday, October 14, 2004; Page A02

US Civil Rights Essays - African-American Civil Rights Movement

US Civil Rights US Civil Rights The struggle for equality for Americans of African descent continues despite significant advances made during the 1950's and 1960's. Since then, African Americans have acquired equality and desegregation. But these rights have not come easily as there was much hatred and mistreatment by many whites. With the success of the Montgomery boycott, Black leaders charted a new path for the struggle for Civil Rights. In January of 1957, southern Black ministers met and established the Southern Christian Leadership Conference (SCLC). Rev. Martin Luther King became the first president of the organization. After conferring with the NAACP, a decision was made to follow-up on the suggestion made by A. Philip Randolph sixteen years earlier; a march on Washington to highlight the struggle for Blacks. Some twenty-five thousand people gathered during the first march seeking more Civil Rights legislation for all. Many of the protests initiated during the 1950's and 1960's were spontaneous reactions to White mistreatment. One such incident occurred in Greensboro, North Carolina when a black student was refused service at a bus terminal lunch counter. After the incident, Joseph McNeil and three other students decided to go to the local Woolworth store and remain there until they were served. The waitress refused to serve them, so the four young men just sat there until they were arrested. Each day, the protesters would return and grow in numbers and as such many were arrested. This was one of the first examples of non-violent civil disobedience. Black adults soon joined in, and a boycott of downtown area stores began. When many of the stores were near financial ruin, the decision was made to break the tradition and desegregate the lunch counters. When the success of the boycott spread around the country, other Black students spontaneously formed organizations to initiate similar non-violent protests around the country. In October of 1960, the Student Nonviolent Coordinating Committee (SNCC) was formed. Future Washington DC mayor Marion Barry was the first chairperson of the organization. Students led protests that were showing up in virtually every city in the South. As the protesters grew in numbers, so did the violence that was perpetrated against them. Throughout the South, Blacks were still in the majority, but had absolutely no political power. Black leaders knew that the key to passage towards any effective civil rights legislation would rely on the ability to vote. To date, White politicians and White supremacist groups had been fairly successful in keeping the Black voter rolls to a minimum. The numerous non-violent protests throughout the South were, however, beginning to show positive results. In 1957, the U.S. Congress passed the 1957 Civil Rights Act which made it a federal crime to interfere with a citizen's right to vote. It also established the Civil Rights Commission to investigate violations of the law. With the passing of this legislation, most of the Southern White politicians became even more enraged. In 1960, another bill was past to ensure everyone's right to vote. The 1960 Civil Rights Act called for supervision of voter registration. Blacks were routinely denied permission to register. They were often made to wait for hours for an application to vote. Most of the applications were lost or discarded for various reasons. It was hoped that this legislation would stop these practices, however, it did not. Individual States had every right under the law to establish whatever rules they deemed necessary. The rules, however, were different for Blacks and Whites. For the next few years, tens of thousands of protesters were beaten and jailed. Some lost homes, jobs, and even their lives. In 1962, two journalists were killed in Oxford, Mississippi. They were there covering the riots that erupted after a young black man named James Meredith's admittance into the University of Mississippi. Mississippi State officials did everything possible to deny Meredith admittance, but in the end they allowed him in. On Sunday, September 30, 1962, 123 federal marshals, 316 U.S. border patrolmen, and 97 federal prison guards escorted Meredith onto the college campus. Within hours, they were under assault by a White mob of over 2,000 men and women. President Kennedy had to send in sixteen thousand troops to protect Meredith and restore order at the university. Twenty-eight of the marshals were shot and another 160 police officers were injured. Federal troops remained at the university for over a year to protect one, James Meredith. After waiting years for meaningful Civil Rights legislation to come forth, A. Philip Randolph and other Black leaders felt that it was time for a march on Washington. As Black leaders organized the march, White politicians in Washington

The French Expression A La Fois

The French Expression A La Fois Expression:   la foisPronunciation: [ah lah fwah]Meaning: at the same time, at onceLiteral translation: at the timeRegister: normalThe French expression la fois means at the same time, even though the seemingly essential word mà ªme is not - indeed, cannot be - included. (See synonyms, below.) Examples   Ã‚  Ã‚  Je ne peux pas lire et à ©couter de la musique la fois.I cant read and listen to music at the same time.Ce film est amusant et à ©ducatif la fois.This movie is (both) funny and educational at the same time.Ne parlez pas tous la fois, chacun son tour.Dont all speak at once, everyone (will) speak in turn. Synonyms and Related Expressions avoir le don dubiquità © - to be everywhere at once.se dà ©doubler - to be in two places at once.en mà ªme temps - at the same time.ensemble - together.mà ªner ___ de front - to ___ at the same time, e.g.mener deux affaires de front - to run two businesses at the same time.mà ªner plusieurs tà ¢ches de front - to perform two tasks at the same time. Expressions with ​La Fois chasser/courir deux lià ¨vres la foisto try to do two things at once(literally, to chase/run after two hares at the same time)On ne peut pas à ªtre la fois au four et au moulin. (proverb)You cant be in two places at once.(literally, You cant be at the oven and the mill at the same time.)Nul ne peut servir deux maà ®tres la fois. (proverb)You cant serve two masters.(literally, No one can serve two masters at the same time.)

Benefits and Influence of Music

Nowadays, music is very popular for teen and all ages. Some people like to listen Classic music and other like RB or hip hop. It depend on their interesting. Even many people like music, but it still has advantages and disadvantages also. First of all, I would like to talk about the advantages of music. There are many advantages, but Ill tell you more details about that. First point, the music can make us feel relieve. Sometimes, when you get In the moody. You can take out your amp and listen to it, you will be feel relieve. The music such as hip hop or R;B can elf you to get In the good mood again.Second point, music can make us feel more comfortable. When you listen the romantic music, you such a kind of dreaming or you feel that you can fly and get the romantic feeling. So your feeling more comfortable and being happy all the time. Third point, music can reduce your stresses all the time. When you stress, you listening music or do other activity in order to reduce your stresses step by step. You can listening hip hop music, its help you smile. This is the last point of listening music, music can bring us in to one society by the meaning of the song.For example, you are listening to the Americans song ( Dead and Gone), you can learn about the society in America. What happened in that or something beside this. Also you can improve your listening skill by listen the English song too. However music has many advantages, but its also has disadvantages too. Listening music waste a lot money. When the singer show up or release new album, you always spend your money to buy it every time they release. If they release 100 different new album, Would you buy all this album? Thats why I can say music waste a lot of money. On the other hands, music waste our time too. When you are addicted In to music. You always sit and listening to it without doing anything. You Just sit and listen. You dont go out and do your work. Besides that, If you listen too much time and put your headset every time. You will have problem with your ear. You will spend much money or time to treat It. Totally, every things always have advantages and disadvantages. But If you get the information about this already. You should reduce your listening habit step by step. Benefits and influence of music Music gives different meaning to everyone. Music is a combination of art form from influence, past time, hobby and passion.From classical to Jazz, pop, rock, RB, hip hop or even devotional songs, music affect different people in many different way. That is why we can see nowadays some people who are enthusiastic about music even attribute themselves and their talents into music professions. Music touches our soul and allows us to express different moods and emotions. Therefore, music has many roles that affect everyones life. Listening to certain songs usually triggers to certain emotions linked to that song. As for me, I would listen to various rots of songs to cheer my mood up.And seriously, life without music would be very dull. Have you ever heard of the saying, hooked on the feeling? . Well, it really happens. For example, during festive seasons like Christmas, many people will put on Christmas songs because this will help them to stay on the state of euphoria all month long and bring back their childhood memories of Christmas. Therefore, music also plays a very crucial ole in overall development of an individual. It can take the mind and body to do spontaneous things either good or bad, depends on the type of sic a person is listening to and it message contains.For instance, when someone is listening to sad songs related to their love or life, the listener will be highly in touch with that song connected with their emotions. Likewise, when another person is listening to a heavy metal songs, they might inhibited violated act or aggressive behavior as rock songs bring about rebellion and agitation influence. However, for some people, listening to this type of songs is their way of expressing anger and relieve from pain. Well, its actually depends on that person himself on how they interact and influence by the music.

Development of Concept of Operations. M3S Essay Example | Topics and Well Written Essays - 250 words

Development of Concept of Operations. M3S - Essay Example Setting goals improves the quality of any work. It can also lead to long working hours which will surely lead to poor performance (Rogers, 123). Mission state development could be the most valuable thing for any company, when done correctly it represents s a company’s purpose and it reminds the employee about the companies’ goals. Unlike business, goals, mission statements are never revised. In some instances if the mission statement is not accurate it leads to missing an opportunity in adding value to any business. Accountability problem is when, what is expected is not accomplished. The concepts of accountability are what leaders always struggle about every day. It requires discipline and commitment; more leaders avoid it and more leaks spring up in their organizations. A persuasive communication skill leads to development of various concepts of operation. It facilitates proper understanding making it easier in sharing of ideas. Communication can also be poor in that two parties are unable to understand each other, in such an instance no progress, poor communication will be cause. (Mat lack, 71). Command structure has its benefits; it is remarkably efficient in development of concepts of operation. It facilitates in a smooth running during the development. Despite being efficient, it can lead to favism of some of the employers. Effectiveness of any concept of operation can be measured after the output; failure to a concept of operation is not

Convincing the selection committee of the college Essay

Convincing the selection committee of the college - Essay Example A scholarship essay needs you to recount your personal experiences; your major accomplishments, academic and extra-curricular, of the past. The scholarship essay should ideally highlight skills and qualities that make you different and more eligible for the scholarship than the others. Considering these elements of a scholarship essay you may be tempted to conjure up a scholarship essay by yourself, but on the other hand taking into account the importance of a scholarship essay, the fact that it can help you to get that coveted scholarship, it is better not to take any chances. Hence it will extremely wise of you if leave the writing of the scholarship essay in our able and professional hands. Not only do we know the general rules of writing a scholarship essay, but we actually can write the scholarship essay that is especially suited for your purposes and that will secure you that admission you have been yearning for. In the many years that we have been in service we have written innumerable custom scholarship essays and on all these occasions our assistance proved indispensable to students like you. Our team of professional and highly competent writers all with British educational backgrounds is fully aware of what it takes to write an impressive and winning scholarship essay. All you have to do is send in the details of how you want your custom essay to be written and some information about your personal achievements and the skills and qualities that you possess and leave the rest to our writers. All our writers are professionals with at least three or more years of experience in this field. All our writers are British graduates and post-graduates, specialising in their individual fields.

Project Description Essay Example for Free

Project Description Essay You have been working as an economic consultant, and you have seen a significant number of firms needing outside help to assist in business policy and formulation. Because of your strong reputation, you have just been hired as a consultant for one of the following organizations: Apple Toyota McDonald’s Starbucks United Parcel Service (UPS) For this particular project, you will be reporting to the executive officers in the organization (CFO, CTO, CIO, and CEO). Your task will be to evaluate the trade policies and economic variables that have a verifiable impact on the company’s global operations. It is important that you evaluate tactical and strategic components of the organization and make appropriate economic predictions and recommendations based on its current operations and your predictions. Your overall evaluation and analysis of variables that are impacting the organization will be presented to the officers of the organization. In your report, it is essential that you also include current economic events, predictions, and future recommendations for the organization. ProjecT instructions After you choosing one of the five listed organizations to work for, you will need to write an economics paper that will be presented to the organization’s officers. The paper should be a minimum of 15 pages and a maximum of 20 pages, and the page counts below are suggestions only. The point of your analysis and recommendations is to help the organization’s top management choose the best course of action for its global operations in light of your evidence and predictions. Your report must include the following components: 1. Executive Summary (1-2 pages) Your report should begin with a summary of the content. Your summary should  outline what each section covers. The summary should provide enough information so the officers of the organization gain enough knowledge to develop a framework for the remaining content. 2. Introduction (2-4 pages) The initial portion of your report should present an overall background of the organization in terms of domestic and international operations. Please make sure that the officers of the organization can have a thorough understanding of current operations from a transnational point of view. 3. Body (1-2 pages per area) After reviewing the economic variables affecting the organization, please choose five areas below that you feel to be the most pertinent to your evaluation. Please choose five of the following areas to include in your report: Cost reduction through the use of economies of scale The impact of currency fluctuations on international operations Domestic and international issues related to labor and wages Tactics and strategies affected by technology The relationship between tariffs, pricing models, and manufacturing Integrating business operations in open or closed economies The impact of fiscal and monetary policies on business operations Risk reduction through hedging, arbitrage, and currency management Forecasting supple and demand from the perspective of domestic and international operations How globalization has affected international business operations Comparative advantage and the gains from trade To effectively analyze these variables, you will need to conduct significant research and relate your findings in your report. It may be feasible to ask what economic conditions are affecting the organization today, and what the outlook is, based on your assessment. 4. Conclusion (2-4 pages) In the concluding portion of your report, please summarize your overall  conclusions. Based on your conclusions, How do you feel the company’s short- and long-term operations will be affected by future economic conditions and government trade policies? What solutions would you suggest to your organization to capitalize on opportunities you see or to mitigate or avoid unfavorable situations? What would be your action plan for the organization in each case? The officers of the organization would like you to include four recommendations, and you should incorporate all of the current economic conditions in your justification for the feasibility of future actions. Research Your research report must use a minimum of 10 academic sources, including any combination of websites, articles, textbooks, news articles, and journal articles. Make sure to cite your sources using APA style.

Cyberculture Essay :: Internet Technology essays

Cyberculture Essay E-mail today is the medium of choice when it comes to formal or informal exchange of written information. It has changed the way we thought about writing and drastically changed the way we correspond through writing. E-mail has added a certain type of convenience and its own unique style, although impersonal at times, to the written form of today’s communication. James Sosnoski said it well when he wrote in 1995, â€Å"reading electronic texts on screens is likely to be the predominant mode of reading in the very near future† (Tribble and Turbek 400). If he had only known how right, he was. E-mail today, in short has made the act of simple written correspondence so easy and convenient for all to do. Just over ten years ago, I can imagine many could never have fathomed that they would be able to write to a friend halfway across the world and have them receive the message in a matter of minutes. Writing letters on paper has lost its novelty. It used to be, not long ago that receiving a written letter wasn’t very uncommon, whereas today, it’s simply a rarity. Now not only are you able to send a letter in a matter of minutes, but you can save yourself the pains of writing several of the same copy; you can foreword or carbon copy them to as many people on your address list as you like with a click of a button. The act of revision and attention to spelling and grammatical error has all but eliminated itself in the development of this modern marvel. Dennis Baron wrote, â€Å"It wasn’t so much that I couldn’t think of the words, but the physical effort of handwriting, crossing out, revising, †¦ now seemed to overwhelm and constrict me, and I longed for the flexibility of digitized text† (Tribble and Turbek 36). Perhaps, part of the appeal that E-mail withholds is its ease of use. What was once considered painstaking, the task of writing, revising, and rewriting has now become a thing of the past. Its digitized text can easily compose with the stroke of a key and cut one’s precious time in half. With ease and convenience comes a change of what you might call the formality of written correspondence.

Value Investing: Predicting Long-Term Pro?tability Based on Fundamental Data

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. 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 t he 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 supp ort. 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 Portfol io 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 RO E 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 respec t 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 COG S 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. 1 Issues, Goals and Limitations Every investor is looking to buy low and sell high. This does 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 va lue 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 remai ns 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 starti ng 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 this 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 advan tage 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 inves ting 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 InvestingV alue 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 Sec urity 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 m ovements; 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 attractive price’ for ,a very attractive price’ (p. 12). † Yee (2008) sugg ests 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 pre dictions 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 ? rm—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 con centrated 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 sel ls 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 shor t-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 also 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. Afterwar d, 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 S&P Industrial Index by 4. 2% annually. In other words, they have created a return of 66,200% while the S&P Industrial Index performed 11,800% (Greenwald, Kahn, Sonkin, van Biema, 2001, p. 263). Walter Schloss has been titled by Warren Bu? ett as „superinvestor† (Forbes, 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 ot her 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 b ook 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 s imple 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 S&P 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—compared to the S&P 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 activit y— 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 experience 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 cont raire, 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 muc h 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 r eturns (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 Focu s 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 inv estment 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 abo ut 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 irrat ional 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 t he 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’ pr ospects 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 more 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 optimisti c 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 strategy (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 ApproachAlthough 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 competit ive 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 this 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 i s 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 company 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 means 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 p ublished 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 ? nd 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 (Gr eenwald, 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 attributes 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 pape r 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 advantage 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 outstanding management. However, companies with a stable CAP are everything but simple to ? nd (p. 71). As mentioned above, Equation 3. 2 has limited practical s cope; 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 fa ct 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. Furthermore, 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 particu lar 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; Penman, 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 c hapter 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 prim ary 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 materials 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 compan ies 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 compari son 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). The refore, 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