The case for the can opener edufeb12

“
Page 1 of 8 March 2010 & February 2012 © Copyright StockTakers Limited, All Rights Reserved. Copying Prohibited.
The author does not provide investment advice. In order to use reproduce or convey the material herein,
in any way, written agreement must be obtained from the author or its agent Architypes Inc.
StockTakers Limited is an Alberta corporation providing information on “likeables” equities.
StockTakers Limited encourages your seeking tax law advisor for capital gains tax dispositions.
The Counter Culture: Case for a Can Opener
We can all visualize that Norman Rockwell painting of a good ole North East Kingdom Vermont
boy in the local hardware store. He came for advice and parts needed to fix his wagon, a wheel
had come off. He expected good advice and tolerance for helping him with his problem. He did
not know a cotter-pin and washer was what was needed. There are such places still, in fact, like
in West Brome, where economist, DR. Verne Atrill, LSE, had his retreat and repose, there is still
such a place in operation. The F. G. Edwards Hard Goods Store proudly since 1843 stands next
to its home stead and the church on the corner. It is just the
place where you can find a feeder tub and salt-licks for
your live-stock or good reliable can opener, and good
compass. They will give reliable advice on why and how to
use whatever they sell, just step up to their counter and get
a piece of real culture with that, Counter Culture.
Then, there is an old-saw-horse of a poke at economists too
that might involve a hardware store. A banker, stock
broker and an economist are stranded on a desert island but
they have a huge can of tuna. The economist confronted
with this hungry dilemma says, “Let’s assume a can
opener,” and proceeded with a theory (likely as not
involving thermodynamics and closed systems). One might assume a rate of return and model
the stock market’s volatility to obtain it, just as well. One might equally project your
expectations of earnings and growth and use that to measure against a current market price.
Assumptions are in the wheel-house of economics rear-view and forward looking prospects. It is
like that good ole hound circling his bed, a habitual device.
Then once upon another day among the roper’s gloves and salt licks at F, G, Edwards, a new
customer came up to the counter, like as usual needing a bit of advice in order to make a prudent
purchase of what he needed to solve his real problem. He was getting very hungry but he did
have a can of tuna he had brought along for his lunch. Turns out, this new customer was an
economist, just visiting on a holiday tour of the local ancient rolling mountains in the Sutton
chain of the Appalachians running north out of Vermont.
Just then Verne (Atrill) stepped up to the F. G. Edward’s store looking for a new axe handle for
his splitter and some turpentine his wife needed to clean some of her paint brushes. The visiting
economist recognized Dr. Atrill from all the to-do and stir over his calling Dome Petroleum
insolvent. Dome was a darling of the Canadian equities industry 20% of the Canadian investor
market had vested their wealth in Dome’s explorations for Beaufort Sea oil. Verne strongly
believed in the Physiocrats focus on understanding business economy as base of the national
situation. This differed in fundamental ways from Adam Smith’s followers who looked away
from the markets up to management of the wealth of nations. Dr. Atrill differed from Keynes and
Friedman also in many fundamental ways by preferring to view the business of firms as
underlying the structure of all economies where answers need to be entreated from the

“
behavioural science of people negotiating and collaborating in their trading business. Dr. Atrill
was particularly unpopular with central bank economists “whose prime function has become the
maintenance of inflation so that the governments they
serve can meet their obligations.”
Dr. Atrill’s work was difficult to grasp for so many as
it was so different, not reduced to an absurdity for
introductory explanation that tender minds might
grasp. The limitations of his graphing for lesser skilled
audience in mathematics did not help much to
comprehend his conclusions. Deep inside there was the
kernel truth that firms create the wealth of any
economy, though the bedrock of all Macroeconomics,
had been largely ignored by the Keynesian acolytes Verne’s mentor Lord Baron Lionel Robbins
had struggled with in enthusiasm for Popper, Mises, and Hayek. We can always intuit that but
have not understood such with any clarity, the firm. How does it work? It seems just as satisfying
to our desire for simple order in a chaotic reality than understanding light as a particle-wave,
stringing us out into strangeness. We live in a world where even light-speed may not be constant.
Nothing is really as simple as that Norman Rockwell painting of classical physics, in Pythagoras’
peiron and apeiron, prochthon and antichthon for rigour without basis. As Ockham understood
one needs to shave away assumptions that layer-over the matter, seeking elegant truth not just
simplicity for its convenience alone. These graphs are certainly less settling. Gone is the
comforting familiarity of simple downward sloping demand and upward supply curves
intersecting at a price, so seeming neatly scientific. Balanced assurances found in simplicity for
such a complex human activity is not Bacon’s test. Look to Pythagoras’ two millennium long
confusion of reality vested in whole number ratio, a flat Earth, Counter-Earth, and Central Fire.

“
To anticipate eating tuna from any can the economist knows has been manufactured, like as one
is in his hand, so, he can tell you so, but he cannot tell when it will be eaten, or how it will be
opened when the need is there. So much for the science of allocating scarce resources to
alternative competing demands1
, as it offers little to quantify the nature of demand whether by
needs or wants, or distribution, or timing. Those generally are remote or as they are fond of
saying exogenous factors to their models. Good luck is what we must trust under that prevailing
capability, so back to tossing coins in the fountain. Martingales are such fickle curiosity, Mr
(Nell Trend’s) grandfather! A martingale is all conventional economics has, good luck with that!
Many have, and lost, on forward looking projections, and then filled the fine print with
exculpations about forward looking projections, forecasts at your risk to proceed anyway, like
assuming a normal rate of return from stock markets that you hope you can obtain by adjusting
for the market volatility. Assumptions are telling in Value Investing where one makes a case the
equity is just undervalued over historic levels, buy it low and hold on, then you may just possibly
watch as it descends to zero. In both methods one relies on past repeating itself and holding to
the validity of its average result. There is more in being a good shepherd tending these goats than
in their assumptions and underlying theory, provided you have a basis, a control metric, like Risk
Price, as we have developed from Dr. Atrill’s supposition, and proven its validity in context.
Trading is about the present, its needs and opportunities. Finding someone to transact with and
negotiate to mutual satisfaction and agreement. That is the business of firms, dealing with the
here and now. The rest is rationalized projections, which if we know history drove Pythagoras
raving to his death in the bean patch. His tidy rationality was a screen over the anathemic reality
of a world dominated by irrational numbers whose untidy ratios are foundation of what we can
actually see. Those sorts of rationalizations gave us a flat world full of untested assumptions out
of touch with the real world that was called science for two millennia of suppressions, another
half-millenium of shaving them away since Francis Bacon said, “ let reality speak for itself.”
But, there is another assumption, in that can of tuna! How did it get here, from Cannery Row.
What makes that economic good? There, we find economists have spent little effort in
discerning the behaviour in society of the firm and its process that sustains us and our society’s
existence. How odd that is. It exists but we do not know quite how it got there, like a pistol in a
Louise Penny mystery novel, huh? Supply and demand, it looked so neat and we assume it is
finite and really solid representation. “I feign no hypothesis,” said Newton, following Bacon.
1
That is from the famous statement of Lord Baron Lionel Robbins who raised the London School of Economics to its present
stature during his leadership before and after the WWII. Ronald Coase, Verne Atrill and George Soros all passed under his
mentorship. Robbins had given safe haven to von Mises and von Hayek prior to the war and favoured the insights of Frank H.
Knight. Knight had been schooled by Herbert Davenport had founded stature in the Chicago School and had studied there under
Torsten Veblen. Robbins firmly believed in behaviour as prime-active in economics and not statistics as came to dominate
Keynesians and Freshies alike.

“
So, we at StockTakers as practitioners of our Counter-Culture believe it is better to make fewer
assumptions. We have looked very closely where very few in the last century have bothered to
look. What sustains the economic behaviour of the firm? How does the firm behave to remain in
business, supported by its adherents, those of its trading connections; the partners, employees
and shareholders who like it, and like what it is doing, so are willing to participate in creating
and participating in its process. It has been these questions that have informed our Counter-
Culture and "theory of the firm" built on legacy of Dr. Atrill’s musings on foundational insights.
Like the good guys at, F. G. Edwards Hard Goods Store, if they did not have a complete answer
they would point in a likely direction nominated by consideration for the problem at hand, or,
from a thoughtful career dealing with real problems. That is what we have allied from Verne
Atrill, mostly direction, going deep in analysing fundamentals of ongoing business process seen
in its debt structure ratio (DSR) of its ledgers to the balance sheet. We want to know the real
business processes so we can discern and know the Risk Price position of the real firm in the hip-
hop of raving markets pricing. “If there be a procthon then be antichthon in ratio, Pythagoras?”
So, welcome to our Counter-Culture, giving you some counsel to your questions as to what you
need and why it is needed, for you to make an informed purchase instead of an "educated guess"
as is the ancient apology for economics heuristic. We have been busy, and even have out
back the entirely new Perpetual Bond2
ready to get going, just in case you are interested. Oh, and
here is just the thing you do need, right now, a can opener. This is an especially fine side-cutting
model you won't err and cut yourself with. It is the only kind we like to sell because it is safe to
have with children in your household, or out in the barn mixing formula for feeding those
bleating hungry kids whose she-goat mother has fallen ill. We will sell you that old finger slasher
top-ripper bayonet style, if you insist. We do not sell insurance against such ancient foolishness,
though some will, just try and collect from them when you slash-off your finger tip.
The work and discoveries accounted in, The Modal Geometry of Firms and Balance Sheet Worth
of the Trading Connections, brings these emotions and expectations into account as GW*
numeraire through the insights of transactions made between the trading connections. By tracing
these whiffs and whims left in balance sheet worth of its trading connections support the firm
process, creating credit and debit floats builds capital that develops and trades as virtual money
in these relations. In fact these relations in capital formation are what makes hard currency,
money, literally what money is. Addressing the expectations of the market is the objective that
economics has had, long before the swell over Keynes notions washed over. Seventy years that
tide has run. Its flotsam lies dry on the beach on which we are stranded by irrelevant assumptions
with not a can opener on the sand among them, though many cans of tuna lay about.
Objective Economics as a science in economics can be seen and found again as terra firma and
promontories on that shifting sand. Lionel Robbins had pulled these threads together in the
discourse he fostered at the London School of Economics. He stood against the tide of
2
“O'Canada! May we have 3% plus inflation? Please.”; J. Flaherty, Rt. Hon. and others, 06 April 2010.

“
Cambridge and Keynesians for a long time though acknowledging some of their insights.
Robbins brought together in the discourse with his faculty and students the critical thinking of
Davenport, Veblen and Knight and allied it with that of the Continentals, Ludwig von Mises, and
Friedrich Hayek, for whom he helped provide safe-harbour as Europe unravelled once again.
In Modal Geometry "theory of the firm" we make only two assumptions, clearly as follows:
1. there is a balance sheet of the firm (that the rule of law governs its information is
possibly weak assumption but at an accuracy to at least the modest degree accountants
are prepared to be responsible for), and,
2. the firm will vigorously negotiate, “what it owns” (in order to stay in business “what
is owed to it” with “what it owes” and vice versa, to make the best of what it has, that
is in its trading connections).
The Modal Geometry theory of the firm has unfolded more by rigourous observation in the real
world, aided with logic, epistemology, and some powerful mathematics, than by just emotional
assumptions with little or weak science. The economists’ experimental vessel is society.
Economics is politics, and its results can never be repeated or verified convincingly, can they! At
least they never can or will after the election. Even banking regulation actually gets re-jigged by
lobbyist politics and oxymorons more than economic wisdoms, we can see as Atrill asserted.
Our theory of the firm is directly tied to fundamentals of ledgered business processes that
even the, Barrow-Boy of London or Bangkok; or, CEO's and bankers of Fleet, Bay, Century or
Wall Streets can recognize as truths they encounter in their everyday management of their turf.
Certainly, what we can all agree on, at whatever level we engage business in economic society,
must be relevant, regardless of policy preferences. From such realism we have provable results.
We account for underlying fundamentals of our theory of the firm in rigorous logic terms, no
string theory or big-bang debates are necessary templates in our shop, at our “Counter-Culture”.
You can rely on your own recognition of what we are talking about, because it is all based
in the real world of businesses negotiating their process by their enterprise. Even though there is
some very high-powered mathematics and logic engaged in inspiring our results - you will
recognize our view of the terrain of firms' behaviours as familiar to your own household and
business.
In our “Counter-Culture” we have normative theory of the firm and numerate results we get from
that theory, operating in our models. Our models rely only on publicly available balance sheet
data as inputs, and the operations arising from our theory of the firm to process that data and
provide an effective numeraire of the firms worth, N*. No market gossip, no "educated guessing"
enter into our theory of the firm and determination of its worth. There is provable quality in our
view of equities. There is nothing arbitrary about our determination. There is not any grinning
confusion of "goodwill" as declared by a Cheshire Cat, pinning his tale on your donkey.

“
At StockTakers, we have test-modelled our resulting numeraire for individual firms in the stock
market for the past ten years. Following our recommendations of firms worth, with only the two
mild assumptions we list above, we obtain a 29% growth annual performance in portfolio
selected and managed based on our near zero beta policy, as we have followed. In our Zero to
Hero portfolio, we stopped trading late in 2008 as all our indicators told us prices were
falling below our "price of likeability," became risk ridden, and for no other reason. This result
we call the 29% IRR, The-Better-Than-Money Zero-Risk, Zero-Beta portfolio.
We have out-called the stock market behaviour championed by analysts, and even Warren
Buffet, by a huge differential. Without accessing our N* numeraire Buffet lost $2.5 bn in two
months on a play to expand his holdings in a stock he already had held for years. “He liked it.”
There was bravado, but Buffet's diligence team did not see that one coming, though he
knew the company well, sitting on its board. The Analysts, they returned 5% over that decade,
before their fees. Whose lunch are they eating, still yours?
Our numeraire driven information is fundamental difference maker needed to go forward. It
is based on our new theory of the firm that is profoundly apt and is fundamental, provable
science found in firms' behaviour. Ours is the “new fundamentals” information that can quickly
reclaim the losses endowments and pension funds have received from the "educated guesswork"
of well-intended analysts on whom they have had to rely for direction.
We are selling the solution to these investor problems of Modern Portfolio Theory, CAPM and
Black-Scholes risk models for which, we, StockTakers, provably,
• can show Financial Engines among all others have invalid advice to give as it based on a
merely partially reasonable CAPM modelling
• show Microeconomics as we have known it has been fundamentally flawed by its latent
beliefs, unfounded in empirical market of business behaviour
• show the assumptions on which Microeconomists have propounded are baskets that will not
hold water let alone the nest-eggs of savers
• can show we do provide Zero Beta opinion of the value of firms that are functioning in a
free-market economy ruled by laws
• have shown such in our market tracking test models going back 10 years (yielding 29% ROI
results year after year)
• have market models that do work
• have shown ours is not just theory but empirically based method we have confirmed (and
despite more than 2 years, no one can refute)
• have new basis for very accurately and reliably evaluating the worth of firms and securities
trading in free markets
• have fundamental new tools for business accounting and financial analysis that can be
tested
• have demonstrated the natural inflation rate of free-market driven economies where subject
to rule of law
• provide science to understanding market behaviour on which the investor must tailor his
own wisdom in his active participation expectations and needs

“
We prefer to be trading in stocks where, We Know What We Have, and, We Have What We
Know. You need that confidence too, trading from accountable knowledge rather than from
market gossip! Our numeraires determining worth of firms in our Risk Price metric have given
us very profound results that are very likeable, indeed.
Keynes too suffered many losses in the market and is reported to have wished he had been able
to have drunk more champagne. But, we can talk about that another day.
So, enjoy your can-opener!
March 20, 2010
The case for “The Counter Culture” seems to be an ever growing one, and very timely. We have
an opportunity to “break the mould” and to do it with the support of both economists and
actuaries who will recognize what we're talking about because we can not only recognize the
problem, and are recognizing the problem, but we can also provide a “testable/refutable” solution
(which we have tested and which has failed to be refuted (sic) for good reasons) which will go a
long way to putting pension fund management and the productive use of pension funds, back on
top, so to speak. This case is especially cogent in the context of recent remarks of former Bank
of Canada Governor David Dodge “Canadians need to save more, maybe 20% of their gross
income” in the absence of safe and reliable investments (see “But when will that be?”, “But it
doesn't work, Dr. Jekyll” and “Too big to fail” or “The Path to Bankers' Hegemony”).
Our reasons for having any equity in our portfolios are clear, concise and consistent. The equities
we hold are “likeables” tending to gain 67% of the time. We do not make stock prices but can
reasonably respond to stock price movements, by our knowing the price of risk, the downside,
and buying and holding accordingly. That is theory we have put into policy obtaining 29% IRR
average. Know What You Have. Have What You Know
Of course we require a fee for doing that. Mail us for our help.
Ernst and Hans Goetze,
Architypes Inc and StockTakers Limited
Head Office
76 Midridge Close SE
Calgary, AB
T2X 1G1
7 Balsam Avenue
Toronto, ON
M4E 3B3
351 Chemin Boulanger
Sutton, PQ
J0E 2K0
450 538-1270

“

The case for the can opener edufeb12

Empfohlen

Empfohlen

Weitere ähnliche Inhalte

Ähnlich wie The case for the can opener edufeb12

Ähnlich wie The case for the can opener edufeb12 (20)

Mehr von Hans Goetze

Mehr von Hans Goetze (20)

Kürzlich hochgeladen

Kürzlich hochgeladen (20)

The case for the can opener edufeb12