even if a company is highly overpriced (like 1
0 times the IV), because you don’t know when the
market will realize and correct the price. Also, the management of the company can still takecertain actions to keep the price up in short term, and while you are waiting (after having shorted)for the price to drop, you are responsible for all the dividends that the stock pays out (and you
don’t even own the stock).
CEO’s can be compared to astronauts, typically extrovert, optimist and leaders. Investment
managers are like astronomers i.e. introvert,
skeptics and very analytical. CEO’s understand that
the business is very non-linear in nature and the future cash flow is affected by lot of internal and
external factors. So it’s almost impossible to forecast the future cash flow even for next 1 or 2
years. Investment managers look at the past of the business and based on the past performancedata they build linear models for future. So the best investment managers are those who have
run a business in past and the best CEO’s are those who understand the
intricacies of the capitalallocation, ROE and investment choices.
[As Warren Buffett says
I am a better investor becauseI am a businessman, and I am a better businessman because I am an investor].
Industry with one of the lowest rates of failure is the funeral homes. The morbid task of death careis a very good business. Similarly, "corporate death care" is a very lucrative industry. A samplingof such companies (low risk, high return)
Outplacement Services - They have far lower rate of failure or earning volatility than