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7/14/2005
Travel Through Books, by Victor Niederhoffer

An excellent way to get a new perspective on the different ways of approaching specinvestments as well as the common humanity, biases, and predilections of poor people like us, and of disciplines used in every field is to read a good book.

During my recent two weeks visiting the Queen, and the casinos of Monte Carlo, I had occasion to read many such books, including The Demography of Corporations and Industries by Glenn Carroll and Michael Hannan. The range of topics considered in this book opens up a whole new way of looking at determinants of value, a much richer field than the tried and true and ever-changing relations to earnings and dividends. The landscape is all the sociopolitical effects of such population demography factors as birth, death, mobility, marriages, senescence, density, size and competition.

The chapters on density are particularly resonant as they show that companies formed in certain years tend to have similar S-shaped lifespans: growth at first, followed by senescence, with a renewed spurt of growth afterward.

Case studies in the telephone, auto and banking industries illustrate many of the points made. Tables include such subjects as the duration between the founding and death of firms in various industries; size distribution of good and bad companies; influence of competition on success depending on generalist or specialist strategy; and hazards of mortality based on age, size, and liability class. There is a strong negative relation between mortality and age.

The book includes a passing reference to Stigler's survivor method: "Classify the firms in an industry by size and calculate the share of output coming from each class over time. If the share of a given class falls, it is relatively inefficient. In general the more inefficient, the more rapidly shares fall."

Much attention and many independent lines of attack in the book illustrate the general phenomenon that "the strength of selection pressures at founding and the speed at which surviving companies illustrate failure-inducing routines explains the spells of success and failure that populations founded at different years face."

This book will get you thinking about a million areas related to performance of populations of companies that are out of the mainstream and worth serious study.

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