There are many cities where walking tours are offered. We have taken some of those and are quite enjoyable. Not only they guide you through the city, but you get to look at the right spots in the right places, you listen to some of the stories that make up the history of the city, etc. We generally regard those walking tours as good value for money.

I missed such a tour in Monaco (and if it exists, we didn’t see it announced in the guide).

Let me share with you how easy it would be to organise it.

I would pick the circuit of the Formula 1 GP of Monaco as a reference. By the way, I found no explicit reference to it in the guide or in the city, you need to make it up yourself from memories of having watched it or check it in the internet (where normally it is not displayed street by street).

"Monaco GP Walking Tour" following the Formula 1 GP circuit.

As I said, I would give the tourist a map of the circuit and off we would go:

• Departure at the starting line of the GP at Boulevard Albert I: from there you could easily venture to the left to see the centre of La Condamine, Rue Princesse Caroline, maybe walking up to the Place d’Armes to see the market.
• Back to the circuit you would just go ahead till the first curve and visit the church Sainte Dévote, which gives the name to the curve in the race.
• Taking the avenue d’Ostende up, you could venture to the Carré d’Or gallery, which is actually recommended in the guides. There you can see all kinds of luxury items’ shops (most of those brands don’t even ring a bell to me).
• Leaving Av. d’Ostende you would continue to the Av. Monte-Carlo where you could visit the Casino, take some pictures in the gardens, admire the cars at the front (that spot is one that apparently every Porsche, Ferrari, Jaguar, Maserati or the like has to pass by no matter where they go ) and take a drink at the Cafe Paris (all activities that are recommended in the guides).
• Leaving Av. Monte-Carlo you would take the Av. des Spélugues where you would admire its curves, steep slope down and F1-like road borders.
• Down at the Boulevard Louis II and prior to entering the tunnel, you could have a walk by the beach and see The Champions Promenade.
• You would then go through the tunnel to appear again at the harbour, where you could admire the yachts.
• Turn left at the Route de la Piscine (which last weekend was used for ice-skating) and end by having a final drink at the bar of the last curve, La Rascasse.

With this simple walk, of no much more than the 3.3km of the official Formula 1 circuit, you would have visited most of the highlights except for the Rocher, where the cathedral, the aquarium and the Palace are located.

If the walking tour was guided, someone knowledgeable of the city could tell you about the prices of houses, VIP residences, sums played at the casino, owners of biggest yachts, firms selling at the Carré d’Or, famous stunts and overtakes at F1 races history, etc, etc.

As far as I know, there is no such guided tour, above you have my two cents.

There, I discovered the “Golden Foot” award, different from the Ballon d’Or and the Golden Shoe. While the last two are awarded to the best player and top scorer of the year, the former is awarded only to active players older than 29 years old and can only be won once. Each new winner adds his footprint to The Champions Promenade, being the last one to do so Ryan Giggs.

I was happy to see nine former Real Madrid players in the promenade: Luis Figo, Hugo Sánchez, Roberto Carlos, Zidane, Ronaldo, Kopa, Puskás, Gento and Di Stefano.

Last years I wrote in some posts what was my estimate of Boeing discounts: the relation between what is announced by the press, what appears in its list prices and sometimes as backlogs and what it is indeed computed into the profit and loss account. In this post I wanted to update, if necessary, the figure I calculated for the average discount of Boeing.

Most of the necessary information can be found in its website. Boeing list prices can be found here.

The number of gross and net orders (after cancellations) year by year can be found here.

Last year deliveries can be found in the report of financial results. From there we can also deduct the figure of Boeing Commercial’s sales of services. That is not directly reported but can be deducted (all Boeing services-related sales are reported as well as Boeing Capital Corporation division and Boeing Defense’s “Global Services & Support” unit)

As in the post of last year:

• I needed to make one assumption: new orders come with a 3% down payment in the year of the booking, while the remaining cost I assumed that was paid on the year of delivery (for simplicity I didn’t consider more intermediate revenue recognition milestones linked to payments, the 3% figure was taken from the AIAA paper “A Hierarchical Aircraft Life Cycle Cost Analysis Model” by William J. Marx et al.). [1]

Having put all the figures together, the calculation is immediate. Boeing Commercial Aircraft revenues in 2011 (36,2bn$) are the sum of:

• the discounted prices times the delivered aircraft in the year (including possible penalties from delays),
• less the down payment of the current year delivered aircraft, as the down payment was included in previous years results,
• plus the down payment of current year net orders (this year’s this calculation was a bit trickier as it included 737NG deliveries BUT 737 MAX orders),
• plus services revenues.

The discount figure that minimized errors last year was 41%. Using this figure, the error obtained this year in relation to Boeing Commercial Aircraft reported revenues is 0.1%. That is a little higher discount than previous years (39% for 2010 and 38% for 2009). The only explanation for that would be the built-in penalties for 787 and 747 delays into revenues plus the launch of a new aircraft, 737 MAX.

Thus, the updated discount for Boeing commercial aircraft is 41% (!).

—

[1] Last year, I received a comment from the analyst Scott Hamilton on the level of downpayments. He mentioned they could reach up to 30%. I tried this time to compute the calculation using that input, but the figures of discounts to be applied each year to minimize errors are not consistent, thus I stayed with the 3% used in the above-mentioned published paper.

Start-up Nation, by D. Senor and S. Singer

The authors try to offer some hindsight and plausible explanations behind the fact of Israel being such an enterprising nation, which can be measured by the number of technological companies it has, the proportion of Israeli companies listed in NASDAQ as compared to other larger countries, its tremendous GDP growth since its creation, the VC investment per capita (above 250$, x2 times than second country in the list, USA) or the civilian R&D expenditure (4.5% of GDP).

They analyze different issues throughout the chapters of the book: questioning of hierarchical orders, assertiveness (what they call chutzpah), responsibilities handled while in military service, technical training at the military, creation of clusters, etc. Some of these aspects could be learnt and applied to other countries and that it’s why I would recommend the book. Some others may lie behind Israel’s special situation and politics, and thus not easily transferable.

What struck me the most is the large influence awarded in the book to the role of the military. Let me summarize some of the ideas:

• There are several elite corps in the Isreal Defense force. Not only military service is compulsory (except for the haredim or the ultra-orthodox), but apparently the military does a long-term forward screening of next waves of recruits. They have interviews with them, they have access to their academic merits in high school, so they get to select the best qualified for certain corps, this in turn is also a recognition for the “candidates”.
• These elite corps offer a highly valued training and experience (see the Talpiot program). Training in a broad variety of subjects from technology to logistics, very valuable for a future career. The Israeli Defense Force also counts with a very low ratio of high officers, thus delegating much of the responsibility for decisions (sometimes life or death ones) to young officers.
• Once finished with the military service and university studies (45% of Israelis attended university), companies recruiting future candidates give not so much weight to academic merits in the university but to the military unit of precedence and the experience the candidate obtained during those years of service.
• Democratization offered by military: since the service is compulsory it continuous to offer Israelis exposure to people from different backgrounds.
• Life-long reserve service: once they have finished the service and go to pursue a civilian life they are still part of the reserve. In Israel, this means gathering every year for up to a month to train or perform active duty if the country is at war. This creates strong bonds between people from the same units (imagine having not a diner of ’81 class every second year, but 4 weeks every year). As they grow older, they do have a close contact with people in every rank of society. They’re truly no more than 2 or 3 degrees of separation to one another in the whole of Israel.

It is definitely an interesting book to reflect on many issues and take some ideas that can be transferable to other situations than that of Israel.

I didn’t feel that the day had been especially bad regarding stock markets. Both the Dow Jones and S&P 500 fell -0.69%, which indeed had been the worst day so far in 2012, but so far both indices had returned over 7.5% and 5.5% in the first 5 weeks of the year. So, I guess that what wasn’t the norm was the positive trend with only about 3-4 bad days so far.

S&P 500 in 2012 through February 10.

I went further and compared the -0.69% to 2011 numbers, in this case only with S&P 500.

How many days did the index go below -0.69% in 2011?

64 days out of 252 trading days, that is 25% of the time. The index went up more than +0.69% for other 67 days (27% of the time). It went down but less than -0.69%, 51 days and up but less than +0.69%, 70 days. Quite an even distribution.

So, compared to 2011, a market move of 0.69%, up or down, was rather the average. During the whole year the S&P 500 returned barely 0%, so it’s true that 2011 wasn’t a particular good year, and it was as well especially volatile, indeed the average move along the year was ~1.04% and the median was 0.74%, either positive or negative.

S&P 500 in 2011.

This is just to point something not new: Mr. Market’s moves coupled with media hype aren’t good companions for taking investing decisions.

The guides used to praise their mastery in agriculture, astronomy, architecture, engineering and many other disciplines. While that civilization reached certain degree of advancement and the wonder in Machu Picchu site gives account of that, I had the parallel thought while being there that at the same time in Europe big cathedrals were being built full of arcs, domes, Leonardo da Vinci was diving into all kind of sciences, etc. The roofs in buildings at Machu Picchu were made of wood, there were not stone arcs or domes, and that is why today you cannot see trace of them.

During our last trip to England, I had a similar experience while visiting Stonehenge. The guides praised this site as being the most important prehistoric construction in Europe, which may be true, but then again I couldn’t avoid thinking of the pyramids at Giza, which we visited about a year ago.

I am no historian, thus take my next reflection as what it is: a reflection of a tourist .

I guess this can be seen as positive outcome of globalization understood as “global relationships of culture, people and economic activity”. I guess that by the year 2,500 B.C. the trade between different regions was much smaller than today and less exchanges of cultural and architecture best practices took place: thus you could have about at the same time the pyramids being built in Egypt while the stones at Stonehenge being put up, both being the state of the art in each place.

About 4,000 years later, the state of the art in construction building we can say that was harmonized between Middle East, Northern Africa and the whole of Europe, including the islands, and you had for example the Cathedral of Salisbury just few miles from Stonehenge being built around 1,250 A.D. , two centuries before Machu Picchu was built in a continent not yet affected by such globalization.

This reflection just related to architecture. Think of all other types of exchanges that take place from agriculture to medicine, sciences and arts… so much for the goodness of globalization.

Some pictures taken in those four sites:

The different types of money along history can be seen in this entry from the Wikipedia:

“Currently, most modern monetary systems are based on fiat money. However, for most of history, almost all money was commodity money, such as gold and silver coins. As economies developed, commodity money was eventually replaced by representative money, such as the gold standard, as traders found the physical transportation of gold and silver burdensome. Fiat currencies gradually took over in the last hundred years, especially since the breakup of the Bretton Woods system in the early 1970s.”

I found an interesting graphic in the book “This Time is Different” (C. Reinhart & K. Rogoff) where you can see how during several centuries governments debased or decreased the content of silver of its currency in order to get over heavy debts. The trend in the graphic seems to point at the “inevitability” of fiat money.

The march towards fiat money.

These debasements of course created inflation, which is nothing new, only the means have changed, as Carmen Reinhart and Kenneth Rogoff say in their book:

“[...] the shift from metallic to paper currency provides an important example of the fact that technological innovation does not necessarily create entirely new kinds of financial crises but can exacerbate their effects, much as technology has constantly made warfare more deadly over the course of history.”

Hace unos días terminé de leer el libro “This Time is Different”, escrito por los economistas Carmen Reinhart y Kenneth Rogoff, en el cuál leí sobre una anécdota que mencioné de la que escribí en este blog. El libro es una mirada exhaustiva a los distintos tipos de crisis financieras durante los últimos ocho siglos, cubriendo impagos de deuda pública, crisis bancarias, periodos de alta inflación, etc.

"This Time is Different", C. Reinhart & K. Rogoff.

En el libro hablan dan una larga lista de indicadores que permitían ver que la última crisis en la que nos encontramos iba a suceder y citan a varios autores que así lo predijeron. Achacan por tanto la crisis a fallos en la regulación y en las políticas que se aplicaron.

Pero no es de eso de lo que quiero hablar. Sumergidos ya en la crisis, ¿cómo son las crisis?

Tras revisar multitud de casos, los autores, investigan los episodios de crisis en economías avanzadas y emergentes antes y después de la Gran Depresión y la Segunda Guerra Mundial.

La caída tras una crisis:

• La deuda crece en media un +86% (en términos absolutos) durante los 3 años siguientes a una crisis bancaria.

Aumento de la deuda durante las crisis.

• Caída del precio de la vivienda en media de -35%, y un período de caída medio de 6 años.
• Bolsa: la bolsa típicamente alcanza un máximo en el año anterior de la crisis y cae durante los siguientes 2-3 años hasta un -56% en media. La recuperación es prácticamente total tres después del año de comienzo de la crisis.

Evolución de la bolsa durante las crisis bancarias.

• Crecimiento de la renta per cápita real: se ralentiza antes de la crisis, llegando a caer un -9% en el año de la crisis y los dos siguientes, volviendo a recuperarse en el tercer año.
• Crecimiento medio de la tasa de desempleo durante casi 5 años hasta un +7% mayor en el valle (en el caso de la Gran Depresión, ese porcentaje se elevó al 16%).

¿Y cómo le ha ido a España en esta crisis?

• La deuda había crecido un +69% desde 2007 hasta finales de 2010.
• El precio medio de la vivienda según la Sociedad de Tasación ha caído un -18% desde 2007 hasta 2011.
• El índice Ibex 35 alcanzó su máximo por encima de los 15.800 en otoño de 2007, cayendo un -56% hasta por debajo de 7.000 en marzo de 2009 (1.5 años después). Llegó a estar por encima de 12.000 en 2010, pero todavía hoy, 4 años y medio después de los máximos, no se ha recuperado (~8.600).
• La renta per cápita ha caído un -4,6% desde finales de 2008 a finales de 2010.
• La tasa de desempleo a finales de 2007 era de un 8.3%, alcanzando hoy el 22.85%, un aumento de la tasa de +14,5%.

Por desgracia, una crisis de manual, y en cuanto a las cifras de empleo especialmente drástica.

In another post I explained how mutual open-ended funds define and calculate their performance based on the changes in net asset value per share.

In this post I wanted to point at some fine detail: a mutual fund may have a negative performance in a period of time (e.g. a year) yet have gained positive results during the same period. How is that possible?

As I mentioned in that previous post, the net asset value per share of a mutual fund rises and decreases as the aggregate share prices of the stocks in the portfolio rise or decrease. However, each time that there is an addition of capital, it is treated as an issue of new shares at the current price. It doesn’t matter whether those shares are issued to new or old “shareholders”. Depending on whether the net asset value has increased or decreased they are acquiring the new shares at a higher or lower price than they acquired the previous ones.

If it was the case of a company, we would say that shareholders would see their share diluted. In the case of a fund, the share of the ownership is also diluted, but that doesn’t mean a reduction in the net asset value per share, since with the new investment there is an increase of the assets of the fund (and the funds will be invested). Now, let’s see it the case with one example.

Take a fund with only one investor, A, who at the beginning of the year invested 10k€. That would be the assets of the fund at that moment. The net asset value per share could be defined as 100€, meaning that at that point there were 100 shares.

During the next months the market goes down and, along with the market, the fund’s assets. Let’s say that the reduction in value has been of 50% at half-way through the year. This means the assets of the fund would be 5,000€ (belonging to the sole investor, A). Since there were 100 shares, now the net asset value per share would be 50€.

At this low point, another investor, B, invests another 10k€ in the fund. Now, the 10,000€ would buy not 100 shares, but 200 at a price of 50€. The net asset value per share would remain unchanged at that moment, 50€. However, the assets of the fund would now be 15,000€. The total number of shares would be 300.

Imagine that during the second half of the year the performance of the fund is +50%. As I mentioned in the previous post, with consecutive market swings, -50% and then +50%, you lose. However, in this case there as been an investment in the low point and we’ll see what that means to the fund and each of the investors.

The +50% performance means to the fund an increase of its total assets up to 22,500€, or a net asset value per share of 75€ (for the same 300 shares). This is a +50% since mid-year, but a -25% from the beginning of the year. Quite a negative performance. However, the fund has received inflows of 20k€ along the year and has ended the year with +2,500€ of net gains!

For investor A: the year has meant the same -25% in both net assets and performance as he has lived through the whole period the big destruction of value in the first semester and the creation of value in the second, but, with the market swings of equal percentage value, he lost.

For investor B: the second semester has been great, as she has only lived the +50%, meaning a net gain of 5,000€.

Performance of an investment fund.

The asset manager of the fund hasn’t been in the whole a better performer allocating assets than the market, and that is what the net asset value shows. The fund has only gained in absolute terms because there was an investment at the low point.

This is nothing more than one of the points the proponents of the technique Dollar Cost Averaging defend: to invest regularly the same amounts of money to take benefit of bear markets, when the fixed amount of money may afford more shares of a given stock. In that way you don’t need to time the market to benefit of low points.

Or in another way: “Be fearful when others are greedy, be greedy when others are fearful”, Warren Buffett.

This year, I wondered how development aid was faring taking into account the crisis in which most of the big donor countries are in. You may check the figures at the extensive database of the OECD, or just to get the latest data on Official Development Aid you may check last year’s release announcing 2010 figures (or the report, PDF). The figures of 2011 won’t be released until April, but as far into the crisis as one year ago the fact was that development aid had actually increased, even if still far from the 0.7% committment.

Official Development Assistance in 2010 per country, source: OECD.

Evolution of Official Development Assistance through 2010, source: OECD.

Which NGOs will I support in 2012?

Last weekend I took sometime to make the numbers and select the different organizations. In previous years I directed 0.7% in January and along the year for different reasons I ended increasing this contribution. This year, I am directing already 0.9% of my income in January and again I expect that as the year goes by I will increase that figure. I take the Nordic OECD countries as an example and see the 0.7% as a minimum threshold, not as the maximum goal.

The organizations I have selected this time are:

• Kiva: a micro lending portal, that I have talked about in the blog sometimes. I added some more funds.
• Vittana: another micro lending portal, specialized on credits for education purposes, very similar to Kiva in its conception. I allocated some cash last year in it for the first time, and this year I have added more funds, to help some students study industrial engineering.
• Médecins sans Frontières. I started donating cash to MSF in 2010, in 2011 I became member of the French branch. I renewed my membership.
• Oxfam: a well-known NGO working “to find lasting solutions to poverty and injustice” to which I already contributed last year.
• Anti-Slavery: an NGO which works to eliminate all forms of slavery around the world. I find that only the thought of people being slaves in 2012 simply devastating. I already directed some funds to this NGO last year and I was positively impressed to find information about its activities when we visited the Museum of London last year.
• Fundación Hombres Nuevos: a Spanish NGO working in development projects in Bolivia. It was founded by Nicolás Castellanos who received the prize “Premio Príncipe de Asturias a la Concordia” in 1998 along with Vicente Ferrer or Muhammad Yunus (who later received the Nobel Peace Prize and is credited with the invention of micro credits).
• Wikipedia: I guess this does not need any introduction, but I will make use of Wikipedia’s self-description: “Wikipedia is a multilingual, web-based, free-content encyclopedia project based on an openly editable model. The name “Wikipedia” is a portmanteau of the words wiki (a technology for creating collaborative websites, from the Hawaiian word wiki, meaning “quick”) and encyclopedia.” This is the first time that I collaborate in its sustaining.
• Gapminder: in their words “a non-profit venture – a modern “museum” on the Internet – promoting sustainable global development and achievement of the United Nations Millennium Development Goals”, or better “Fighting the most devastating myths by building a fact-based world view that everyone understands”. If you have the chance, take a look at any of the videos of its founder, Hans Rosling, they are truly mind-blowing.

(Free material from www.gapminder.org – mind-blowing as I said)

Before ending this post, I wanted to make two reflections.

First, why do I or why do people/corporations make this kind of  contributions? Sometimes you hear criticism towards donations like “it’s for the tax deductions”, “it’s for marketing purposes”, “to show off”, etc. My personal view is that it doesn’t matter. It might be one or many of those reasons or none. What I believe is that the people in need do need the help and whatever the reason behind a contribution, it is welcomed. I do receive some tax deductions for the contributions for MSF and Oxfam as they’re based in France, not for the others. I also believe that the real contribution is the time dedicated by individuals working in cooperation, in the field, etc., in the end all what we give is a small percentage of our income / revenues.

Second, why do I write this post? Again, someone may think it’s show off. I’m fine with that. My goal is to get at least a reader to take a look at one of those NGOs, to think about dedicating her/his 0.7% to development aid… If I manage to do that, and I am sure I will (it worked in the past ), this post will be worth the time spent in writing it.