SubjectIndex 263Circle of competence, 105–118
decision making and, 116–118
full circle, 114–116
initial, 106–109
nurtured, 109–114
Circuit breakers, 3–4
Co-location, at General Electric, 227
Commercial banking, 174, 187, 190
Commodities, 112
Compensation:
determining levels of, 207–208
stoc koptions in, 208–212, 216–217
Compounding, 100–102
Confirmation bias, 118
Corporate governance, 172–176, 183–184
board independence, 198–199
capital allocation, 215–217
CEO selection, 206–207
compensation and, 207–212
globalization and, 172–176, 183–184
integrity of financial reporting, 217–
220
involvement in other boards, 200–201
orientation of board, 195–200
reforms in, 197
shareholder primacy and, 180, 189–190,
194
shareholder proposals and, 202–204
size of board, 200
son-in-law standard, 193–195
succession and, 201, 206–207
takeover evaluation, 212–215
(See alsoChief executive officers; Mana-
gerial integrity and ability)
Corporate social responsibility, 176–179
Correlation tests, 19–20
Cost of debt, 145
Cost of equity, 145
Cost of goods sold (COGS), 125
Crash of 1929, 8, 84
Crash of 1987, 7–8, 46, 48, 67, 72
Credit sales, 126
Currency reporting, 160
Current ratio, 121–122
Day trading, 4, 47, 70
margin trading and, 79
trader volatility and, 63–64, 66
Debt-to-equity ratio, 123–124
Decimal pricing, 62
Decision making, 116–118
Delinkage, 71
Demand Flow Technology, at General Elec-
tric, 227
Depreciation, 93, 96, 98, 99, 131
Derivative securities, 8
(See alsoStoc koptions)
Diluted earnings, 138
Directors (seeCorporate governance)
Discount brokers, 61
Discounted cash flow method of valuation,
96–98, 99, 133, 144–145
Discounting, 97–98
Diversification, 15, 75–76
asset allocation and, 76–77
income allocation and, 77–78
and modern portfolio theory, 29
Dividend discount method of valuation, 144–
145
Dividend policy, 215–216
Dividend reinvestment plans (DRIPs), 74–
75
Dutch tulip bulb mania, 9, 10
Duty of care, 177–178
Duty of loyalty, 178E-commerce (seeInternet)
Economic goodwill, 136–137
Economic value added, 149–151
Efficient market theory (EMT), 4, 7–49
anomaly effects and, 10–11, 21
behavioral finance and, 47–49
capital asset pricing model and, 29–32,
34, 72
challenges to, 47–49
chaos theory and, 36–46
‘‘lucky monkey’’ viewpoint and, 12–13
market bubbles and, 8–10
as misleading, 72
modern portfolio theory and, 28–29, 64,
72
noise theory and, 25–28, 33–34
perfect market and, 22–23
professional investors and, 11, 12–15
random wal kmodel and, 12–13, 17–
22
three forms of efficiency, 23–25, 26
volatility and, 51–67
Electronic computer networks (ECNs), 60–
63
EMT (seeEfficient market theory)
Essays of Warren Buffett, The(Buffett), 171,
222
Euclidean geometry, 44–46