Thursday, December 28, 2006


I finished reading Freakonomics yesterday, but I didn't find it quite as entertaining or enlightening as I'd hoped. A lot of the revelations appeared to be along the lines of announcing how remarkable it is that there are two holes in your skin just where your eyes are.

Then again, I suppose that it was advertised as a discursive and accessible popularisation, and all the academic references were available in the notes if I wanted more rigour.

As an exercise in the deconstruction of "conventional wisdom", it reminded me of my days as a Corporate Development Executive in George Wimpley PLC back in the days when the group was a multinational, multi-division construction colossus rather than the etoliated housing company it has become today.

Wimpey had a mineral division, and I came up with the following unpopular line of reasoning - (simplified below):

  • demand for construction aggregate is positively correlated with the economic cycle
  • in all developed economies since the second world war however the construction aggregate intensity of economic activity (pounds of sand and gravel per £ of GNP) has been in constant secular decline
  • therefore - all other things being equal - a construction aggregates business will inevitably over time grow more slowly than economy at large
  • it follows that the share price of such a business will underperform its peers in the FTSE 500 over time (stockmarkets notoriously tending to reward growth over dividend generation)
  • which means that a large public UK company can't justify such an operation even though it might be a nice little earner for a private company.
I still think it is right all these years later.

I also came up with the idea that in the housing boom of the late 80s, the company wasn't making money from selling houses. It was making money from buying land and then selling the land later with a house on it, and that it might have been just as lucraative to omit the housebuilding part and just trade land. Again, not a conclusion likely to endear itself to the board of the housing division.

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