Now Available: Q3 2020 Executive Actions for Self-Enrichment (EASE) Scores

As mentioned in our last blog post, we’ve put together a quantitative factor model that identifies the level of corporate integrity (or lack thereof) of Russell 3000 companies on a quarterly basis. We’ve explained our methodology in a recent SSRN paper, but one of our promises in the paper was to make the Executive Actions for Self-Enrichment (EASE) scores available on this site every quarter for free. It’s been a busy month, full of numbers-crunching, external chicanery and underhandedness, and a quick disappearance there and back along the CA coast, but we’re finally ready to release our first public version of our EASE scores.

They can be found on-site here or via the topline navigation bar.

Those of you well-versed in quant finance factors probably need little additional information beyond a brief methodology explainer and a link to the CSV; you’ll find both on the page above. However, those of you who are here as non-professional investors or finance-types are probably still a bit head-scratchy at the idea behind EASE.

The main impetus for EASE was due to Ben Hunt’s righteous anger-soaked article on Epsilon Theory in which he lambasts the avarice of the major US airlines for having the gall to ask for a bailout during the onset of the COVID pandemic. You see, the airlines had spent years going further and further into debt not to improve their airlines, but to buyback their own shares in order to enrich the C-class and major shareholders of the company. This led to ballooning debt and other poor financials, which was eventually reflected in their stock prices. However, the same CEOs and executives that sold their shares for “my own private island”-levels of cash still held out their hands for government assistance despite running their companies into the ground. It’s akin to driving a nice luxury sedan for 5 years without changing the oil, and then demanding money from the repair shop to fix the car. Also, you’re screwing over the parts of the car that are actually doing work (i.e. the low- and mid-level employees that actually produce the product)…maybe this wasn’t the best analogy.

Needless to say, the article and this bald-faced fleecing of taxpayers (yet again) lit a fire under our butts and we set out to make a factor that encompassed the conceptual core from the article. This led us to creating EASE, a 0-to-100 scale that identifies publicly-traded US companies based on whether said company is being run with an eye toward long-term growth and stability (100) or is being run into the ground by corporate fatcats with cartoon dollar signs in their eyes (0). EASE is calculated off of data gathered quarterly and can help us identify companies that we should consider investing in and ones we should consider staying away from. We’ve done some surface-level return inquiries into EASE performance and the results were quite promising; so promising in fact that we’re currently paper-trading a variation of EASE in the hopes to launch it as a stand-alone fund.

As far as the non-professional investor goes, EASE is more of a guidepost in terms of companies for you to consider or avoid. In an ideal world, the common consumer would know have perfect information to know whether the product provided by a company will be of high-quality and will serve its purpose up-to and beyond its expected lifetime, or whether the product will explode into spiders ten minutes after purchasing (no offense to Exploding Spider Balloons, Inc.). Unfortunately, most of our information about a company and its quality is fed to us in the form of advertising, pitching us on an idealized version of the product and doesn’t give us the true picture. EASE can’t tell you if your new TV is built well, but it can tell you if the company that makes the TV is investing back into the business or into its own executives’ pockets. Perhaps, with EASE being publicly-available, people will start to identify companies that are putting their own short-term gains ahead of their customer, and will start voting with their wallets both in terms of investment and in terms of product. We can’t walk the path for you, but we can provide a light in the darkness.

Until next time, best of favorable probability to you.

(PS: Digging the new logo? Let us know!)