Thread by @ReformedTrader

1/ The Mind of Wall Street (Leon Levy)

"In the late 1990s, I knew my bubble had finally come.

"Good times breed laxity, and laxity breeds unreliable numbers, which bring about bad times. This simple rhythm is as predictable as human avarice." (p. 1)

amazon.com/Mind-Wall-Stre…

2/ "Regulatory/accounting laxness are ignored when stocks are climbing.

"Analysts tried to explain how they could disparage a stock in private e-mails while maintaining the highest buy recommendations publicly, even as the companies they recommended hurtled toward bankruptcy.

3/ "Companies used accounting trickery to report strong pro-forma earnings right up to the point of defaulting on obligations for lack of cash. After the crash, we saw a parade of accountants who suddenly seem to have found basic accounting very difficult to understand." (p. 1)

4/ "Fast-talking promoters—and respected brokerage firms and mutual funds—spoke of “new paradigms” and the unlimited potential of the Internet, and the public bought it.

"For four hundred years of history, governments have imposed tighter standards only after a market crashes.

5/ "An upbeat market leaves the public unmindful of bad news. In a down market, no one trusts good news.

"The director of research at First Boston warned that the market was poised “to take the ultimate dive,” precisely as the great bull market of the next two decades began.

6/ "In 1982, if an investor had imagined himself in a low-interest, business-friendly environment—rather than a high-interest, regulatory regime—he might have then sensed the coming surge in capital spending that contributed mightily to the growth of earnings in the coming years.

7/ "At the height of the last bull market, the state pension fund in California fired one of its managers b/c he had invested in Treasury bonds. Concerned about the overheated market, the manager sought to protect his fund. His bosses thought he was being foolishly conservative.

8/ "Five decades earlier, it was illegal for a trust fund manager in most states to invest more than a small percentage of fund assets in stocks. With memories of the Great Depression still fresh, those entrusted with other people’s money eschewed stocks as too risky.

9/ "Given the enormous impact of the cheap automobile, mass production manufacturing, and the proliferation of radio, the telephone, and electrification, it is arguable that the 1920s had a better claim on the concept of a new economy than did the technophiles 70 years later.

10/ "Those most adept at profiting from a particular market are often least likely to notice when the game is over and are the least psychologically prepared to profit from the successor market.

11/ "When a market shifts, it usually requires the investor to adopt a psychological stance anathema to the precepts upon which he built his earlier success." (p. 8)

12/ "Our top money managers all agreed the market was likely to decline. But on average, they were predicting their stocks would rise by 15%. In fact, our fund fell 30%.

"The most dangerous self-delusion is that even a falling market will not affect the stocks we like." (p. 9)

13/ "If you think things through for yourself, you may waste some time, but you also may stumble onto something that has been ignored or disregarded. Doing so has enabled me to look at the financial world with fresh eyes." (p. 17)

14/ "An egregious conflict of interest—banks selling their customers stocks that the banks themselves were underwriting—contributed to the crash of 1929.

"This practice is a dangerous temptation.

15/ "Think of it: A bank is nervous about the $100 million it loaned to windmill.com. If it underwrites an IPO for the dotcom, it gets its loan back, plus a fee for the underwriting, and if the bank’s customers buy the stock, it also gets a commission." (p. 19)

16/ "At one point, the market value of Priceline.com, which encouraged consumers “to name your own price for airline tickets,” exceeded that of the major airlines combined. By 2001, it would be worth one one-hundredth of its peak valuation.

17/ "Even established companies in the so-called new economy traded at prices that assumed the companies would enjoy unprecedented growth in profits and sales many years into the future." (p. 20)

18/ "Ignoring the media—perhaps nothing is more preposterous than the explanations commentators give for price movements on Wall Street on any given day—makes it easier to focus.

"Creativity is the ability to integrate information from seemingly unconnected sources." (p. 22)

19/ "The victors write the histories, but the histories are not always accurate.

"Investigations into antiquity reveal the extraordinary degree to which politicians and financiers are repeatedly able to fleece civilians when things go wrong.

20/ "Crassus became the richest man in Rome by buying up the rights to collect taxes from citizens beyond the reach of official collectors. Tax farming was initially lucrative due to the difference between the amount collected and the amount paid to the emperor.

21/ "As more Romans got in on the act, prices of collection contracts rose to the point that the tax farmers could never collect enough to cover obligations to Rome. Crassus used his lobbying skills to convince the government to organize one of history’s first bailouts." (p. 22)

22/ "In 1929, Dad's banker asked him to buy the bank’s stock. Noting that the vast earnings multiple, Dad exploded, “You must be either fools or knaves.”

"As late as the 1940s, bank employees were still paying off loans they had taken out to buy the stock." (p. 29)

23/ "In the late 1920s, one could see the capital spending boom by looking at all the buildings going up. But by 1929, this was winding down. (The developers of the Empire State Building ultimately had to reach as far afield as farmers in Kansas to find money to finish building).

24/ "Worried about the buildup in inventories and the decline in capital spending, Dad got out of the market.

"Therein lies one of the remarkable similarities between the 1920s and the 1990s.

25/ "Capital spending fueled profits and growth. Investors and companies took on debt, believing that growth would continue forever because the fundamental rules had changed.

"The boom inevitably ran its course, exposing the hollow-ness of the “new-economy” thoughts." (p. 32)

26/ "Thanks to Dad’s good timing, we lived through the 1930s rather comfortably, though Dad did get burned shorting the market during a rally in 1931. This is not to say that we lived rich—Dad hated ostentation." (p. 32)

27/ "We looked for value in railroad bonds, where the stigma of bankruptcy and no income made the bonds cheap. Patience was rewarded when we came upon bonds selling at deep discounts to what one could ultimately get for the underlying assets, even in bankruptcy." (p. 33)

28/ "Hyman Minsky gave some credit to Dad’s work, particularly his ability to see how prosperity leads to its own decline. As good times roll along, people lose sight of risk. Eventually, excesses lead to a point where people can’t meet their obligations." (p. 35)

29/ "Unexpected turns of stocks during WWII offered a lesson about a fundamental frailty in forecasts. All we can do is look at the past to predict the future, but life is constantly changing, so assumptions are bound to be wrong." (p. 37)

More on this:

https://twitter.com/ReformedTrader/status/1283459219300048897

30/ More reading on the difficulties of prediction:

Thinking in Bets: Making Smarter Decisions When You Don't Have All the Facts (Annie Duke)

https://twitter.com/ReformedTrader/status/1302337159303540737

Superforecasting: The Art and Science of Prediction (Tetlock, Gardner)

https://twitter.com/ReformedTrader/status/1326234446668812288

31/ "I believe now that there is no relation between the actions of a nation and the actions of the individual. I have met pleasant and kind people in Germany of every nationality. But to quote Albert Einstein, ‘Nationalism is the measles of civilization.

32/ "It’s hard to imagine the poverty and struggle of the average German, who barely had enough to eat. One of the prerequisites of real freedom is money. Money gives you choices, and in an unregulated society, the choices were unlimited.

33/ "Everybody played the black market. A carton of cigarettes paid for at the PX with occupation marks (the currency issued while Germany was being stabilized) could be sold on the street for vast sums of money." (p. 39)

34/ "People fret too much about their first job—is it the right fit, is the pay right?—when the important thing is just to get out and work. The first job is unlikely to be their last. It is easier for people to discover what they really want if they just do something." (p. 41)

35/ "Wall Street was out of favor after the Great Depression.

"It was a good place to dump the dimmer sons of prosperous families. Protected by fixed commissions and long-standing relationships with investment banking clients, these princelings had to be true imbeciles to fail.

36/ "Although America was poised for a great boom, most people did not know it. We were in of the longest bear market (1946-49) of the post-war period.

"It is difficult to overestimate the degree to which the psychological legacy of the Depression weighed upon the market.

37/ "Memories of the role of margin debt in the 1929 crash were fresh in people’s minds. The Fed raised margin requirements from 40% to 100% and imposed a regulation that sellers of stock who had margin debt could use the proceeds of the sale only to further reduce that debt.

38/ "Trust funds in New York State could, at best, keep only 25% of their holdings in stocks, but most trustees opted to stash their entire portfolio in bonds.

"Nobody at that time worried about inflation.

39/ "Stocks were undervalued, not only bankrupt companies and intricate reorganizations or spin-offs, but also large retailers.

"Established brokerage firms focused on mainstream companies, ignoring complicated and obscure situations. This created great opportunities." (p. 43)

40/ "Opportunity is created by fear, which can drive prices far below fair value, and changes that create unknowns.

"The government's attempts to legislate fairness or improve the workings of markets almost always create opportunities/special situations for investors." (p. 45)

41/ "For example, the Alien Properties Custodians Act authorized the selling off of German holdings in the U.S. that had been seized during WWII. Some of the assets we investigated belonged to notorious giants like I. G. Farben.

42/ "While investigating one company sold off under this legislation, I had an epiphany that sealed my conviction that I had chosen the right path for myself. The company was Associated Telephone and Telegraph, a foreign subsidiary of the American conglomerate Theodore Gary.

43/ "It was a monster to evaluate because of its diverse holdings, but I set about constructing a consolidated balance sheet. I realized that its share price was little more than its annual earnings—a huge opportunity for the company that successfully bid for its assets.

44/ "For the first time, as I looked around the dim, empty office, I realized that my only limitations were my own, not my partners’. I was as much in control of my destiny as it was possible to be." (p. 50)

45/ "In an uncertain world, governed by probabilities rather than rules, the only constant may be that the more time that passes, the more probable it becomes that you will at some point encounter an improbable event." (p. 52)

46/ "I discount the lip service that corporate executives pay to free trade and markets. Once companies have access to markets, they immediately start pouring vast amounts of money into lobbying efforts to convince politicians to erect new barriers to keep others out.

47/ "Those who sound like libertarians when markets are going up sound like socialists and beg for bailouts/protection from governments when the economy heads south.

"For every analyst looking for undervalued companies in 1951, there are probably ten doing so today." (p. 54)

48/ "By the 1930s, Getty realized he could acquire oil far more cheaply by buying the undervalued stock of companies that held known reserves than from drilling. The depressed shares of other companies offered an economical way to control refining and marketing capacity." (p. 55)

49/ "At major turning points in markets, market prognosticators are generally wrong.

"This doesn’t mean that professionals are always wrong, but if they are right for a protracted period, they have convinced their followers to invest or sell and thus must be wrong in the end.

50/ "Moods are powerful. It is not easy to buy in a period of profound pessimism. All your friends are doing the opposite; pessimism is based on plausible arguments. Although you might tell yourself the bottom is at hand, you can never know that for a fact." (p. 69)

51/ "Most people are extremely uncomfortable with unconventional investing.

"The typical investor is idiosyncratic, superstitious, and prey to fears of the unknown. He likes company. But the unconventional is what creates opportunity. Good investing is not a group sport." (p.77)

52/ "We launched the Oppenheimer Fund in 1959. Although we didn’t call it a mutual hedge fund, it was the first such fund open to small investors. Not long after, an article appeared in Fortune magazine dismissing it as speculative precisely because it could sell short.

53/ "What I saw as prudent, the establishment viewed as radical. We realized we could not market the fund as conservative. The stigma of short selling also caused trouble when we went about registering the fund in different states, each of which had its own regulations." (p. 80)

54/ 1953-4: "An infatuation with new technologies can eclipse the reasoning ability of the most sober investors. The uranium bubble, a minor star compared with the supernova of the Internet bubble, grew from America’s short-lived love affair with the nuclear age.

55/ "Americans threw over their careers to become prospectors. Others played the Salt Lake City markets, where at the height of the frenzy, some stocks soared fivefold in a day. The bubble burst, as all bubbles do, when investors soured on inflated claims and illusory profits.

56/ "In the rush to the exits, investors forgot about the special circumstances that made uranium appealing.

"One was that the U.S. Defense Mineral Exploration Administration regarded uranium as a strategic resource and guaranteed payment for pure yellowcake at $8 per pound.

57/ "Thus, a uranium mine owner did not have to worry about oversupply driving down price. Moreover, the government would lend 75% of the money for uranium exploration through the program, and if the mine turned up empty, the DMEA would forgive repayment of the loan.

58/ "As a result, Hidden Splendor had an almost assured income. The mine’s preferred stock was being retired: after five years, there would be no preferred stock left, and we would be bought out at a higher price than we had paid to get in." (p. 81)

59/ "Fear of the unknown blinded people; unpleasant memories of past markets caused the public to see conservative strategies as speculative. We promised to invest anywhere in the free world where opportunity exceeded risk, only to discover that this scared customers." (p. 84)

60/ "We preferred to answer to a few sophisticated investors. The price was the periodic liquidity crunch. We couldn’t sell shares and had to invite limited partners to invest or obtained loans from private equity trusts. Cash is only available when you don’t need it." (p. 90)

61/ "As companies grew, the markets demanded ever more growth, and they all discovered a fundamental truth: Sustaining performance over time is very, very hard. Faced with a choice of disappointing their shareholders or their conscience, many made the same choice: They cheated.

62/ 2002: "The scale of corruption uncovered in balance sheets and investment banks has been impressive. Those who cooked the books pop up whenever opportunity presents itself.

"Never borrow short term against long-term debt. Beware of the stocks of companies that do." (p. 93)

63/ "Some of the best opportunities involve badly managed companies, if only because the situation can improve rapidly with the imposition of good management. No matter how bad a company, there is almost always a point where it is a bargain." (p. 106)

64/ "The Dow closed at 874 in 1964 and at 875 in 1981, racking up a gain of one point in 17 years. Your money was worth less than your initial investment after inflation.

"During this time, Oppenheimer looked for investment opportunities outside the stock market." (p. 109)

65/ "Bankruptcies have often been extraordinarily profitable because they scare away many investors, which means their stock and bond prices are low.

"Nearly half the nation’s railroads went broke in the Depression. Mobilization for WWII improved their situation only briefly.

66/ "This was partly due to regulations. Class One railroads could not merge without excruciatingly long hearings, nor could they abandon track. Where the ICC left off, the unions took over, forcing railroads to retain workers long after technology rendered the jobs obsolete.

67/ "In attempts to protect the public interest, the government made life nearly impossible for railroads. Since the ICC had to approve rate increases, which aroused the ire of shippers, an inefficient railroad like the Milwaukee Road lost more money the more freight it moved.

68/ "By the mid-1970s, the ICC was well aware of this situation, and many of its commissioners regarded the rehabilitation of railroads almost as a patriotic duty.

"When a company declares bankruptcy, all the cards are thrown down and a new hand can be drawn.

69/ "Many institutions dump their holdings (some of them are not even permitted to hold paper in bankrupt companies), which drives prices below a company’s underlying value. Analysts tend to drop coverage as well, contributing to the confusion and hence the opportunity.

70/ "The small commissions on bonds make them unattractive for many firms to trade, contributing to illiquidity and, again, further expanding opportunities for investors." (p. 111)

71/ "During periods of gentrification, residents associate the neighborhood with crime and privation and can’t wait to leave. The architect or builder buying the brownstone sees a valuable, once proud building that can be had for a song.

72/ "This buyer has no memory of the area’s unhappiness and instead focuses on its glorious future. The same principle applies to every transaction on the stock exchange: The buyer is looking to the future; the seller often is burdened by knowledge of the stock’s history.

73/ "The proper perspective on an investment is not what you have made so far but rather the risk/reward ratio at any given point. The price you paid for a stock is irrelevant." (p. 116)

74/ "Tax laws change society, either through the wise use of incentives or, more commonly, through a misunderstanding of how people react.

"Until the 1990s, NYC taxed unincorporated businesses, a levy falling most heavily on self-employed artists just as they became successful.

75/ " Using the logic of a politburo, the city council legislated a tax on incomes above $60,000.

"The unintended effect was to drive people away just when they could have made a real contribution to the economy of the city." (p. 121)

Related thread:

https://twitter.com/ReformedTrader/status/1366218236811874312

76/ "The tax stayed on the books. Once enacted, taxes are among the most durable things on earth.

"Tax laws offer a cornucopia of profit opportunities. When uranium was viewed as a strategic metal, Congress created tax incentives to encourage people to find the stuff." (p. 121)

77/ "With the market going nowhere, conglomerates were often valued far below the sum of their parts. This led me to believe that the merger mania of the 1960s and 1970s was ending, and we were entering a new period of disaggregation." (p. 125)

78/ "The government eventually eliminated some of the incentives that made the LBO attractive. By then, however, the LBO had taken on a life of its own.

"As the deals grew in size, Wall Street became interested in LBOs because of their rich potential for fees." (p. 128)

79/ "Before signing on to defend TWC, Goldman had advised a number of institutions to invest in the company due to its breakup value. Goldman issued a report stating, “Separately, Trans World’s non-airline assets are worth more than the corporation’s total stock market value.”

80/ "Once Goldman helped defeat our bid, the stock slumped, costing us—and Goldman clients who followed its recommendations—a lot of money.

"This doublespeak was a precursor of the next decade when events revealed whom investment bankers really represent." (p. 135)

81/ "Tolstoy was meticulous in his research for War and Peace. He visited battlefields and talked to soldiers who had participated in the Napoleonic campaign. He became convinced that the generals who planned the battles never really knew what was happening during the fog of war.

82/ "Later, they would get together and reconstruct what had occurred, perhaps omitting the occasional embarrassing detail. This official story might be far afield of reality and thus a poor guide for generals preparing for future campaigns. So it is with markets." (p. 137)

83/ "The principals of LTCM survived a great crisis without acknowledging a central lesson of their downfall: that the basic assumption of their strategy did not accord with reality. Unanticipated human factors played a crucial role in obviating their careful plans.

84/ "Like the Titanic, LTCM seemed unsinkable. Staffed by legendary traders and armed with an approach to the markets based on the specialized knowledge of Nobel Prize-winning economists, LTCM attracted a roster of backers that included the savviest veterans on Wall Street.

85/ "Many of them invested all their accumulated wealth in LTCM. This willingness to take personal risk stands in refreshing contrast to all too many Wall Street players. It wasn’t venality that brought down LTCM, but hubris, which blinded them to warning signals." (p. 137)

86/ "In one of LTCM’s transactions, the premium on one bond that was slightly easier to sell than its equivalent was 0.3%.

"Their risk management strategists developed intricate ways to balance and offset risks such that they were able to borrow virtually all the money needed.

87/ "When collateral was needed, it would be transferred, then moved again as soon as it could be freed up to support some other trade.

"They were so confident that they felt comfortable pushing this contraption to the limit, almost daring the market to prove them wrong.

88/ "The belief in efficient markets led to certain assumptions: liquidity and the effectiveness of diversification. In the vast markets for currency futures, the strategists paid insufficient heed to the impact their actions had on the market.

89/ "On August 19, Russia defaulted on bond payments, then placed a one-month moratorium on local bank payments on foreign currency contracts.

"In theory, LTCM was insulated: its Russian exposure was small, and its portfolio was hedged. Russia also a relatively small player.

90/ "The cascade began when three European banks, feeling squeezed, took advantage of bankruptcy laws to halt payments to a large hedge fund. This forced the hedge fund into liquidation, which in turn increased the volatility of the markets.

91/ "Most hedge funds involved in arbitrage used the same tools as LTCM to manage risks. As volatility increased beyond its expected range, they liquidated their most marketable positions; the increased volatility set off a chain reaction.

92/ "In August alone, LTCM lost 45% of its capital, an event that its risk analysis predicted should happen no more than once in the history of Western civilization. It shouldn’t be difficult to decide whether LTCM's managers truly understood the nature of the risk." (p. 143)

93/ "The collapse of LTCM marked a profound change of mood in the market. In the seven years leading up to August 1998, the spread between U.S. Treasury bonds and riskier bonds had been steadily narrowing; cheap money was available to finance new and growing enterprises.

94/ "Companies could issue junk bonds to finance takeovers or expansions. An exuberant stock market made it easy to raise money by issuing shares.

“August 1998 wiped out everything achieved in those seven years.” (p. 148)

More on LTCM:

https://twitter.com/ReformedTrader/status/1271108014498385920

95/ "By August 2001, losses by Nasdaq companies had wiped out all profits for the five previous years.

"Computers were the only industry in the 1990s that had experienced productivity growth. Even there, the gains were possibly the product of creative accounting.

96/ "Productivity statistics mistook a spending spree for increased efficiency. With seemingly insatiable consumers willing to buy higher-priced goods, those selling the goods looked more efficient because their revenues were rising without any increase in their workforce.

97/ "There was no end to the accountants’ tricks. P/E ratios were phony. Companies artificially pumped up earnings by treating ordinary expenses as extraordinary events (Enron, Cisco), booking earnings and revenues long before they were realized (Computer Associates, Calpine)...

98/ "including capital gains from investments in earnings (Microsoft, General Electric), buying back stocks (IBM), and omitting the effects of options granted to employees (Microsoft, AOL, Cisco, many others).

99/ "A book called Dow 36,000 argued that even as the DJIA pushed past 10,000, equities carried no more risk than corporate bonds, and that as investors came to realize this, they would accept lower dividend yields. To the authors, even the P/E ratios of the late 1990s were low.

100/ "Internet companies were deemed exempt from ordinary accounting. Reporting profits was cause for shame, indicating that the company’s executives were not focused on growth. The trick was to capture as many customers as possible, even if it meant losing money on every sale.

101/ "The Internet had supposedly allowed companies to continuously monitor sales and supply chains so that inventories would never become lopsided; recessions would disappear.

"But if Cisco could have inventory problems, maybe old-economy imbalances had not vanished altogether.

102/ "The Fed and Treasury now supposedly had tools to prevent panics from progressing to depressions. Investors were encouraged to believe that stocks were not as risky as in the past.

"Companies used this gullibility to shovel stocks into their workers' retirement accounts.

103/ "The wealth came and went so fast that many millionaires-for-a-day had no chance to spend their gains. To name but one of dozens of examples, Theglobe.com stock soared from its $9 IPO to $97 in a day, and then plunged to less than $1 in little more than a year.

104/ "Without the prop of an irrational stock market, investors finally tuned in to the fantasy accounting that had become pervasive, and they slaughtered stocks whose earnings came under suspicion.

"Risks don’t disappear; they are merely transferred or sold." (p. 157)

105/ "Scoundrels are more charming than the rest of us: they have to be able to purvey unattractive wares in an attractive manner.

"The Enron collapse demonstrates that even large, highly scrutinized corporations can manipulate numbers right up to the brink of destruction.

106/ "Enron was still on target to meet its pro forma earnings predictions as late as November 2001, even as the company’s stock price was collapsing and it had entered a free fall toward bankruptcy. It managed to go broke without ever reporting a bad quarter.

107/ "Companies filed for bankruptcy shortly after paying bonuses to management for operating earnings targets. Bonuses explain why executives perpetrate frauds. They were able to get away with them only because ordinary investors believed they were getting rich too." (p. 162)

108/ "Investors would have done better to ignore stock analysts’ recommendations and buy those stocks that were least favored. The best strategy was to do the opposite of what the highly paid gurus suggested." (p. 162)

Yep:

https://twitter.com/ReformedTrader/status/1182308282062393346

and

https://twitter.com/ReformedTrader/status/1163209969577017344

109/ "When an analyst recommends a stock, you can be sure that his firm’s salespeople have already been using the recommendation to push the stock. Thus there is usually a long line of people who have bought the stock before you, pushing up its price.

110/ "The more influential the analyst, the more likely the fall: in markets, if enough people believe fervently in a company, they are usually wrong.

"One powerful impetus toward overly optimistic forecasts lies in the very size of the institutions that employ the analyst.

111/ "If you are the chief strategist for a huge firm, you put your job at risk if you make a pessimistic public market forecast. Giant institutions depend on a public that believes in ever-rising prices for everything from the lucrative IPO business to retail accounts." (p. 165)

112/ "At the peak of the 1990s bull market, some Harvard economic researchers asked a group of investors to forecast average annual returns for the next five years. The average answer was close to 18%, roughly three times the historical trend." (p. 166)

113/ "Loss aversion makes us distort probabilities. If a stock goes down, the odds that it will reverse itself are only one in four, but most people believe the stock will recover to the price they bought at.

114/ "The probability that it would have a good year following that bad year is only about 25%, but most investors who owned the stock typically would think the odds were much higher (50% or better)." (p. 171)

More on trend following for stocks:

https://twitter.com/ReformedTrader/status/1134949730247557121

115/ "The same financial tsunami that drowned the individual investor also caught the mutual fund manager. The pros were taken in by the numbers that flowed from corporate press releases—numbers that were often inflated, and in some cases were downright lies." (p. 173)

116/ "The analyst may study a bunch of numbers, but the most important factor shaping his thinking comes when he calls up the CEO of a company and says, “We’re thinking 27 cents per share earnings for the next quarter.”

117/ "The CEO says, “I think that’s a little high” and waxes authoritatively about why, and the analyst settles on 25 cents. Everybody goes home happy—the analyst has a number and a good story, and the CEO has a number he knows he can beat." (p. 173)