At Ensemble we are obsessed with returns on captial/equity. But it is high and *sustainable* returns we care about. We agree with much of this thread’s point that removing too much slack from corporate business models has led to a less resilient corporate sector.
https://twitter.com/typesfast/status/1453753924960219145
You want management teams to optimize returns on a cross cycle basis, including preparing for unusually negative down cycles, not optimizing for a pro forma world in which disasters never strike.
The management of the optimal level of slack in an organization is a critical issue. Optimal levels of slack are often non-intuitive, as pointed out in this post about wait times at banks and the number of tellers. johndcook.com/blog/2008/10/2…
This article offers a more technical look at the reasons behind these non-intuitive outcomes. terrytao.wordpress.com/2008/08/07/on-…
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