Friday, January 02, 2009

Ratio of R&D to SG&A > 1

I read Nassim Taleb on the first day of 2009 and wondered about the events which will happen. From a risk management perspective one needs to look at how one can bounce back from a multitude of events which are not neccesarily coincident. The investment in risk avoidance can map to 'n' number of events. Nassim is critical of Risk managment( cant have a risk specialist because of the breadth and possibility of a bend/wrap in the fabric of Risk space :P) .
While mapping the risk of companies, one metric I noticed was the ratio of R&D to SG&A expenses. For the more successful companies, the ratio seems to be greater than 1(OH CAUSALITY!). Investing heavily in R&D with an emphasis on the fat tail and serendipity can (Hypothesis) co-relate to risk reduction in areas like economic slowdown, change in industry structure and change in consumer preference. What investment in R&D cannot protect(Again a Hypothesis but of the falsification type / For eminent Catter's "scoring by elimination :D" ) against are risks like Litigation, Employee retention and Accurate Financial reporting.
('N'Assimilated from Nassim's Black swan)

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