Review – Restrepo

I watched a NatGeo documentary last night called “Restrepo.” It’s about the conditions and objectives of a small US Army platoon in the mountainous wilderness of Afghanistan.

Very little happens in this movie over its 1.5hr runtime. There is a lot of buildup and talk about how often the base is attacked, and this is depicted several times, but overall nothing happens. I don’t know if this was an intentional part of the plot (“the futility of the Restrepo mission”) or if it’s bad editing or belies a fraud about the claims being made in the film about what it is like for these troops, but it is not entertaining. And by that I don’t mean, “Gee, I wish there were more poor, dumb soldiers getting wasted in this real life documentary” but rather, “Gee, what am I getting out of watching this film?”

That being said, this is not good propaganda for the US government’s desire to nation-build overseas. Why does the military allow journalists and documentarians to embed with their troops? Restrepo is an offshoot of a slightly larger but still insignificant base tasked with enlarging the “security bubble” in the area so that a road can be safely built connecting two hapless economic regions into one, which is supposed to bring jobs, incomes and peace and happiness to the land. Every bit of tactical maneuver in war seems really stupid when studied by itself — “50 men gave their lives for a bridge that was ultimately destroyed by the enemy anyway, why did 50 men die for a bridge?” — but the Restrepo mission seems especially stupid not because these men are fighting and dying and accidentally murdering local civilians for an unbuilt road, but because the premise behind building the road is itself very stupid. Do the local Afghans even WANT this road? If they did, why didn’t they build it before the US Army showed up?

Is military Keynesianism a viable structure for developing foreign economies? Keynesianism doesn’t seem to work to develop domestic economies. And the military, professional murderers and demolishers, don’t seem to be the right people to task with building things, let alone people’s economies. Wouldn’t it make more sense to send overwhelming military force through the area, wipe out/expel the organized Taliban elements and then let civilian diplomats and construction contractors come through and negotiate new power structures and infrastructure plans?

The Korengal Valley itself, where the drama unfolds, is truly magnificent geography. It reminds me of the valleys I hiked on the Inca Trail in Peru on my way up to Macchu Picchu. In fact, the remoteness, the terraced cultivation and the “primitive” lifestyle and social organization of the Afghans looked nearly identical to what I saw in Peru. It seems like a perfectly nice place for the locals to live and you get the insane idea watching the movie that they never asked for the US Army to invade their territory and murder their wives and children in helicopter gunship assaults, and they’re not all that thankful for their service now that they’ve shown up. Would it be unpatriotic, dare I say even treasonous, to suggest that the Afghans are getting a raw deal here and it’s hard to wonder why they wouldn’t want to overtly or covertly support the Taliban in these circumstances?

That old quip about “I’m from the government, and I’m here to help you” runs hard through the film’s narrative. We see again and again the way the local commander makes big promises and doesn’t follow through– he murders a guy’s cow and offers no agreeable compensation, he disappears a local who he suspects of being an accomplice of the Taliban and then offers the vague assurance that he’s being treated nicely and will soon return though he doesn’t, and he responds to an attack by calling in a fire mission on a neighboring village that kills and maims several women and small children. I don’t care who someone is fighting for, if I had to hold the charred body of my innocent two year old in my arms and watch a bunch of crude monkeys rifle through the smoking remains of my home looking for contraband after such an incident, I think I’d lose my shit.

And what IS the best solution to murdering someone’s cow, anyway? If you could get your higher-ups to release the $400-500 cash to pay the guy back (I think the village elders took the US Army for a ride on that request, by the way, there is no way a cow is worth half a grand in the mountains of Afghanistan) doesn’t that incentivize them to let more of their cattle wander into your concertina wire whenever they lack liquidity? And if you can’t get that cash released, aren’t you guaranteed to keep pissing off the locals while insisting you’re there to win hearts and minds?

The long and the short of it is that imperialism is a terrible idea in the first place, but the United States government isn’t even good at imperialism. It is very half-hearted and half-assed in its attempts to brutalize and control foreign peoples and spends more time apologizing and groveling about its numerous mistakes than making any meaningful progress in terms of rapine and pillage. It makes you wonder the whole time how such a pointless and ineffectual system can sustain itself, until you realize that the people who are really getting mulcted in this process are the guileless American people “back home.”

And the poor, dumb US foot soldier is the tool used to tug at those people’s heart strings while picking their pockets clean. “Thank you for your service,” indeed.

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Sorry, The Economy Is Officially Closed

One way to describe what I do for a living is “capital allocation.” Really, I am like an internal strategic consultant to a family business (a family of which I am a part) so there is more to it than that, but thinking about where to put our capital is one of the primary functions I serve.

One interesting problem to have when one owns things of value is receiving bids on those things from people interested in buying them when you’re not sure you want to sell. The further above your own estimate of “fair value” their bid goes, the stronger the temptation to take advantage and sell your asset. It seems like a pretty straight forward problem to solve.

The only problem is the market context of the potential sale. Generally, if you’re in a position to get more than fair value for what you’re selling, you’re going to have a hard time finding another asset to buy where the seller isn’t facing the same dynamic. In other words, you can potentially sell one asset at an inflated price and buy another at an inflated price– you’re probably better off just holding on to what you have because there’s no arbitrage in that and it could very well cost you money in terms of frictional costs like brokerage commissions and taxes on imaginary capital gains.

One thing you could do is sell your asset at an inflated value and sit and wait in cash for a better buying opportunity. The problem with that is that cash is, currently, a seemingly barren asset. If you stuff your haul into T-Bills, you’re lucky to earn a few basis points every 90 days– it might as well be zero, and when you factor in the effect of inflation and those damned capital gains taxes once again, it probably is. You could go further out on the yield curve and buy some 10YR Treasury notes, but then you’re exposing yourself to substantial interest rate risk with yields flirting with historic lows.

Meanwhile, most asset owners are earning strong internal returns on their invested capital right now. Say you’re earning 20% a year on your investments, why would you sell them to collect 1.5% over the next 10 years while taking enormous interest rate risk? Or to collect zero for some unknown amount of time sitting in T-bills or cash in a savings account? Every year you stay invested, you get ahead by almost 20% more. Could the value of your investment really drop by that much?

The business cycle is an inevitable fact of owning and operating a business in a modern economy. The question is not could it, but when will it drop by that much, or more? For many business owners and investors, the waiting is the hardest part. Giving up 20% a year for some period of time and avoiding the risk of a 50-60% or greater decline in asset values just isn’t attractive. It isn’t even attractive when thinking about the fact that buying back those same assets at half price could potentially double your return on invested capital during the next boom, an interesting strategy for shortening the compounding time necessary to achieve legendary riches.

For many, this inevitable decline in asset prices is inconceivable. It’s embedded deeply in the fear of selling and going to cash. The implication of this premise is that the economy is officially closed to additional investment. Those who invested earlier in the cycle can stay inside and watch a magnificent show as they earn outstanding returns on their capital while the boom goes on. But for everyone who sold too early, or never bought in, they have to wait outside, indefinitely, and wonder what it’s like– the cost of admission is just too high.

What makes this a stable equilibrium? By what logic has a competitive market economy become permanently closed to new investment, or a change in asset values, or a change in ownership of assets? Under what set of premises could this condition last for a meaningful amount of time and leave people who sell now out in the cold, starving and bitter for returns on capital, forever, or for so long that they would be losing in real terms over time in making such a decision?

To me, this “new normal” is absurd. It is juvenile to believe that the economy is closed and no one else is getting in. It’s silly to think that the people willing to pay those astronomical prices for admission are making a good decision, that they’re going to have a comfy seat and years of entertainment, rather than paying more than full price for a show that’s about to come to an abrupt end. It’s a topsy-turvy world in which the reckless and courageous high-bidders are the ones who get rich. If paying too much for things was the path to riches, we’d all be there by now. I think when everyone’s perception of reality and value skews toward a logical extreme like this, we’re closer to the show being over than the show must go on.

In the meantime, sorry, the economy is officially closed.

More Thoughts On “Father, Son & Co.”

These comments are from an email to a friend with regards to my recent review of Father, Son & Co.:

The book excited me at first because in the intro Jr says that if you have the opportunity to go into business with your father, you should do it. I figured the book would be filled with all the fulfilling things that he experienced as a result of that relationship.

Instead, it seemed to be chock full of warning signs! His father seemed to be interested in exposing him to the business at a young age. He took him on a cross country train ride for business around age 10 and introduced him to managers, sales people, toured plants, etc. Sr was thinking of him and the business from the start. But what Sr never seemed to figure out was how to actually transition his son into business and power.

Junior started out a salesman and did that for several years with small success after initial frustration. Eventually he was brought in as a manager, but there was no set plan for Senior to retire and hand over the reins. They also hadn’t worked out how a space for Juniors younger brother would be handled. It seemed like Senior was either enjoying the prestige too much, or had his ego too wrapped up the business, and was reluctant to give up power, even when it seemed clear his energy and mental faculties were failing.

Junior and Senior fought constantly, and violently. It’s likely a lot of the fights were due to this unresolved question of power sharing and succession. They had different ideas about how to grow the company, junior seeing value in computers and senior being skeptical of them. They always made up in the end but what a terrible toll to take on one another emotionally and physically!

Eventually junior asserted himself and got his dad to agree to give power to him. It was almost like he was waiting for him to man up and insist. One of the challenges of the transition was that there was a perception that senior had surrounded himself with loyal yes men. Junior ended up canning a lot of these people, and then canning other people he and his dad had both picked for different positions, until he had culled the management team down to just a group he had advanced himself. This is typical in business and represents a challenge especially for family succession. An ideal situation would see the aged old guard nearing retirement right around the same time as the younger new guard is ready to take over, that way there are no hurt feelings or dicey incentives from one regime to another.

So I think some takeaways were:
-talk early and often about strategic questions, especially succession timelines and process
-have an agreement to transition an entire management team, don’t expect the successor to play well with people he didn’t groom himself
-if there are other family members involved in the business, discuss roles and opportunities (based on merit) early and often and establish a clear hierarchy of who reports to who and why
-the son or family successor will never be comfortable and confident exercising power, and will never be taken completely seriously, until the previous family member officially and totally transitions out
-don’t let business issues poison personal family relationships, if you find yourselves fighting outside of work, seek counseling

Review – Losing My Virginity

Losing My Virginity: How I Survived, Had Fun and Made a Fortune Doing Business My Way

by Richard Branson, published 2011

Spoiler alert– this book is choppy and inconsistent in the pacing and entertainment factor of its narrative. You really need to read between the lines a bit to get the most value out of it. That being said, it’s surprisingly literary for a dyslexic former publisher of a student magazine and I found Branson’s repeated reference to his high-altitude balloon voyage trials to be an outstanding metaphor for his life as a businessman and entrepreneur.

You see, in Branson’s ballon journeys, the key factors of any consistency were that: a.) Branson was knowingly and openly taking what he perceived to be a potentially life-threatening risk b.) Branson was almost always underprepared for it, or decided to go ahead with his attempt despite early warnings that something was amiss and c.) nonetheless, he somehow managed to survive one disaster after another, only to try something bigger and bolder the next time around.

And this is quite similar to the way he comported himself as an entrepreneur on so many occasions. Again and again, he’d make a daring foray into a business, market or industry he didn’t quite understand, the company would stumble after an early success leaving them all on the brink of failure and yet, each time they’d double down and somehow win.

In that sense, Branson is a perfect example of survivorship bias. On the other hand, having so many narrow misses that turn into massive accelerators of a person’s fortune start to make you wonder if isn’t mostly luck but rather mostly skill.

As an entrepreneurial profile, “Losing My Virginity” is full of all kinds of great successes and astounding failures. With regards to the failures, something I found of particular interest was the fact that Branson’s company were victims of some of the most common pitfalls of other businesses throughout its early history: taken for a ride by indomitable Japanese owners/partnerships in the 80s, repeated victim of the LBO-boom and the private/public buyout-cycle in the 80s and 90s. When you read these stories in the financial press it always seems to happen to the rubes of the business world, but Branson’s foibles help one to realize even rather sophisticated types can get taken in now and then.

The volatility in Branson’s fortunes do leave one with a major question though, namely, why did Branson’s company ultimately survive?

This isn’t a Harvard Business School case study so I don’t mean to pass this off as a qualified, intelligent answer to that question, but I will attempt a few observations and, in typical HBS fashion, some or all of them may be contradictory of one another and none will be provided with the precise proportional contribution they made to the end result:

  • the group had a cultural commitment to change and dynamism; they were not so much their businesses, but a culture and group of people who did business a particular way, a true brand-over-merchandise, which allowed them to reinvent themselves numerous times
  • the group strategically focused on being the low-cost provider in their industry, usually while simultaneously attempting to pursue the seemingly mutually exclusive goal as being seen as the highest quality offering as well
  • the group focused on serving customers but equally saw treating its employees with concern as an important value
  • the group consciously created a brand that could be applied to diverse businesses (see point #1)
  • the group pursued businesses that seemed “interesting” or sensually appealing to it, which ensured that everyone involved was motivated to do well because they liked the work they had chosen

Another thing I noticed about Branson and the development of his company was the attention he paid to the composition of management and owners and his dedication to weeding out those who were not good fits in a charitable way. Channeling the “best owner” principle, Branson made a conscious effort to buy out early partners whose vision and tastes did not match the current or future vision of the group. In this way, the company maintained top-level focus and concentration on a shared strategic vision at all times, sparing itself the expense and distraction of infighting and wrangling over where to go next and why.

Another aspect of the company’s resilience had to do with its operational structure. Branson built a decentralized company whose debts and obligations were kept separate. In an environment where new ventures were constantly subject to total failure, this arrangement ensured that no one business failure would bring the entire group down.

The final lessons of the Branson bio were most instructive and had to do with the nature and value of forecasting.

The first lesson in forecasting has to do with the forecasts others make of us, or the world around us. For example, Richard Branson had no formal business training, he grew up with learning disabilities (dyslexia) and he was told very early on in his life by teachers and other adult and authority figures in his life that he’d amount to nothing and his juvenile delinquency would land him in prison. Somehow this worthless person contributed a great deal to society, through business and charity, and by most reasonable measures could be considered a success, making this forecast a failure. If one had taken a snapshot of the great Warren Buffett at a particular time in his adolescence, when the young boy was known to often take a “five-finger discount” from local department stores, it might have been easy to come up with a similar forecast about him.

I’m not sure how to succinctly sum up the concept there other than to say, “Things change.” Most forecasts that involve extrapolating the current trend unendingly out into the future will probably fail for this reason.

The second lesson in forecasting has to do with how we might attempt to forecast and plan our own lives. When we have 50, 60, 70 or more years of a person’s life to reflect on, it is easy to employ the hindsight bias and see how all the facts of a person’s life were connected and led them inexorably to the success (or infamy) they ultimately achieved. And certainly there are some people, again using Buffett as an example, who from an early age were driven to become a certain something or someone and so their ability to “predict their future selves” seemed quite strong.

But the reality is that for the great many of us, the well-known and the common alike, we really don’t have much of a clue of who we are and what we’ll ultimately become. The future is uncertain and, after all, that’s the great puzzle of life that we all spend our lives trying to unravel. Richard Branson was no different. He was not born a billionaire, in a financial, intellectual, personal or other sense. He had to learn how to be a businessman and how to create a billion dollar organization from scratch. Most of the time, he didn’t even know he was doing it. In other words, HE DID NOT KNOW AHEAD OF TIME that he would become fabulously wealthy, and while he was hard-working and driven, it doesn’t even appear he purposefully intended to become so.

Maybe we should all take a page from Branson’s book and spend less time trying to figure out what’s going to happen and more time just… happening. We could sit around all day trying to figure life out, or we could follow the Branson philosophy where he says, “As for me, I just pick up the phone and get on with it.”

Review – Nintendo Magic

Nintendo Magic: Winning the Videogame Wars

by Osamu Inoue, published 2009, 2010 (translated from Japanese)

Two Nintendo legends no one seems to know about

The original Nintendo started out as a manufacturer of playing cards and other toys, games and trinkets near the end of the Shogunate era in Japan, but the modern company we know today which gave the world the Nintendo Entertainment System, the Game Boy, the Wii and characters like Mario & Luigi and Pokemon, was primarily shaped by four men: former president Hiroshi Yamauchi, lead designer Gunpei Yokoi, the firm’s first software designer Shigeru Miyamoto and the first “outside hire” executive and former software developer, Satoru Iwata.

A family member of the then privately-held Nintendo, Yamauchi took the presidency in 1949 when his grandfather passed away. He tried adding a number of different businesses (taxis, foodstuffs, copiers) to Nintendo in true conglomerate fashion, managing in one 12 year period to grow sales by a factor of 27 and operating profits by a factor of 37.

But his most influential mark on Nintendo’s business came with his fortuitous hiring of Gunpei Yokoi, an engineer, who would head up hardware development for Nintendo’s game division. It was this strategic decision to concentrate Nintendo’s efforts on game development that would lead to the modern purveyor of hardware and software known around the world today.

Hardware engineer Gunpei Yokoi is not a well-known name outside the world of hardcore Nintendo fandom, which is not altogether surprising because most Nintendo fans alive today were not users of some of his first toy gadgets such as the “Love Detector” and the “Game & Watch” handheld mini-game consoles. On the other hand, it’s a shock that the man’s reputation is not larger than it is because he essentially single-handedly created the company’s hardware development philosophy in the 1960s which has remained with it today and continues to influence Nintendo’s strategic vision within the video game industry.

That hardware philosophy was summed up by Nintendo’s first head of its hardware development section as “Lateral thinking with seasoned technology”. In concrete terms, it is the idea of using widely available, off-the-shelf technology that is unrelated to gaming in new and exciting ways of play, for example:

  • Yokoi’s “Love Detector” game, which used simple circuitry and electrical sensors to create an instrument that could supposedly detect romantic chemistry between two users when they held hands and held the machine
  • A blaster rifle toy that used common light-sensing equipment to deliver accuracy readings of the users target shots to the rifle, registering hits and points
  • More recently, the Nintendo “Wiimote” concept, which was simply the idea of repurposing the common household TV remote into a tool for play

Yokoi’s lasting impact on the hardware (and software) philosophy at Nintendo is best captured by current president Satoru Iwata who once said,

It’s not a matter of whether or not the tech is cutting egde, but whether or not people think it’s fun

Similarly, this focus on repurposing existing technology for fun rather than investing in brand new technology helps to explain why many of Nintendo’s systems have been knocked for their not-so-hardcore hardware (think non-HD Wii vs. HD-enabled Sony PS3 and Microsoft Xbox 360) but nonetheless became massive consumer hits– the focus was on fun, not flash.

The Wii particularly was the response to the failure of two systems which preceded it (Gamecube and N64), which were extremely technologically advanced for their era and which departed as swiftly from Yokoi’s philosophy as they posed monumental development challenges for software developers due to their complex, proprietary nature. Instead of creating yet another whizbang console, Nintendo decided that if Wii’s costs were kept down and developers were free to focus on things like a new, intuitive controller and built-in connectivity functions, fun and market success would follow.

Essentially, the game hardware is a commodity with zero barriers to entry. Anyone can have the latest, greatest technology if they’re willing to pay for it. There is no way to establish a competitive advantage on the basis for hardware sophistication alone. It must come from design, or, as Yokoi put it,

In videogames, these is always an easy way out if you don’t have any good ideas. That’s what the CPU competition and color competition are about

Nintendo’s two leading lights: Satoru Iwata and Shigeru Miyamoto

Rounding out the Fantastic Four are Satoru Iwata, the company’s current president, and Shigeru Miyamoto, the star software developer.

Iwata came from relative privilege and studied computer programming in school. He had a passion for making and playing games from an early age. He joined a software developer, HAL Laboratory, early on. He successfully turned around the flagging HAL Lab before it was acquired by Nintendo.

Meanwhile, Miyamoto first came to fame through development of his Donkey Kong arcade game, which introduced the characters Donkey Kong and Mario and which was originally based off of Popeye until the IP could not be acquired for licensing. As a small boy he spent hours running around the hills, forests and mountains outside his home, which inspired many of his later game creations such as Pikmin, Animal Crossing, The Legend of Zelda, etc. He was the first designer Nintendo had ever hired. Miyamoto often utilizes his “Wife-o-meter” to help him understand how to make games that are more broadly appealing.

Miyamoto’s design ethic is best synthesized as populist-perfectionist:

When creating a game, Miyamoto will occasionally find employees from, say, general affairs who aren’t gamers and put a controller in their hands, looking over their shoulder and watching them play without saying anything

He creates game characters, game designs and immersive environments that appeal to everyone, not just the archetypical “hardcore gamer.” But this desire to serve a mass, unsophisticated audience does not mean that Miyamoto considers quality as an afterthought. Miyamoto will “polish [an idea] for years, if he has to, until it satisfies him” and “shelving an idea does not mean throwing it away. Those huge storehouses are full of precious treasure that will someday see the light of day.”

This is part of the value of Nintendo– they have many unrealized ideas waiting to be turned into hardware and games and the only thing preventing them from seeing the light of day is someone like Miyamoto who wants to make sure that when they eventually emerge into the light, they don’t just shine but sparkle.

And this thinking carries over to the company’s hardware efforts, as well. According to a lead engineer, the DS

had to work consistently after being dropped ten times from a height of 1.5 meters, higher than an adult’s breast pocket

Nintendo is “obsessed about the durability of their systems due to an overriding fear that a customer who gets upset over a broken system might never give them another chance.”

“Nintendo-ness”: how Nintendo competes by not competing

In 1999, then-president Yamauchi saw a crisis brewing for video game developers:

If we continue to pursue this kind of large-scale software development, costs will pile up and it will no longer be a viable business. The true nature of the videogame business is developing new kinds of fun and constantly working to achieve perfection

The solution was to adhere ever more closely to “Nintendo-ness”. Nintendo picks people with a “software orientation.”

“Nintendo-ness” is the company’s DNA, once someone has grasped Nintendo-ness, it is rare for them to leave the company. That tendency protects and strengthens the company’s lineage and makes employees feel at home

Manufacturing companies create hardware which are daily necessities, which compete based on being better, cheaper products. Nintendo is in an industry of fun and games, software, where polished content is the goal. Compare this to rival Sony, where hardware specs are key and the software is to follow.

According to Iwata,

Do something different from the other guy is deeply engrained in our DNA

Similarly, Nintendo-ness means delighting customers through creation of new experiences because

if you’re always following a mission statement, your customers are going to get bored with you

This way of thinking goes back to Hiroshi Yamauchi, president of Nintendo for 50 years, according to Iwata:

He couldn’t stand making the same kind of toy the other guy was making, so whatever you showed him, you knew he was going to ask, ‘How is this different from what everybody else is doing?’

For some reason, Nintendo observers and critics don’t get this– why isn’t the company doing what everyone else is doing? Why are they making a console with a TV remote instead of HD graphics (the Wii)?

To Nintendo, the risk is in not trying these things and trying to do what everyone else does. Iwata sums it up nicely:

Creators only improve themselves by taking risks

Of course, not all risks are worth taking. Iwata as a representative of Nintendo’s strategic mind makes it clear that the company is keenly aware of its strategic and financial risks:

The things Nintendo does should be limited to the areas where we can display our greatest strengths. It’s because we’re good at throwing things away that we can fight these large battles using so few people. We can’t afford to diversify. We have overwhelmingly more ideas than we have people to implement them

For example, Nintendo considers the manufacturing of game consoles to be outside its purview, a “fabless” company.

Then there’s the reason for the huge amount of cash on the balance sheet:

The game platform business runs on momentum. When you fail, you can take serious damage. The risks are very high. And in that domain, Nintendo is making products that are totally unprecedented. Nobody can guarantee they won’t fail. One big failure and boom– you’re out two hundred, three hundred billion yen. In a business where a single flop can bankrupt you, you don’t want to be set up like that… To be completely honest, I don’t think that even now we have enough [savings]… That’s why IBM, or NEC, or any number of other companies are willing to go along with us. We’d never be able to do what we do without being cash-rich

That being said, Iwata has not been shy about his policy toward dividends and acquisitions. He has stated that assuming Nintendo’s savings continue to accumulate, passing 1.5T or 2T yen, a large merger or acquisition may become a possibility. Otherwise, excess capital will be distributed as dividends.

The next level

Nintendo’s philosophy is to avoid competition. It sees the hardware arms race as an irrelevant dead-end. The key is to create new ways to interact with game consoles and software that keeps game players on their toes and brings smiles to their faces. According to Iwata,

We’d like to avoid having players think they’ve gotten a game completely figured out

Thus, for Nintendo the next level logically is integration of  User-Generated Content into their software environments, which would have inexhaustible longevity. First they sought to increase the gaming population, now they’re looking at how to increase the game-creating population.

The company’s true enemy is boredom. Whatever surprise you create today becomes your enemy tomorrow.

In the end, Iwata says,

Our goal is always to make our customers glad. We’re a manufacturer of smiles

This is what the company calls “amusement fundamentalism” and it’s what sets them apart from their perceived competition, especially comparisons or criticisms aimed at the company in terms of how it stacks up against a company like Apple. To Iwata, this just doesn’t make sense:

We’re an amusement company and Apple’s a tech company

Notes – How To Win The Pitch

The following notes come from a presentation delivered by marketing gurus Tom Patty and John Pietro at a CEO Forum speaker event:

  • “the desire” is key to improving your pitch
  • getting better at the pitch means getting more business; we’re all pitching, all the time
  • 2 ways to grow business
    • get more customers
    • do more business with existing customers
  • the pitch is when you persuade someone to give something to you, and it usually involves competition with others trying to do the same
  • 7 things you must do to win the pitch
    • know your client; if you don’t know much about them, you’ll probably lose
    • know your competition; do you know who you’re competing against, including the alternative of “No.” or “Not interested.”?
    • know how your client perceives you; look them in the eyes to see how they’re responding to you, engage quickly or the story is over
    • know your client’s business; what do they do well, poorly? “feet on the street”
    • know how their customer’s perceive them; show what you’ve learned from their customers
    • have a great pitch team; look in the mirror, don’t be the “behind the counter manager”
    • be lucky; “the harder I work, the luckier I get” attributed to Lincoln
  • why do winners win? because they make a connection; they know what the other person is thinking all the time
  • 8 strategies for connecting
    • humor
    • common interest
    • common values
    • common friends
    • common beliefs
    • sincere interest in the other
    • ask questions
    • common enemies
  • how to connect: shift the goal from “making a sale” to “making a connection with the other person”
  • how to connect
    • know about their business
    • know what’s important to them
    • know who is important to them
    • know how and where they make their money
    • demonstrate that you honestly care about their business
  • the simple business model; identify these elements in the client’s business
    • the offering
    • the passion
    • the profit
  • Bobby Knight, “Anyone can have the will to win, you have to prepare to win.”

Final comments: John Pietro relates a story about a successful pitch to the Wynn Group on behalf of his client, Coca-Cola. Coca-Cola had been the vendor for the Wynn casinos for many years but they decided to put the contract up for bid with Pepsi-Cola. As John and his client prepared for the final pitch to the group, word came through the grapevine that Wynn’s CFO and another lead decision maker had been informed by Pepsi that they could bid the contract much lower than Coca-Cola which likely made the decision a lock. Not ready to give up, and knowing that Coca-Cola HQ in Atlanta wasn’t willing to budge on their bid price and was confident they’d still win, John and the Coca-Cola VP got to work on a new strategy.

The Coca-Cola VP was good friends with Steve Wynn and his wife and had supported them in various local charity endeavors. They also knew that Steve was a great art lover and was particularly fond of “La Reve” by Picasso, which Steve had recently acquired for his collection at great cost. They decided to produce a special Coca-Cola bottle with the painting reproduced on the label of the bottle, laid inside a velvet case in a specialty wooden box.

After making their pitch covering dollars and cents, product offerings, etc. over a period of several hours, and knowing they were 2nd to present on the final day and Steve Wynn was completely zoned out and bored with the whole process, they finished their presentation by having the Coca-Cola VP walk over to Steve and offer him the box, informing him that he was extremely grateful for their personal and business relationship.

Steve Wynn opened the box, pulled out the bottle and began to tear up as he admired it. On the spot, he announced, “Coca-Cola has won our business.” And like that, the decision was made.

Or so the story goes, but it’s an interesting idea of the principles of the pitch in action to the extent that it is true. It’s also a great example of developing a competitive advantage by some means other than price.

Review – Deep Value Investing

Deep Value Investing: Finding bargain shares with big potential

by Jeroen Bos, published 2013

Benjamin Graham’s Principles Applied

Although it provides a summary introduction to the theory of Benjamin Graham’s classic deep value (net-net and discount-to-book value) strategy, Bos’s “Deep Value Investing” is decidedly a practitioner’s guide, not a philosophical work. More accurately, it’s a collection of case studies for observation and analysis– what did and didn’t work in various key examples from Bos’s own investment portfolio.

This is the book’s strength, and weakness. It is a strength because any opportunity to peer into the portfolio of a working money manager and see not only what he’s done, but why he has done it, is often worth the price of admission. Bos gets hands on with the reader and provides the relevant information in each case study, including the start and end date and price of each trade, the relevant balance sheet information and per share calculations and a helpful chart of price movements over time to put it in perspective.

Most importantly, though, Bos provides a lot of qualitative detail that helps to flesh out the simple quantitative analysis. Many curious students of value investing will be happy to see Bos not only explains what piqued his initial interest in each security, but that he also talks about how long and why he waited to get involved in each opportunity and how he interpreted business developments in each case (positive and negative) along the way. He also provides an explanation as to why and how he exited each investment, whether it was a winner or a loser.

This is something that’s missing in most investment case study discussions and it’s a real value add with this book. Another value add is the online support materials for the book, including a record of all relevant publicly available information for each investment that Bos used in his analysis (so you can follow along and see if you can see what he saw), as well as a free eBook version of the title accessible with a special link.

As mentioned, the weakness of the book lies in the fact that it’s mostly a collection of case studies with little else to structure it. In that sense, while the material is approachable and certainly not technical or difficult by any means to comprehend, this is not a “beginner’s book” but better for a reader who has already read a more philosophical work such as Graham’s “The Intelligent Investor” or “Security Analysis”. After reading those, revisiting Bos’s “Deep Value Investing” should yield many profitable insights and appreciation for what he has managed to accomplish.

Additionally, a bit of information that is normally found in these “how I do what I do” guides, that being whether or not the author supports diversification or concentration of portfolio positions and how he sizes his positions and manages his portfolio as a whole in general, are noticeably absent. The mere addition of this insightful information might have pushed this book into the “4-star” range in terms of usefulness and candor. As it is, it’s a “3-star”, though a strong 3-star candidate. A good read, but not essential in any library and by no means a classic like “Security Analysis”, though of course it has no pretensions of being so.

If you’re “deep” into deep value strategies, or want to watch over the shoulder of a talented operator, Jeroen Bos’s “Deep Value Investing” is well worth picking up! Even veteran value guys have something to learn from Bos’s “qualitative-quantitative” combined approach and especially his criteria for exiting a successful investment as it “transforms” over time from a balance sheet to earnings play.

Other Notes

Some of my other favorite observations worth noting:

1.) Liquid assets are what we’re really interested in, for the strongest margin of safety

2.) Share prices tend to be volatile, but book values tend to be stable over time

3.) Service companies tend to offer good value opportunities because they’re light on fixed assets and heavy on current assets; they also have flexible business models that can quickly scale up or down depending on business conditions

4.) Cyclical stocks always look cheapest on an earnings basis at the top of their cycle and most expensive at the bottom of their cycle (which is ironically when they’e a best buy)

5.) To better understanding accounting statement terms, compare treatment of confusing items across different companies in the same industry

6.) When evaluating trade receivables, it’s important to understand who the company’s clients are

7.) Check lists of new 52-week lows for good value investment candidates