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Podcasts

Sir James Dyson – Tim Ferris Podcast


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Sir James Dyson is the founder and chairman of Dyson. Through investment in science and technology and working alongside Dyson’s 6,000 engineers and scientists, he develops products that solve problems ignored by others. James is the author of the new book Invention: A Life, the story of how he came to be an inventor himself and built Dyson, leading it to become one of the most inventive technology companies in the world.

Books

Investing the Templeton Way | Templeton & Phillips


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Published in: 2008

Amazon | Goodreads

The book is written by Lauren C. Templeton and Scott Phillips and is about Sir John Templeton’s investment career. Templeton ran the fund company Franklin Templeton Investments and outclassed its comparative indices during its seven decades under Templeton.

A LAISSEZ-FAIRE CHILDHOOD. Templeton was known for his curiosity and optimism. He learned early on that the stubborn one could outwork his opponents – “the doctrine of the extra ounce”. What distinguished the best from the average is often that extra hour of study or work. From childhood he also took an interest in seeing the world.

”Success is a process of continually seeking answers to new questions”

A GLOBAL CITIZEN. Templeton believed that borders were something artificially created by man and nothing that should stop an investor from looking for value in all corners of the world. In addition to better chances of finding value, Templeton also argued that it increased his chances of better returns at lower volatility. He was a diligent traveller and carefully studied the countries he visited. This made him dare to invest where others didn’t.

THE POINT OF MAXIMUM PESSIMISM. In the 1920s, Templeton’s father was a lawyer and from his office window he could see when bankrupt farms were sold in the town square. Most of the time he ignored the auctions, but when there were no buyers out in the town square, he walked downstairs and bought the farms at scrap prices. Much later, and in a better market, the father then sold the farms at a good profit. This theory of buying at maximum pessimism was later on applied by Templeton to the global stock markets.

“People are always asking me where the outlook is good, but that is the wrong question. The right question is: Where is the outlook most miserable?”

TEMPLETON’S SPIKE STRIP. On several occasions during his career, Templeton used the “spike strip approach” in markets that had reached maximum pessimism. He distributed his capital evenly over, for example, all shares traded below $1. The same approach was used when he successfully shorted 84 IT companies just before the IT bubble burst.

A FOCUS ON MICRO RESULTS IN STRONG BETS ON MACRO. Templeton was often praised for his well-timed macro bets, for example both when he went long Japan (50s and 60s) and when he went short Japan (80s and 90s). There was no advanced macro analysis behind the decisions. The focus arose when Japan during the time periods had many low- and high-valued shares. In order to identify and carry out these counter-works, Templeton was a diligent student of historical bubbles.

MINIMIZED THE FX-EXPOSURE. Templeton was careful to avoid countries with unstable economies and stuck to those that had a debt / GNP ratio’s below 25% and a positive current account – i.e. exported more than they imported. He considered that the currency cycles generally lasted several years and could vastly affect an investment’s outcome. He also carefully studied historical devaluations to learn what had gone wrong and what type of properties those countries and currencies had.

MARKET VALUE VS. REPLACEMENT VALUE. Templeton observed many historical periods when market prices for properties far exceeded the replacement value as well as periods when properties were valued below the replacement value. He applied the same way of thinking with great success to all sorts of industries that were currently in crisis.

MORE CLEAR-MINDED WHEN AWAY FROM THE BUZZ. Templeton began his career on Wall Street but later moved to the Bahamas. Templeton’s performance was significantly better when he worked upstairs in a Bahamas police station than when he had a stylish Wall Street office. He was able to behave more rational when he was freed from the daily buzz of Wall Street.

Audiobooks

The Tipping Point | Malcom Gladwell


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Yesterday, we published a Brief on the book Contagious by Jonah Berger. In the same category of thought, we have book The Tipping Point by Malcom Gladwell written in the year 2000. To further learn about similar concepts, read or listen to Malcolm Gladwell’s breakthrough debut and explore the science behind viral trends in business, marketing, and human behavior. The tipping point is that magic moment when an idea, trend, or social behavior crosses a threshold, tips, and spreads like wildfire. Just as a single sick person can start an epidemic of the flu, so too can a small but precisely targeted push cause a fashion trend, the popularity of a new product, or a drop in the crime rate. This widely acclaimed best seller, in which Malcolm Gladwell explores and brilliantly illuminates the tipping point phenomenon, is already changing the way people throughout the world think about selling products and disseminating ideas.

Link to the Audiobook on Audible

Books

Contagious | Jonah Berger


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Published in: 2016

Amazon Goodreads

Products, ideas, and behaviours start with a small set of individuals or organizations and spread, often from person to person, almost like a virus. The six principles of contagiousness is: (1) products and ideas that contain Social Currency and are Triggered, Emotional, Public, Practically Valuable, and wrapped into Stories.

SOCIAL TRANSMISSION. People share more than 16 000 words per day and every hour there are more than 100 million conversations about brands. Word of mouth is the primary factor behind 20-50% of all purchasing decisions. While traditional advertising is still useful, word of mouth is at least 10x more effective. It’s both more persuasive and it’s also more targeted.

ONLINE WORD OF MOUTH. Just putting up a Facebook page or tweeting doesn’t mean anyone will notice or spread the word. Fifty percent of YouTube videos have fewer than five hundred views. Only one-third of 1% get more than 1 million. Research by Keller Fay Group finds that only 7% of word of mouth happens online. Online conversations could reach a much larger audience, but offline conversations may be more in-depth.  

IMMEDIATE AND ONGOING WOM. Immediate word of mouth occurs when you pass on the details of an experience or new information you acquired soon after it occurs. In contrast, ongoing word of mouth covers the conversations you have in the weeks and months that follow – a vacation you took last year. Both types of word of mouth are valuable, but certain types are more important for certain products (theatres need instant chatter).

SOCIAL CURRENCY – WE SHARE WHAT MAKES US LOOK GOOD. Research finds that more than 40% of what people talk about is their personal experiences or personal relationships. People prefer sharing things that make them seem entertaining rather than boring, clever rather than dumb, and hip rather than dull. They use social currency to achieve desired positive impressions. To get people talking, companies need to mint social currency and give people a way to make themselves look good while promoting their products and ideas along the way. There are three ways to do that: (1) find inner remarkability, (2) leverage game mechanics, i.e., racking up miles, and (3) make people feel like insiders (exclusivity and scarcity).

TRIGGERS – TOP OF MIND MEANS TIP OF TONGUE. Most conversations can be described as small talk, meaning filling conversational space. Think about whether the message will be triggered by the everyday environment of the target audience. Frequency must also be balanced with the strength of the link. The more things a given cue is associated with, the weaker any given association. We also need to create links to prevalent triggers (Kit-Kat and coffee). Social currency gets people talking, but Triggers keep them talking.

EMOTION – WHEN WE CARE, WE SHARE. People share what they find interesting and useful. Sharing to others often makes emotional experiences better. If we get promoted, telling others helps us celebrate. If we get fired, telling others helps us vent. Sharing emotions also helps us connect – it’s like social glue, maintaining and strengthening relationships. For example, awe-inspiring articles were 30% more likely to get shared. Anger and anxiety lead people to share because, like awe, they are high-arousal emotions. Low-arousal emotions, like sadness, decrease sharing. Select high-arousal emotions that drive people to action.

PUBLIC – BUILT TO SHOW, BUILT TO GROW. People imitate, in part, because other’s choices provide information. So, to help resolve our uncertainty, we often look to what other people are doing and following that. Psychologists call this idea social proof. We also have the famous phrase “monkey see, monkey do”.

PRACTICAL VALUE – NEWS YOU CAN USE. People like to pass along practical useful information. News others can use. Helping people do things they want to do or encouraging them to do things they should do. Faster, better, and easier. It does matter how the information is packaged, and what the audience is. We need to make it clear why our product or idea is so useful that people just have to spread the word.   

STORIES – INFORMATION TRAVELS UNDER THE GUISE OF CHATTER. Just like the trojan horse itself, stories are more than they seem. The story grabs your attention and engages your interest, but peel back the exterior, and you’ll usually find something hidden inside. The story gets sharing for many of the above reasons: social currency, emotion, and practical value. The key is not to make something go viral, but also make it valuable to the sponsoring company. Virality is most valuable when the brand or product benefits its integral to the story. When its woven so deeply into the narrative that people can’t tell the story without mentioning it.

THE HUNDRED DOLLAR CHEESESTEAK. Howard Wein started the restaurant Barclay Prime in Philadelphia in 2004. The stats were bad. More than 25 percent of all restaurants fail within twelve months of opening their doors. Sixty percent are gone in the first three years. Wein knew he needed to generate buzz so he launched a hundred-dollar cheesesteak. And the story of this cheesesteak was contagious. People talked about the hundred-dollar cheesesteak because it has them Social Currency, was Triggered (many cheesesteaks in Philadelphia), Emotional (very surprising), Practically Valuable (useful information about high-quality steakhouse), and wrapped in a story.

Series

The Cuba Libre Story


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Documentary from 2015 in 8 episodes. The tumultuous history of Cuba over the last 500 years, a nation of foreign conquest and political schemes. This documentary series recounts the tumultuous history of Cuba, a nation of foreign conquest, freedom fighters and Cold War political machinations. Available on Netflix.

Audiobooks

King Ichan | Mark Stevens


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King Icahn is an unparalleled human drama. It is the story of a man who rose from humble beginnings to emerge as the most powerful, eccentric, galling, pugnacious and successful force in the business world. The Icahn drama is rife with contradictions, juxtapositions, paradoxes and epic power plays. All have led to a reshuffling of the business\financial landscape, to the electric fear on the part of CEOs when they hear the terrorizing words “Carl Icahn is on the phone” and to one of the world’s greatest fortunes. King Icahn is the only book written about Icahn, completely independent but with full access to the man himself. It reveals the back story of the greatest financier/pit bull of his generation, his multi-billion dollar epiphany, his real motive for taking on the CEO elite as well as his loves, feuds, idiosyncrasies and intellectual brilliance. Available on Amazon / Audible.

Books

Dear Chairman | Jeff Gramm


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Published in: 2015

Amazon | Goodreads

Dear Chairman is about shareholder activism in the United States over the past century. The book is written by Columbia professor and fund manager Jeff Gramm and consists of eight studies based on investor letters, newspaper clippings and interviews. According to Gramm, the starting point for shareholder activism was Benjamin Graham’s collision with the Northern Pipeline in 1926. As America then became richer and shareholding more widespread, more and more disputes over corporate control broke out.

STARTS OUT IN THE 1920SIn 1926, Benjamin Graham discovered that the profitable Northern Pipeline (NP) had $90/share in bonds while the stock price was $65. NP held its AGM in Oil City, Pennsylvania, far from the company’s headquarters – probably so that the board and management would get work undisturbed. Graham went there but had forgotten to pre-register his case and had to go home unheard. After working with major shareholders and after several rounds with the board, Graham got hold of two of five board positions. He then got the company to distribute the excess capital to the shareholders.

THE SALAD-OIL SCANDAL IN THE 1960S. Buffett started his partnership in 1956, and experimented in the beginning with everything from activism to short selling and pair trades. A classic story is that of American Express’s (AE) salad-oil scandal that erupted in 1963. The share price fell sharply and Buffett realized that the scandal did not damage AE’s highly profitable core business and invested 40% of the partnership’s capital in the company. He then began to persuade management and the board not to fight against the compensation of the swindlers. Legally, AE did not have to pay any compensation and shareholders loudly began to complain that a payment would still take place. Buffett realized that a lack of compensation could damage AE’s good brand and customer confidence and in the long run overthrow the company. If they took a big “one off”, AE would quickly be on the track again – which got to be the case.  

THE RANSOM LETTERS OF THE 1980S. The 1980s were the decade of “corporate raiders” and the big names on Wall Street were Carl Icahn, Michael Milken and T. Boone Pickens. “Bear hug letters” (an unwelcome but generous takeover bid), greenmail (targeted buyouts by individual shareholders), hostile takeovers (takeover attempts without board / management approval) and poison pills (a protection against hostile takeovers – often via the articles of association) were new words used extensively in the financial press. The activist investments of the decade were to a large degree made possible by cheap capital from Michael Milken. He was the “father of junk bonds” (high-yield bonds with little security) and through this built up a fortune. After a too long time in the grey zone, the happy 1980s resulted in 10 years in prison and a $600m fine for Milken. In the end, however, he came out after only two years.    

THE TOWN-HANGINGS OF THE 2000S. In the late 1990s and early 2000s, hedge fund manager Daniel Loeb introduced a new type of activism – public shaming. Loeb’s approach was to take a position of power in problem companies and replace inefficient management to reverse the negative development. To get the attention of key people, he sent out open letters in which he clearly expressed how management exploited the shareholders through passivity, dishonesty, or laziness. The open letters contained everything from personal attacks to curse words and proved to be highly effective. Loeb had found the key point of key people – if there is one thing CEOs and board members care about, it is their reputation.

”Sometimes a town hanging is useful to establish my reputation for future dealings with unscrupulous CEOs”
– Daniel Loeb

ACTIVISM IS NOT ALWAYS A GOOD THING. Studies have shown that activism is generally value-creating. However, not all outcomes will be good. Gramm takes up the example of BKF Capital, where activists ran a marginally profitable fund company into non-existence. The activists felt that earnings were burdened by unusually high staff costs and saw potential for quick gains if wage levels were trimmed. But when wages were reduced, the staff disappeared and with the staff, the investors disappeared. The fund company’s AUM fell rapidly and after only a few years the business was wound up.

ACTIVISM AS AN ASSET CLASS. According to Gramm, activism entered the institutional world in the late 1980s after GM, through greenmail, bought out major owner Ross Perot. The purchase took place at a large premium and Perot’s billion profit was financed at the expense of other shareholders. Thereafter, the major institutional shareholders increasingly began to side with the activists. It was also in connection with this that greenmail was banned. Nowadays, even normally passive institutions are open to follow successful activists.