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.
Published in: 2015
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 1920S. In 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.
Published in: 2007
The value investor Mohnish Pabrai presents in the book what he calls a Dhandho framework for investing – how to get a high return at low risk. Since the launch of Pabrai Investment Funds, a copy of Buffett’s partnerships in the 1950s, Pabrai has outperformed all major indices and 99% of all funds. Dhandho means in Indian “endeavors that create wealth”, and with an annual return of 28% after fees, that is exactly what Pabrai has done.
Einstein has said: “Compounding is the 8th wonder of the world.”… “We, the compounders, agree with Einstein. It is all about the doubles. How long does it take to get a double and how many doubles can I get in a lifetime?” – Pabrai
HEADS I WIN, TAIL I DON’T LOSE MUCH. Pabrai sums up his investment philosophy as a constant pursuit of situations with minimal risk and maximum return: ”Heads I win, Tails I don’t lose much”, as oppose to the maxim ”high risk, high reward”.
RISK AND UNCERTAINTY. Financial risk can be defined in several ways: (1) risk of losing money permanently, (2) volatility and (3) uncertainty. The best situations arise when uncertainty is high but the risk of losing money is low. Low risk / high uncertainty can be identified in entrepreneurs such as Ray Kroc (McDonalds), Herb Schultz (Starbucks), Richard Branson (Virgin) and also Buffett and Munger. For example, the only capital ever to go into Microsoft was $500k. It can therefore not be said that Microsoft was a high-risk project. But it had high uncertainty. Bill Gates ended up in an extreme place on the “bell curve” but he took no greater risk of ending up there.
LOW RISK, HIGH UNCERTAINTY. Risk and uncertainty are two different concepts. A company’s future may be uncertain. But when you have carefully thought through possible future outcomes and come to the conclusion that the risk of permanent loss of capital is very low, you may have found a lucrative low-risk / high-uncertainty situation. When extreme fear strikes, stock markets can act irrationally. Bad news leads to extreme fear and low valuation as a result. Look for simple businesses that have temporary problems. Look for companies with low valuations and previous profit warnings. Lower expectations may actually mean lower risk of losing your money on the investment.
BUY EXISTING BUSINESSES. Pabrai believes that owning a few listed companies is the best way to build wealth. No major effort is required and in the stock market, a patient investor can occasionally find big discounts. There is also no need for a large amount of capital and there is a gigantic supply of investment opportunities. In addition, the transaction fees are relatively low.
SIMPLE BUSINESSES. “The Dhandho Way” is simple, which is also its power. To fight against your own psychological forces, you must, according to Pabrai, buy businesses that are so painfully easy to understand that in tough times you can remind yourself why you bought the stock. If you need a cumbersome spreadsheet and more than a short paragraph for your thesis, you should look for another investment opportunity.
SUSTAINABLE MOAT. Only businesses with a sustainable moat – ie sustainable competitive advantages – can earn an above average return on invested capital. Over time, the moat tends to shrink. Charlie Munger has said that of the 50 most important companies on the NYSE in 1911, there is only one left today – General Electric. The average life expectancy of a company on the S&P 500 has decreased from just over 60 years in the 1960s to 15-20 years in the last ten years.
FEW BETS, BIG BETS, INFREQUENT BETS. Warren Buffett has said that diversification can be seen as protection against ignorance. Having a portfolio of 100 companies makes it difficult to beat the indices. According to Pabrai, investing as well as gambling is: ”looking out for mispriced betting opportunities and betting heavily when the odds are overwhelmingly in your favor is the ticket to wealth”.
MARGIN OF SAFETY. The larger the discount to the intrinsic value, the lower the risk. And the bigger is also the upside. Stocks are often valued at or above the intrinsic value. Investors should be patient and wait until they find cheap stocks with a large margin of safety, low risk and potentially large upside. In the long run, the cost of permanent losses is high due to the interest-on-interest effect.
COPYCAT RATHER THAN INNOVATORS. According to Pabrai, innovation is a gamble while cloning is safe. Therefore, successful cloning is the best business. Look for businesses run by people who have demonstrated that they can learn and copy from the innovators time and time again.
“Chainsaw” Albert J. Dunlap, former CEO of Scott Paper and author of Mean Business: How I Save Bad Companies and Make Good Companies Great.
Published in: 2013
Physicians sell patients on a remedy. Lawyers sell juries on a verdict. Teachers sell students on the value of paying attention in class. Entrepreneurs woo funders, writers sweet-talk producers, coaches cajole players. Whatever our profession, we deliver presentations to fellow employees and make pitches to new clients. We try to convince the boss to loosen up a few dollars from the budget or the human resources department to add more vacation days. In 16 OECD countries – including France, Mexico, and Sweden – more than 90% of businesses now have fewer than ten employees. And a world of entrepreneurs is a world of salespeople.
THE AMBIVERT ADVANTAGE. Adam Grant collected data from a software company that operates call centers to sell its products and tracked the sales representatives’ revenues over the next three months. Not surprisingly, introverted sales reps didn’t perform as well as the extroverted ones. But neither did nearly as well as a third group: the ambiverts. These are people who are neither overly extraverted nor wildly introverted. On a scale on the 1-to-7 scale he found that revenue peaked between 4 and 4.5.
LEARNED HELPLESSNESS. Martin Seligman pioneered the concept of “learned helplessness”. First with studies on dogs, and later with research on humans, Seligman demonstrated that after extended experiences in which they were stripped of any control over their environment, some individuals just gave up. Even when conditions returned to normal, and they possessed the ability to seek gain or avoid pain, they did not act. They had learned to be helpless.
MONITOR YOUR POSITIVITY RATIO. The secret numerical code of the satisfied: 3 to 1. Seligman’s work demonstrated that how we explain negative events has an enormous effect on our buoyancy and performance. When something bad occurs, ask yourself: is this permanent? Is this pervasive? Is this personal? The more you explain bad events as temporary, specific, and external, the more likely you are to persist even in the face of adversity.
FRAMING MATTERS. Clarity depends on contrast, which Robert Cialdini calls “the contrast principle”. We often understand something better when we see it in comparison with something else. The less Frame, i.e., less is more, is especially important in a world saturated with options and alternatives. Framing people’s options in a way that restricts their choices can help them see those choices more clearly instead of overwhelming them. Other frames mentioned in the book is the experience frame, the label frame, the blemished frame, the potential frame.
PRACTICE YOUR SIX PITCHES. The purpose of a pitch is not necessarily to move others to immediately adopt your idea. The purpose is to offer something so compelling that it begins a conversation, brings the other person in as a participant, and eventually arrives at an outcome that appeals to both of you. The pitch is often the first word, but its rarely the last word. Ask people to describe your invisible pitch in three words. What is my company about? What is my product or service about? What am I about?
THE QUESTION PITCH. The classic Reagan question “are you better off now than you were four years ago”. Use this if your arguments are strong. If they are weak, make a statement. Or better, find a new argument.
THE RHYMING PITCH. We remember from the O.J. Simpson trial “if it doesn’t fit, you must acquit”. Pitches that rhyme are more sublime. Go online and find a rhyming dictionary (for example rhymezone.com).
THE SUBJECT LINE PITCH. Review the subject lines of the last twenty e-mail messages you sent. Note how many of them appeal to either utility or curiosity. If that number is less than ten, rewrite each one that fails the test. Utility and curiosity are about equally potent, but they seem to operate independently of each other.
THE TWITTER PITCH. The best pitches are short, sweet, and easy to retweet.
THE PIXAR PITCH. Once upon a time ___. Every day, ___. One day___. Because of that___. Because of that___. Until finally___.
IMPROVISE. Beneath the apparent chaos of improvisation is a light structure that allows it to work. Understanding that structure can help you move others, especially when your astute perspective-taking, infectious positivity, and brilliant framing don’t deliver the results you seek. In those circumstances, you’ll do better if you follow three essential rules of improvisational theater: (1) Hear offers, (2) Say “Yes and”, and (3) Make your partner look good.
Jerry Weintraub talks about his work as a producer. Interesting as well as entertaining from a fascinating man.
Naval Ravikant is an entrepreneur and angel investor, a co-author of Venture Hacks, and a co-maintainer of AngelList.
Podcast notes: podcastnotes.org
Published in: 2020
The author, Eric Jorgenson, compiled this book out of transcripts, Tweets, and talks by Naval Ravikant – an icon in Silicon Valley and in the start-up culture. The book covers many areas of life, but this “Brief” focus on the section of wealth creation – how to get rich without getting lucky. Briefs on other part’s of this book may appear in the future.
AVOID “ZEROS”. Stay out of things that could cause you to lose all of your capital, all of your savings. Don’t gamble everything on one go. Instead, take rationally optimistic bets with big upsides.
HOW TO RETIRE. Retirement is when you stop sacrificing today for an imaginary tomorrow. When today is complete, in and of itself, you’re retired. You get there by (1) have so much money saved that your passive income – without you lifting a finger – covers your burn rate, (2) you drive your burn rate down to zero – you become a monk, or (3) you’re doing something you love – you love it so much, it’s not about the money.
WHAT WEALTH IS, AND HOW IT IS CREATED. Wealth is having assets that earn while you sleep. Money is how we transfer time and wealth. You’re not going to get rich renting out your time. You must own equity – a piece of a business – to gain financial freedom. You could own equity as a small shareholder where you bought stock or as an owner where you started the company. Without ownership, your inputs are very closely tied to your outputs.
FORTUNES REQUIRES LEVERAGE. Business leverage comes from capital, people, code or media. Let’s begin with the first two forms of leverage. Capital means money, and to raise money, you must apply specific knowledge with accountability and show good judgement. Labor means people are working for you. It’s the oldest and most fought-over form of leverage. Labor leverage will impress your parents, but don’t waste your life chasing it.
CODE AND MEDIA LEVERAGE. You can create software and media that works for you while you sleep. An army of robots is freely available – it’s just packed in data centres for heat and space efficiency. Use it to build products with no marginal cost of replication. If you can’t code, write books and blogs, record videos and podcasts to build products and content with no marginal cost of replication.
PERMISSONED AND PERMISSIONLESS LEVERAGE. Capital and labor are permissioned leverage. Everyone is chasing capital, but someone has to give it to you. Everyone is trying to lead, but someone has to follow you. Code and media, however, are permissionless leverage and the leverage behind the newly rich.
PATIENCE AND PERSISTANCE. You wait for the moment when something emerges in the world and you’re uniquely qualified. Build your brand in the meantime on Twitter, on YouTube, and by giving away free work. You make a name for yourself, and you take some risk in the process. When it is time to move on the opportunity, you can do so with the maximum amount of leverage possible.
SPECIFIC KNOWLEDGE. You will get rich by giving society what it wants but does not yet know how to get. At scale. Learn to sell. Learn to build. Arm yourself with specific knowledge, accountability and leverage. Specific knowledge is knowledge you cannot be trained for. If society can train you, it can train someone else and replace you. Specific knowledge is often highly technical or creative. It cannot be outsourced or automated.
PRODUCTIZE YOURSELF. ”Yourself” has uniqueness. “Productize” has leverage. “Yourself” has accountability. “Productize” has specific knowledge. If you want to be wealthy, you want to figure out which of those things you can provide for society that it does not know how to get, but it will want, and providing it is natural to you, within your capabilities. Then, you have to figure out how to scale it. Escape competition through authenticity. The internet enables any niche interest, as long as you’re the best person at it to scale out. Because every human is different, everyone is the best at something – being themselves.
100% DEDICATED. Become the best in the world at what you do. Keep redefining what you do until this is true. It takes decades to execute, where the better part of a decade may be figuring out what you can uniquely provide. You can only achieve mastery in one or two things. It’s usually things you’re obsessed about. If you’re not 100% into it, somebody else who is 100% into it, they will outperform you by a lot because compound interest and leverage applies.
LEVERAGE IS A FORCE MULTIPLIER FOR YOUR JUDGEMENT. Judgement requires experience but can be built faster by learning foundational skills. Imagine someone comes along who demonstrably has slightly better judgement. They’re right 85% of the time instead of 75%. You will pay them $50 million, $100 million, $200 million, whatever it takes, because 10 percent better judgement steering a $100 billion ship is very valuable. CEOs are highly paid because of their leverage. Small differences in judgement and capability really get amplified.
Published in: 2004
Peter Barton was an American businessman who, in 2002, died of stomach cancer at the age of 51. The book, written by the novelist Laurence Shames, is a review of Barton’s life in the fast lane. Barton’s last job was with Liberty Media, working for John Malone. There he had a highly successful career which made him a wealthy man. Prior to his time at Liberty Media, Barton was a ski bum, a musician, a Harvard MBA student and active within top politics. At the end of his career, he was also a board member of several Fortune 500 corporations. Barton retired at the age of 46, relieved to have surpassed the age at which his father died of heart disease, only to one year later learn that he had stomach cancer.
GULP LIFE. His father’s early passing persuaded Barton to spend his life like he was in a great hurry. He threw himself into adventures, business and family. He believed that it is more important to live fully than to live in a straight line and that the best measure of a good life is how many other lives it makes a positive impact on.
“Illness has always been a temporary setback; nothing prepares us for that one illness that doesn’t go away.”
ON PICKING A CAREER. After Harvard he contacted a few places he wanted to work at and set his own starting salary at zero. For the first 90 days he wanted no money. After that they could let him go, or he could choose to leave. He only cared about working for someone he thought was wildly smart. To learn and advance fast, he would also only work directly for the head of the company. He would also only work in an up-and-coming industry and was baffled about how few of the smart MBA students that analysed the underlying trajectory of the industries within they searched for career opportunities. This unusual strategy gave him a chance to work with the legendary John Malone.
BOLDNESS TO THE POINT OF RECKLESSNESS. Most business managers counsel prudence and caution. At Liberty, Malone and Barton urged the opposite. They wanted their people to be bold almost to the point of recklessness. Peter had a personal credo that he advised others to follow: Don’t ask permission, just beg for forgiveness.
“If you’re going to make a mistake, make it with your foot on the accelerator.”
TWO BIG IDEAS ON LIFE. Barton had two big ideas that many of life’s big decisions comes down to, whether in business or in family life. The first is being able to recognize the difference between a dumb risk and a smart one. To avoid the first one and have the guts to take the second one. The second is being able to understand when you need to change direction and have the guts to do it. To no get trapped by life’s “boiling frog” situations. By small daily increments, it is easy to end up with a life totally untrue to yourself.
GET TO KNOW YOURSELF. Barton considered himself lucky to be part of the baby boom generation. His generation wasn’t forced to becoming grown-ups too soon. They could take some time to “find themselves” – a concept that in modern times have become one of ridicule. Something that Barton questioned.
“What’s unworthy about working to understand who you truly are and what you really want from life? What better use can a person make of his youth?”
ON MONEY. Barton believed that wealth is a lot more enjoyable if you’ve thought yourself that you can have a good time without it. He knew he would make a lot of money, but it was not an end goal in itself. He believed that if one works for fun, money will come. If one sets out working only for money, enjoyment likely is not going to be part of the equation. Barton loved his job at Liberty. But when his kids were born, he made himself a pledge that he would not, for any price, allow his career to turn him into an absent father.
“Maybe the single best thing about having money is that it makes money seem a great deal less important”
ON HEALTH. Everybody knows that you cannot buy back your health. Yet many live like they believe the opposite. People exhaust themselves to advance at their jobs. Business travellers eat junk food at airports, then drink too much to wind down from the day, sacrificing exercise and sleep.
If you have your health, you can always make more money. But all the money in the world can’t buy back your health. “Isn’t it clear that the person who compromises his health in the name of making money is cutting himself a really lousy deal?”
BEING “PRESENT” ISN’T POSSIBLE IN BUSINESS. The common view on happiness is the importance of living in the present. But unless you are living as a monk, that isn’t possible. Especially in business, you need to be concerned about the future – otherwise you might not have one. The whole idea is to figure out what will happen, and to act on it before anybody else does. In business, the present hardly exist. And to plan successfully for the future, you have to worry about the future. Therefore, worrying becomes a common and important trait for a responsible adult.
Published in: 2012
The title is taken from the comedian Steve Martin when he in an interview with Charlie Rose described his way up in his career. The book is about how to create your dream career by first focusing on becoming really good at something (building career capital) and then investing capital in a labor market where it is a precious scarce commodity. Newport believes it is the wrong way to go to begin with following one’s passion. Instead, we should ask ourselves in what area we can become good, through hard training master it, and then let it become our passion.
THE CRAFTSMAN MINDSET. To master our work, we should look at it as a craft that we are constantly refining. Newport’s “craftsman mindset” is another name of the 10,000-hour rule – the number of hours it takes to become an expert in an area.
WORK-RELATED PASSION IS RARE. Another reason for not following our passion in our career choice is that passion is rare – few have something they consider to be a very strong passion. Newport refers to a study that showed that 19 out of 20 passions are in hobby-related areas. Instead of following our passion, we should let our passion follow us.
“Passion is an epiphenomenon of a working life well lived. Don’t follow your passion; rather, let it follow you in your quest to become so good that they can’t ignore you.”
CAREER CAPITAL. What we offer the world should be rare and valuable. Only then can we expect to create the professional life we dream of. To be able to do this, we need to build career capital, which is achieved through “deliberate practice”. The career market’s supply and demand then ensures that we get a fair compensation for our career capital.
DO WHAT’S HARD. ”Deliberate practice” is about practicing the steps that are hard and uncomfortable. To take on assignments that are just above our current level of knowledge. Finding problems and repeating them over and over until they move on to basic knowledge. This is how musicians, chess players and athletes become the best in the world. However, it is important to only “stretch” oneself – if we push too hard, we risk scaring ourselves out of the game.
THERE ARE TWO CAREER MARKETS. According to Newport, there are two types of career markets: winner-take-all markets and auction markets. On the former, the skill is the only thing that counts, examples are writers, comedians and musicians. Here, our focus should only be on refining our skills. In an auction market, however, it can pay to be somewhat broader. There we should look for “open gates” – opportunities to gradually build parts of our career capital. When the building block is finished in one place, we move on to the next “open gate” and learn something new.
LEAVE JOBS WITHOUT POTENTIAL FOR BUILDING CAREER CAPITAL. Some jobs are not suitable for “the craftsman mindset” – we should leave them as soon as we can. It is jobs that offer few opportunities to develop relevant and rare skills, jobs that are based on something we do not believe in or are bad for the world, or jobs that force us to work with people we really dislike. These are a poor breeding grounds for building career capital.
AFTER CAPITAL COMES CONTROL. To be happy with our professional lives, we need to be in control of it. When we have some career capital, we usually have the opportunity for control – few care about where and how we spend our time. Without career capital, however, we cannot afford to be in control – we must act according to our employers or teachers. With career capital, we can afford to have control, but those who pay for our services do not want to give us control – they want us in place to perform the work we are good at. We should be aware of this balance of control, and expect that if we try to “break free”, we will feel more resistance the greater career capital we have built up.
“Siver’s ‘Law of Financial Viability’: “When deciding whether to follow an appealing pursuit that will introduce more control into your work life, seek evidence of whether people are willing to pay for it. If you find this evidence, continue. If not, move on.”