Business

Wise Words on Troubled Times

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Like many, the current events in the financial markets have me a bit dazzled.   I understand a lot more than I did a few weeks ago from reading blog posts, newspaper articles and a small book or two.   I also have been watching CNBC and Fox Business which have had a lot of interesting information on them as well.   But I have a reservation.   Whenever I see a report on CNBC or  soak in a few pixels of  information on a  website I get a certain empty feeling.   I feel as though  I am being played.   These information outlets feed on advertising for their lives, after all.   Blood always leads, even on the financial pages.

The very best thing I have read on the current situation was in the WSJ weekend edition a week ago.   It wasn’t “world ending” stuff, and it was easy to understand and concise.   Several articles in the same edition were excellent.

That said, here is an excellent quote from Blogging Stocks:

In these tough times, the media does it best to convey the impression that it’s really looking out for the best interest of the humble investor.
 
In its September 28, 1998 issue, Fortune’s cover screamed: “The Crash of ’98. Can the U.S. Economy Hold up?” The Managing Editor explained that Fortune was “dedicated” to making sense of the “scary” financial situation.
 
How helpful!
 
I am not trivializing the current financial crisis. I have no idea what the direction of the markets will take in the future. What I do know is the financial media have a vested interest in hyping extreme conditions because it is in their economic interest to do so.
 
Investors can learn from the terrible track record of the media in predicting the future of the markets. They are not a reliable source of information.
 
What are your alternatives?
 
Consider the 80-year history of the markets, which have experienced ten bear markets. Look at long-term risk and reward data. Read books that have peer review, academically tested data supporting intelligent investing principles. There has been a trend by authors of these books to write them in way that is easily understood by everyone…
 
…Ignore the financial media, unless you find it entertaining.
 
The big wooden horse the Greeks gave the Trojans was not a gift. Neither is the information provided with such confidence by most of the financial media.

The article is appropriately named Kissing Cousins:   The Wall Street Collapse and Media Hype.

The Recent Financial Meltdown Explained

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You can find a very good FAQ on the subject here.

TJIC wrote an even pithier explanation that is also worth your time.

A Strange Conversation

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I received a confirming email from a hotel in Atlanta. I am staying there next week on business. It mentioned the amenities of the hotel, including “in-room workouts”. Being the fitness freak that I am I went to the hotel’s website to figure out what exactly that was – but no dice, nothing there on the subject.

Why not workout in my room instead of the workout room, right? My other thought was that I could hire a personal trainer for a short period of time that may come right to the room for some strength training. I figured it would be good to get another person’s opinion of my workouts and to possibly show me some pointers. So lets call the hotel to see what it is about.

Me: Good afternoon. I am calling to  find out  what the in-room workout is. I saw it mentioned  on my confirmation and couldn’t find anything about it on your website.

Hired Help: Oh, that means that you have a treadmill in your room.

Me: Is it extra money?

HH: Yes sir, and we have only two of these rooms in the entire hotel.

Me: Doesn’t sound like it would be worth it, I guess I can walk down to the workout room.

HH: Yea, most people do. Only extremely obese people usually request the treadmill in the room.

Me: OK, thanks for the info.

Cross posted at LITGM.

Let’s Suck Less

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In business literature risk-taking is often celebrated, and the battling against long odds in the hope of redemption. Many business case studies have dramatic story arcs where someone made a bet on an unproven technology that eventually saved their company (like Steve Jobs with Pixar and Apple). The implied story arc of companies in decline (like Montgomery Ward, which felt that the great depression was going to return after WW2 and missed out on the postwar boom) is that companies that miss chances to take risks are often punished in the end with failure or takeover.

Jamie Dimon is the CEO of JP Morgan Chase. The bank that he runs has mostly escaped the recent credit crisis and CDO issues without major damage. His story, which was well told in the Fortune September 15, 2008 issue, is that by avoiding risk, he saved his bank to become much stronger than its competitors. His bank pulled out of underwriting dodgy mortgages and issuing CDO’s when they felt that the returns weren’t worth the implied risks (which they measured in the credit default market, among other places). At the time, JP Morgan Chase had a market cap far below their peers and were being punished by stock analysts for not leading in these high growth (and ultimately disastrous) categories.

If you look at the graph above, JP Morgan Chase now has a market cap bigger than its competitors, which didn’t happen by raising their stock value but by avoiding a catastrophic hit that their peers faced. While “Losing Less Means Winning” is a polite way to say it, I’d prefer “Let’s Suck Less” which is a more accurate term (since JP Morgan Chase did take multi-billion write downs, after all).

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Michael Hammer

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Michael Hammer, consultant and author of “Re-engineering the Corporation”, died recently at the age of 60. Mr. Hammer’s methods often involved mass downsizing as companies re-focused on efficiency and removing layers of management. If this were “The Onion” we’d probably make a snarky remark that Michael Hammer determined that he was no longer a productive asset and decided to re-engineer himself out of existence rather than being a financial burden on the corporations that he served.

All joking aside, Michael Hammer was an important man. At the time that his star was rising in the early 90’s, the US was in recession, and corporations were looking for new ways to restore profitability. His book, “Re-engineering the Corporation”, provided a methodology and a set of buzzwords for corporations and consultants to use as they reviewed operations with an eye towards increasing efficiency.

If you ever saw “Office Space”, then you saw a tongue-in-cheek but not too far off the mark view of the type of work that actually was bred by Mr. Hammer’s thinking. The consultants (The “Two Bobs”) bring in staff and ask them what they actually do all day, focusing on processes that don’t add any value (such as the engineer who describes his day-to-day activities which are clearly of little use, who then gets all flustered and shouts that he is “good with people”) or that are unnecessary management overhead (such as the “hero” of the film who says he has a dozen (?) bosses who each call him out over his failure to complete his TPA report).

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