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Peter Lynch said Peter Kobrick was one of the best stock pickers he has ever met… ever heard of him?

Peter Lynch said Peter Kobrick was one of the best stock pickers he has ever met… ever heard of him?

Kobrick has some interesting history at State street research capital fund generating great performance, however, most importantly he documented his first-hand professional investment experience through 1980–2000s, these are exceptional observations on the ground floor of many multi-baggers that are worthy of understanding. Whether or not Kobrick compounded capital as well as others of his time these are must-read lessons and decisions that were made at the coal face with all the real-time uncertainties. This blog has been written from my reading of The Big Money – Peter Kobrick. Buy the hardcover. it is one for the bookshelf! McDonald's - You need a system to scale It's important to understand the system a business has in place to implement its strategy. For example at the time of the IPO McDonald (MCD) on the surface was just another Fast Food chain however if you had gone to the stores and met with management you would have gained invaluable insight from how focused management was on their system. MCD knew that pre-slicing hamburger buns saved time to toast (17seconds), how many rows and columns of burgers fit on a grill, a higher temperature was needed for quarter pounders and that each batch takes 15minutes. This precise understanding of the process allowed the company to lower the price of hamburgers from 30c to 15c while maintaining profit margins which drew in more diners. Kobrick says in his first visit to company headquarters in Oakbrook Illinois he was shown the “Amber Room”. The Amber Room was a circular room lit by amber light with a circular waterbed in the middle the walls of the room formed a conical shape sweeping up to a point in the ceiling. The Company host explained to Kobrick that “scientists have proven that the amber light and relaxing atmosphere stimulated the brainwaves most responsible for creativity, and creativity and innovation are at the core of our culture”. When you compare McDonald's, which was corporatized in 1961 when Ray Kroc bought out the McDonalds brothers there were a number of fast-food restaurant chains around but very few became great long term investments for outside shareholders. MCD had a systemized operating model, Real Estate plan and financing to become a mega-chain. Ray Kroc the founder of MCD credited the system to the success of the business, by 1979 MCD had a 35% market share of the burger industry vs Burger King at 11% and Wendy’s at 8%. The Home Depot – Audacious goals Over the years the best investments were the growth stocks that started their run when they were rather small, The Home Depot (HD) was one of these. In 1981 when HD listed it had 4 stores and annual sales of $22M, it now has over 2,200 stores producing almost $150B of sales, see below the first annual report as a listed company. HD was focused on attracting a more sophisticated DIY customer with its new format for home improvement. There were a lot of doubters of the company at the time because of its very small size, grand ambitions, and aggressive expansion plans. Adding to the market's concerns about HD was the business model that required experienced salespeople and higher staff costs to offer advice to customers. At the time of the IPO the 4 existing stores had only been operating for 2 years which also made investors nervous about the big promises. 8 years after the IPO the store footprint grew from 4 stores to 100 stores and in 1990 it was the largest home improvement retailer in the USA. At the time of the IPO, the stock traded around its listing price for several months while people who expected a large jump sold out. As the revenue and earnings grew the stock took off and was a 10x from the IPO in less than 2 years. The founder's first letter to shareholders is also attached at the bottom of this blog if you’re interested in reading it. Nike – Phil Knight, founder & long term focus Nike went public in 1980 when it was doing $270M of sales, the backdrop to this IPO was interesting because there was a view in the market that Nike was scratching the itch of the running boom that was occurring at the time, it was estimated that 25M Americans took up some aspect of running between 1970 and 1980 and there were many small fitness companies emerging. The sales growth at the time of the IPO had been 100% every year for the past 4 years (see below), Phil Knight’s founder letter also attached at the bottom of this blog. What mattered that drove the adoption of the Nike brand was the ability to convince the best and most prominent athletes to wear their shoes in competition – in 1983 Joan Benoit set a Marathon world record wearing Nike shoes. The insight that Kobrick had at the time was that Nike was gaining market share rapidly and was spending considerably more on marketing and advertising, however, during this time Reebok started to respond and became more aggressive on price which resulted in Nike's net earnings falling from $40M in 1984 to $10M in 1985. In 1985 Phil Knight returned as president to the business and assisted with the turnaround. The insights during 1985 were: 1) Phil Knight was exceptional, and he responded to changing conditions 2) Nike was taking market share 3) Kobrick owned some Nike runners, ran 5ks a day, and loved them 4) Retailers and running gurus loved the product Yet another example of the customers 'love' of a product leading to the success of the company. Observations from the Microsoft IPO – Bill Gates 25 year old wizard When Microsoft was completing its IPO in 1986 Wall Street held Bill Gates in very high regard calling him the “technology wizard” and always had great excitement when he was present at Management presentations. Kobrick recalls that it was explained at the time that Gates quit College at Harvard University to pursue his burning desire to start a business in the brand-new computer industry "before it was too late". Gates said being first or at least early was critical. He had a view that customers would want software to carry out powerful functions on their computers but they would want uniformity and continuity so that users would not learn something only to have to undertake an entirely new learning process in the future. The Microsoft IPO pitch centred around four assumptions: 1) Customers would have a critical need for standards and therefore would stay with a provider through all the product cycles if it performed. 2) The early leaders would set these standards. And these standards had to dominate the market early. 3) Technology had to be the best or close to and the customers had to believe it. Kobrick recalls the fascinating story of Gates’ urgency to get scale which was epitomised in his determination to win IBM, he made a deal to develop an operating system for their hardware. Microsoft was not ready in time for IBM so Gates quickly completed a $75k acquisition of a company called 86-DOS which was then renamed MS-DOS, which was then licensed to IBM for a fraction of the price of the alternative bidder (Digital Research). The genius in this deal was not in the pricing to IBM it was the fact that the deal was non-exclusive. The non-exclusivity allowed Microsoft to retain ownership of DOS, develop it in conjunction with IBM and then sell it to other hardware providers. IBM were so focused on Hardware they never thought to consider the software business. Gates was only 25 years old at the time – imagine backing a 25yr old CEO making decisions like this. MSFT completed its IPO at $21.00 per share, at the time of the IPO it had ~25M shares outstanding, making the market cap ~$525M or around 22x P/E. Gates retained 49% of the company post the IPO and paid himself a salary of $130k per annum!. Based on today's market cap of ~$2T, MSFT has been a 3,800 bagger, look at the revenue growth prior to IPO in 1986: If you would like a copy of the IPO S-1 from 1986 please email me and I can forward it to you, a great read for some software history. Shaun.trewin@morgans.com.au Compaq and Dell – Same business but a different business model One day in 1982 two ex-Texas Instruments managers and a VC manager got together and came up with the idea to start a PC company to go after IBM, the three men started this company and called it Compaq Computer Corporation, in their first year they generated $111M of sales the highest first-year sales in the history of American Business!, a year later they went public. Compaq went on to become the youngest company to be included in the Fortune 500 and then became the youngest company to reach $1B of sales. Moving forward 5 years after the Compaq IPO the PC industry growth had been enormous, industry sales of Intel-based PCs leapt over 10x from 700T units to 7M by 1988. Compaq had secured a 5% market share during this time. In the run-up to 2000 Compaq sales grew to over $42B: In mid-1988 along came Michael Dell and took Dell computer public (another college dropout who didn’t want to miss the opportunity). Michael was 23 years old at the time of the IPO with a tiny amount of experience and wanted to take on IBM and Compaq. This was an audacious goal and took some believing especially considering that at the peak of PC industry growth there were about 1,000 companies around the globe making PCs! this was like the combustion engine manufacturers of the 1920s. When Kobrick looked at the prospectus it was clear that Dell was doing something right because they were gaining market share, growing sales and expanding profit margins. The heart of the Dell business plan was different than the rest of the industry, selling direct to customers and not using intermediaries – primarily through telemarketing. Dell saw themselves as much a marketing company as a hardware company, sales staff trained for six weeks before taking their seats at the phonebanks, they were incentivized to upsell memory or built-in modems and troubleshoot problems. This direct to consumer model allowed Dell to cut prices but most importantly it allowed them to get close to the customer and collect data on their preferences, this knowledge of the customer was all the difference. Because Dell was selling direct to the consumer, they didn’t need to support a pipeline of dealer inventory and they were also able to cut out the retailer and advertise these discounts directly. A particularly useful insight of Kobrick into the quality of Michael Dell came from a meeting he had with him a few years after the IPO. Prior to the IPO Andy Grove from Intel had put a supply stop on Dell because of a shortage of chips and at that time Dell was one of the hundreds of emerging PC companies, Michael said he flew to San Jose California; walked into Intel Headquarters and said he was Michael Dell of Dell Computer and wanted to meet with Mr Grove, Andy said he was too busy so Michael waited the whole day, then came back the next day and sat in the foyer, the same happened for a few days and Michael said he would camp in the lobby until he got 10 minutes, They eventually did meet and ended up speaking for over an hour, the plea for parts was honoured and the two have had a great relationship since. Only a founder would have this focus and determination for the company! Dell completed its IPO in 1988 at a market cap of $85M by 2000 the market cap had swelled to $100B a market cap it has not reached since. This expansion in valuation was fuelled by exceptional fundamentals, revenue grew from $159M in 1988 to over $25B by 2000, however, the ultimate creation of economic value was the inventory turn which shot up from only 3.2x in 1988 to over 60x by 2000: National Semiconductor vs Intel - The power of focus NSM was founded in 1959 its earliest integrated circuits were targeted at the space program, scientific applications, and consumer markets. In the 1970’s it then started aggressively targeting markets including calculators, watches, grocery checkout machines. It then expanded to speech synthesis chips and mainframe computer chips constructing three factories in the 1980s. The company continued to develop a huge number of products for numerous end users, the company then acquired Fairfield Semiconductor in 1987 and introduced new graphics chips. During this time Intel focused their R&D efforts and capacity on personal computers which resulted in the lions share of product design contracts eventually becoming the most important market but also led to significant IP being co-developed with hardware manufacturers. Intel was founded in 1968 by Gordon Moore (The now-famous Moores Law) and Robert Noyce, while led by Andy Grove. In 1974 Intel released a new PC chip, the Intel 8080 which received glowing reviews. The lead extended and in 1982 when they released the 286 chip which cemented their supremacy in microprocessors. PC’s became Intel’s primary business and during the 1990s Intel invested heavily in this market to control the direction of the industry. During the 1980’s Intel’s revenue surpassed National Semiconductor. The most impressive results of Intel during the ’80s was the disciplined investment in R&D, even during the 1987 crash they increased R&D spend: Andy Grove’s leadership of Intel was widely heralded as exceptional. From 1980 to today Intel has been a 160 bagger, however, in 1980 focusing on this new market for “Personal Computers” would have seemed far from obvious and highly risky. Staples – Tom Stemberg A great example of exceptional management was Tom Stemberg from Staples. Stemberg took Staples public in 1989 and raised capital from several private equity groups in conjunction with own severance pay he received from his prior employer. Interestingly Office Depot went public one year earlier and was founded by three very able and experienced founders. Staples and Office Depot opened stores rapidly, collectively over the next decade opening nearly 2,000 office warehouse stores between them. The competition further intensified but despite this Stemberg managed to grow EBIT from $37M in 1993 to $1.2B at the time of his retirement in 2006. Great management makes great business models, remember that! Great business models do not exist without great management. It is management that creates great assumptions, execution, and the rest. Over time these models need adjusting for competitive conditions. Make sure you identify the traits of great managers to recognize another Bill Gates, Jeff Bezos, Ray Kroc, Bernie Marcus or Steve Jobs if they emerge. Kobrick outlines his experience in observing Gates, Dell, Marcus and others: a) The top person had a vision and could translate that into a strategy to make the company a long-term winner not just a good story for a year or two. b) The top person was very competitive, not a risk-taker but showed a plan to dominate the industry and become number one. c) Each person had already done something right, had a good business model and showed how they would excel in the industry and become highly profitable. d) Each company was positioned in an industry that was taking off and looked to be a huge industry well into the future – not shrinking. Xerox – The training ground Xerox listed in 1959 and was making the first automatic office copying machine to use regular paper. Kobrick worked with a mentor while analyzing this company that leads him on the path to becoming one of the best stock pickers in his time. The lessons learned while studying Xerox were: - The efficiency improvement was vast, to make paper copies at that time you were required to use carbon paper in between two sheets of paper in a typewriter. - The technology was expensive at the time so extensive customer interviews were required to estimate a rough earnings model – simple models are always the best. - Xerox came about before personal computers and even word processors, It was very early! - There were many doubters of the technology that claimed it would be unaffordable for broad market adoption and the technology was slow and noisy, these doubters shook countless investors out of the stock. - The main difference with being able to hold onto a multi-bagger is building a thorough knowledge of the company this knowledge keeps you in the stock while the market fluctuates, it allows you to have conviction. Xerox turned out to be more of a great product than a great company and failed to develop a technology culture to develop and innovate new products. The key lesson Kobrick discusses with his mistake of continuing to hold Xerox was that the company became complacent and when its patents expired it experienced intense competition. Market Bubbles and Mania Kubrick's observations of bubbles and mania are very interesting, he considers a mania leads to bubbles. “A mania is simply something that is more emotional than tangible or rational, so it can be thought of as irrationality”. The irrationality is not easy to see at the start because since there would be no bubble if it was easily visible. Normally bubbles emerge when knowledge is incomplete or wrong and has the story of unlimited potential. It happened with electricity to households, the advent of canals, railroads, and radio in the 1920s. With all bubbles, there is an element of mystery, in the internet bubble of 2000 many investment professionals thought there was unlimited demand for many communications and internet stocks. Kobrick observed three interrelated bubbles in 2000 which is what made it so extreme: 1) Stock Market bubble: Internet, telecommunications and various technology stocks were overhyped – “The Internet Changes Everything”. 2) Capital Spending by corporations in the ‘Great telecommunications build out’. The same hype that caused the stocks to soar was driving the capital spending and vice versa. 3) The US economy reached peak growth rates of the decade of 5.28% during this year. Crashes are always the way that manias end, in the UK the famous railway mania led to the Britain financial crisis of 1847. Like most manias, the fundamentals of economic improvement was very sound and genuinely creating economic expansion. I hope you enjoyed the read. Regards, Shaun Trewin CA

Largest market 'tail risks'

Largest market 'tail risks'

Following on from my post, Adding a pandemic to the list, Chris Mayer, (author of the book ‘100 baggers’), made a similar (and more instructive) point in his recent post Buying and Selling. Chris was kind enough to share with me the survey he referenced by Bank of America, which was published in the Financial Times, showing the 'Largest market tail risk by the percentage of respondents ', over the past ten years. Due to the quality of the image (below), I’ve summarised these tail risks over the that respondents (who were ‘professional money managers’) were most fearful of: 2010 to 2012: ‘EU sovereign debt funding’ 2013: US ‘fiscal cliff ’ 2014: China ‘hard landing’ 2015: Geopolitical crisis 2016: China ‘hard landing’ 2017: Political populism 2018: Quantitative tightening 2019: Trade war 2020: US Presidential election 2021: Coronavirus From 2010 to 2021, whilst market participants were worried about these ‘tail risks’: The ASX200 accumulation has risen from 32,768 to 82,641, 9.6%pa The S&P500 from … 1,268 to 4,223, 12.7%pa The NASDAQ from … 2,489 to 14,096, 18.69%pa In short … worry less … invest more

Price makers v price takers

Price makers v price takers

Price maker: Realestate.com (REA.ASX) operating earnings (REA is Australia’s leading property portal) Price taker: Mirvac Group (MGR.ASX) operating earnings (MGR is an Australia based property developer)

Stock prices move much more than true values

Stock prices move much more than true values

Stock prices move much more than true values do even in the largest stocks, which by definition causes mis-pricing at times. This isn’t due to a lack of information, it’s simply good old-fashioned human nature, and unlike the price of semiconductors or the value of information, human behaviour is not going to change. The biggest edge is in understanding this simple concept, and then being prepared to capitalise on it when it’s appropriate.” John Huber

A classic: One Up on Wall Street

A classic: One Up on Wall Street

One of the most respected investors of all time is Fidelity’s, Peter Lynch. Lynch earned his reputation as one of the world’s best money managers after he compounded the Magellan Fund at an average rate of 29.2%pa from 1977 to 1990. This was more than double the S&P500 over the same period. I have read his book, One Up on Wall Street, many times as it offers numerous investing insights that are still applicable today. One of Lynch’s core beliefs is that if you invest in the products you use (either as a user or consumer), this will provide insights that can’t be replicated by a Wall Street analyst and his or her excel spreadsheet. Below are some of my take-aways from the book: To my mind, the price of a stock is the least useful information you can track - but the most widely tracked The amateur investor can pick tomorrows big winners by paying attention to new developments at the workplace, the mall, the auto showrooms, the restaurants, or anywhere a priming new enterprise makes its debut Never invest in a company before you’ve done the homework on the company’s earnings prospectus, financial condition, competitive position, plans for expansion and so forth The bearish argument always sounds more intelligent You only need to find one big winner out of eleven. The more right you are about anyone stock, the more wrong you can be on all the others and still triumph as an investor Investing in stocks is art, not science Historically, stocks are embraced as investments or dismissed as gambles in routine and circular fashion, and usually at the wrong times. Stocks are most likely to be accepted as prudent, at the moment they’re not People who succeed in the stock market also accept periodic losses, setbacks and unexpected occurrences … they realise that the stock market is not pure science, and not like chess, where the superior position always wins No wonder people make money in real estate and lose it in the stock market. They spend months choosing their houses, and minutes choosing their stocks. I’m yet to find a reliable source to inform me when the market is going to go up or down - all major advances and declines have been a surprise to me Since the stock market is in some way related to the general economy, one way that people try to outguess the market is to predict inflation and recessions, booms and busts, and the direction of interest rates. True there is a wonderful correlation between interest rates and the stock market, but who can foretell interest rates with any bankable regularity? You won’t find a lot of 2 or 4% growers in my portfolio because if companies aren’t going anywhere fast, neither will be the price of their stocks Basing your strategy on ’sell when you’ve doubled your money ’ or ‘when you are down 10%’ is BS. It’s impossible to find a generic formula that sensibly applies to all the different kinds of stocks You get 10 baggers in companies that have already proven themselves. If you have doubt - wait until you can fully understand the story Beware the middleman - i.e don’t buy wholesale businesses There are 5 ways companies can increase earnings: reduce costs; raises prices; expand into new markets; sell more of its product in the old markets; or revitalise, close, or otherwise dispose of a losing operation. These are the factors to investigate as you develop the story. If you have an edge, this is where it’s going to be most helpful Once you are able to tell the story of stock to your family and friends - you will have a reasonable grasp of the stock Seek out the headquarters with the hope that if it’s not stuck behind a bowling alley, then it will be located in some seedy neighbourhood where financial analyst wouldn’t want to be seen All else being equal, a 20% grower selling at. 20x’s earnings (a p/e of 20) is a much better buy than a 10% grower selling at 10x’s Frankly, I’ve never been able to tell which stocks will go up 10x’s of which will go up 5x’s, I try to stick with them as long as the story is still in place and hope to be pleasantly surprised Just because a company is doing poorly doesn’t mean it can’t do worse Just because a price is going up or down doesn’t mean you are right or wrong Buying a company with mediocre prospects just because the stock is cheap is a losing technique Selling an outstanding fast grower because its stock seems slightly overpriced is a losing technique

Adding a pandemic to the list

Adding a pandemic to the list

As a long-term investor, get used to: Wars Depressions Recessions Changes in presidents Oil crises Banking crises Savings and loan crises Currency crises Debit crises … and Pandemics Over the past twelve years, the market has been through two, 'one in one hundred ' year events. It seems these 'events' happen every decade!

The single best investment you can make

The single best investment you can make

Is in stocks … for long periods of time !!!

Four Structural Advantages An Investor Can Control

Four Structural Advantages An Investor Can Control

Four structural advantages an investor can control: 1. Think in decades …. not days 2. Back founder leaders …. not hired professionals 3. Invest in capital-light … not capital-intensive businesses 4. Invest in a few … not many businesses

Getting Comfortable with Uncertainty

Getting Comfortable with Uncertainty

The more I think about it, the bottom line is clear: Ø The world is an uncertain place Ø Its more uncertain today than at any other time in our lifetimes Ø Few people know what the future holds much better than others Ø And yet, investing deals entirely with the future, meaning investors can't avoid making decisions about it Ø Confidence is indispensable in investing, but too much of it can be lethal Ø The bigger the topic (world, economy, markets, currencies and rates), the less possible it is to achieve superior knowledge Ø Even our decisions about smaller things (companies, industries and securities) have to be conditioned on assumptions regarding the bigger things, so they, too, are uncertain Ø The ability to deal intelligently with uncertainty is one of the most important skills Ø In doing so, we should understand the limitations on our foresight and whether a given forecast is more or less dependable than most Ø Anyone who fails to do so is probably riding for a fall. (Howard Marks, Memo, Uncertainty 11 May 2020) About Howard Marks: Howard Stanley Marks (born April 23, 1946) is an American investor and writer. He is the co-founder and co-chairman of Oaktree Capital Management, the largest investor in distressed securities worldwide. In 2020, with a net worth of $2.1 billion, Marks was ranked No. 391 on the Forbes 400 rankings of the wealthiest Americans.

A Masterclass from Jeff Bezos – The Relentless Amazon

A Masterclass from Jeff Bezos – The Relentless Amazon

The insights of this blog are drawn from: The collective writings of Jeff Bezos – invent and wander. Reading all of Jeff Bezos’ shareholder letters has long been on our list to do and this book has been a great way to cover all this material in an efficient and convenient way. There is a treasure trove of insights in all of Bezos’ letters and we have highlighted the best points below. Some of the same traits as other 100 baggers including a founder leader + customer obsession + overt culture. Missionary of Mercenary Whenever Bezos assesses a business to acquire, he tries to categorize the founder/leader as either in it to make money or because of a true passion for servicing customers. The mercenaries are trying to flip their stock. The missionaries love their product or their service and love their customers and are trying to build a great service. The great Irony Bezos says is the missionaries end up making all the money! The Amazon Hiring Criteria Bezos states that “it would be impossible to produce results in an environment as dynamic as the internet without extraordinary people”. During our hiring meetings we ask people to consider 3 things: Will you admire this person? When you think about the people you admire in life, they are likely to be people you have learned or take an example from. I’ve always tried hard to only work with people I admire, and I encourage folks here to be just as demanding. Will this person raise the average level of effectiveness of the group they’re entering? We want people to look around in 5 year’s time and be happy they got in when they did because the bar is now so high. Along what dimension might this person be a superstar? Many people have unique skills, interests and perspectives that enrich the work environment for all of us. It's often not something that relates to their work. It's all about the long term Bezos claims in his 1999 shareholder letter that “the current online shopping experience is the worst it will ever be”. It’s still attracting millions of customers and will only get better along the way and we will improve user experience and access with non-PC devices and wireless access to always open stores. This view of long-term tailwinds and growth obviously led Bezos to develop his three pillars of Customer Experience being Selection, Convenience and relentlessly lowering prices. “The long term interests of shareholders are tightly linked to the interests of our customers: If we do our jobs right, today's customers will buy more tomorrow, well add more customers in the process and it will all add up to more cash flow and more long-term value for the shareholders”. A dreamy business offering A dreamy business offering has at least four characteristics: Customers love it It can grow to a very large size It has strong returns on capital It is durable in time with the potential to endure for decades When you find an opportunity that has these four characteristics, don’t just swipe right, get married! Corporate Culture A word about corporate cultures: for better or worse they are enduring, stable, hard to change. They can be a source of advantage or disadvantage. You can write down your corporate culture but when you do so, you’re discovering it, uncovering it – not creating it. It is created slowly over time by the people and by events – by the stores of past success and failure that become a deep part of the company lore. If it’s a distinctive culture, it will fit certain people like a custom-made glove. The reason cultures are so stable in time is because people self-select. Someone energized by competitive zeal may select and be happy in one culture while someone who loves to pioneer and invent may choose another. The world thankfully is full of many high performing, highly distinctive corporate cultures. We think we are good at failing but failure and invention are inseparable twins. How do you hire and retain great people? By giving them, first of all, a great mission – something that has a real purpose, that has meaning. People want meaning in their lives this is why the US military has been so successful – people have a real mission. The Amazon decision-making mechanism 1) Firstly, don’t use a one size fits all framework, remember decisions fall into Type 1/Type 2 decisions: Type 1 - Irreversible: These decisions should be made methodically, carefully, slowly, with great deliberation and consultation. If you walk through this door and don’t like what you see on the other side, you can’t get back to where you were before. Most decisions aren’t like this. Type 2 - Consequential and Irreversible – Type 2: These decisions are easily reversible, and you don’t have to live with the consequences for that long. These decisions should be made quickly by high judgement individuals or small groups. 2) Secondly most decisions should probably be made with ~70% of available information you wish you had. If you wait for 90% of the information in most cases, you are being too slow. If you are good at course correcting being wrong may be less costly than you think but being slow will be expensive for sure. 3) Thirdly use the phrase “Disagree and Commit”. This saves an enormous amount of time considering how much time it takes to convince a team member rather than simply get a commitment. Two types of Failure “I always point out that there are two types of failure”: Experimental Failure: This is the kind of failure you should be happy with, when you are developing a new product or service or experimenting in some way, and it doesn’t work, that’s okay. That’s a great failure. And you need to ensure that this failure is distinguished from operational failure. Operational Failure: We’ve built hundreds of fulfilment centres at Amazon over the years, and we know how to do that. If we build a new fulfilment centre and it’s a disaster that’s just bad execution. That’s not a good failure and that’s not acceptable. To sustain experimentation, you need to attract the right people, innovative people will flee an organisation if they can’t make decisions and take risks. Regret Minimization Framework Everyone knows the decision-making story of Bezos and his walk-through central park with David Shaw (owner of the hedge fund David E Shaw) and his 48-hour cooling-off period while he finalized his decision to start what is now Amazon. The interesting point about this is Bezos’ decision-making process, he explains what is famously now referred to as his regret minimization framework. Bezos tried to imagine himself on his 80th birthday and looking back on his life and he knew at that point he wouldn’t regret having tried to participate in this thing called the internet – In fact, the thing he might have regrated is not trying at all. Most regrets are from omission, not commission. Experiment and build new ideas The greatest innovation of Bezos has arguably been his development of AWS. The initial ideas which included a software layer known as Elastic Computer Compute and hosting operation known as Simple Storage Service alongside several other ideas came together to create a service that would “enable developers and companies to web services to build sophisticated and scalable applications”. This development supercharged internet entrepreneurship worldwide as it enabled any business no matter the size to experiment with ideas and build new services without the barrier of infrastructure. For while after developing the solution to one of the long-held problems a miracle happened: for a few years no other companies competed with us. Bezos says “it was the greatest piece of business luck in the history of business, so far as I know” Beware of Market Research and Customer Surveys This data can become proxies for customers – something that’s especially dangerous when you’re inventing and designing products. Good inventors and designers 'Deeply' understand their customer. They spend tremendous energy developing that intuition. They study and understand many anecdotes rather than only the averages you’ll find on surveys. They Live with the design. You must understand the customer, have a vision, and love the offering. Then beta testing and research can help you find your blind spots. A remarkable customer experience starts with heart, intuition, curiosity, play, guts, taste, and you won’t find any of it in a survey. “I believe in the power of wandering. All my best decisions in business and in life have been made with heart, intuition, and guts, not analysis. When you can make decisions with the analysis you should do so, but it turns out in life that your most important decisions are always made with instinct, intuition, taste, and heart.

One Pattern That Has Stood The Test Of Time

One Pattern That Has Stood The Test Of Time

“One pattern that has stood the test of time … stocks will go down a lot, but they will then go up a lot more” (Peter Lynch) About Peter Lynch: Peter Lynch is an American investor, mutual fund manager, and philanthropist. As the manager of the Magellan Fund at Fidelity Investments between 1977 and 1990, Lynch averaged a 29.2% annual return, consistently more than double the S&P 500 stock market index and making it the best-performing mutual fund in the world.

Focus On The Earnings

Focus On The Earnings

If the average investor looks at the value of their portfolio monthly … this means that over a five-year holding period … they look at the value of the portfolio 60 times. If the average ASX listed company reports their earnings twice a year … this means that over a five-year holding period … they report earnings 10 times. The average investor looks at the price of what they own six times more often than the value of what they own … DON’T BE THE AVERAGE INVESTOR.