Sunday, June 15, 2008

"The Best Advice I Ever Got"

Warren Buffett, Richard Branson, Meg Whitman, A.G. Lafley, and 24 other luminaries on the people who most influenced their business lives.

You're right not because others agree with you, but because your facts are right.
Warren Buffett, CEO of Berkshire Hathaway

Make a fool of yourself. Otherwise you won't survive.
Richard Branson, Founder of Virgin Atlantic Airways and the Virgin Group

Recognize the skills and traits you don't possess, and hire people who have them.
Howard Schultz, Chairman of Starbucks

Have the courage to stick with tough job
A.G. Lafley, Chairman and CEO of Procter & Gamble

Follow your own instincts, not those of people who see the world differently.
Sumner Redstone, Chairman and CEO of Viacom

Be nice, do your best--and most important, keep it in perspective. "'Always do the best job you can do at whatever you're assigned, even if you think it's boring.' you get ahead by crediting other people
Meg Whitman, CEO and President of eBay

Be yourself.
He said to me, 'Jack, don't forget who you are and how you got here.'
Jack Welch, Former chairman and CEO of General Electric

Don't listen to the naysayers.
Sallie Krawcheck, CFO of Citigroup

Don't limit yourself by past expectations.
"The best advice I ever got was from an elephant trainer in the jungle outside Bangalore. I was doing a hike through the jungle as a tourist. I saw these large elephants tethered to a small stake. I asked him, 'How can you keep such a large elephant tied to such a small stake?' He said, 'When the elephants are small, they try to pull out the stake, and they fail. When they grow large, they never try to pull out the stake again.' ",
Vivek Paul, President and CEO of Wipro Technologies

When you negotiate, leave a little something on the table.
John Donahoe Dick Parsons, Chairman and CEO of Time Warner

When "everyone knows" something to be true, nobody knows nothing'.
Professor Schmidt's saying prompted me to think for myself, go back to first principles, and base knowledge on facts and analysis rather than on what 'everybody knew.'"
Andy Grove, Chairman of Intel

Remember the parable of the cow in the ditch..
Anne Mulcahy, CEO of Xerox

All you really own are ideas and the confidence to write them down.
Brian Grazer Academy Award--winning movie and TV producer, Imagine Entertainment

Regularly sit at the feet of Peter Drucker.
One of them is that there's a difference between effectiveness and efficiency. Efficiency is doing things right, and effectiveness is doing the right thing.
Rick Warren, Minister, founder of Saddleback Church and author of The Purpose-Driven Life

The real discipline comes in saying no to the wrong opportunities.
Jim Collins, Author of the bestseller Good to Great

Get good--or get out.
Peter Drucker, Business consultant

Start young.
Ted Turner, Founder of CNN and former vice chairman of Time Warner

Balance your work with your family.
If you have a closer family, you can be a lot more focused when you're at work
David Neeleman, CEO of JetBlue

Bail out of a business that isn't growing.
Mickey Drexler, CEO of J. Crew

Let others take the credit.
Brian Roberts, CEO of Comcast

Incorporate philanthropy into your corporate structure.
Marc Benioff, Founder and CEO of

Surround yourself with people of integrity, and get out of their way.
The right people will feel far more pressure to perform well when they are trusted.
Hector Ruiz, CEO of AMD

If you love something, the money will come.
Donny Deutsch, CEO of Deutsch Inc. and host of CNBC's The Big Idea With Donny Deutsch

Keenly visualize the future.
Klaus Kleinfeld, CEO of Siemens

Don't chart your career path too soon.
Ann Fudge, Chairman and CEO of Young & Rubicam Brands

Respect people for who they are, not for what their titles are.
Herb Kelleher, Founder and chairman of Southwest Airlines

You can learn from anyone.
Clayton Christensen, Harvard Business School professor

Do what you love.
Ted Koppel, Anchor of ABC's Nightline

Source Fortune Magazine – March 21, 2005

Sunday, June 01, 2008

Snippets from Richard pzena interview

Pzena’s investment approach is very straightforward:
o he purchases shares in good businesses that are selling at a low price.
o He understands that it is often unrealistic to expect such opportunities to be available absent some sort of problem which causes the price of the shares to drop.
o The question Pzena and his team try to answer is whether the issue that caused the drop in price is temporary or permanent.

• ROE vs growth – which is more EPS accretive ?
o Prefer co’s with high ROE’s vis-à-vis growth rates as then growth is self sustaining and you wont need to dilute ur equity base to raise capital or leverage ur balance sheet. Infact stock buybacks can be a possibility.
• Odds & psychology
o Risk reward tradeoff
 50% chance of doubling ur money ..50% of losing a qtr ..good investment bet
• Strong discipline
• Talks about reasons for buying stocks like tenet healthcare, fannie, Freddie mac,computer associates

Summary of "Dhandho Investor" by Mohnish Pabrai

The books focuses on taking few ultra low risk bets which have a high pay-off…key being ultra low risk

Dhandho Framework
• Heads I win, tails I don’t lose much
• Few bets, big bets, infrequent bets
• Focus on buying existing businesses
o Long operating history
• Simple businesses with ultra slow rate of change
o We look for mundane products that everyone needs (WB)
o Five ascending levels of intellect: Smart, Intelligent, Brilliant, Genius, Simple.(Einsteen)
• Buy distresses businesses in distressed industries
o Getting the purchase price right is more important
o Entrance strategy is more important than the exit strategy
o Be fearful when others r greedy, Be greedy when others r fearful (WB)
• Look for moats – sustainable competitive advantage
• Bet heavily when odds r in ur favour
• Focus on Arbitrage
• Buy businesses at big discounts to their underlying intrinsic value – Margin of safety
• Look for low risk, high uncertainty business
o Leads to severely depressed prices for buying businesses
• Better to be copycat than innovator

Relevance of SOTP in bear markets

In bear markets hardly anyone looks at SOTP. But i guess certain assets can be valued by this method only...

The SOTP valuation is done to include valuation of non core businesses. When the core business is under pressure investors do not look at non core valuations. M&M and Tata Motors are examples of this phenomen...

“The little book that beats the market” - By Joel Greenblatt

Grahmian principles used in the Magic formula
· Mr Market is subject to mood swings
· Margin of safety – buy shares only when they trade at significant discount to their true value

Magic Formula
buy shares in good businesses (one with high ROE’s) but only when they are available at bargain prices (priced to give us a high earning yield)

Choose simplicity
Willing suspension of disbelief – we choose to ignore simplicity. An analogy to the movie “karate kid” is shown; how Mr. Miyagi teaches karate to his apprentice Daniel by making him wax cars, paint fences. Daniel who is initially reluctant on the merits of such methods later realises how such primitive methods create a solid foundation for him to learn karate.

Magic formula computation
· Rank companies first with ROC and then Earnings Yield with higher rank being given to high ROC and Yield resp.
· Aggregate the above two ranks
· Magi c formula stocks are the ones which rank higher on a combined basis

ROC – Return on capital = EBIT/(Net working capital + Net fixed assets)

  • Depreciation is assumed to be equal to maintenance capital spending requirements, so EBITDA – Maintenance Capex = EBIT
  • Net working capital – how much capital is needed to run business
  • Excess cash not needed to run business is excluded
  • Short term interest bearing debt was also excluded
  • Net fixed assets excludes goodwill

Earnings Yield - EBIT/EV

  • EBIT/EV is used instead of E/P (Earnings Price) ratio as it doesn’t get distorted by leverage