The 5 Lessons A Millionaire Taught Me About Life and Wealth
by Richard Paul Evans
A great book! I think Mr. Evans captured the essence of successful control of one's finances and wealth accumulation over time. The secret is their is no secret! One has to save, work on the side, be smart with investments, and realize that it is a game to see who can get your money, and how you can keep it! And make it grow. The true secret is that when your earnings are making you earnings while you sleep, then you can consider yourself to having saved correctly. Any fool can inherit and lose millions of dollars in a short period of time. The great wisdom imparted here is how to take control of your life, your finances, and your relationships so that others don't control you through financial pressures. It's your life - now go take it, live it, celebrate it, and teach others while you give back and show them the way! I believe these steps are worthy and commendable and I hope to be able to convince my children and nephews/nieces that it will increase their peace and happiness in life to love to save, work, and give back. Thank you Richard.
Thursday, December 25, 2008
Sunday, November 2, 2008
The Greedy Hand
The Greedy Hand: How Taxes Drive Americans Crazy and What to Do About it."
by Amity Shlaes, of the Wall Street Journal
I give this book 5 stars for explaining "How taxes drive Americans Crazy" and only half a star for "What to do about it". Contrasting the guiding "invisible hand" present in free market economics that leads to enrichment and prosperity for everyone (more of course to the more successful capitalists) to the "greedy hand" of the U.S. taxman, Shlaes delves into a historical explanation of U.S. tax code previously uknown to me. The result of countless lobbyists and voting blocs that now seems to permeate daily decisions in a very unamerican kind of way. She explains the tax situations we now find for sales tax and shopping, corporate vs business taxes, the marriage penalty (married filing singly is a sham), the mortgage deduction, school equivalency laws and the disincentive they now have for communities, and how retirees get boxed into low incomes or the taxman wins again.
This was a depressing book. It makes me realize you cannot win unless you find a business that you control and make it provide for you long term. No one else is going to be there.
Medicare and Social Security have scheduled insolvency problems beyond what the shifting and burgeoning elderly population will be able to solve, in fact, they will demand more and make it worse as the Boomers saw their parents receive more than they put in -- they will want more also. It is the Charles Ponzi Scheme of our inter-generation.
The automatic withholding process created in 1943 gave the taxman an unlimited access to our pocketbooks, and there is nothing the masses can do about it. Again, depressing. The only comments she had on tax efficiency is paying the taxman or paying for your efficiency through tax professional assistance. The CPA's and EA's depend on the taxman for their livelihood (the more complicated the tax code the better for them!), but a tax attorney can assist if tax court or tax advice is needed beyond what a CPA can do.
by Amity Shlaes, of the Wall Street Journal
I give this book 5 stars for explaining "How taxes drive Americans Crazy" and only half a star for "What to do about it". Contrasting the guiding "invisible hand" present in free market economics that leads to enrichment and prosperity for everyone (more of course to the more successful capitalists) to the "greedy hand" of the U.S. taxman, Shlaes delves into a historical explanation of U.S. tax code previously uknown to me. The result of countless lobbyists and voting blocs that now seems to permeate daily decisions in a very unamerican kind of way. She explains the tax situations we now find for sales tax and shopping, corporate vs business taxes, the marriage penalty (married filing singly is a sham), the mortgage deduction, school equivalency laws and the disincentive they now have for communities, and how retirees get boxed into low incomes or the taxman wins again.
This was a depressing book. It makes me realize you cannot win unless you find a business that you control and make it provide for you long term. No one else is going to be there.
Medicare and Social Security have scheduled insolvency problems beyond what the shifting and burgeoning elderly population will be able to solve, in fact, they will demand more and make it worse as the Boomers saw their parents receive more than they put in -- they will want more also. It is the Charles Ponzi Scheme of our inter-generation.
The automatic withholding process created in 1943 gave the taxman an unlimited access to our pocketbooks, and there is nothing the masses can do about it. Again, depressing. The only comments she had on tax efficiency is paying the taxman or paying for your efficiency through tax professional assistance. The CPA's and EA's depend on the taxman for their livelihood (the more complicated the tax code the better for them!), but a tax attorney can assist if tax court or tax advice is needed beyond what a CPA can do.
Sunday, October 5, 2008
Freakonomics
Freakonomics
by Steven D. Levitt and Stephen J. Dubner, 2005 HarperCollins Books
Book Review:
This was an insightful and interesting narrative on todays societal conundrums explained from an economics incentive perspective.
The crime drop in the 80's is less explained by Clinton and Giuliani's claims of aggressive crime interventions than the fact that Roe v. Wade limited the supply of future criminals 18 years earlier when their birthrate sharply declined.
An inner city gangs prosperity and fall correlates sharply to the risks and rewards seen by the foot soldiers that make the gang drug sales possible. These soldiers make less than minimum wage just for a chance to make a modest salary some day as the leader who makes not much more than the average white collar worker. This is because the only white collar jobs visible in these neighborhoods are very limited and the gang leaders have visible prestige. The drug sales and recruitment skyrocketed with high priced new crack cocaine onto the market and fell dramatically with the flooding of crack on the market and in the event of a turf war in Chicago. The risks became too high for the perceived rewards.
The correlating factors with good educational outcomes in kids are parents of an older age, parents of extensive education, the child has many books in the home, and the child is not adopted and speaks english in the home.
Sumo wrestlers outcomes when "on the bubble" for their 8th win against a wrestler who already has secured his eighth win are statistically far out of line with probability. A 48% chance of winning turns out to be an 80% winning rate in this situation, even though Japanese culture would far decry any insinuation of cheating. Interestingly, a "payback" loss appears statistically when those same wrestlers meet again at a 40% chance of winning for the one who was on the bubble, for which the future winning rate normalizes back to its average of 48%. Although cheating in Sumo wrestling culture is cause for great dishonor, even suicide, the statistics here are difficult to ignore. The same results appear to school teachers in Chicago who have punitive job outcomes with poor test results in classes that perform poorly on standardized tests. Reviewing the test results revealed outliers that when retested by proctors who were not their proctors fell sharply against a control group of classes that performed well who were not suspected of cheating. Freakonomics.
The revelation of Ku Klux Klan secret passwords to a 1950's radio Superman kids show divulged the Klan's only real currency: secret information. As kids in the street pretended to thwart the "evil Klan" members, bigotry and prejudice had no value when associated with no inside group protection or secret information. After two radio shows the attendance fell of 95%, dues of 10$ were cut off to the membership making money, and civil liberties were protected more in the South preventing a post-war resurgence after WWII. Freakonomics.
Overall, I enjoyed this read and narrative of economic incentives in our everyday life. It helped me consider what drives the world I live in locally, regionally, and culturally in our nation. I think the value of these ideas will only increase as our world faces global threats and ignorism in terrorist recruitment, international disputes with other industrialized countries, and my personal hedges in an uncertain world. Thank you both Levitt and Dubner.
by Steven D. Levitt and Stephen J. Dubner, 2005 HarperCollins Books
Book Review:
This was an insightful and interesting narrative on todays societal conundrums explained from an economics incentive perspective.
The crime drop in the 80's is less explained by Clinton and Giuliani's claims of aggressive crime interventions than the fact that Roe v. Wade limited the supply of future criminals 18 years earlier when their birthrate sharply declined.
An inner city gangs prosperity and fall correlates sharply to the risks and rewards seen by the foot soldiers that make the gang drug sales possible. These soldiers make less than minimum wage just for a chance to make a modest salary some day as the leader who makes not much more than the average white collar worker. This is because the only white collar jobs visible in these neighborhoods are very limited and the gang leaders have visible prestige. The drug sales and recruitment skyrocketed with high priced new crack cocaine onto the market and fell dramatically with the flooding of crack on the market and in the event of a turf war in Chicago. The risks became too high for the perceived rewards.
The correlating factors with good educational outcomes in kids are parents of an older age, parents of extensive education, the child has many books in the home, and the child is not adopted and speaks english in the home.
Sumo wrestlers outcomes when "on the bubble" for their 8th win against a wrestler who already has secured his eighth win are statistically far out of line with probability. A 48% chance of winning turns out to be an 80% winning rate in this situation, even though Japanese culture would far decry any insinuation of cheating. Interestingly, a "payback" loss appears statistically when those same wrestlers meet again at a 40% chance of winning for the one who was on the bubble, for which the future winning rate normalizes back to its average of 48%. Although cheating in Sumo wrestling culture is cause for great dishonor, even suicide, the statistics here are difficult to ignore. The same results appear to school teachers in Chicago who have punitive job outcomes with poor test results in classes that perform poorly on standardized tests. Reviewing the test results revealed outliers that when retested by proctors who were not their proctors fell sharply against a control group of classes that performed well who were not suspected of cheating. Freakonomics.
The revelation of Ku Klux Klan secret passwords to a 1950's radio Superman kids show divulged the Klan's only real currency: secret information. As kids in the street pretended to thwart the "evil Klan" members, bigotry and prejudice had no value when associated with no inside group protection or secret information. After two radio shows the attendance fell of 95%, dues of 10$ were cut off to the membership making money, and civil liberties were protected more in the South preventing a post-war resurgence after WWII. Freakonomics.
Overall, I enjoyed this read and narrative of economic incentives in our everyday life. It helped me consider what drives the world I live in locally, regionally, and culturally in our nation. I think the value of these ideas will only increase as our world faces global threats and ignorism in terrorist recruitment, international disputes with other industrialized countries, and my personal hedges in an uncertain world. Thank you both Levitt and Dubner.
The Millionaire Next Door
The Millionaire Next Door
by Thomas J. Stanley PhD, and William D. Danko PhD
This book makes sense. A good offense is making money, but financial independence will never happen if you also don't have a good defense. Even someone on a limited budget can ultimately be financially independent if they obey the principles of financial freedom, which ultimately lead to a more relaxed and positive outlook in life.
The principles are:
--live well below their means
--allocate time, energy, and money efficiently, in ways conductive to building wealth
--believe that financial independence is more important than displaying high social status
--parents did not provide economic outpatient care
--their adult children are economically self-sufficient
--they are proficient in targeting market opportunities
--chose the right occupation
--fastidious investors
However, a few more things about average millionaires:
--may have never moved, living in neighborhoods of people with much less affluence
--education is extremely important, and one of the things worth paying for our children to have
--only 1 in 5 not a college graduate
--83% of us attended public schools, but 55% of our children attend private schools
--have a 10 year savings accrued, a "go to heck" fund
--tightwads & fastidious investors, enjoy shopping for a deal on whatever they buy so they can use the remaining dollars for better deals too!
-- the law of annual compounding. Savings beget interest which beget earnings and interest from the interest. Eventually you'll make more by interest than you did working. It just takes time (about 20 years of 15% savings from income per year). Anyone willing to hunt for deals, save their dollars and find luxuries in harder to find places will win this game in the end.
-- economic independence begins by weaning oneself from economic outpatient care from those who love us. Being forced out of the house is not always such a bad thing when one is able to garnish skills, strategies and plans that lead to a productive and independent life.
--UAW's are under-accumulators of wealth: they will spend and borrow more than average. They life high consumption lifestyles. They may have high incomes or low incomes, but little savings. They usually are too busy to spend time on their own financial affairs.
--PAW's are Proficient-accumulators of wealth: they will accrue savings through low consumption lifestyles for an income and age adjusted comparison to UAW's. They may have low incomes or high incomes, but do not live with high spending. They spend alot of time planning their financial future, handle their own investments, but do not day trade.
Gift-Receivers:
--have a hard time distinguishing what is theirs and what was given to them
--increase consumption and decrease savings
--are significantly more dependent on credit than are nonreceivers.
--"weakens the weak", and generally goes to children less adept at producing
--happens less often to the more able to produce children, thus, "strengthening the strong"
Find your Niche:
--productivity is easiest to those who have specialty training or expertise
--time your expertise to market opportunities and you may have an easier time
--the next 30 years may have a good niches with:
-specialty law (estate planning, immigration)
-medical and dental care specialists
-appraisers and auctioneers
-accounting, finance and corporate investment specialists
by Thomas J. Stanley PhD, and William D. Danko PhD
This book makes sense. A good offense is making money, but financial independence will never happen if you also don't have a good defense. Even someone on a limited budget can ultimately be financially independent if they obey the principles of financial freedom, which ultimately lead to a more relaxed and positive outlook in life.
The principles are:
--live well below their means
--allocate time, energy, and money efficiently, in ways conductive to building wealth
--believe that financial independence is more important than displaying high social status
--parents did not provide economic outpatient care
--their adult children are economically self-sufficient
--they are proficient in targeting market opportunities
--chose the right occupation
--fastidious investors
However, a few more things about average millionaires:
--may have never moved, living in neighborhoods of people with much less affluence
--education is extremely important, and one of the things worth paying for our children to have
--only 1 in 5 not a college graduate
--83% of us attended public schools, but 55% of our children attend private schools
--have a 10 year savings accrued, a "go to heck" fund
--tightwads & fastidious investors, enjoy shopping for a deal on whatever they buy so they can use the remaining dollars for better deals too!
-- the law of annual compounding. Savings beget interest which beget earnings and interest from the interest. Eventually you'll make more by interest than you did working. It just takes time (about 20 years of 15% savings from income per year). Anyone willing to hunt for deals, save their dollars and find luxuries in harder to find places will win this game in the end.
-- economic independence begins by weaning oneself from economic outpatient care from those who love us. Being forced out of the house is not always such a bad thing when one is able to garnish skills, strategies and plans that lead to a productive and independent life.
--UAW's are under-accumulators of wealth: they will spend and borrow more than average. They life high consumption lifestyles. They may have high incomes or low incomes, but little savings. They usually are too busy to spend time on their own financial affairs.
--PAW's are Proficient-accumulators of wealth: they will accrue savings through low consumption lifestyles for an income and age adjusted comparison to UAW's. They may have low incomes or high incomes, but do not live with high spending. They spend alot of time planning their financial future, handle their own investments, but do not day trade.
Gift-Receivers:
--have a hard time distinguishing what is theirs and what was given to them
--increase consumption and decrease savings
--are significantly more dependent on credit than are nonreceivers.
--"weakens the weak", and generally goes to children less adept at producing
--happens less often to the more able to produce children, thus, "strengthening the strong"
Find your Niche:
--productivity is easiest to those who have specialty training or expertise
--time your expertise to market opportunities and you may have an easier time
--the next 30 years may have a good niches with:
-specialty law (estate planning, immigration)
-medical and dental care specialists
-appraisers and auctioneers
-accounting, finance and corporate investment specialists
Beardstown Ladies Investment Guide
Beardstown Ladies Common Sense Investment Guide
by the Beardstown Ladies Investment Club and Leslie Whitaker
Scrutinizing the Annual Report of a stock
shareholders equity = assets - liabilities
current assets = convertible to cash within a year (cash, A/R, inventories)
fixed assets = property, plants and equipment not being converted to cash in a year
net property, plants and equipment = fixed assets minus scheduled yearly depreciation
current assets + net property/pl/equp = total assets
current liabilities = debts due within a year
accounts payable = debts owed to creditors now
current liabilities + long-term debt = total liabilities
preferred shareholders have prior claim to assets over common stock holders
Analysis:
Determine working capital = current assets - current liabilities
? is there a reserve if things go dry for awhile?
current ratio = current assets/current liabilities ; > 2:1 ??
acid test is a telling ratio: current assets (exclude inventories here) / current liabilities;
a big decrease here shows that high inventories may by tying up the cash/too much merchandise
Now check the Income Statement: to evaluate profitability over time
Net income after taxes = Income before taxes(sales - operating costs + other income) - taxes
Inventory Turnover: higher is better; = cost of goods sold/ inventory costs; (1x, 5x, etc.)
Plant turnover: higher is better; = sales/property,plant, equipment; should increase over time
Gross Margin = profit/net sales (>60% is good)
Return on equity = net income/book value
You want growth over time, and you want better profiling than competitors.
Top 10 factors to buy a Stock by Beardstown Ladies:
1. Is in the top third of its industry as ranked by Value Line
2. Timeliness rating of 1 or 2 by Value Line
3. Safety rating is 1 or 2 by Value line
4. Total debt is < by =" (current" shares =" book/share">
5. Beta falls between 0.9 and 1.10
6. Five years of growth in sales & earnings, projected growth of 12-15% in next few years.
7. less than 25$/share if possible to buy 100 shares or more
8. P/E is below 5 year average for the stock
9. Its upside down ratio is at least 3:1.
10. Competent and experienced management
Picks:
1. Use Value Line as a guide for solid earnings/future outlook
2. Buy below the 5 year average, think twice if at 5 year high
3. Value Line "Annual rates" box will tell you if profits rate of increase are in line with rates of sales increases
4. A good buy may have a sum of its earnings over the next five years close to the sale price of the stock now
5. Book value comparison to present price: book value should be higher than present price, calculate by = (current assets - current liabilities) / shares = book/share value
or just check calculation done by Value line.
6. P/E: avoid the stock if current P/E is higher than average P/E for the past 5 years
7. the growth rate of the stock is a good yardstick for P/E; if sales are not growing, P/E should be low also (or half the growth rate in the P/E is a bargain, twice the Growth rate is overpriced).
8. selling a stock: reevaluate holding a stock when it hits your target of double the price; if it has a lot of growth and strong fundamentals, hold th stock, if the fundamentals are now weak, its time to bail. Consider now : changes in management, new competition, lack of diversity, sudden increases in debt, employee strikes, etc. Stay strong with the shares while the company appears strong, sell when they're weakened.
by the Beardstown Ladies Investment Club and Leslie Whitaker
Scrutinizing the Annual Report of a stock
shareholders equity = assets - liabilities
current assets = convertible to cash within a year (cash, A/R, inventories)
fixed assets = property, plants and equipment not being converted to cash in a year
net property, plants and equipment = fixed assets minus scheduled yearly depreciation
current assets + net property/pl/equp = total assets
current liabilities = debts due within a year
accounts payable = debts owed to creditors now
current liabilities + long-term debt = total liabilities
preferred shareholders have prior claim to assets over common stock holders
Analysis:
Determine working capital = current assets - current liabilities
? is there a reserve if things go dry for awhile?
current ratio = current assets/current liabilities ; > 2:1 ??
acid test is a telling ratio: current assets (exclude inventories here) / current liabilities;
a big decrease here shows that high inventories may by tying up the cash/too much merchandise
Now check the Income Statement: to evaluate profitability over time
Net income after taxes = Income before taxes(sales - operating costs + other income) - taxes
Inventory Turnover: higher is better; = cost of goods sold/ inventory costs; (1x, 5x, etc.)
Plant turnover: higher is better; = sales/property,plant, equipment; should increase over time
Gross Margin = profit/net sales (>60% is good)
Return on equity = net income/book value
You want growth over time, and you want better profiling than competitors.
Top 10 factors to buy a Stock by Beardstown Ladies:
1. Is in the top third of its industry as ranked by Value Line
2. Timeliness rating of 1 or 2 by Value Line
3. Safety rating is 1 or 2 by Value line
4. Total debt is < by =" (current" shares =" book/share">
5. Beta falls between 0.9 and 1.10
6. Five years of growth in sales & earnings, projected growth of 12-15% in next few years.
7. less than 25$/share if possible to buy 100 shares or more
8. P/E is below 5 year average for the stock
9. Its upside down ratio is at least 3:1.
10. Competent and experienced management
Picks:
1. Use Value Line as a guide for solid earnings/future outlook
2. Buy below the 5 year average, think twice if at 5 year high
3. Value Line "Annual rates" box will tell you if profits rate of increase are in line with rates of sales increases
4. A good buy may have a sum of its earnings over the next five years close to the sale price of the stock now
5. Book value comparison to present price: book value should be higher than present price, calculate by = (current assets - current liabilities) / shares = book/share value
or just check calculation done by Value line.
6. P/E: avoid the stock if current P/E is higher than average P/E for the past 5 years
7. the growth rate of the stock is a good yardstick for P/E; if sales are not growing, P/E should be low also (or half the growth rate in the P/E is a bargain, twice the Growth rate is overpriced).
8. selling a stock: reevaluate holding a stock when it hits your target of double the price; if it has a lot of growth and strong fundamentals, hold th stock, if the fundamentals are now weak, its time to bail. Consider now : changes in management, new competition, lack of diversity, sudden increases in debt, employee strikes, etc. Stay strong with the shares while the company appears strong, sell when they're weakened.
Leaps
Personal Communication from fellow investor:
-can use TDAmeritrade using standard option transactions/leaps are available as per market makers.
-leaps are attractive when the premium (time value) is very low.
-can sell future calls early when stock price rises
-can sell a portion and save some to hedge rise/risk/profit taking
-try not to keep any call or put options with fewer than 90 days to expiration, because the time value decay starts to occur rapidly,
-Don’t sell puts or calls, but if you do, only sell 90 days or less, precisely because of the time decay factor.
-basic strategy:
--se Value Line to identify securities with strong fundamentals and good 12 month appreciation potential
—this helps to be confident during falling markets and to avoid panic selling.
-Value Line ranks stocks and picks decent ones in their Selection and Opinion section.
-Buy around 5-10K worth of shares of the underlying security, so that I can easily keep track of current price and gain or loss over time. I then leverage my acquisition by looking for reasonably-priced deep-in-the-money calls expiring at least a year in the future.
-If the security drops significantly on a “bad” market day or on minor earnings disappointments, do “cost averaging” with the options, not the actual stock, so when it recovers I can catch leveraged returns on the “bounce.”
-The key here is that you MUST be able to have a lot of faith in your investments to hold on in bad markets—that is why you use Value Line.
-you will be burned without doing diligent research,
-With Value Line, you don’t need to re-invent the wheel since the due diligence has been done by a much respected institution (no, I don’t work for or invest in Value Line.)
-do this with between 10 and 20 securities for diversification
-can use TDAmeritrade using standard option transactions/leaps are available as per market makers.
-leaps are attractive when the premium (time value) is very low.
-can sell future calls early when stock price rises
-can sell a portion and save some to hedge rise/risk/profit taking
-try not to keep any call or put options with fewer than 90 days to expiration, because the time value decay starts to occur rapidly,
-Don’t sell puts or calls, but if you do, only sell 90 days or less, precisely because of the time decay factor.
-basic strategy:
--se Value Line to identify securities with strong fundamentals and good 12 month appreciation potential
—this helps to be confident during falling markets and to avoid panic selling.
-Value Line ranks stocks and picks decent ones in their Selection and Opinion section.
-Buy around 5-10K worth of shares of the underlying security, so that I can easily keep track of current price and gain or loss over time. I then leverage my acquisition by looking for reasonably-priced deep-in-the-money calls expiring at least a year in the future.
-If the security drops significantly on a “bad” market day or on minor earnings disappointments, do “cost averaging” with the options, not the actual stock, so when it recovers I can catch leveraged returns on the “bounce.”
-The key here is that you MUST be able to have a lot of faith in your investments to hold on in bad markets—that is why you use Value Line.
-you will be burned without doing diligent research,
-With Value Line, you don’t need to re-invent the wheel since the due diligence has been done by a much respected institution (no, I don’t work for or invest in Value Line.)
-do this with between 10 and 20 securities for diversification
Good to Great
Book Review: Good to Great: Why Some Companies Make the Leap . . . and Others Don't
By Jim Collins, 2001, HarperCollins Books.
This is simply one of the best books I've read on creating a successful group over time with solid principles of leadership, focussed efforts on strategy, and understanding why some companies fail and others thrive with seemingly the same ingredients.
Here are a few pearls I hope I never forget:
1) First Who, Then What.
Good-to-Great leaders get the right people on the bus first, get the right people in the right seats, then figured out where to drive it. The right people are your most important asset.
2) Confront the Brutal Facts, (Yet never lose faith)
The Stockdale paradox is one of Vietnam POW warhero who survived prison camp by daily confronting the most brutal parts of his reality and yet knowing someday he would survive the ordeal and teach about it at Stanford, which he does. Getting "red button" feedback helps leaders overcome the liability of charisma to find out what is truly going on in the business early. The Brutal Facts help companies come to grip on what they cannot achieve, and then refocussing on what they can become the best at.
3) The Hedgehog Concept (Simplicity within the Three Circles)
Being the best in the world at a particular function is a key secret great companies discover to transcend the curse of competence, even if that competence is their core business and has sustained them for decades. The Hedgehog concept must satisfy 3 overlapping requirements
a- you actually can become the best in the world at it
b- you have intrinsic passion for that activity
c- the economic engine of your company is centered around that activity
4) Culture of Discipline
When there exists a culture of disciplined thought, you don't need heirarchy. When you combine the culture of discipline with the ethic of entrepeneurship, you get the magical alchemy of great performance.
5) Technology Accelerators
The role of technology is simply an extension of ones understanding of the hedgehog concept. A technology revolution alone does not sustain a company or make one thrive successfully. By carefully selecting technology that does not distract from the hedgehog mission, technology can be successfully integrated.
6) The Flywheel and the Doom Loop
Wrenching restructurings are the beginning of the end and the antithesis of the quiet, firm, steady plodding of the Level V leader, the hedgehod mission, and implementing the quiet knowledge gained from confronting the Brutal Facts of the present. The Flywheel starts moving one focussed effort is set toward a huge goal visualized after truly understanding ones capabilities, ones potential,as a company, and what the Inner Circle or council of leaders reveals through the process of discovery together. The turns occur slowly, effortfully, and gain more and more momentum until breakthrough finally occurs. But there is no lucky break, it is a matter of time and effort with the core principles in place.
More Pearls:
the Best 11 companies who went from Good to Great over 15 years also had:
1) Level V Leadership
Level 5 Executive
a paradoxical blend of personal humility and professional will aims to put the corporation or group success above personal gains
Level 4 Effective Leader
catalyzes commitment to a clear and compelling vision, higher standards
Level 3 Competent Manager
effective and efficient pursuit of predetermined objectives
Level 2 Contributing Team Member
works for team objectives, works effectively with others
Level 1 Highly Capable Individual
makes productive contributions through talent, skills, work habits
Level 5 leaders channel their ego needs away from themselves and into the larger goal of building a great company. It's not that they have no ego or self-interest, they are actually incredibly ambitious, but first and foremost for the institution.
Humility + Will = Level 5.
The great irony is that personal ambition that often drives people to positions of power stands at odds with the humility required for level 5 leadership. Boards often feel a need to hire a bigger than life egocentric director, and you see why Level 5 leaders rarely appear at the top of institutions.
Level 5 leaders are fanatically driven for sustained results, but more plowhorse than showhorse.
Colvard Mockler of Gillette had a great life and balance despite the transformation undertaken to make Gillette a great company because he put the right people in the right places to take care of the challenges faced together, even in times of crisis he had balance and family time. That is the power of Who First, then What, and having the right people on the bus.
This book was transformational for me and has helped understand the major Flywheels in my life: my family and childrens lives, my marriage, and my company. Understanding this helps me avoid wasting efforts and getting distracted, making life great.
Thank you Jim Collins and the hundreds of others who assisted in the study that empirically delivered these findings for Good to Great.
By Jim Collins, 2001, HarperCollins Books.
This is simply one of the best books I've read on creating a successful group over time with solid principles of leadership, focussed efforts on strategy, and understanding why some companies fail and others thrive with seemingly the same ingredients.
Here are a few pearls I hope I never forget:
1) First Who, Then What.
Good-to-Great leaders get the right people on the bus first, get the right people in the right seats, then figured out where to drive it. The right people are your most important asset.
2) Confront the Brutal Facts, (Yet never lose faith)
The Stockdale paradox is one of Vietnam POW warhero who survived prison camp by daily confronting the most brutal parts of his reality and yet knowing someday he would survive the ordeal and teach about it at Stanford, which he does. Getting "red button" feedback helps leaders overcome the liability of charisma to find out what is truly going on in the business early. The Brutal Facts help companies come to grip on what they cannot achieve, and then refocussing on what they can become the best at.
3) The Hedgehog Concept (Simplicity within the Three Circles)
Being the best in the world at a particular function is a key secret great companies discover to transcend the curse of competence, even if that competence is their core business and has sustained them for decades. The Hedgehog concept must satisfy 3 overlapping requirements
a- you actually can become the best in the world at it
b- you have intrinsic passion for that activity
c- the economic engine of your company is centered around that activity
4) Culture of Discipline
When there exists a culture of disciplined thought, you don't need heirarchy. When you combine the culture of discipline with the ethic of entrepeneurship, you get the magical alchemy of great performance.
5) Technology Accelerators
The role of technology is simply an extension of ones understanding of the hedgehog concept. A technology revolution alone does not sustain a company or make one thrive successfully. By carefully selecting technology that does not distract from the hedgehog mission, technology can be successfully integrated.
6) The Flywheel and the Doom Loop
Wrenching restructurings are the beginning of the end and the antithesis of the quiet, firm, steady plodding of the Level V leader, the hedgehod mission, and implementing the quiet knowledge gained from confronting the Brutal Facts of the present. The Flywheel starts moving one focussed effort is set toward a huge goal visualized after truly understanding ones capabilities, ones potential,as a company, and what the Inner Circle or council of leaders reveals through the process of discovery together. The turns occur slowly, effortfully, and gain more and more momentum until breakthrough finally occurs. But there is no lucky break, it is a matter of time and effort with the core principles in place.
More Pearls:
the Best 11 companies who went from Good to Great over 15 years also had:
1) Level V Leadership
Level 5 Executive
a paradoxical blend of personal humility and professional will aims to put the corporation or group success above personal gains
Level 4 Effective Leader
catalyzes commitment to a clear and compelling vision, higher standards
Level 3 Competent Manager
effective and efficient pursuit of predetermined objectives
Level 2 Contributing Team Member
works for team objectives, works effectively with others
Level 1 Highly Capable Individual
makes productive contributions through talent, skills, work habits
Level 5 leaders channel their ego needs away from themselves and into the larger goal of building a great company. It's not that they have no ego or self-interest, they are actually incredibly ambitious, but first and foremost for the institution.
Humility + Will = Level 5.
The great irony is that personal ambition that often drives people to positions of power stands at odds with the humility required for level 5 leadership. Boards often feel a need to hire a bigger than life egocentric director, and you see why Level 5 leaders rarely appear at the top of institutions.
Level 5 leaders are fanatically driven for sustained results, but more plowhorse than showhorse.
Colvard Mockler of Gillette had a great life and balance despite the transformation undertaken to make Gillette a great company because he put the right people in the right places to take care of the challenges faced together, even in times of crisis he had balance and family time. That is the power of Who First, then What, and having the right people on the bus.
This book was transformational for me and has helped understand the major Flywheels in my life: my family and childrens lives, my marriage, and my company. Understanding this helps me avoid wasting efforts and getting distracted, making life great.
Thank you Jim Collins and the hundreds of others who assisted in the study that empirically delivered these findings for Good to Great.
Buffettology
Buffettology
By Mary Buffett & David Clark
1997, Simon & Schuster
The Previously Unexplained Techniques that have made Warren Buffett the Worlds most Famous Investor
Amazon Link: Buffetology, My favorite Warren Buffett Book
Here is my personal summary/cliff notes of Mary's incredible ideas, which I am sure will net me years of pure enjoyment as my personal fortune compounds.
Stock Decisions:
You are buying a part of an enterprise
buy excellent businesses at a price that makes sense
The offering price determines your compounding gains
The earnings can be given to the investors or kept by the company for continued gains
Responsible management reinvests gains to increase earnings rate of increase
Warrens Intrinsic Value Method:
"Investment is most intelligent when it is most bussinesslike."
Investing from a business perspective means making decisions on expected returns alone
Intrinsic value is determined by the companies earnings
Projecting a future value looks at rates of earnings growth over time
Annual compounding rate of return is the estimated future stock price/offering price across time
10$ stock in 10 years at 50$ has a 17.46% rate of return using SG Texas financial calculators
Shopping around annual compounding rate is key to finding good investments
"how much money can this business predictably earn and what is the asking price?"
compare $/share of earnings to stock price: $5/share x 100shares = $500 profit/year
company can reinvest $500 or pay a dividend
Predictability:
focus on high degree of certainty to remove risk from investment
improves determination of business' future value
discounting to present value means determing future %compounding based on price change over time
So BA-35 Texas Solar Calculator does this calculation to find price now for % gained later
Value Now Formulation
Warren takes yearly per share earnings/offering price = return on investment (ROI)
Buying Compass:
Focus on the kind of business you would like to be in first
Then let the buying price determine buy decision
(like letting a break-up with her boyfriend before you go after the girl)
The Right prices in Certain Businesses with exceptional Economics
Do companies profitably employ earnings retained, or spoil them on grandeur? if no dividend
Leverage:
Other peoples money to profit from your investment expertise
Warren started an investment partnership and later acquired insurance companies
General Foods example:
1979, asking price of 37$/share, earnings of $4.65/share, earnings growing at 8.7% annually
so 13.6% return was better than 10% on bonds, and 8.9% earnings growth
By Mary Buffett & David Clark
1997, Simon & Schuster
The Previously Unexplained Techniques that have made Warren Buffett the Worlds most Famous Investor
Amazon Link: Buffetology, My favorite Warren Buffett Book
Here is my personal summary/cliff notes of Mary's incredible ideas, which I am sure will net me years of pure enjoyment as my personal fortune compounds.
Stock Decisions:
You are buying a part of an enterprise
buy excellent businesses at a price that makes sense
The offering price determines your compounding gains
The earnings can be given to the investors or kept by the company for continued gains
Responsible management reinvests gains to increase earnings rate of increase
Warrens Intrinsic Value Method:
"Investment is most intelligent when it is most bussinesslike."
Investing from a business perspective means making decisions on expected returns alone
Intrinsic value is determined by the companies earnings
Projecting a future value looks at rates of earnings growth over time
Annual compounding rate of return is the estimated future stock price/offering price across time
10$ stock in 10 years at 50$ has a 17.46% rate of return using SG Texas financial calculators
Shopping around annual compounding rate is key to finding good investments
"how much money can this business predictably earn and what is the asking price?"
compare $/share of earnings to stock price: $5/share x 100shares = $500 profit/year
company can reinvest $500 or pay a dividend
Predictability:
focus on high degree of certainty to remove risk from investment
improves determination of business' future value
discounting to present value means determing future %compounding based on price change over time
So BA-35 Texas Solar Calculator does this calculation to find price now for % gained later
Value Now Formulation
Warren takes yearly per share earnings/offering price = return on investment (ROI)
Buying Compass:
Focus on the kind of business you would like to be in first
Then let the buying price determine buy decision
(like letting a break-up with her boyfriend before you go after the girl)
The Right prices in Certain Businesses with exceptional Economics
Do companies profitably employ earnings retained, or spoil them on grandeur? if no dividend
Leverage:
Other peoples money to profit from your investment expertise
Warren started an investment partnership and later acquired insurance companies
General Foods example:
1979, asking price of 37$/share, earnings of $4.65/share, earnings growing at 8.7% annually
so 13.6% return was better than 10% on bonds, and 8.9% earnings growth
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