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Lessons Learned from Week 4 of Fall Quarter

10/31/2011

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Ethics

Good managers can very easily make bad decisions due to several rationalizations: won't get caught, within the realm of law, what's allowed or typically done
Complexities in the decisions of laying off staff and interplay with affirmative action policies. One approach is a staged strategy where the initial round is according to one criteria like performance and the next is according to a different objective like diversity.
Building a good board: diversity of perspective, independence, skin in the game

Behavioral Finance

Analyst recommendations are a contrarian indicator, especially if employees of the underwriter
IPOs typically underpriced to give kicker to client on sell side and to give profit to preferred clients who buy on asset management side
In long run, IPOs underperform
Managers game EPS by manipulating earnings; way more times that EPS comes in a penny above a threshold than a penny below a threshold
Investors overreact to high-strength, low-weight recommendations and underreact to high-weight, low-strength recommendations
Can only make money investing if you have some informational advantage or understand sentiment better than others
Value works better than glamour
Avoid doing what the herd does
Stock rising witho good financial backing will not continue to rise for long
Value stocks: ROE + steady earnings growth + many positive earnings surprises; low debt; healthy or growing profit margins; not a homogeneous product; competitive advantage; public for at least 10 years; low P/B and P/E (P/B < 1); PEG < 1; current assets > current liabilities (can pay current bills)
Stocks heavily purchased by small investors do badly in following periods
Find proxies for retail sentiment (naive investors); contrarian indicator
High asset growth stocks underperform relative to low asset growth (naive extrapolation/overreaction)
High accounting accruals is bad sign (boosting income artificially)
Piotroski f-score works well, implies market not efficient; uses 20% of stocks with highest B/M ratios
f-score: sum of 9 binary signals (not risk related); healthy companies, less risky/non-interesting companies are undervalued but more profitable
High B/M can mean undervaluation or distress. f-score separates undervaluation from distress, works as investing strategy.
More evidence for non-efficient market than efficient market
Psychological biases affecting investors: confirmation bias, hindsight bias, representativeness, anchoring, conservatism, availability bias, overconfidence

Doing Deals

Employment compensation issues
Severance
Say for pay
Individual benefits
Cause vs. non-cause termination
Change of control terms in executive employment contracts
Perks
Benefits
Restricted stock vs. restricted stock units vs. incentive stock options vs. non-statutory stock options

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Notes on Blue Ocean Strategy

10/19/2011

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I recently read Blue Ocean Strategy by Kim and Mauborgne. Its focus was on ways to create and release products that are so different from the competition's that the "ocean" is blue, not bloody red. It was a quick, useful read, and what I enjoyed most were the company examples the book analyzed. I found the sections that actually prescribed theory and mechanisms for creating blue ocean innovations the most lacking in specificity, but the overall frameworks made sense to me.

Below are my main notes and takeaways.

Part 1: Blue Ocean Strategy

Ch. 1: Creating Blue Oceans

Cirque du Soleil versus Ringling Bros.
Red ocean: bloody competition
Blue ocean: expands industry boundaries and competition irrelevant
Inventions spur blue oceans
No perpetually well-performing companies
Looking at industries and strategic moves is more informative than specific companies
Value innovation: create so much value that competition irrelevant

Ch. 2: Analytical Tools and Frameworks

Strategy canvas
Value curve/strategic profile
Don't look at current competition; look at alternatives and non-customers
4 actions framework
Eliminate, reduce, raise, create (grid)
Example: Yellowtail wine
Example: Southwest
Extreme focus on value innovation and letting all else go
Have much different value curve than competitors; make tag line that's very memorable and different from others because product so different
Focus, divergence, compelling tagline

Part 2: Formulating Blue Ocean Strategy

Ch. 3: Restructuring Market Boundaries

6 paths framework
Challenge 6 fundamental assumption
Look across alternatives, not just substitutes in an industry
Example: NetJets
Look across buyer groups and customer chain for unaddressed segments
Look across complementary products and services, whole customer experience
Look across functional or emotional appeals and include both
Examples: Swatch, Body Shop, Cemex, Vanguard, Pfizer/Viagra, Starbucks
Look across time, trends

Ch. 4: Focus on the Big Picture, not the Numbers

Go study users with your own eyes
User types: Pioneers, Migrators, and Settlers

Ch. 5: Reach Beyond Existing Demand

Think about commonalities in non-customers rather than finer segmentation of existing customers
3 tiers of non-customers
Non-Customers who slightly use your service
Refusing non-customers
Unexplored non-customers

Ch. 6: Get the Strategic Sequence Right

Test for buyer utility surplus over price
Test for feasibility of cost structure
Partnering
Blue Ocean Idea (BOI) Index

Part 3: Executing Blue Ocean Strategy

Ch. 7: Overcoming Key Organizational Hurdles

Tipping point leadership
Don't convince through numbers or reports
Have people experience problems firsthand
Focus on key influencers in organization
Focus on acts of disproportionate influence

Ch. 8: Build Execution into Management

Get buy-in
3 E principles
Engagement
Explanation
Clarity of Expectations

Conclusion: Sustainability and New Blue Oceans

Watch competitors' value curves over time and innovate when they converge with yours

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Notes on G-d No by Penn Jilette

10/17/2011

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As a fan of Penn and Teller, when I heard that Penn released a book, I knew I had to read it. I didn't know it would turn out to open my mind to new ways of thinking about religion, science, and magic, and make me laugh so much.

It was especially a treat to hear Penn himself read the book in the audio version.

Below are my main notes and takeaways from Penn Jilette's G-d, No!.

Atheism

Being atheist means saying I don't know
Richard Feynman said I don't know
Work hard to learn but state clearly the limit of your knowledge
Not the belief that science knows everything
(Lots of jokes and curse words omitted.)
Humility of saying I don't know and being an atheist
Believing in G-d means saying you know and understand
If you say, "I don't know," it means you don't believe until you see evidence. It doesn't mean you say it will never happen.
Believing in prayer that can change the world is arrogant since you believe you can make G-d change his mind. (I'm curious what Penn says about some studies that purport to have studied prayer's effects.)
Started with a dishwashing job as a kid
Suggestion: The highest ideals are human intelligence, creativity, and love. Respect these above all.

Art and magic

The purpose of art is to inspire.
The purpose of art is to stand naked on the stage.
Loves the purity of Siegfried and Roy
S&R created the big Vegas magic show; before, everyone just toured.
Even though he made fun of them, they were the true artists.
He stood by Roy's side in hospital

What's the g on the joint?

What's the gaffe, the trick?
Likes word "trick" because any trick is an illusion, and it should be that way.
Should never lie to audience and want to make them believe; should lie and make it really obvious you are lying
Penn started as juggler
Can't fake or lie in juggling
David Blaine, Chriss Angel wanting to make others believe when they lie
Even if he really did some stunt, it doesn't matter.
Still all just show biz stunt
Never science or reality
(Blaine still his friend)

King of the ex-Jews

They always greet the audience after their show.
Amazing Randy was his mentor.
Richard Dawkins was his idol.
Penn married stalker fan girl he met after show.
Met ex-Orthodox Jew who became atheist after reading his book
Atheist baptism naked parties with no alcohol or drugs; just celebration of loving and life
Ate traif together
Suggestion: Do not put things or ideas above human beings.

Fake tits, tattoos, and autotune

Fake tits: all that matters is how much the owner of the tits likes them
Never judge a stripper; she is showing herself better than you can.
No real magic secrets; all secrets ugly.
Real secret is that magicians are guarding an empty safe.
Likes tattoos and big fake tits because they're a celebration of technology, humanity, and individual control
Autotune technology makes all voices sound in tune with music -- amazing
All of these are atheist
Proselytizing is a moral imperative
If you believe in truth, you must share it.
Robert Houdin first came up with magicians dressing as audience (hat and tails) instead of like wizards.
Agnostic is an intellectual term, not a religious one.
Is there a G-d? You can say "I don't know."
Do you believe in G-d? You must give a yes or no answer.
Must speak what you think; spit it.

Learning to fly, strip, and be weightless on a 747

Vomit comet: airplane ride going up and down to make you feel weightless.
ZeroG company
It's easier to be yourself when you decide there's no chance you will be a supreme court justice.
Went to Club Baths gay bath in SF just to prove he could and wasn't a pussy
No one approached them or hit on them; was pissed at rejection and didn't understand.
(Funny story about sex underwater while diving omitted.)
Suggestion: Love your family. Love is better than honor.

Libertarian atheism

Celebrates secular commercial "X-mas" tradition
Libertarian atheist
Be open with your agenda.
Both of his parents died when he was performing.
It's ok; keep performing, joke, embrace pain of life and live on.
Lies are ok when for good purpose like family health.
Libertarian: Should help others yourself; don't use government to force people to do something for you.
You don't have to do anything for your country; just love your family and take care of others yourself.
Hates TSA
Wants to start a Pork, Bacon, and Kiss Airline
9/11: people attacked liberty, and we lost more liberty.
Most people in the world are good.
Allow people to bring anything they want on planes, and let the bad guys racially profile others. Good people will defend each other.
Blame faith, not specific religion, for terrorism.
"The Amazing" conference in Vegas

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