Weekly Bookmarks –
166th Edition – August 5, 2024
What appears to be the problem, isn’t. What appears to be the solution, isn’t. What appears to be impossible, isn’t.
Matthew May, Winning the Brain Game
1. Valuation: Measuring and Managing the Value of Companies
I will never forget the day when Eric Lamarre, a partner at McKinsey, told me, “Mark, I read the book from cover to cover before I started my work at the consulting firm.”
He was referring to the book in the title of this first section above. That’s impossible. Who’s read that entire brick- I mean book? It’s good, and I like it as a reference.
I have one minor nitpick with the book. ROIC is mentioned throughout, but modifications to return on invested capital are missing for businesses requiring low capital investment, such as software vendors and services firms.
Coincidentally, McKinsey has a compelling recommendation in such circumstances:
A more useful way to measure performance is to divide annual economic profit by revenue. Grounded in the same logic as conventional ROIC and growth measures, this metric gives executives a clearer picture of absolute and relative value creation among companies, irrespective of a particular company’s or business unit’s absolute level of invested capital, which can distort more traditional metrics if it is very low or negative.
Comparing performance when invested capital is low, By Mikel Dodd and Werner Rehm, October 1, 2005
Now in its seventh edition, this acclaimed volume continues to help financial professionals and students around the world gain a deep understanding of valuation and help their companies create, manage, and maximize economic value for their shareholders.
2. I Want to Plagiarize That Line
Ron Monteiro is an FP&A rock star and a treasure to talk to. His book, Love Mondays! is also a breath of fresh air.
This is one of my favorite lines that I want to start using:
Former President Dino Bianco used to say, “We want to help you build the resume you never have to use.” I actually never even considered moving from Kraft for 15 years, something that these days is practically unheard of!
Monteiro, Ron. Love Mondays! A Proven Process to Bring Joy Back Into Your Work Week and Life (p. 102). BEEJA HOUSE. Kindle Edition.
We want to help you build the resume you never have to use. Love it!
The author shares his personal story, beginning with a pivotal moment that set him on a new course. You’ll also find a step-by-step process designed to help you discover your purpose and build a genuinely enjoyable career. For leaders, there’s also a guide to cultivating a culture that makes Mondays enjoyable for your team.
3. If You Like Business History, You’ll Like Harvey Firestone’s Book
I like the way Men and Rubber starts:
For the most difficult thing in business is first getting yourself to thinking and then getting others to thinking. I say this is difficult because, in the natural course of business, an infinite number of details come up every day, and it is very easy indeed to keep so busy with these details that no time is left over for hard, quiet thought—for thinking through from the beginning to the end.
Firestone, Harvey S.. Men and Rubber: The Story of Business (p. 9). Latticework Publishing. Kindle Edition.
The book is instructive, especially regarding the lack of capital, allocation of capital, and people issues during the Firestone growth era. I even enjoyed the driving vacations that included Edison, Ford, and various dignataries. I give it five stars, easily.
This printing of Men and Rubber: The Story of Business by Harvey S. Firestone is part of the Farnam Street Timeless Classics Series, where we continue with our goal of 'mastering the best of what other people have figured out.'
This is one of the books I give away the most.
4. Another Horatio Alger Story
Charles Schwab’s entrepreneurial story is remarkable because he pioneered the discount brokerage model, disrupted the industry by offering everyone low-cost trading and access to investing, and focused on client needs and trust, transforming the financial services landscape. It’s also a rags-to-riches story in which Schwab’s obstacles were difficult to overcome.
In this deeply personal memoir, Schwab describes his passion to have Main Street participate in the growing economy as investors and owners, not only earners. Schwab opens up about his dyslexia and how he worked around and ultimately embraced it, and about the challenges he faced while starting his fledgling company in the 1970s. A year into his grand experiment in discounted stock trading, living in a small apartment in Sausalito with his wife, Helen, and new baby, he carried a six-figure debt and a pocketful of personal loans.
5. What Causes Business Failure?
As a hedge fund manager, Scott Fearon has shorted the stocks of more than 200 bankrupt businesses.
In his book, Dead Companies Walking, he explains why these companies failed:
- They learned from only the recent past.
- They relied too heavily on a formula for success.
- They misread or alienated their customers.
- They fell victim to a mania.
- They failed to adapt to tectonic shifts in their industries.
- They were physically or emotionally removed from their companies’ operations.
Source: Fearon, Scott; Powell, Jesse. Dead Companies Walking: How a Hedge Fund Manager Finds Opportunity in Unexpected Places (p. 5). St. Martin’s Publishing Group. Kindle Edition.
A note to the publisher: get an audio version of this book, too.
Unlike most investors, who live in fear of failure, Scott Fearon actively seeks it out. He has earned millions of dollars for his hedge fund by shorting the stocks of businesses he believed were on their way to bankruptcy. In Dead Companies Walking, Fearon describes his methods for spotting these doomed businesses, and how they can be extremely profitable investments.
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Thank You
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Take care, and have a great week. Always be learning.
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