38th Edition — October 27, 2019
Academic research suggests that a firm’s strategy is roughly twice as important as a firm’s industry when it’s trying to build an economic moat.
Pat Dorsey, author, asset fund manager, and equity research expert
1. The Houston Astros Stuffed Up Their Culture
I try to never mention sports in these weekly newsletters, but I’m making an exception this week. If you live outside the U.S., the two very best baseball teams are competing on the biggest stage to earn their right to be named World Champions. Unfortunately, the Houston Astros are dealing with a serious controversy instead of celebrating another great season along with getting to the sport’s fall classic. Over the next few weeks, the media will let us know if the team’s PR problem is the result of questionable leadership decisions, bad culture, or both.
I suppose that’s why people like Joe and Susan Gaboury, the founders of Traxia, are so special. They don’t just write shallow words about their company culture throughout their hallways for employees to see hoping these concepts stick. Instead, they live them personally, they teach them, and they over-communicate these values daily which are:
H – Honor – Our word matters
O – Opportunity Optimism – We lean into problems
M – Magnanimity – We need to be increasing
E – Empowering Excellence – We are a team of servant leaders
Feel free to ask Joe about the book that has inspired him the most personally and professionally for the story behind those words above. He’ll be happy to tell you.
2. Plain Talk, Plain Numbers
If you ask Jim Collins who would be the first chief executive he would enshrine in his own CEO Hall of Fame, I bet Ken Iverson tops the list by a mile.
I’m long overdue in publishing a book report on Plain Talk by Iverson himself who led Nucor Steel from irrelevancy and near bankruptcy to the most dominant steelmaker through creativity, simple strategies, and a people-focused approach to results.
When I meet a new CEO and ask for the handful of key numbers they track and monitor weekly, they generally look at me like, “You’re kidding, right?”
Every page is meaningful in Iverson’s book, but I especially appreciated that he didn’t leave out the important numbers his team tracked weekly:
- quotes (bids)
Just curious, what are the small handful of numbers you track weekly? If so, what’s the trend and is there predictability allowing you to take corrective action immediately?
3. Economic Moats
I could possibly be one of about 4 or 5 consultants on the planet working with an agglomeration plant owner (yeah, look it up like I did a year or so ago). Somehow, the CEO and I got started on our unfair competitive advantage which is a cool story. That’s when the words economic moat slipped out of my mouth. “Say what?” asked the CEO whom I admire and appreciate.
Each week, I bet I get 1-2 questions on the best books for learning financial analysis. That’s hard to answer because I got hooked on reading annual reports when I left KPMG. Read or scan 2-3 a week, and your financial acumen soars. So that’s been my best approach to becoming a better financial analyst over the past 25-plus years along with learning every single function in Excel.
If I were to pick a genre of books on financial analysis, I’d recommend books by equity investors and fund managers. Jack Dorsey is the former Director of Equity Research at Morningstar, and his book – The Five Rules for Successful Stock Investing – should be devoured by all young financial analysts where he includes a chapter on economic moats which are:
- creating real product differentiation through superior technology and features
- creating perceived product differentiation through a trusted brand or reputation
- driving costs down and offering a similar product or service at a lower price
- locking in customers by creating high switching costs
- locking out competitors by creating high barriers to entry or high barriers to success
Don’t have time to read the book? You can hear him on one of my favorite podcasts, The Investor’s Field Guide: episodes 51 and 77.
4. Regarding Books on Financial Analysis
Dr. Robert Dagar was the head of the business department at Truman University when I was working on my accounting degree. He was also my advisor and I give him sole credit for landing my first accounting job at KPMG – I think he would deny that, however.
While he’s retired, I’d still give him one piece of advice for all accounting students – require a course on entrepreneurship. Like all of us with marketing, business, and accounting degrees, we were not exposed to the basics of building a successful business when I was working on my degree. That would bring context and clarity to the science every accounting and business student learns in their classes.
A gifted professor could easily build such a course around Michael Shearn’s, The Investment Checklist. If I ran a small business of at least 10 employees, every staff member would be required to answer the questions in chapter 2 of that little gem. That Q&A would be the starting point for business acumen and assessment throughout that small firm.
5. Great Data Analysts
I’m a fan of Andy Kriebel who is a Certified Tableau Desktop Professional and a data analyst extraordinaire. I also enjoy following his Makeover Monday and Tableau Tip Tuesday which is phenomenal even if you use a different data viz application.
He has a great slide deck on data analysts where he states a great data analyst is …
+ Not a report generator
+ Not a yes man (or woman)
+ Understand design principles
+ Have an appetite for learning
+ Are imaginative
+ Can decipher the message
+ Are methodical
+ Can spot trends and themes
+ Are storytellers
+ Are interested
+ Are curious
+ Understand context
Is this list just for data scientists and analysts? These attributes apply to most other departments across any company.
Thank You For Reading
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Take care and have a great week. Always be learning.