Game-time Thoughts on Management

As I take my daily blind walk through the world of management, I can only hope that I can learn from my own experiences. Here is a living, evolving journal of my thoughts along the way:
-- 10/17/04 -- Among executives, one of the rarest commodities is the ability to make good, accurate, and workable decisions in the least amount of time, with the least amount of information.
-- 10/17/04 -- If there's a commodity rarer than decision-making, it's the ability to carry out your decisions, even in the face of tremendous adversity and discord. This is non-political leadership, and it is rarer than diamonds.
-- 10/17/04 -- Political leadership is being able to understand the opinions of one's constituents (customers, bosses, employees, whatever) and either taking ownership of or redirecting that collective opinion. It is often valuable, and as such MUST be in the toolkit of a good executive/manager. It builds collegiality, but not necessarily a following. A manager who uses exclusively this type of leadership doesn't really need to understand the topic of discussion, just the people. Thus, such a manager has an achilles heel: if the entire group has the wrong opinion, so will the manager. Should a non-political leader come along and see what has happened, he/she will have no trouble making a fool of the political leader as he draws everyone's attention to the fact that there is no factual or analytical support for the political leader's decision. How can a whole group be wrong? Small groups. Unempowered groups. Uninformed groups. Disinterested groups. Or, most dangerously, groups of political leaders. It's a wonder the Congress ever gets anything right!
-- 10/17/04 -- Managers are responsible for maximizing the productivity of their staff. To be productive, staff need to be motivated. Money is, of course, THE motivator, but others can factor in, such as confidence, as in confidence that their management supports them. Without this, they are afraid to take bold action. Lack of action is, by definition, detrimental to productivity.
-- 6/5/04 -- Good ideas are the most valuable form of capital
-- 6/5/04 -- It isn't the role of management to come up with all the ideas, it is their role to be good critics. No one has a monopoly on ideas. In fact, the most valuable ideas are those which are new and different. Often, these come not from the ensconced management but from those elsewhere (inside and outside the firm) with a different perspective. All ideas should be accepted equally and critiqued equally by management. Those which pass management's filter should be considered fit for implementation.
-- 6/1/04 -- Managers don't need to be good at doing (or even really know how to do) their subordinates' jobs. Rather, management is a skillset entirely independent of that held by subordinates. This may give us insight into why many successful people who are promoted into positions of management perform abysmally. It also reminds us that the review of a manager's performance needs to be based on this separate "management" skillset. A manager's products are not the goods and services his team produces. HIS products are his people. Thus, his unique skillset is primarily composed of people skills (a motivator, a coach, a conductor, a negotiator, a teacher, and perhaps most importantly, a communicator -- both in terms of convincingly conveying his own messages and in terms of detecting and understanding those of others). Secondarily, his skillset includes more inwardly-focused skills like decisiveness, acumen, entrepreneurship, and a critical mind.

FOLLOW UP: What Tomorrow will Bring . . .

REAGAN ON THE TWENTY
. . . Now that he has passed, it's time. I never really liked Andy Jackson anyway. If he's there because of the War of 1812, then what about the World War presidents? If, instead, it was imposition of federal rights over those of states, then he's nothing unusual. If it's his war on the Bank of the US, hey, that was just a power play, and in the end, the Fed turned out to be the same thing.

Reagan on the twenty, baby!!!

FOLLOW UP: You've heard of the Illuminati, right?

The illuminati I described last year know that they are most effective when they are anonymous. Unfortunately, sometimes some curious spelunker shines the spotlight on them. If you watched closely this week, you saw the roaches scurry. One name I didn't mention last year was one of the most frequently heard American names among the congnac-swillers.

Greenberg.

As in 'Ace' Greenberg, head of AIG, who has successfully placed his sons atop two other top insurance companies. Ace Greenberg who probably influences the management of more assets than anyone else in the world. Ace Greenberg who made the front page of the FT and WSJ this week for giving brokers kick-backs to the expense and detriment of his customers.

Do I think he was wrong? Yes. Private price negotiations are detrimental to my ideal of perfect capitalism. Am I against the illuminati or their big companies? No way. Size alone is no cause for concern. These guys have been consistently successful for decades and centuries. Assuming they did it legally, they deserve to enjoy the spoils.

All in all, not bad at all . . .

Quite simply: thank you, Gip, for putting us back on course.
We miss you already!

What Tomorrow will Bring . . .

Hey, they may have rejected my application to join the Psychic Network, but it doesn't take a psychic or tea leaves to figure out what's a few steps down the road. Here are a few hot upcoming trends:

FEMINIZATION
. . . of society. And before I get in trouble for saying
that, let me say that I use the term hyperbolically and
nonjudgementally. Metrosexuals unite!
DESIGN
. . . is overtaking functionality as the driving factor
in consumers' choices. Roaring Twenties, here we come!
DNA and STEM CELL BASED CURES
. . . will supply us with 100 years of breakneck medical
advances. Buy biotech, if you dare!

Security

I'm no fan of fear, but I am very willing to accept some if they reward is compensatory.

As Ben Franklin said "Those who would give up essential liberty to purchase a little temporary safety deserve neither liberty nor safety."

I can only hope that President Bush and his team keep this in mind when they consider whether they should continue to pro-actively chase terrorism and tyranny around the globe or whether they should shift to a strategy of appeasement in an attempt to reduce the number of bodybags arriving at Dover AFB. Clearly, the fine-feathered Spanish and the rest of the continentals did not. They want to run and hide. Trade freedom for security. Trade creativeness that spawns from diversity for xenophobia, trade liberty for constricting government interference, trade the pursuit of happiness for the shackles of fear.

Fighting isn't always the answer, they say. Surrender is never the answer say I. I've been developing a theory about those who favor appeasement. It goes something like this: they've not faced a tragedy like 9/11 in their own backyards, so they aren't willing to accept the high immediate costs of fighting against those who would perpetrate it. Talk is cheaper, so they stick to that. Once they come around to the realization that they are at as great a risk as the US is, they'll also come around to the realization that we all must act, and forcefully so. A few years from now, the UN should be the most belligerent club in NYC.

The problem with this theory is that they have faced tragedies like 9/11. Some have faced much worse. Muslim states have faced the utmost tragedy as a result of militant radical terrorists. Why aren't they ahead of the US in their desire to exercise this tumor from corpus humanitarius?

It's because they don't think they can win. Or at least, they don't think they can win within the limits of their attention span. Americans disagree. This isn't just wishful thinking. In the US, the future has always turned out to be brighter than the past. It has instilled an optimistic spirit which has been beaten out of most the rest of the world. We are willing to incur harsh immediate pain because we believe that it will be better on the other side and history hasn't let us down yet. We don't attribute this to luck; we see our history as proof that we have the ability to create our own destiny. We have the money. We have the minds. We have the might. Harsh but true, we are also successful at recruiting the best minds money and might from the rest of the world, leaving them with little hope of matching our success. Impotence raises fear. Fear breeds caution. Caution leads to paralysis. Paralysis causes atrophy. Atrophy feeds apathy. They've already lost the war.

The only way I can think of pulling them out of their downward spiral is to turn "them" into "us." If they begin to realize that we are all one people, living in a global society, enjoying common gains and suffering common losses, then they will begin to feel that we share common power.

I'll take Inaction for $1000, Alex

My mom always has good questions. Yesterday, she asked 'is politics getting crazier or is it just me?' I'm sure you'll join me in reassuring her that she's not going crazy. I feel that our elected decision makers are losing sight of their mandate. They are supposed to act for the good of their constituents, not waste my tax dollars bickering for their own political gain. I mean, who the f*ck would root for the US to fail in Iraq. We each have the right to our own opinion on whether or not we should be there, but to take satisfaction in the death or suffering of another human (US soldier, Baghdad shopkeeper, or Ba'athist, it makes no difference) is evil in that black-and-white biblical Marvel Comics sense of the word that George Bush understands so well.

Then she asked 'so what happens in a society where the politicians run amok like this?' Open your world history book to just about any page and you'll find the same story. It goes a little something like this:

	Step 1 --> People begin to feel out of touch with their politicians, and by extension, with their issues, debates, speeches, decisions, laws . . .
		Step 2 ----> People look for something different that they can believe in. There's a long road and a short road history can take from here. Either they go directly to step 3, or some demagogue surfaces promising to save the world, only to lead them to ruin in pursuit of his/her own personal gain . . . and then they move on to step 3.
			Step 3 ------> People lose trust in their politicians, and in the government those pols run. **Disenfranchised and with a sense of impotence, people grow indifferent to the frick and frack of the government (why worry about that which you cannot control?). They stop voting. **They begin to feel that 'as long as the politicians don't do anything that invades on my little day-to-day world, they can do whatever the heck they want.' They don't really care who's in office. **They increasingly resent the tax money these pols waste on things which don't help them. **With no faith in the pols, people fear any decisions, actions, or movement of any kind. In fact, they get so nervous when they feel that the government might actually DO something that they support anyone who acts as a foil
				Step 4 --------> This is the way the world ends. This is the way the world ends. This is the way the world ends. Not with a bang but with a whimper. (Thanks, Al)
					Step 5 --------------> Eventually, some folks in a nearby not-so-disenfranchised land decide to take the place over and the clock rolls back a ways.

Is there a way out? Not sure. When in doubt, follow the advice on my bumper: "What Would Reagan Do?"

*Stock Market Experts*

"Scheisters and Idiots"

Which one are you?

The behavior of any market is just the result of some extremely complex equation with a zillion and one variables, each one changing with every passing second, each one influenced by numerous other, constantly changing variables. If we were bright enough, we could just plug the numbers in and, voila! Brokers go the way of the dodo. Back here in the real world, however, the closest that Wall Street PhDs and B-school gurus have gotten is statistics. Numbers. Math. Probabilities. Data series and trend lines, means and medians, standard deviations and confidence intervals. First thing I learned in stats class is that the past doesn't predict the future, so this isn't exactly the holy grail either, but it can at least tell you where the market has been and then quantify the probability of it going where you want it to go ceterus paribus. If you believe that tomorrow will bring no earth-shatteringly fundamental change over yesterday, you can put the various probabilities into Excel and let it tell you the allocation which has the highest probability of giving you the highest return. Log onto eTrade and execute for 10 bucks.

Something's wrong here. Too good to be true. If it's so simple, why doesn't everybody do this? Because, in the long-term, it will give you only the AVERAGE market return -- and who wants to settle for average? No, no, we need to "beat the market" if we're going to have the condo in the Keys before we're 40.

People use all sorts of methods to figure out how to beat the market. Some read the paper for company names in the headlines. Some watch the ticker under the mistaken premise that you can predict the future by looking at the past. Some use arcane and nebulous economic theories (and I mean that in the not-applicable-in-the-real-world sense of the word) to pick which sector, product, CEO, or time of the month they want to throw their money at. Some have a 'trusted friend' advisor or mutual fund manager (aka broker aka scheister) who somehow just knows . Then there are the endlessly droning talking heads on **insert name of banal news-entertainment channel here**. Certainly they must be experts or else they wouldn't be on said banal channel. Others pay $19.95 for a book of 'secrets' by the likes of reverend Tony Robbins. The slightly smarter ones give up and throw darts.

Some will fall into the worst trap: the more expensive the advice, the better it must be. To heck with eTrade; you've got to spend money to make money, right? As every Wall Street ad says, the key to retiring a millionaire at 40 is to build a long term relationship with a pricey broker. Don't worry, it's not the thousands in fees he bleeds out of your account each month which motivate him. It's that love he feels for you, evidenced by the 3-martini lunch he treats you to once a month. He spares no expense in building that relationship so you will buy the fairy tales of financial gems he offers only to you, his best friend. Unfortunately, every minute he spends valuing you as a person is a minute he's not spending studying the markets. Think about it: 160 hours in your average work-month. 200 clients in your average broker's black book. Not much time left to uncover all those gems-to-be?

And that's OK, because however much time he spends, and whatever (legal) method he uses, math will eventually catch up with him. Anyone who consistently beats the market (long or short term), is a statistical outlier, and by definition we can't all be outliers. You can shoot for the Buffetian 25% long-term rate, but without a lotta luck and a little inside info, you won't likely be remembered as the sage of anything. And don't think that your Rolexed broker or those mutual fund managers who have recently stumbled into the limelight are immune to the laws of stats either. Not that they care -- since their commission is earned upfront, they win either way. When one of their portfolios goes south, they just sell it and mask the loss by folding the money into a better-performing portfolio. By definition, this means selling low and buying high. It also means buying into something which is statistically due for a drop (in order to return to long-term market average). In the mean time, your 401k is worth half what you put into it, and he's earned enough commissions to ski Vail next Christmas. If he messes up enough times, he may be pressured into early retirement, but he certainly isn't asked to refund the millions he's earned in commissions.

Give up the quest, stop paying for his BMWs and just buy the index. Memorize these letters: S P Y. The market grows at a long-term average rate of 11%. Inflation runs at a long-term average rate of 4%. So if, as I said earlier, you're willing to assume that tomorrow will be more or less like yesterday and the trend line will continue, you can settle in and earn your 7% long-term real rate of return, which is just going to have to be good enough.

Like everyone else who reads this, you probably are convinced that you (and your broker) are among the bold, the few, the statistical outliers. Reminds me of the old saying "the lotto is a tax on stupid people."

Equality

Folks, colorblindness is only cure for racism.

You've heard of the Illuminati, right?

That secret club of grey-haired European guys who sit around and drink Cognac, give each other secret handshakes, and anonymously control the World.

Controlling the World may be a bit rich, but limit it to the World economy and the notion is not as far fetched as most Yankees think. Look no further than the boards of the largest insurance companies.
--> Allianz (German) (and the biggest)
--> Aegon (US - I mean Bermuda - I mean . . . not even the IRS can figure it out)
--> Not to be confused with Aon (US - I mean Bermuda - I mean - whatever)
--> AXA (French)
--> Metlife (US)
--> Nippon Life (Japan)
--> Prudential (US)
--> Royal and Sunalliance (Brit)
--> Winterthur (Swiss)
--> Zurich (Swiss)
--> although not as big, we'll throw in Berkshire Hathaway (US)
--> finally, for kicks, we'll include the retards (literally) Baiduri Berhad (Brunei)
By harnessing a bulletproof income stream of premium payments, they accumulate assets up the wazoo. They then live up to the credo they invented 'save for a rainy day' by squirreling cash away in every imaginable asset class in every imaginable country at every imaginable risk level. My whole (brief) professional career has been spent in Finance and one thing I've learned: if you have an asset to sell, they're buying. If you need an asset, they have it.

Of course its not quite so explicit as all that. By going through holding company after holding company after broker after broker they make it virtually impossible to quantify the scope of their involvement in any given market. Suffice it to say that they own enough of everything to take control of the market for anything they choose. And where they don't have 51%, you will find them using the most quaint of all European contributions to business: cross-shareholdings and board-of-director swaps. Though only showing the info that's neutered enough to print, their annual reports and org charts show a complex and chummy mess worse than the Bostonian Interstate Highway system.

I'm applying to MBA school as we speak, so for practice let's do a case study. Michel Pebereau, Chairman of the board of directors of BNP-Paribas, the largest French bank is on the Supervisory board of AXA, which in turn owns controlling interest in the bank, which in turn shares its client base with a joint-venture set up with AXA selling rebranded AXA products. Like yin and yang Claude Bébéar, chairman of the Supervisory board of AXA is on the board of directors of BNP-Paribas. By the way, Pebereau is also on the board of Dresdner Bank, which his bank and AXA both have cross-shareholdings in. Dresdner has similar arrangements with Deutsche Bank, which has similar arrangements with Allianz, which completes the circle by owning part of AXA. Incidentally, everyone owns a piece of Vivendi, which of course has a reciprocal director swaps with BNP-Paribas and AXA and which now owns a piece of General Electric (itself quite a financial institution) after selling Universal's US assets to them. Barry Diller, remaining on as a member of Vivendi's board, is also on the board of Coca-Cola alongside Warren Buffet of Berkshire Hathaway (also on my list above).

When a big company starts looking like its going under, I guar-on-tee these guys find some smokey room in which to swill their cognac and decide its fate.

Unfortunately, that's about as sophisticated as some of their decision making gets. They only rely on risk math when it agrees with their preconceived notions and personal preferences. The sheer magnitude of their assets (and liabilities?) allows them to mask, ignore, and walk away from huge screw-ups. Certainly a 'Black Monday' or two might cause some of them to crash and burn, but the more likely risk is that someone will realize the Emperor really isn't wearing anything. This will lead to inquest and meltdown. In the end, some politician will have the bright idea of creating an FIIC (Federal Insurance Insurance Corporation) to ensure that "no American ever has to fear not getting his insurance payout."

Fear these guys, not because they're big and powerful -- or because they're old, white, and male -- but because they are careless with YOUR money and if they fall, they fall hard.