Buy the Book: There is no secret formula for business success. Donald Keough inverts the question “How to succeed in business?” He looks back on numerous mistakes in his sixty-year career and identifies common factors that led to business failure so you avoid the same fate.
Failing to Succeed
Some of the greatest businesses are defined by the chances they take to prevent the business from becoming stagnant. We see the successes but it’s the little failures along the way that drive their success.
That willingness to fail plays an important role in a business’s survival. In fact, the opposite often seals a company’s demise.
Creative destruction is a natural process that wipes out companies all the time. Complacency does too. Some of the greatest companies of the last century disappeared because management found unique ways to rest on their laurels.
The company finds early success doing something different, grows to an immense size, and becomes an industry leader. After a few decades, management becomes arrogant, complacent, and comfortable. Bureaucracy creeps in. Before they know it, some new upstart, more willing to take risks, has passed them by.
Sears, Xerox, and Kodak are three examples from a long list of once-great companies where management quit taking risks. They avoided the uncomfortableness of failure and ceased to stay relevant. Continue Reading…
The Memoirs of Walter J. Schloss by Walter Schloss
Buy the Book: Print
Walter Schloss shares stories and lessons from his life growing up in New York, getting his first job on Wall Street, enlisting in WWII, returning to work for Ben Graham, and successfully running his own partnership for 47 years.
The Notes
Wise Words from Peter Lynch
Anyone who got the investing itch in the ’80s or ’90s followed Peter Lynch at some point. He was the last star mutual fund manager — who left the game early and for the right reasons. Lynch played at a higher level than everyone else.
One of the best examples of this, that I’ve come across, was in the 1988 Baron’s Roundtable discussion. Ten fund managers gathered in the same room to start the year. You might recognize a few — Mario Gabelli, Paul Tudor Jones, John Neff, Michael Price, Jim Rogers, and, of course, Peter Lynch.
It’s three months after the ’87 crash. They’re jittery. They argue about what’s next for the economy, oil prices, interest rates, inflation, trade deficit, and the stock market. Six hours of “what if there’s a recession or another crash?” Basically, the crap you hear on CNBC every day.
And then there’s Lynch — I picture him sitting quietly, smirking. Finally, he interrupts:
There’s always something to worry about. But it’s garbage to worry about these things… You have to look at corporate profits, and see what’s going on in the companies. It’s total garbage to worry about the things that’s going to drive us to a 300 Dow. It’ll be something you couldn’t imagine if you picked the brightest or dumbest people in the world and assembled them for hours.
Lynch took a shot at the Roundtable itself and made his point. There’s always something to worry about in investing. But it’s a waste of time and energy because we won’t predict it correctly. Continue Reading…
Wall Street Under Oath by Ferdinand Pecora
Buy the Book: Ferdinand Pecora was the counsel for the Senate Committee on Banking and Currency investigation in 1933. His book lays out its findings on the widespread speculative, and manipulative, stock market practices leading up to 1929 and the market crash that followed.
The Notes
The Fall of the Goldman Sachs Trading Corp.
The rise in popularity of new financial products often coincides with the rising popularity of stocks. And if one takes off, you’re bound to get more.
One of the first examples of this in the U.S. was investment trusts in the 1920s. Investment trusts are a type of fund that got their start in the U.K. in the 1860s.
The first trust of any significance was created in the U.S. in 1924. One of the main selling points was the benefit of a professional investing your money for you. As the 1920s rolled on, another point emerged on how trusts would be a stabilizing force for the stock market during a decline.
Trusts were not an immediate hit. Only $175 million were in investment trusts in 1927. That all changed within a year. The number jumped to $790 million in 1928. Then it hit $2.25 billion in 1929 and represented 22% of all stock issues. In fact, the number of investment trusts more than doubled from 172 at the start of 1929 to over 400 by the end of August of the same year. And more investment trust securities were offered in September 1929 than in August.
But the love affair investors had with investment trusts was short-lived. Like many investment fads, there are always a few bad apples that spoil the bunch. Of all the investment trusts, one stands out as the most egregious. Continue Reading…
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