Monday, December 31, 2012

How to Think Like Leonardo Da Vinci (John Authers / Michael Gelb)

 
 This past April, John Authers' article  "Crack the da Vinci code for money masterpiece" in the Financial Times cited  the seven principles driving Leonardo's thought process as interpreted by Michael Gelb in his 1998 book  “How to Think Like Leonardo Da Vinci”.  

As we approach the New Year, let's consider the following principles:
  • Curiosita (Curiosity): An insatiably curious approach to life and unrelenting quest for learning.
  • Dimonstrazione (Demonstration): A commitment to test knowledge through experience, persistence and willingness to learn from mistakes.
  • Sensazione (Sensation): The continual refinement of senses, especially sight, as the means to enliven experience.
  • Sfumato: A willingness to embrace ambiguity, paradox and uncertainty. (Try to reduce the number of times you see things as an absolute, and reduce words such as totally, always).
  • Arte/Scienza (Arts & Science): The development of the balance between science, art, logic and imagination.
  • Corporalita:  The cultivation of grace, ambidexterity, fitness and poise.
  • Connessione (Connections): A recognition and appreciation for the interconnectedness of all things and phenomena.

Sunday, December 30, 2012

At Center Stage: An Economic High-Wire Act in the U.S.

Last week, as investors attempted to assess the action and inaction of Washington political leaders, risk assets such as equities declined and volatility spiked up in the U.S. 

The following quotes highlight perspectives from selected policy makers:
  • Congressman Tom Cole of Oklahoma (Dec. 27 MSNBC interview): "To paraphrase Ronald Reagan, there's so much manure around here, there's got to be a pony someplace" and "I actually still think there's a chance to get something done and so, you know, these deals usually come together at the last moment. That's what happened on the budget deal, the debt-ceiling deal. I think that's what's going to happen again";
  • Senator Charles Schumer of New York (Dec. 28 NBC interview): “I’m getting a little more optimistic today – sometimes it’s darkest before the dawn”; 
  • Senator Olympia Snowe of Maine (Dec. 27 farewell speech, after 34 years in Congress): "Throughout my tenure, I've borne witness to government's incredible potential as an instrument for that common good," and "I have also experienced its capacity for serial dysfunction. Indeed ... it is regrettable that excessive political polarization in Washington today is preventing us from tackling our problems in this period of monumental consequence for our nation"; 
  • Treasury Secretary Timothy Geithner (Dec. 26 letter to Congressional leaders): “I am writing to inform you that the statutory debt limit will be reached on December 31, 2012, and to notify you that the Treasury Department will shortly begin taking certain extraordinary measures authorized by law to temporarily postpone the date that the United States would otherwise default on its legal obligations.”
MY TAKE
As Washington policymakers speak in terms of the “size of a deal” and the “potential for a framework”, investors remain concerned that “viable solutions” are not part of the discussion. Given the persistent “last minute” nature of Congress’s decision-making process, it is likely that investors will continue to confront “high wire” economic dynamics through 2013.

Sunday, December 23, 2012

Boehner, Budgets, Berlusconi and More

During November 2011, after a U.S. Congressional “super committee” missed its deadline to identify $1.4 trillion in U.S. budget cuts, politicians pointed fingers at each other as they “kicked the can”.  Last Thursday evening, Republican Speaker of the House of Representatives John Boehner said his “plan B” effort to address annual automatic spending cuts and tax increases had collapsed among members of his party.  This news reversed a positive tone from earlier in the week and triggered declines in most global markets on Friday.  In a follow-up news conference, U.S. President Barack Obama suggested the potential for a year-end deal and said, “call me a hopeless optimist, but I actually still think we can get it done”.  Note: the Congressional Budget Office has suggested that without a deal the U.S. could move into a recession.

Separately on Friday, Italian Prime Minister Mario Monti resigned from his post after 13 months in office.  It is noteworthy that 1) the previous Prime Minister Silvio Berlusconi, a billionaire associated with many scandals, has recently returned to the country’s political scene and 2) Monti may run for President in February.

MY TAKE
  • In the U.S., it is understood that to address the U.S government’s debt crisis requires increasing revenue (more taxes) and decreasing government spending (affecting defense and entitlement budgets). However, finding common ground amid a polarized political landscape remains a challenge. A last minute deal may happen, but it will likely only provide short-term solutions.
  • Regarding Monti's resignation, it remains unclear if he will run for office in February, but it is likely that Silvio Berlusconi’s anti-austerity and anti-Germany views will be well received within Italy and  increase tensions within the Eurozone region.  
  • Bottom line: While the persistent political and economic cross-currents are likely increasing investor fatigue, those that remain focused and patient will likely find opportunities.

Sunday, December 16, 2012

Some Thoughts from Legendary Investor Sam Zell to Consider

During uncertain periods, it is worthwhile to consider perspectives from longer-term investors such as Sam Zell.  He is Chairman of Equity Group Investments, known for its $39 billion sale of Equity Office Properties Trust during 2007 and the controversial purchase of the Tribune Company (including the Chicago Tribune, the Los Angeles Times and the Chicago Cubs).  The following are excerpts from an interview with a Columbia Business School newsletter (Winter 2012), along with Zell’s 13 “fundamental rules”.
  • The Need for Simplicity: “I philosophically believe that if you can‘t delineate your idea in one or two sentences, it‘s not worth doing… My criterion is if [my team} can‘t concisely explain their idea, then I throw them out of my office and tell them to come back when they can. Simplicity is critical.”
  • Making Sensible Investments: “I start by not paying much attention to the market … I don’t make investments predicated on the assumption that there’s a greater fool out there who’s going to buy it from me for more than I paid for it. I look for situations that logically make sense to me.”
  • Focus on Demand Drivers: “My philosophy is to invest in businesses that serve externally created demand – businesses where I don’t have to generate demand. For example, in the mid-80s, I bought the largest dredging company in the world because I knew that every day the rivers and the harbors are silting, creating demand for the product I produced.”
  • Understanding Execution Risk: “one of the greatest risks of any investment is execution risk, and I think it is highly overlooked. I have great respect for execution risk and am always sensitive to people coming up with ideas that don’t have all of the t’s crossed and i’s dotted with respect to how the plan is actually going to be executed.”

Zell’s Fundamental Rules
  1. Operate on the condition of no surprises.
  2. Everyday that you’re not selling an asset in your portfolio, you’re choosing to buy it.
  3. Ensure management’s interests are aligned with shareholders.
  4. Look for good companies with bad balance sheets,
  5. Nothing should stand between a company and its fiduciary responsibility to shareholders.
  6. Look for opportunities in markets with pent-up demand,
  7. The definition of a partner is someone who shares your level of risk.
  8. Liquidity = value, 
  9. Sentimentality about an investments leads to lack of discipline,
  10. Take meaningful positions so you can influence your own destiny,
  11. When everyone is going right, look left,
  12. Understand the downside,
  13. It all comes down to Econ 101 – supply and demand.

Sunday, December 9, 2012

Employment Trends and a "Job Creator" Sampler


Last week, the U.S. Department of Labor reported that in November: 1) the unemployment rate dropped to 7.7% - with growth in professional servicesleisure and hospitality, but weakness in construction and manufacturing; 2) the labor force participation dropped to 63.6% (the decline of 350,000 workers likely a result of an aging population and discouraged workers no longer seeking jobs), 3) annual wage growth was 1.7%  and 4) unemployment rate for workers ages 16 to 24 was 14.8%. In addition, as the European Central Bank cut its economic growth forecast for Eurozone, the New York Times (Dec. 2, 2012) reported that European Union youth unemployment (ages 15 to 24) remains high with 22% in France, 51% in Spain and 36% in Italy.

In addition, Inc. Magazine (December 2012) presented its survey results of the  top ten U.S. job creators since 2008.  
  1. Universal Services of America (17,330 jobs): one of the largest providers of security and janitorial services in the U.S.
  2. Air Serv (6,269 jobs): baggage handling, cabin cleaning, and security services to the airline industry; 
  3. RuffaloCODY (1,700 jobs): fundraising and enrollment services and software to nonprofits and universities;
  4. Pacific Dental Services (1,451 jobs): provides administrative and human resource service to about 300 dental practices; 
  5. GoDaddy.com (1,403 jobs): Internet domain name registration and website hosting services;
  6. Heartland Dental Care(1,150 jobs): staffing, marketing and support services to over 370 dental practices;
  7. Chobani (1,083 jobs) makes yogurt with natural ingredients; 
  8. Talk2Rep (1,043 jobs): U.S.-based call center services and consulting; 
  9. Smashburger (995 jobs): fast food with over 170 locations and
  10. SolarCity  (989 jobs created): installs, monitors, and repairs solar power units
MY TAKE
  • With both the U.S. unemployment rate and labor force participation rate declining in November, it is likely that hiring trends remain fragile.
  • Regarding, Inc. Magazine’s survey, while other sources may highlight additional companies and organizations, the concentration of top job creators in the services sector suggests that growth in the high paying manufacturing sector continues to lag.
  • Regarding Europe’s youth unemployment, if the current high rates continue, the potential for social conflict may increase as well.

Monday, December 3, 2012

Some Dynamics of "The Data Driven Classroom" and On-Line Education

With attention increasing on the use of on-line services to address and support educational programs, the links below seem  informative.
  • "The Data Driven Classroom"  highlights 1) the need for repetition of material, 2)  validation of understanding before moving to the next level of class work and 3) data gathering for the teacher to understand where weakness may be within the class.
  •  "A School of Clicks, Not Bricks" addresses themes such as 1) the evolution of teachers becoming mentors and 2) the need to for students to gather and exchange ideas in a physical place.

Sunday, December 2, 2012

Managing Risks to our Food and Commodity Supplies, Global Health Systems and More

Last week, as “fiscal cliff” comments by U.S. political leaders triggered market swings, United Nations representatives met in Doha, Qatar to work on a climate change agreement.  Executive Secretary Christiana Figueres said  'What is very clear is that the science; no matter whether you read through…all these reports that have come out have said that we are running out of time.”
  • In the World Bank report “Turn Down the Heat: Why a 4°C Warmer World Must be Avoided (Nov. 2012) its president, Dr. Jim Yong Kim said, “climate change affects everything. The solutions don’t lie only in climate finance or climate projects. The solutions lie in effective risk management and ensuring all our work, all our thinking, is designed with the threat of a 4°C [warmer] world in mind.”
  • In a NY Daily News article (Nov. 15, 2012)New York State Governor Andrew Cuomo said, “Extreme weather is the new normal. In the past two years, we have had two storms, each with the odds of a 100-year occurrence. Debating why does not lead to solutions — it leads to gridlock. The denial and deliberation from extremists on both sides about the causes of climate change are distracting us from addressing its inarguable effects. Recent events demand that we get serious once and for all.” Note that Superstorm Sandy recovery costs are estimated at $41.9 billion for New York State and $29.4 billion for New Jersey.
  • The report Climate and Social Stress: Implications for Security Analysis (Nov. 2012), sponsored by the U.S. intelligence community and released by the National Academy of Sciences, suggests that within a decade “events will likely include clusters of apparently unrelated climate events occurring closely in time, although perhaps widely separated geographically, which actually do have common causes … in which a climate event precipitates a series of other physical or biological consequences in unexpected ways; and disrupt globally connected systems, such as food markets, supply chains for strategic commodities, or global public health systems.”
MY TAKE
Recent events and studies illustrate that climate change triggers events with significant social and economic impact.  Hopefully, global policy makers avoid the “last –minute” tactics applied to challenges such as the fiscal cliff.  In the meantime, investors should add climate change dynamics to their list of investment risk factors.