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2/28/19 Too Much Corporate Debt, Interest Rates Too Low for Too Long contributing to Stock Market Volatility - Be Ready for the Tide To Go Out. WSJ article.   Whenever the Fed talks about raising interest rates a tiny bit - the stock market goes whacky - down - hopefully back up.  Reason is the interest cost on too  much debt owed by corporations can kill their profits - and the company - in a heartbeat. We've had a long, very slow rising tide for 10+ years - raising all boats.  WHEN THE TIDE TURNS THE COMPANIES WITH HIGHEST DEBT WILL BE THE FIRST TO FAIL or shrink rapidly.  Heaven help the companies that are using massive amounts of debt to produce modest profits (or break even or worse - taking losses now hoping growth will drive up their stock prices.)  KNOW YOUR EMPLOYER AND CUSTOMER'S DEBT TO EQUITY RATIOS!  Ben Graham says 2 to 1 max.  Most agree no more than 3 to 1.  Get some help to penetrate the financial engineering that most public companies use to make statements look good.  Make hay now, while the sun shines - but don't be surprised by how fast and hard the tide goes out.

 

2/7/19  Huge Trend, Outside Sales Becoming "Hybrid with Inside Sales".  Pure outside sales almost extinct.  Outside sales now spends 50% of their time selling "remotely".  "Remote Sales / Inside Sales growing 15%/year - 800,000 new jobs last year. It is NOT customer service.   NOT telemarketing.  Best to call it "Remote Selling"  Full Article

 

2/7/19 WSJ Article "Good Riddance to Low Margin Industries"   Courageous article by Andy Kessler  Tom Summary:  Indicators of persistent low margin industries: Price, price, price – only element of deals

- Tariffs, international trade, allegations of unfair competition take center stage

- Easy, simple for analysts, investors, competitors to understand

- No / low barriers to competition

- Profitable, better run businesses exit the segment (e.g. Intel and AT&T exited memory chips)

   o Over time, the Japanese lost market share to Korea, especially Samsung. China is now taking share.

- EXITING BAD INDUSTRY FORCES FOCUS ON HIGHER MARGIN SEGMENTS

   o Intel focused instead on high-margin microprocessors—the 386, 486 and Pentium

   o “Designed by Apple in California. Assembled in China” label.

- Who cares? Good riddance to low-margin businesses, awful uses of capital. The U.S. invests up the margin chain.

- The fallacy of today’s tariff war with China: It is meant to save jobs but ends up destroying better ones.  Click for Detail

 

12/8/18 WSJ Interview with Bill Easterly CLICK  HUGE parallels between failures of fashionable philanthropic approach to helping 3rd world countries (Bill Gates, et. al.) and IT industry's history of poor project results.  ROOT ROOT ROOT issue is "how do you get the people with power to give up control so right things get done?"  ANSWER:  You can't. Find another approach to desired outcome.

 

 

10/13/18  WSJ Article Lampert's Non-Strategy to Save Sears.  CLICK

  • SUMMARY – NON PERFORMANCE ROOTS, OPPORTUNITIES
    • STRATEGY
      • Certainly not effective
      • Acknowledged "no grand strategy", except SPEND LESS THAN COMPETITORS, CONSOLIDATE, CUT COSTS
    • FGIC WEAKNESS, BAD ASSUMPTIONS
      • Strictly a hedge fund / financial guy
      • Assumed competitors were bloated over spenders
      • Rejected IT investments in online shopping, loyalty programs
      • Rejected store upgrade investment
      • Rejected plan to turn Kmarts into ecommerce pickup points (working for Best Buy)
      • Thought he was smarter that ALL RETAIL COMPETITORS – DID IT HIS WAY – CHEAP – DESPITE BIG EVIDENCE TO CONTRARY
        • Knew nothing about retail but HAD THE POWER – COULD NOT RESIST USING IT
      • SHAREHOLDER VALUE ASSUMPTION – turned into severe under investing, resist all spending, underfund initiatives, "PROVE THE MATH BEFORE ANY MAJOR INVESTMENT"
  • CIGAR BUTT INVESTING
    • Bought Kmart and Sears at bargain prices
    • SEARS STORES WERE RUN DOWN, INEFFICIENT, RESULT OF YEARS OF NON-SPENDING, BEING ON THE BLOCK TO BE SOLD
  • INVESTMENTS, NON-SPENDING, FINANCIAL ENGINEERING
    • WalMart spent $2 billion on ecommerce over 10 years where Sears spent 1/10 of this???
    • Attempted cheap initiatives, abandoned quickly
    • Capital Investments:  spent ¼ of what Target and Macy's spent over 10 years
    • SHARE BUYBACKS + NO INVESTMENT:  Spent $6 billion but minimal capital investing while Target spent $23 billion on buy backs + $32 billion on capital investments for same period
  • LOST SIGHT OF CUSTOMER
    • "When customer pulls up to store they don't see investor ROI.  They see lightbulbs out, potholes, banged up doors"
    • Ecommerce sales were 17% of Macy's ecommerce sales

 

 

10/8/2018  ANOTHER REASON FOR ALL THE ACQUISITIONS / M&A: GIVES OWNERS THE CHANCE TO BREAK COVENANT WITH EMPLOYEES - CONSISTENTLY REMOVE HIGHER PAID PEOPLE

  • Big opportunity for TIA, FOLLOWING M&A, AT 18 MONTHS - NON PERFORMANCE BECOMES UNDENIABLE
    • THREE REASONS FOR ACQUISITION - LOOK INARGUABLE ON PAPER / IN STRATEGY - 70-80% FALL APART IN EXECUTION
      1. LOOK BIGGER THAN YOU ARE - APPEAR FAST GROWING
      2. REMOVE A COMPETITOR
      3. BREAK COVENANT - REMOVE HIGHLY PAID EMPLOYEES

 

 

7/2/2018  Understanding Wacky Decisions Made by Financial Guys, Stock Market, Investors, WHY THEY WON'T PAY FOR NEEDED IT PROJECTS (a beginning).  I call this the "FINANCIAL GUYS IN CHARGE" PROBLEMClick for wsj article and more notes.

 

CONCLUSIONS / SOLUTIONS FOR MY PRACTICE:  Focus where

  • Paid for with OPEX – Not CAPEX
  • Management can resist SHORT TERMISM (how separate hype and reality?)
  • Clearly moved needle in 12 months
  • Financial guys like to spend vs. don't like (new CEOs, acquisitions…)
  • IDEAL:  Able to negotiate CEO jobs where free from short termism, interference

 

- CLASSES OF SPENDING VERY DIFFERENT.

  • R&D (some sectors rewarded, spending in vogue, some punished for spending e.g. mfg, pharma)
  • Capital Spending (Plant & Equipment.  Falling world-wide, trend here to stay)
  • Business Investment (headwinds increasing, see below)

 

- SHORT TERM QUARTERLY FINANCIALS FOCUS

  • Here to stay.  Avg hold period steady at 12-15 months
  • Mgmt's ability to resist short termism is critical.  E.g. Amazon strong enough to spend on long term
  • MGMT HAS RESORTED TO FINANCIAL ENGINEERING to fund R&D, capex, projects
  • NOTE:  Some companies need quarterly leash to stay in check, some barely affected.  Art form is knowing difference

 

- HISTORY, STUDIES SHOW INVESTORS BETTER OFF NOT SPENDING ON CAPEX, BUSINESS INVESTMENT

  • Mgmt track record on projects stinks, will run wild if not on very short leash
  • Prefer to acquire companies with systems / stuff in place – they understand better
  • Investing in R&D PAYS OFF MUCH BETTER

 

- PRESSURE, TREND TO TURN CAPEX INTO OPERATING COST CONTINUES: Big opportunity for no-code!

 

- SECTORS IN VOGUE CAUTION: Insanity can prevail for a while.  E.g. dot com bubble, current tech sector fad, big R&D spending, not likely to pay off

 

- LOW INTEREST RATE / HIGH DEBT:  Always a concern – WATCH OUT WHEN RATES RISE

 

- SHAREHOLDER BUYBACKS: Much debate, competes with IT projects for cash.  Interest rate / debt risk

 

 

7/2/2018  Why Good New Product / Service Initiatives Don't Get Funded, Are Underfunded, Plug Gets Pulled.  GOOD MONEY / BAD MONEY CONCEPT.  Click for summary from Innovator's Solution by Clayton Christenson, et. al.  GOOD MONEY is patient for growth but impatient for profit (demands rapid proof that a new product / service is viable.)  BAD MONEY demands rapid growth but is patient for profits.  Look for good money - but beware - it can turn bad in a heartbeat when company takes a downturn.  I think we need contracts guaranteeing funding... easy to say...

 

 

7/2/2018  Optimism is Respectable Again Click for WSJ article   I benefited greatly from the "positive thinking" fad of the 1970s and early 80s - though the advocates went a bit too far.  I am glad to see optimism is fashionable again - it encourages me.

 

7/2/2018  Two Tough/Bad Projects Recently, Got My Head Handed to Me. I recently landed dream projects for Boeing and for a Private Equity firm.  Both looked outstanding at the start - turned to mush - nothing I could have done about it.  Don't let me give you the impression that I've got this all figured out...  We need each other's help to understand and navigate the evolving landscape.

 

 

1/27/2018  High-end sales jobs decreasing as companies push to reduce labor costs.  DOWNSIDE:  Commoditization, low barriers to entry, low margins.  Relationship selling declining, only 7% of high performers.  Customers, spread too thin, no time, consequence is Problem (Non-performance) / Solution / Urgent Compelling Need selling is best way - by far.  Sales people controlling, driving sale through UCN solution/expertise is growing and expected by buyers.  Sales technology will continue to explode. Article on Sales Trends, 2017 by Jim Keena, Philip Petersen  Click

 

 

1/13/2017  CAPITAL AND CORPORATIONS ARE HURTLING AWAY FROM BEING PUBLIC. TOWARD PRIVATE EQUITY.  Becoming easier to raise private money than public - even $1 bb+.  U.S. listed public companies declined from  7,000 to 4,000 (42%) since 1997, largely through M&A.  Remaining public firms are bigger, more bureaucratic, BECOMING COMMODITY, LOW PERFORMANCE PLACES TO WORK, LOW RETURNS FOR INVESTORS.  No real upside to being public, much downside. PE now has tools to compensate high performing people with marketable securities - not just payouts after exit. Short term investors in public companies are driving talent to PE.  IPOs are down from 9,300/year high to an average of 200 per year, largely because the Public investors will not invest long enough to bring critical new tech and concepts to market.   Click for WSJ article

 

 

1/7/2017  Buffett, Other Models for "Fee for Performance" instead of paying flat fees, hourly rates, salaries.  In the 1960s Buffett charged no fee for managing investments until they produced a 6% return.  Above 6% he got 25% of the overage.  If the return was below 6% in future years he gave back the difference.  Currently Orbis charges a base fee of 0.45% annually and 25% of the performance over a benchmark of similar companies.  AJO charges "fulcrum fees" (fees increase in high performance years but decrease / giveback in low performance years.  See WSJ article by Jason Zwieg.  NOTE ON HOW BUFFETT PAYS HIS CEOS:  Near as I can tell, he establishes a target Return on Invested Capital for the company and pays the CEO between 15% and 25% of any overage.

 

 

12/7/2016  The "Effectiveness Movement Away from Public Company Dumb Stuff" Now Creates 30 to 50% of All Return On Invested Capital" (Tom's guess.) Buffett and Berkshire Hathaway Demonstrate Effectiveness of "PE-Like" Management and are now the 4th most valuable company (at $400 Billion). Rational management, rigorous cost containment, picking right CEO, not interfering, barriers to competition, capital invested only where total return is competitive and dozens of other points of excellence are growing and dominating.  Let's compare Return On Invested Capital for Private Equity + Berkshire Hathaway vs. all other public companies.  I think you will find PE + Berkshire account for 30-50% of total ROIC.  (Remember that public companies are often unprofitable and operating with huge capital producing marginal returns.)  Berkshire alone paid 10% of all corporate income taxes in 2010 according to Buffett's letter. See WSJ Article

 

 

12/2/2016 Why U.S. Explosion of Manufacturing in 1950s, 1960s cannot recur (rest of world's manufacturing capacity was devastated by WWII, U.S. held near monopoly for 1/4 of a century), cautions for boom times, viewing current manufacturing opportunities, returns realistically, implications for low skill workers.  WSJ article by Phil Gramm.  CLICK

 

 

11/30/16  Dumb Stuff In Public Companies:  Activist Elliot letter aiming at Cisco and Cognizant non-performance.  Pushing to increase operating margins from18% to 23%, DISPOSE of non-performing assets (don't waste energy selling them.)  Cisco took action, stock up 30%+ in 18 months.  Cognizant response pending.  I worked for Cognizant.  I have seen the non-performance there and at dozens of other public companies.  This is why I like Private Equity. See WSJ Article

 

 

11/1/16  Mike Fariburn, President of Latin America, eight countries, four plants, 2200 employees, used and improved SQP (Sales Quotation Process for Complex Product and Service Sales.) Resulted in dramatic improvements in margin, forecast accuracy, change order payments.  Big reduction in legal risks, "surprise costs" over 10 years.  Average Order $2.4-$7 million.  Average 500+ Orders Per Year.  30% Close Rate.  Click for details

 

 

9/3/2016  De-Mistifying IT:  I want to be the "John C. Bogle of Big IT":   As head of Vanguard Investments he changed an industry with competition, transparency, stewardship for owners and cost minimization.  Said "No.  We can do better." to self-firsters, big egos, razzle dazzle of complex investing and high profits at investor expense.  Stood up to those preying on fear, ignorance, desire for get rich quick, laziness and inattention.  Hard work, discipline resulted in indexed (low cost) mutual funds rising from near 0% to 25% of all investments (Almost $1 trillion since 2008.)  I'd like your help making big IT and big software transparent and accountable for serving owners - not self.  Julia Child did the same thing for French cooking - made it understandable for all. See WSJ Article

 

 

8/1/16  Make Growth an INTENTIONAL PROCESS, Chapter 10 Key Points.  From Jeff Imelt and the New GE Way, 2009.  BREAKTHROUGH THINKING.  Most growth hopes are based the happy byproduct of operating excellence, e.g. Quality or Customer Service.

 

  • Growth record under Imelt:  Between 2001 and 2007 grew revenues from $107 billion to $179 billion, profit from $14 billion to $22 billion (60%)
  • Growth as mandated, disciplined process!!!
    • NOT the happy byproduct of operating excellence, e.g. Quality or Customer Service
    • Dominate culture at GE Medical was cost cutting.  HAD TO CHANGE - INCOMPATIBLE WITH GROWTH
  • Welch drove profit growth mostly through cost control!!!
  • MAY BE ABLE TO FORECAST A LIFE CYCLE:  Acquisition - cost cutting happiness - cost cutting not enough + cannot grow by acquisition -> ORGANIC GROWTH OPPORTUNITY, willing to do what is needed
    • Standard GE Growth Tools:
  • Technology enhancement
  • Becoming as good at marketing and sales as GE is at productivity and cost control
  • Real customer focus:  Customer-driven solutions, more listening sessions
  • Geographic (global) expansion
    • Easy to get comfortable in US only.  Hard work, big rewards to grow globally
  • Boundary-less
  • Bundling services with profits
  • Linking with outside contributors (whole product solution.  Improve things for partners)
  • "Owning Spaces" (niche dominance)
  • New products
  • Develop growth leadership
    • UNDERSTANDING NICHE BEFORE ACQUISITION! - e.g. Amersham purchase by GE Medical
    • Growth Leader Selection based on:
  • External focus, success in market terms
  • Clear thinking, reduce strategy to action, make decisions, communicate priorities
  • Imagination, courage, take risks on people and ideas
  • Inclusiveness build loyalty, commitment
  • Function or industry personal expertise leading to confidence to drive change
    • Net Promoter Score:  Customers who would recommend GE minus those who would not
    • Customer 'dreaming" sessions
  • He viewed as adding disciplined growth to existing strengths of risk management, cost control and productivity
  • Items he did not mention but key from my experience
    • Queue of test market initiatives, best targeted niches, ready to go
    • Cadence - Qtrly Plan vs. Results:  "here is how I did against planned growth targets last quarter, here are my targets for next quarter"

 

 

WSJ Article 7/28/2016  Discusses Private Equity history, trends, where opportunities are for Organic Sales growth by Matt Jarzemsky

  • PE was hot, 2000-2009ish, many sustained 20%+ annual returns
  • NO LONGER ABLE TO DELIVER THESE RETURNS DUE TO
    • Rising valuations
    • Competition from corporate buyers and other PE firms “we are constantly outbid”
    • Low growth, low equity market growth (from cheap money, et. al.) reduces sale price
    • OLD FORMULA NO LONGER WORKING (buy underperformer at a bargain, improve performance, leverage with debt and sell)
      • CAN’T FIND THE BARGAINS
      • MOST DON’T UNDERSTAND BEYOND FINANCIAL ENGINEERING
  • Differentiates between PE and LBO firms
    • LBO overreach + 2008/2009 recession created BUNCH of bargains for PE.  Now gone
  • Blackstone and Apollo down 15% for the year
  • KKR and Carlyle down 35% for the year
  • PE STRATEGY CHANGES:
    • Have moved beyond just LBO / financial engineering
    • expanding into real estate, credit, public company stakes
    • AMASSING SMALLER COMPANIES IN FRAGMENTED INDUSTRIES – OPPORTUNITY!!!

 

 

7/29/16  Understand why the Fed, many economists believe U.S. has permanently down shifted to about 2.1% annual GDP growth.  WSJ chart shows average growth declining from 7% per year after WWII. Click Here

 

 

6/2/16  Understand the Upside of Wall Street, Financial Engineering to Help Manage the Downside:  Excellent WSJ article by Nitin Nohira, dean of Harvard Business School shows India as example of what U.S. would be like without financial services:  Can't buy a home until can pay in cash, no capital available for starting businesses except when controlled by wealthy families...  Click Here for article

 

 

5/16/16  Mike Grimes, GE and Private Equity Heavy Hitter speaks to Institute of Management Consultants Talk May 16, 2016 Click Here for recording, other materials to help understand Private Equity

 

 

5/16/16  BEST INFO, LEARNING RAMP UP TO UNDERSTAND PRIVATE EQUITY: Mike Grimes, Tom Ferguson, Doug Staab, Damian Thomas, Bob Alexander, Mike Lorrelli and other Private Equity veterans provide their insights, tips and stories for navigation the opaque, difficult world of PE.  Click Here for recordings, notes, summaries

 

 

5/3/16  Financial Engineering Shows Its Downside, Opportunities for Those Focused on Growing Happy Customers instead of finance.  Click for WSJ article

 

 

3/4/16, "Financial Economy Out of Gas..." Financial type's lack of understanding creating opportunities for those who can grow happy customers and profitable operations. Bill Gross, head of Janus Capital, says the "financialization of the economy" that created endless growth [for the financial engineers] over the last 25 years has run out of fuel.  Many of us who care about the fundamentals of happy customers and profits have been frustrated as the financial types have come to rule the planet.  The Fed, the Wall Street Journal and nearly everything I read from the financial types moan about a permanent shift to lower national growth (about 2.2%) and whining that they can only earn 1% or 2% on their cash investments.  I think opportunities are returning for those of us who understand the hard, diligent work required to grow happy customers and deliver profitable products and services.  The financial types have never understood this - and the cycle of opportunity is coming back to favor us.  Look for situations where the financial guys can no longer hide their failure to grow profitable businesses - especially in Private Equity.  Click Here for Wall Street Journal article  Join the "Stay Connected, Help a Buddy" network as we help each other grow organic sales. [Help a Buddy Link Deleted]

 

 

12/19/15  The Death of God is Greatly Exaggerated, Wall Street Journal article by Kate Bacheldor on Eric Metaxas, Manhattan based "happy warrior for Muscular Christianity."  An author and talk show host that prizes civility but insists on speaking out for Christian principles...  Click for Article

 

 

2/22/15  "Show Up With Your First 20 Plays Ready" to avoid common mistakes with mergers and integration (Bill Walsh). Quick-Starts shorten the cycle time for IT systems needed for process improvement. Click here for WSJ article.  Part of our Rapid Results approach with SharePoint and other tools is using "Quick-Starts" (templates / solutions I have built before where I have about 18 pieces of the puzzle ready to go.  E.g. screens, workflows, process drawings, database designs, outcomes and priorities, etc.)  Currently we  have about 15 of these Quick-Starts.

 

 

12/20/2014 God Is Not Dead In Gotham, Wall Street Journal,  Click for article by Kate Bacheldor.  Regarding pastor Tim Keller

  1. Church has grown to 5500 people in 25 years IN DOWNTOWN MANHATTAN, helped with 300 Church Plants in 45 cities around the world
  2. Keller asks questions in personal meetings.  (Finds out what people worship – what is their “god” at the moment, Plus showing interest, Plus generating relationship.)
  3. “Everyone has a god, everyone has a way of salvation, we just don’t use the term…they are putting their hopes in something and they are living for it.”
  4. “The only reason you are laying yourself out like this is because you’re not really just working.  This is very much your religion.”
  5. Hard part: “Coming under God’s authority because you have to find your identity in Christ – not in just fulfilling yourself.”  THIS COMPLETELY COLLIDES WITH WHAT OUR CULTURE IS TELLING PEOPLE.
  6. Professionals are often attracted to the idea of sacrificial love.
  7. Golden Rule is USE PLAIN ENGLISH.  Stay away from Tribe Lingo like ‘Blessing’, etc.
  8. Part of the Presbyterian Church of America, a Conservative Presbyterian Denomination (these guys regularly surprise me!)
  9. “God is not under any obligation to make me succeed.”  AGAIN, FLIES IN THE FACE OF WHAT OUR CULTURE TELLS US.

 

 

12/12/2013  Muscular Christianity (championed by Teddy Roosevelt, though his Christian record is mixed...))  Historical Basis – Turns out this has been a topic since the Victorian era.

http://en.wikipedia.org/wiki/Muscular_Christianity  Wall Street Journal Article by Stephen Prothero

 

 

12/12/2013, "A Cage-Fighting Christ for Our Time" on Seattle pastor championing the concept, going a bit too far?  Wall Street Journal article

 

 

4/10/2013 High Character Leaders Produced 9.35% Return on Assets while Low Character Leader's ROA averaged 1.93%.  Study by KRW Intl, Minneapolis, MN, published in Harvard Business Review.  Study covered two years, has some rigor, some flaws and sample size is too small (84 firms).  Measured through employee surveys on leader integrity, responsibility, forgiveness, compassion.  Should have measured additional items including effective strategy, the pursuit of excellence and willingness to do the right things - even when hard.  Caution regarding things we want to hear and fuzzy, subjective hr/staff focus.    Click for summary.

 

 

*Contact Us in Dallas, Texas, USA at tom@tomingraminc.com or 972-394-5721.

**Success stories, client quotes, estimated costs and benefits are derived from actual projects but may have been altered for simplicity, teaching purposes or to protect confidential information.