Secret Ingredient for Success

A fine article in New York Times on how self awareness is a key ingredient for success. By Camille Sweeney and Josh Gosfield.

Secret Ingredient for Success

Origins of Growing Money

An informative article in Forbes India by Jasodhara Banerjee summarizing key financial innovations such as bonds, merchant banking, private equity and others. Click on the link below:

Origins of Growing Money

Book Review - The Outsiders

A CEO has five essential choices for deploying capital raised through internal accruals, debt and equity. a) Invest in existing operations, b) acquisitions, c) debt reduction, d) dividends and e) buybacks.

Essentially, the most vital skill a CEO must have is capital allocation which will determine the return to shareholders. This crux is the key focal point of William Thorndike’s excellent book The Outsiders. In this book Thorndike writes about eight CEO’s whose average returns during their tenure have outperformed the S&P 500 and their peers by a huge margin. All these individuals were first time CEO’s with insignificant prior managerial experience but they still succeeded owing to their consistent analytical and rational thought process and having a long term perspective. The other significant trait common to all these CEO’s was none of them was obsessed with boosting up market capitalization. The eight terrific CEO’s featured are:

Tom Murphy – Capital Cities Broadcasting

Henry Singleton – Teledyne

Bill Anders – General Dynamics

John Malone – TCI

Katharine Graham – The Washington Post Company

Bill Stiritz – Ralston Purina

Dick Smith – General Cinema

Warren Buffett – Berkshire Hathaway

These eight individuals were champions in capital generation, capital allocation and decentralized operations. All of these CEO’s were “foxes” (as against “hedgehogs” – knows one thing, but knows very well) who knew many disciplines and were very efficiently able to make connections across industries and disciplines and this variety rendered fresh perspectives and innovation. For e.g. Buffett before becoming CEO was a highly successful investor and was fully prepared (his prior experience in evaluating an array of investments) for allocating capital as the CEO of Berkshire Hathaway. For fans of Charlie Munger, there are some inputs from him as well as the author interviewed him for some portions of this book.

These CEO’s made capital allocation decisions themselves (unlike at many organizations) and  firmly believed in independent thinking, razor sharp focus on cash flow based metrics and operating costs, buybacks as an investment opportunity and patience with acquisitions. Each one of them attracted doubt and uncertainty from peers and Wall Street during their tenure but increasing per share value was their primary goal and that translated in exceptional returns for their long-term shareholders. 

Lastly, the author provides a checklist to think like The Outsider’s CEO. This book is worth the money and time and one will surely gain many insights on a variety of businesses. Strongly Recommended!

Reinvent the Toilet Challenge - Global Sanitation

Bill & Melinda Gates have been doing tremendous work through their foundation. One of their key focuses is water, sanitation & hygiene. First a few facts:

1. The western "flush" toilet was invented in 1775 by a Scottish mathematician and watch maker named Alexander Cummings. It has been more than 230 years, but the basic "flush" toilet hasn't undergone any change. 

2. Worldwide there are 2.5 billion people (close to 40% of the world's population) without access to safe sanitation. About 1 billion people defecate in the open and another 1 billion use pit latrines.  

3. Diarrheal diseases are caused when food and water mix with fecal matters. Diarrheal diseases are responsible for 1.5 million annual deaths globally which is more than annual deaths from AIDS and malaria combined.

4. It requires on an average 3.5 gallons of water to flush each time.If every person on the planet flushes daily than the total daily requirement is a mind boggling 24.5 billion gallons of water.

Also, there are too many road blocks to developing flush toilets such as electricity, sewer system and plumbed water in many of the world's developing countries including India. Bill & Melinda Gates initiated 'reinvent the toilet challenge" and offered $42 million who came with a new kind of toilet system that does NOT require electricity, sewer system and water costs less than 5 cents a day for use. The culmination of the challenge led to some very fascinating findings. Click on the links below:

Reinvent the Toilet Challenge - Winners

Why we Need a Toilet Revolution

Fact sheet - Institutions Receiving Grants