Richard Yong

Not being what you aren't - A Warren Buffet Story.

http://www.berkshirehathaway.com/

That's a $200 billion dollar company's website.

They are a reinsurance and investment company. They know that, and they make sure you know that, they do it by making it clear what they do not do.

Here are some things they do not do:

• Web design
• PR
• Logistics (AGM, first Saturday of May)
• Executive lounging
• Excitement
• Buy expensive things (They bought a company once, the CEO was late... looking for unexpired parking meters)
• Hire writers

I think there's a story here around being who you are being made up of what you do, but more importantly what you do not do.

It's a dificult thing, and it took me six years of dawdling before I realised who I wasn't going to be. I wasn't clear about what I wasn't willing to do, and in return I ended up being everything to everyone, the Jack of All Trades. If you let others control your destiny, you end up being and doing what others want and not what you want.   

Can you imagine how uncomfortable some companies would be if they dropped their PR division, or fired their homepage designers?

It's the difference between the Doing Men, and the Maybe and Sorry Men.

Are you clear about who you aren't?

Are you clear about about what you won't do?

Some thoughts for Monday.

Flickr Cred: Thomas Hawk

The title is once again tongue in cheek. I was reading some scrawled pen marks in 'The One Minute Manager' by Blanchard and Johnson, it said 'No one does nothing to you, you do it to yourself.' Nice meaning, odd writing.

Oh and Activision blew analysts expectations away, putting on over 15% on Friday.

With Heart - Sleepless nights looking for the next Berkshire Hathaway

I sat with my eyebrows furrowed, deep in concentration.

Too many stocks, too little money. Age old problem, and here I was trying to scry an answer.

8 weeks ago, the market was dipping low, and an opportune moment to reinvest large chunks of cash. Here were the decisions keeping me up at night:

1. Activision. You know them as the makers of Guitar Hero and Call of Duty 4. They are merging with Blizzard. You know them as the makers of World of Warcraft and Starcraft.

2. Take Two Interactive. You know them as Grand Theft Auto IV. Electronic Arts (famous for SimCity, The Sims and all those sport games) were offering to buy them.

3. AMP Chinese stock fund. This makes sense, the Chinese Yuan will appreciate for the next few decades, but so will the mining Aussie dollar. The Chinese stock market is set to grow.

4. Challenger. I've spoken about these guys before. They run a tight ship, and buying in would mean a 'P/B' ratio of 1. That means for every dollar you invest, you're actually getting ONE dollar of the underlying 'net assets.'  A simplistic view is if they go bankrupt today, they will sell all their assets, pay off all their debts, and hopefully you'll get about what you paid back.

This is rare in finance companies. My expectation is that although their mortgage division will stifle, in a recession people will consume less, but save more. This means low interest rates, high inflation and increased use of financial planners and managed funds. Which is right up Challenger's alley.

They aren't wall street heroes either, they are extremely cost conscious and you won't be seeing their staff flying around in hired Bentleys or private jets. I like that. You know those corporate executives with private jets?  They aren't looking after their shareholders.

The decision I made in the end wasn't that hard.

I liked Activision, they had heart. EA didn't have heart, and Grand Theft Auto, while I would play it, doesn't seem to be the most tasteful game in the world. EA's slogan is 'it's in the game.' I think Activision and Blizzard have the same motto:

With heart.

Oh by the way, Activision announced they doubled last years revenue to $2.9 billion dollars. This is a company valued at $8 billion. Just WOW. 

epilogue - I just checked the opening price of ATVI (Activision) it's now pushing over $30. At this rate I can kick up my feet for another month. I haven't closed out my position yet, as I believe this stock has further to go (no I'm not giving advice, and nor should you construe it as such, this is ALL opinion!)

Flickr cred: TeeRish

Risk, Return on Investment and demanding profit.

People generally expect too little return from their business. Why? Because they never measured the risk.

Owning your own business should never be about buying yourself a job, it should always be about maximising your ROI (return on investment).

ROI is really just a fancy jargon term for making sure you earn more money than the risk you take on.

64.2% of small businesses fail within 10 years.  How's that for risk?

It's the reason why restaurants and retail stores are a horrible proposition for most people. The maximum expected income or return will never even closely reflect the amount of risk (overheads, employing people, initial startup costs, sanity)

It's a relative measure and opens up vast avenues when it comes to working out which option to pick when launching a new business. Look at these two examples:

1. Uni student launches an advertising based, content driven web site for under $2000 and starts earning ~$5000 a year. So 250% ROI.

2. Restaurant opens costing just under $250,000 to purchase and launch. What ROI does the owner need to make it a worthwhile proposition? Would it be better to be the uni student? Legitimate questions, and a reason I would never run a restaurant unless it was a hobby, or it was my ultimate passion.

If you're thinking about launching a business, and before you go neck deep in debt, make sure you ask yourself two simple questions (then go and work out the complex calculations!):

1. What's the risk of my failure?
2. So if I succeed, how much do I need to make it worth my risk of failure?

Oh and a third one serious one:

3. Is this a romantic dream, or is this about doing what I love and being able to support my family and my life?

The risk is more than most people probably imagine. It's also a very good reason to hang on to a job, the risk is low, and for many, the ROI is o.k. For businesses, it impacts the way their price and the way they go to market.

I'd love to hear about your experiences with personal ROI!

flickr credit:  opacity

I've added a fancy button up on the right, that's an RSS feed button. It'll let you keep track of all the headlines on your favourite sites. If you've never used it, click it and see where it brings you, it's like an online book mark and it'll book mark this site. Experiment and have fun (I'm new to RSS too!)

TCO - Total Cost of Ownership, the other TLA about spending.

I only buy something if it adds some value to my life. One concept, stalwart to my buying decisions, is considering the TCO. The Total Cost of Ownership. The cost beyond the dollar price of buying.

So what are the costs beyond the dollar price?

• Maintenance
• Health
• Time
• Mental anguish
• Mental and physical clutter
• Opportunity

Before I sound melodramatic, I'll use the example of a car. If you buy a car, you need to spend time cleaning it, you might drive instead of walking or cycling, you need to maintain and fuel it. Some people have their cars as objects of desire, and the mental anguish from being in an accident or the car being stolen can be really high (remember your first car?)

I've always loved video gaming, but I secretly suspected that as a past time, it didn't really contribute to anyone or anything. I had been looking at the Sony Playstation 3 for quite some time, and was impressed, enthralled even. I could easily afford it, but I spent a long time debating the TCO.

The TCO analysis of the Playstation 3 (you could apply this to a TV too!):

• Health. The late night, sedentary lifestyle of gaming can make you seriously unhealthy. This is against my values of living a healthy life.
• Time. If I game for a long time, it means I've chosen, consciously or otherwise, not to spend the time with my wife, my family or working on projects and my health.
• Encouraging more 'screen time,' I spend over 12 hours a day working on a PC, it's seems silly to swap to the next 'screen' after work.

Sure I could use it in moderation and still have a balanced life, but then I wouldn't be able to justify the cost per use, and therein lies the magic relationship, and the hook of deciding to own stuff. Just because you can afford it or like it, doesn't mean you should get it.

I caved. I'm only human! I ended up buying a PS3 for 50% off. I rationalised it by saying I could easily get my money back. Sure enough I started spending late nights, and long periods of time playing the PS3. The short story - I got fat. I wasted time reading game reviews and gaming websites. The cost of ownership was more than I could stomach, literally.

I sold it, made my money back (Cost Per Use = $0!) and breathed a big sigh of relief.

So what does TCO mean to you?

• Stop. Think. Before you buy something, consider the hidden, non monetary costs. Use the ten second rule.
• Use don't own. Most of us just want to get the pleasure of using something.
• Borrow or rent as an alternative to owning, especially things with lots of added ongoing costs like maintenance, repair or health costs.
• Enjoy what you do own, lots of people get worked up over repair costs or broken things. That's the price of ownership, and if you know that when you hand over your money, you're a step ahead.

* This is a follow up to the Cost Per Use post

** TLA - Three Letter Acronym. I hate acronyms, so the title is a little tongue in cheek.

Flickr cred: Kate_A

Trust your gut, not the bell boy.

On October 20, 2007, I woke up and liquidated my entire share portfolio. If you look at the graph of what the market was doing, you'd think I was crazy, things were still looking up (it usually is before it goes over the cliff). Over half my net assets were invested in stocks. I collected my profits, sat back and waited.

The decision was instant. I worried some time after, at how quickly I made the decision.  A quick call to my wife to tell her we were getting out, and that was that.

No prolonged anguish, research or advice saying 'hey it's time to get out.' In fact there were no signs of an imminent crash. Everyone still talked about how great the markets were. In fact, I was getting stock tips from just about everyone.

Although the decision was instant, none of the experience and research behind it was.

Recently I read Blink by Malcolm Gladwell, I now understand that these decisions are quickly made, but require long periods of learning. Here are some habits I've practiced since I was young, which helped me piece together the facts behind my intuition.

1. I've been reading the business news daily since I was 15.

2. I've been reading about successful investors and business managers since I was 15

3. I've been watching and working with the actual businesses behind the 'stocks' for years. Watching the successful ones, and the not so successful ones at work. Walking the floors of businesses gives you a whole new perspective on who you trust with your money.

4. I've studied and watched economic theory in action for years. Including as part of a degree majoring in finance and accounting.

With this information, I realised back in October that the U.S economy was going into a recession, businesses were finding it difficult to find cheap financing and that the reported losses from the sub prime credit crunch had yet to be totally exposed (and reporting season was coming up...)

Here are some tips for investing:

1. Don't buy into the market, buy into a company. Make sure you would invest into these guys long term, even if you're only going in short term. If you can, try to see if you can spend an hour walking around the company's office, interview employees, check out their bathrooms. Knock on the walls. This might seem odd, but it will really change your perspective on how companies are run. If not, make a trip to their lobby, or call them up and see what their receptionists are like.

2. Pay attention to the news, even if it's just browsing the top 5 headlines everyday. I'm sure you do it with blogs and the Sunday paper, why not with those thousands of dollars you've invested?

3. When everyone is running one way... poke your head up and make damn sure they aren't running over the cliff. Don't be the lemming.

4. The title comes from a tip I heard once, when the bell boy starts giving you stock market tips. Run. That was just before the dot com bust, and it's what happened 6 months ago.

5. Trust your own judgment. If you keep trusting everyone else, you end up just like everyone else. Do you want to be the 80% of people in the 80/20 rule? or the 20% of people with 80% of the wealth?

6. It's not magic.

If you have sharp sight, use it: but, as the poets say, add wise judgment

Marcus Aurelius - Meditations

picture credit: reuters - The graph is a three year chart of the australian stock exchange.

CPU will make your wallet fatter. and it's got nothing to do with computers.

As the weekend approaches and a weekend of glee is upon us, I want to share a cautionary tale on shopping.

Read this cracker. 10 xbox games sitting idle is the same as not going for a weekend holiday to Hawaii. I'm not kidding. Intuitively you and I would rather have a weekend in Hawaii lazing on a beach than a pile of unused stuff, but realistically, we all have a pile of stuff somewhere, and it comes from our relationship with buying stuff.

I use a simple concept when I buy new things. Cost Per Use. CPU. To justify a purchase to own something, the CPU has to approach zero. I like to use my things so much that by the time it's broken, given away or sold that it's pretty much cost nothing per use. Here are some examples:

Clothes - I hate unused clothes, every piece of clothing I own must have a cost per wear approaching zero. So if I buy a $200 jacket it better be lasting at least 20 years. That's a long time for a jacket to last. Alot of my clothes end up being of a multi use or utilitarian nature. It makes you think twice about buying that really nice shirt when the cost per use is in the hundreds of dollars. More if it's on credit.

Video Games - I abhor owning video games. Counter intuitive for a gamer like myself? Well it isn't. In the gaming industry there is a term called an 'attach rate' which is the number of games sold for every console. For the console to be worth losing money on (and Sony and Microsoft are losing money on every console sold) there needs to be a correspondingly high 'attach rate'

What this means is that consoles are great value for money, but games aren't. So owning games I don't play has never made sense to me. I only ever have one or two games at a time, and once I'm done with them, they're off to Ebay. The loss I make between purchase and sale is my cost for having played it for however long, and the cost per use generally starts to approach zero (because I used to game a lot).

Why CPU rocks.

CPU changes our behaviour towards purchasing stuff, it's not about owning stuff anymore, it's about use and enjoyment. I don't mind paying $7 to rent a dvd rather than pay $29 to own it outright, because the utility I get out of a dvd, is the one night watching it. I'd love to find a person with a large library of dvds that has watched them all twice.

One of the biggest paradigm shifts for me was over my ownership of books. Cost per use for most of my books is the cover price, which is ludicrous, $30 to read something once? I now use the library, why buy when I can borrow, and my cost per use hits a whopping free.

It also turns decisions into no brainers when it comes to experience. The thing with experience, whether it's exotic holidays or deep learning, is it's in constant use while you are paying for it. That 30 euro a kilo fiorentina steak, in Florence, cooked rare in front of me, in a crowded trattoria... worth every penny.

So next time you look at something you just must have. Take 10 seconds, ask yourself... what's the real cost per use? And if it is really valuable, spend with all your ability and happiness!

Have a great weekend!

Flickr cred: John Pannell