Review – How To Get Rich (@FelixDennis, #wealth, #entrepreneurialism)

How To Get Rich: The Distilled Wisdom of One of Britain’s Wealthiest Self-Made Entrepreneurs (buy on Amazon.com)

by Felix Dennis, published 2009

A “valueprax” review always serves two purposes: to inform the reader, and to remind the writer. Find more reviews by visiting the Virtual Library.

This will likely be one of the shortest reviews on record here. One reason is because I don’t want to spoil too much of this book for anyone else who might be interested in it; I do think it has to be fully read by oneself for it’s message to be understood.

Another reason is that I am not rich myself, so I don’t know how valuable my critical impressions of Dennis’s logic and experience will be and I don’t have any real opportunity to run a controlled experiment and find out. I’m going to take his thesis into mind and live my life as I see fit and maybe I’ll end up rich, or at least quite wealthy.

When Dennis says “rich” he means “filthy” rich. As in, it’d take several generations of slouches to piss through it all. This is the kind of rich he’s talking about. He’s not talking about retiring with a pension. And this book is psychological in that Dennis spends a lot of time detailing the mindset and motivations of people who are rich, not just particular strategies or actions to achieve this level of wealth (though he discusses that, too).

Besides the survey of rich life and rich worldviews, the book provides numerous general lessons on business, business management and entrepreneurial practices which are all valuable in their own right even if one doesn’t want to be rich, but doesn’t feel like being poor, either.

This book’s strongest point is honesty. And now, Felix Dennis’s “Eight Secrets to Getting Rich”:

1. Analyze your need. Desire is insufficient. Compulsion is mandatory.
2. Cut loose from negative influences. Never give in. Stay the course.
3. Ignore ‘great ideas’. Concentrate on great execution.
4. Focus. Keep your eye on the ball marked ‘The Money Is Here’/
5. Hire talent smarter than you. Delegate. Share the annual pie.
6. Ownership is the real ‘secret’. Hold on to every percentage point you can.
7. Sell before you need to, or when bored. Empty your mind when negotiating.
8. Fear nothing and no one. Get rich. Remember to give it all away.

This One Is Personal

The year 2012 has come and gone, but what do I have to show for it?

From a blogging standpoint, 173 new posts, quite a few of which were one-line quotes of interest but many more still were comprehensive book reviews or annotated videos and other reference materials related to business, investing and other subjects.

But this isn’t about what I accomplished on my blog, because if you want to know what I accomplished on my blog all you need to do is read it. No, this is a retrospective on one area of the life I lived this year past.

A little bit of background is in order: in the last quarter of 2011, I voluntarily left a position in the investment industry and changed my geographic location by several thousand miles, as well. At the time I made the decision, I was not sure what I would do next with myself nor where, exactly, I thought I was going in a general sense. I took a temporary position in sales because it was a professional environment that had always interested me and involved a skill set I did not possess but which I had always hoped to acquire. That got me through to the end of 2011, at which point I decided a break was in order so that I could rest, reset and ponder redirection for my life.

What transpired approximately a week into my mini-sabbatical was fortuitous– I received an e-mail from a good friend encouraging me to visit CSInvesting.org (it was but a mere shadow of itself then, hosted on a WordPress.com subdomain just like this esteemed journal) as a good resource for learning more about investing. What’s fortuitous is not just the fact that he sent it, and the timing, but also the fact that I followed through and visited it immediately, rather than letting it languish in my inbox for weeks or, worse, giving it a cursory glance and then ignoring it just so I had the mental satisfaction that I wasn’t ignoring the suggestions of my friends.

I feel comfortable in admitting that reading that blog changed my life, for the better (or at least “for the different”, but the different was undeniably good). My mind started racing in a million directions at once and a path revealed itself to me at a time I was ready and willing to take the first step. I ended up exchanging correspondence with the proprietor, John Chew, and also made notes of some of his most profound comments later on the blog. If you joined the audience sometime after January of 2012 and haven’t yet read it, I encourage you to do so now.

Taking the motivation and principles I derived from reading CSInvesting.org and combining them with a specific strategy shared with me by a close friend from back home called the “personal MBA” for short, I set out to make the next 12 months a self-guided deep-dive into all things investing and business. I began developing a reading list, which was added to repeatedly as the year wore on, and shipped small libraries-worth of books on the subject to myself to read, annotate and review. The results of those efforts so far can be found in the Virtual Library.

However, this was really just the kickstart. The principle I had come to adopt in this time was that life is a journey, not a place, and personal growth and development and sound investment strategy are no different. The idea is to create a process and fine-tune it with each pass through. You have no final destination and your ultimate control over the result at any given moment in time is not total and often limited. All you can do is focus on that which you do have control over, the process you employ, and improve it as much and as many times as you can.

The Personal MBA, my twelve month commitment to an intensive course of self-study in business and value investing, was just a process for learning and growing (which itself is a process for living). I modified it numerous times along the way, adding some elements and dropping others. At all times, life-at-large intervened in numerous and chaotically unpredictable ways and I learned to course correct along the way. I knew that, come December, I wouldn’t have  come to the end but just another beginning.

As I set out down the path of 2013, I’ve got an idea of some of the sights I’d like to see and I have a general sense of the direction I am heading. Phrased differently, I know what processes I’d like to make a part of my life in the future, and I have an idea of what processes I can use to increase the likelihood they eventually become integrated into my life.

I plan to continue learning about business and investing. I’ve also taken on new professional responsibilities which will afford me additional opportunities to learn, observe and practice, as I am now involved in operational management at a large-scale retail concern. However, a lot of my time will be consumed by these efforts so I have had to adapt my process to the concomitantly reduced time and attention inventory I now possess. This is not a year where I’ll be able to pull off another Personal MBA-type effort, in other words, as far as my investment study process is concerned.

In 2012, I lacked courage and conviction when it came to practicing the art of business and investing. Now that the year is behind me, I am confident that my theoretical knowledge is built on a sound and deep foundation. This coming year is the year of action, of taking that knowledge and putting it in practice, much more so than I managed to do so in 2012. Following the 80/20 principle, I believe I’ve covered the 80% of the literature and resources that are valuable and the remaining 20% are not as worthy of my time. Now I’d like to spend 80% of my time practicing and only 20% reading and thinking.

Value investors talk a lot about the example of Warren Buffett. Something I rarely hear mentioned is the fact that Buffett has spent an inordinate amount of time simply looking at stuff: rejecting the multitude of bad deals, getting tangible experience with the good ones and learning to identify the difference between the two so thoroughly that he had developed an intuitive pattern memory so that the contrast of a good opportunity began to leap off the page at him when he came across it.

That’s what I am missing right now as an investor and businessman (one thing, anyway), and that’s what 2013 is going to be partly about getting.

Review – Losing My Virginity (Richard Branson Autobiography) (@richardbranson, #entrepreneurship)

Losing My Virginity: How I Survived, Had Fun and Made a Fortune Doing Business My Way (buy on Amazon.com)

by Richard Branson, published 2011

A “valueprax” review always serves two purposes: to inform the reader, and to remind the writer. Find more reviews by visiting the Virtual Library.

I felt I had to put “(Richard Branson Autobiography)” in the title of this post lest I tittilate my audience too much. No, this is not the story of how I first had intercourse. This is an autobiographical work about parts of Richard Branson’s personal and business life. However, yes, there is quite a bit of sex and other raunchiness to it, as Branson was quite the stallion in his day and seems eager to share that fact with his readers.

Anyway, I read this book over a year ago, took a few notes on it and then never got to actually posting them until now, unfortunately. Spring cleaning in October, as it were. Which I think is appropriate as it seems we won’t be having a winter this year, where I live– so if the seasons want to do whatever they want than I’m going to do whatever I want and go through my old WordPress drafts right now in the middle of the fall.

Spoiler alert– this book is choppy and inconsistent in the pacing and entertainment factor of its narrative. You really need to read between the lines a bit to get the most value out of it. That being said, it’s surprisingly literary for a dyslexic former publisher of a student magazine and I found Branson’s repeated reference to his high-altitude balloon voyage trials to be an outstanding metaphor for his life as a businessman and entrepreneur.

You see, in Branson’s ballon journeys, the key factors of any consistency were that: a.) Branson was knowingly and openly taking what he perceived to be a potentially life-threatening risk b.) Branson was almost always underprepared for it, or decided to go ahead with his attempt despite early warnings that something was amiss and c.) nonetheless, he somehow managed to survive one disaster after another, only to try something bigger and bolder the next time around.

And this is quite similar to the way he comported himself as an entrepreneur on so many occasions. Again and again, he’d make a daring foray into a business, market or industry he didn’t quite understand, the company would stumble after an early success leaving them all on the brink of failure and yet, each time they’d double down and somehow win.

In that sense, Branson is a perfect example of survivorship bias. On the other hand, having so many narrow misses that turn into massive accelerators of a person’s fortune start to make you wonder if isn’t mostly luck but rather mostly skill.

As an entrepreneurial profile, “Losing My Viriginity” is full of all kinds of great successes and astounding failures. With regards to the failures, something I found of particular interest was the fact that Branson’s company were victims of some of the most common pitfalls of other businesses throughout its early history: taken for a ride by indomitable Japanese owners/partnerships in the 80s, repeated victim of the LBO-boom and the private/public buyout-cycle in the 80s and 90s. When you read these stories in the financial press it always seems to happen to the rubes of the business world, but Branson’s foibles help one to realize even rather sophisticated types can get taken in now and then.

The volatility in Branson’s fortunes do leave one with a major question though, namely, why did Branson’s company ultimately survive?

This isn’t a Harvard Business School case study so I don’t mean to pass this off as a qualified, intelligent answer to that question, but I will attempt a few observations and, in typical HBS fashion, some or all of them may be contradictory of one another and none will be provided with the precise proportional contribution they made to the end result:

• the group had a cultural commitment to change and dynamism; they were not so much their businesses, but a culture and group of people who did business a particular way, a true brand-over-merchandise, which allowed them to reinvent themselves numerous times
• the group strategically focused on being the low-cost provider in their industry, usually while simultaneously attempting to pursue the seemingly mutually exclusive goal as being seen as the highest quality offering as well
• the group focused on serving customers but equally saw treating its employees with concern as an important value
• the group consciously created a brand that could be applied to diverse businesses (see point #1)
• the group pursued businesses that seemed “interesting” or sensually appealing to it, which ensured that everyone involved was motivated to do well because they liked the work they had chosen

Another thing I noticed about Branson and the development of his company was the attention he paid to the composition of management and owners and his dedication to weeding out those who were not good fits in a charitable way. Channeling the “best owner” principle first brought to my attention in a book I had reviewed on the blog awhile back, Branson made a conscious effort to buy out early partners whose vision and tastes did not match the current or future vision of the group. In this way, the company maintained top-level focus and concentration on a shared strategic vision at all times, sparing itself the expense and distraction of infighting and wrangling over where to go next and why.

Another aspect of the company’s resilience had to do with its operational structure. Branson built a decentralized company whose debts and obligations were kept separate. In an environment where new ventures were constantly subject to total failure, this arrangement ensured that no one business failure would bring the entire group down.

The final lessons of the Branson bio were most instructive and had to do with the nature and value of forecasting.

The first lesson in forecasting has to do with the forecasts others make of us, or the world around us. For example, Richard Branson had no formal business training, he grew up with learning disabilities (dyslexia) and he was told very early on in his life by teachers and other adult and authority figures in his life that he’d amount to nothing and his juvenile delinquency would land him in prison. Somehow this worthless person contributed a great deal to society, through business and charity, and by most reasonable measures could be considered a success, making this forecast a failure. If one had taken a snapshot of the great Warren Buffett at a particular time in his adolescence, when the young boy was known to often take a “five-finger discount” from local department stores, it might have been easy to come up with a similar forecast about him.

I’m not sure how to succinctly sum up the concept there other than to say, “Things change.” Most forecasts that involve extrapolating the current trend unendingly out into the future will probably fail for this reason.

The second lesson in forecasting has to do with how we might attempt to forecast and plan our own lives. When we have 50, 60, 70 or more years of a person’s life to reflect on, it is easy to employ the hindsight bias and see how all the facts of a person’s life were connected and led them inexorably to the success (or infamy) they ultimately achieved. And certainly there are some people, again using Buffett as an example, who from an early age were driven to become a certain something or someone and so their ability to “predict their future selves” seemed quite strong.

But the reality is that for the great many of us, the well-known and the common alike, we really don’t have much of a clue of who we are and what we’ll ultimately become. The future is uncertain and, after all, that’s the great puzzle of life that we all spend our lives trying to unravel. Richard Branson was no different. He was not born a billionaire, in a financial, intellectual, personal or other sense. He had to learn how to be a businessman and how to create a billion dollar organization from scratch. Most of the time, he didn’t even know he was doing it. In other words, HE DID NOT KNOW AHEAD OF TIME that he would become fabulously wealthy, and while he was hard-working and driven, it doesn’t even appear he purposefully intended to become so.

Maybe we should all take a page from Branson’s book and spend less time trying to figure out what’s going to happen and more time just… happening. We could sit around all day trying to figure life out, or we could follow the Branson philosophy where he says, “As for me, I just pick up the phone and get on with it.”

Are Cash-Flush Corporate Balance Sheets Hiding Stagnating Operating Efficiencies? (#workingcapital, #ZIRP)

In an article entitled “Too Much of a Good Thing” from CFO.com, we learn that American businesses have become less efficient with their use of working capital over the last year:

Days working capital (DWC) — the number of days it takes to convert working capital into revenue — did decrease marginally in 2011, from 37.7 days to 37 days. But REL downplays the improvement, attributing it in part to the companies’ 13% average revenue growth. “To have a 1.9% decrease is a positive, but not by a lot,” says Prathima Iddamsetty, senior manager of operations, research, and marketing at REL, a working capital consultancy.

Cash on hand across the group of surveyed companies, dubbed the REL U.S. 1,000, increased by $60.3 billion in 2011, helped in part by companies taking advantage of low interest rates to issue more debt, up by a record $233 billion year-over-year. Those companies now have a staggering $910 billion in excess working capital, including $425 billion in inventory, according to REL. “Way too much cash is being left on the table and not being put toward growth objectives,” says Iddamsetty.

But why does it matter?

Indeed, cash is still king for the REL U.S. 1,000. This is clearly evidenced by the $60 billion increase in cash on hand and the $233 billion increase in debt in 2011. Over a three-year period, cash on hand was $277 billion and accumulated debt $268 billion.

But using debt instead of efficient working capital management to get more cash into the bank account “comes with a long-term cost: eventually they will have to pay [the debt] down,” points out Ginsberg. “They’ll also have to generate a return on their existing assets that exceeds the interest rate, which is not what we’re seeing.”

It’s better to tap working capital as a funding source for long-term growth strategies, says Ginsberg. REL Consulting cites top performers in a broad range of industries, leveraging working capital to open up new businesses in emerging markets with growing consumer demand, for instance.

“Top performers have very tight manufacturing timetables and inventory management practices, in addition to strict collections and payment systems that are standardized across all locations,” says Michael K. Rellihan, an associate principal at REL. “The cash they generate from this high level of working capital efficiency is then applied to the growth agenda. Long-term, the result is a powerful benefit to the bottom line.”

“Only process improvements will provide sustainable cash flow benefits,” adds REL’s Sparks. “This requires working more closely with customers, getting better information to suppliers, and improving demand forecasting. You need to have an underlying process in place to manage working capital on a day-to-day basis; if not, it will be difficult to sustain.”

In other words, the growth in corporate debt and the resulting excess cash on the balance sheet gives the illusion of financial and business health in the short-term, when in the long-term these companies still must find ways to improve operating efficiencies and thereby generate profit. Ironically, even as the cost of debt in a zero-interest rate policy environment falls, this is getting harder and harder to do because there are fewer and fewer genuine opportunities to drive real growth and expand the top line while maintaining operating efficiency. It makes you wonder how much of this working capital problem is a symptom of our ZIRP-economy.

There was also a helpful chart showing the state of working capital efficiency by industry that can give you a quick high-level look at winners and losers in terms of working capital management.

How Does Amazon Avoid Creating It’s Own Mini-Depression? ($AMZN, #economics)

According to a new article at Slate, Amazon will soon (within the next 12 months) be offering it’s Kindle e-reader device for “free.” Here’s the part of the story that interested me the most:

Every time Amazon drops the price of the Kindle, sales of the device and sales of Kindle books increase dramatically.

This is curious. According to conventional economic views of the business-cycle, depressions occur when nominal price shocks occur in the economy which reduce the amount of aggregate spending, promoting further price decreases by businesses, which lead to even more reductions in spending as consumers become convinced that if they just wait a little bit longer, they can buy what they need at a lower price.

Next thing you know, spending has collapsed into the notorious and much-feared “death spiral” and the economy grinds to a halt. Mass unemployment, the fall of social morality and Huns impaling the babies of screaming mothers on top of their bayonets. The yooj.

But at Amazon, every time they lower prices, people spend more.

How come when Amazon does it, it creates more business and an environment where everyone (consumers and Amazon as a business) prospers, but when it happens in the economy at large, we get a death spiral and impaled babies?

Somewhere, there’s a disconnect between micro and macro. The secret (that the Keynesians never share and refuse to explain) is how and why this necessarily happens. Good luck figuring it out, I still haven’t!