Monthly Archives: August 2014

Investment Process: Common Sense and Knowledge of Business is Important

Investment Process: Common Sense and Knowledge of Business is Important

Warren Buffett strongly instructs us to think for ourselves. He uses his own perspective—acquired from years understanding businesses, his vast knowledge of business—to assess business opportunities, appraise their value, and profit from them. He advocates using our own talents and specialties to invest in the areas of business where we feel most comfortable. He terms the areas of expertise as “the circle of competence.” This concept is a wonderful way for beginners to begin investing in stocks because it limits the list of available options into something that seems much more manageable and affords the investor to grow investing knowledge over time.

In Berkshire Hathaway’s 1996 Chairman’s letter and annual report, Warren Buffett wrote,

To invest successfully, you need not understand beta, efficient markets, modern portfolio theory, option pricing or emerging markets. You may, in fact, be better off knowing nothing of these. That, of course, is not the prevailing view at most business schools, whose finance curriculum tends to be dominated by such subjects. In our view, though, investment students need only two well-taught courses—How to Value a Business, and How to Think About Market Prices.

Warren Buffett at all times contemplates a company’s aptitude for growth in the long run. He never invests like traders with short term holding. Warren Buffett would always like to strike “an acquisition deal as if he wants to close it tomorrow and then not to reopen it for the next five years or more.”

On 17-May-1984, in a speech at Columbia Business School marking the 50th anniversary of publishing Benjamin Graham and David Dodd’s Security Analysis, Warren Buffett said,

I have seen no trend toward value investing in the 35 years I’ve practiced it. There seems to be some perverse human characteristic that likes to make easy things difficult.

Investors need to understand the value of a business before they invest. Sound investors evaluate the return on tangible invested capital and the characteristics of a business to generate cash flow over a long term. The 18-Oct-1993 Forbes 400 list of the richest people in America quoted Warren Buffett:

I am a better investor because I am a businessman and a better businessman because I am an investor.

Even if academicians provide students a strong foundation in essential business disciplines and critical knowledge for the investment process, but the thinking they imbibe in students is full of complex financial theories, trading strategies, practices that encourage market-timing , and strategies for investment management and analysis that involve a complexity of macro- and micro-economic factors. From Andy Kilpatrick’s ‘Of Permanent Value: The Story of Warren Buffett’,

We are enormously indebted to those academics: what could be more advantageous in an intellectual contest—whether it be bridge, chess, or stock selection—than to have opponents who have been taught that thinking is a waste of energy?

Jason Zweig, author of the Saturday ‘The Intelligent Investor’ column for The Wall Street Journal quoted Warren Buffett on his principle on trying to understand the businesses he considers investing in:

“We do try to buy our businesses like we buy our stocks, and buy our stocks like we buy our businesses.” By that he means, among other things, that he wants to understand how the enterprise generates cash, how well-managed it is and whether its customers would stay loyal even if it raised the prices of its goods or services. Note carefully: None of these factors are contingent on the current price of the stock.

“Being a businessman makes me a better investor and being an investor makes me a better businessman … Most businessmen limit themselves to their own field, and most investors don’t really think about businesses. And many businessmen are semi-oblivious to the yardsticks other people use outside that field. I’m always comparing everything to everything else. The question I want to answer is. ‘Where do we get the most for our money in something we can understand?'”

Recommended Reading on Warren Buffett & Value Investing

Posted in Investing and Finance

Books Recommended by Berkshire Hathaway’s Charlie Munger

“In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time—none, zero. You’d be amazed at how much Warren reads—at how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.”
— Charlie Munger

Charlie Munger (Vice-Chairman at Berkshire Hathaway) and Mugerisms Charlie Munger is Warren Buffett’s partner and Vice-Chairman at Berkshire Hathaway, the investment conglomerate. In his capacity, Munger has been a behind-the-scenes co-thinker at Berkshire and has influenced many a decision made by Warren Buffett.

At the 2004 annual meeting of Berkshire Hathaway, Charlie Munger said,

“We read a lot. I don’t know anyone who’s wise who doesn’t read a lot. But that’s not enough: You have to have a temperament to grab ideas and do sensible things. Most people don’t grab the right ideas or don’t know what to do with them.”
— Charlie Munger

Munger was chair of Wesco Financial Corporation from 1984 through 2011. He is also the chair of the Daily Journal Corporation, based in Los Angeles, California, and a director of Costco Wholesale Corporation. Unlike Warren Buffett, Charlie Munger has claimed that he is a generalist for whom investment is only one of a broad range of interests that include architecture, philosophy, philanthropy, investing, yacht-design, etc.

Charlie Munger is a voracious reader and engages in books on history, science, biography and psychology. He once said, “In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time—none, zero. You’d be amazed at how much Warren reads—at how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.”

At the 2014 annual meeting of The Daily Journal Company that Charlie Munger leds as Chairman, Charlie said,

“I’m very selective. I, sometimes, skim. I, sometimes, read one chapter and I sometimes read the damn thing twice. It’s been my experience in life [that] if you just keep thinking and reading, you don’t have to work.”

Charlie Munger’s Book Recommendations in Biography

Charlie Munger’s Book Recommendations in Biology

Charlie Munger’s Book Recommendations in Business & Investing

Charlie Munger’s Book Recommendations in Management & Leadership

Charlie Munger’s Book Recommendations in Philosphy & Psychology

Charlie Munger’s Book Recommendations in Sociology

Posted in Investing and Finance

Darwin Awards: Stupidity Keeps the Human Civilization Rolling

Darwin Awards: Stupidity Keeps the Human Civilization Rolling

The Darwin Awards are internet awards that are conferred every year on those who have made an invaluable contribution to evolution by— inadvertently— eliminating their weak genes from the reproductive process.

Candidates for the Darwin Awards are usually from the following categories: games and entertainment, work and industry, weapons and explosives, love, suicide, hunting, crime and punishment, traffic, religion, and medical treatment.

The winners of the Darwin Awards are dead; however, those who, as an outcome of their stupidity, have been sterilized, castrated, or otherwise reproductively challenged, have also been made eligible for the Award. Some examples:

  • Abraham Mosley: This 64-year-old throat-cancer patient tried to light a cigar in his Florida hospital and succeeded to set fire to both the bandage round his neck and to his pajamas. His vocal cords had been removed; so, he could not cry out for help and was hence burned alive in his bed.
  • A bungee-jumper who had appraised the length of his bungee rope against the depth of the gorge he was jumping from, but overlooked the fact that the rope was elastic and stretchy.
  • The leader of a Christian sect in Los Angeles who made a regular attempt to follow in Christ’s footsteps and “walk on water.” He died suddenly on 24-Nov-1999 when he slipped on a bar of soap while rehearsing in his bathtub.
Posted in Mental Models and Psychology

People Equity: Measuring Return on Human Capital

Measuring Return on Human Capital

If you question the strategic importance of people to the bottom line, consider this: 85 percent of corporate value is tied to intangible assets today, and of these assets people represent the greatest component.

If you’re still a doubter, think about the cost of employee churn. The average cost of replacing an employee is roughly $15,000; loaded costs, including lost productivity, quality, and team disruption often double that number. In a firm with 5,000 employees and a 10 percent turnover rate, shareholders may be swallowing over $15 million a year in unnecessary costs.

Given the strategic impact of employees, you would expect that most executives move to maximize their investment in human capital. Think again. The vast majority report having a lot of underutilized human potential.

Those few organizations that adeptly tap human potential and build the value of people equity focus on three critical factors: alignment, capabilities, and engagement. In such “ACE” organizations, the rewards in terms of retention, customer satisfaction, and financial success are well worth the investment.

  • Alignment. When you encounter a gap between what your boss expects of you and what you think the boss wants, you can become cynical and demotivated. Every CEO wants to have everyone rowing in the same direction, but they seldom do. The result: misalignment, which leaves telltale signs, such as a proliferation of low-value activities, wasted time, overstaffing, firefighting, and quick fixes. The gap between the strategy and day-to-day behavior is caused by fuzzy strategy, poor communication, a weak performance-measurement system, ineffective goal setting, or poor feedback and coaching.
  • Capabilities. Capabilities include the talent, information, and resources needed to meet the expectations of internal and external customers. For example, suppose that you step up to the service counter of your car rental, hotel, or airline and are greeted by incompetent people. You walk away frustrated. If it happens often enough, you’ll avoid that location or organization.
  • Engagement. Engagement means that the hands, hearts, and minds of employees are deployed at full tilt to meet the objectives of the business, serve customers, create a caring culture, and produce quality products and services. Engaged employees dramatically outperform their peers on many measures, including their attention to quality and service.

The Power of Three

Here’s a sure-fire way to calculate total work-force value: the contribution that people make to your competitive advantage. Assess the factors of alignment, capabilities, and engagement—ACE. Organizations with high ACE have better market performance, lower turnover, and higher quality.

Those organizations among the top of people equity are also in the top of their industry in financial performance. So, the best way to ensure maximum return on your investment in people is to manage the ACE factors. And, high ACE cultures are more fulfilling.

Rising People Equity

Five Actions for Leaders

Leaders can raise the people equity in five ways:

  1. Know your people equity profile. To do so, you need to create an objective, empirically reliable mechanism than can be tracked over time. We recommend surveys because they are quick, relatively inexpensive, and pinpoint the profiles quite accurately. Listen to employees. They’re uncanny in their ability to pinpoint strengths and weaknesses in the ACE factors.
  2. Identify the drivers of people equity. Assess the gaps by asking: “What are the causes of the gaps in alignment, capabilities, and engagement?” Surveys or structured conversations can help you identify leadership actions, HR systems, and other factors—for example, clarity of strategy and technology gaps—that can lead to low A, C, or E.
  3. Develop situational solutions. One-size-fits-all solutions tend to demotivate high performers, and fail to correct poor performance. An effective people equity diagnostic works better than a magic wand! It helps to target scarce resources in areas such as supervisory skills, recognition, training, or communications, which may inhibit high ACE in a particular unit.
  4. Use ACE as a developmental tool. ACE is not a “gotcha” tool for zapping managers who don’t get perfect people equity scores. Instead, it provides a baseline to grow leadership talent, help managers think deeply about their strengths and their development needs, and construct a framework for management to target investments in its people.
  5. Track and measure the impact of initiatives on ACE—and business results. While most CFOs want to see justification of planned initiatives against ROI goals, there is no easy way to do so in the HR arena. The people equity model provides a business focus for such initiatives. For example, using people equity, initiatives can be: 1) targeted to improve the ACE dimensions that are underperforming, 2) measured for their impact on those dimensions, and 3) adjusted as needed to bring up their value. This creates a direct line of sight between initiatives and business results.

People equity goes beyond “engagement.” You improve performance by building the equity of your people.

Posted in Business and Strategy Management and Leadership

Nine Leadership Behaviors that Improve Organizational Performance

Nine Leadership Behaviors that Improve Organizational Performance

How exactly do female leadership behaviors contribute to improve organizational and therefore financial performance? Drawing on the work of academic researchers who surveyed, classified and measured, on a frequency scale, the full range of leadership behaviors observed in corporations, we identified nine specific behaviors that can reinforce organizational performance.

In fact, our analysis showed that each of these behaviors can have a positive impact on one or several organizational dimensions. Take for example, inspiration, which consists in providing a compelling vision of the future and inspiring optimism about its implementation has a positive impact on the direction and motivation dimensions of organizational performance.

Here are nine leadership behaviors that improve organizational performance, if more frequently applied on average.

  1. Role-modeling: being a role model, focusing on building respect and considering the ethical consequences of decisions
  2. Efficient communication: communicating in a convincing way, with charisma
  3. Control and corrective action: monitoring individuals’ performance, including errors and gaps against objectives, and taking corrective action when needed (sanctions, realignment)
  4. People development: spending time teaching, mentoring, and listening to individual needs and concerns
  5. Inspiration: presenting a compelling vision of the future and inspiring optimism about its implementation
  6. Individualistic decision-making: preferring to make decisions alone and engaging others in executing them
  7. Intellectual stimulation: challenging assumptions and encouraging risk-taking and creativity
  8. Expectations and rewards: defining expectations and responsibilities clearly and rewarding achievement of target
  9. Participative decision making: building a team atmosphere in which everyone is encouraged to participate in decision making

Reference: “Bass & Stogdill’s Handbook of Leadership: Theory, Research & Managerial Applications” by Bernard M. Bass

Posted in Management and Leadership

Everyday Leaders Step Up Here and Now

Leaders Develop People

I’ve learned, as Joel Barker predicted, that “problems that are impossible to solve with one paradigm may be easily solved with a different one.”

I’ve explored the question: “How might we organize differently if we understood how life organizes?” I’ve looked into old patterns and problems and developed new insights.

Since organizations can’t predict where they’ll need leadership, leadership needs to be something that people willingly assume if it feels relevant in the situation. Leaders need to appear where and when they are needed. If there is a crisis, unhappy consumer, or an innovative idea, we don’t want people operating in their little squares.

As a member of the team, I can go and do my job happily; but if there’s a crisis and I am there, on the spot, I can take on a leadership role. Leaders appear everywhere, depending on whether the circumstance calls on them to exert leadership.

A leader is someone who wants to help. Someone who is willing to step forward and help is much more courageous than someone who is merely fulfilling the role. When something goes wrong, someone needs to step up or step in. You want people to feel that this is a welcome gesture and they don’t have to wait for anyone to tell them.

A major act of leadership now is to create the places and processes so people can learn from their experiences.

When we do something that creates a significant outcome, we need to look at it and learn from it. We can’t change the number of hours we have, but we can take time to reflect with colleagues.

The processes we use now for thinking, planning, budgeting, and strategy are all delivered on tight agendas. These mechanical processes do not bring out our best thinking. They are more deadening, than creative or inspiring.

We need unstructured time when we are in meetings together, and we need meetings without agendas that allow time for reflection.

Impact of Change

We now face two sources of change: traditional change that is initiated and managed; and external change over which we have no control. We are experiencing what it is like to operate in a global environment of events beyond our control that have a devastating impact on our operations and culture.

Interconnected systems are always sensitive. Activities occurring in one part affect many other parts. In an era of increasing uncertainty, new dynamics appear and old ones intensify. We need to notice how these new dynamics affect our people and core functions.

  • Employee behaviors: Uncertainty leads to increased fear. As fear rises, we tend to focus on personal security and safety, withdraw, become more self-serving, and become more defensive. We focus on details—on things we can control.
  • Pressure on leaders: Because of increased fear, many people turn to leaders with unreasonable demands. We want someone to rescue us, to save us, to provide answers, to give us firm ground or strong life rafts. But not even the strongest of leaders can deliver on the promise of stability and security.
  • Core functions: Many of our functions—planning, forecasting, budgeting, staffing, and HR—only worked because we could bring the future into focus. The future felt within our control. When people know they can rely on each other, they perform much better.
  • New capabilities: To counter negative dynamics, we must attend to the quality of our relationships. Nothing else works—the solution is each other. If we can rely on one another, we can cope with almost anything. Without each other, we retreat into fear.

Engage in Meaningful Work

There is one core principle for developing these relationships: People must be engaged in meaningful work if they are to transcend individual concerns and develop new capacities. Here are six ways to apply this principle:

  • Nourish a clear identity. As confusion and fear swirls about, people find stability and security in purpose, not in plans. When chaos wipes the ground from beneath us, the organization’s identity gives us some place to stand.
  • Focus people on the bigger picture. People who are stressed can’t recognize patterns to see the bigger picture. And as people become overloaded and overwhelmed, they have no time or interest to look beyond the moment.
  • Demand honest, forthright communication. In a crisis, the continuous flow of information enables people to respond intelligently. People deal far better with stress when they know what’s going on.
  • Prepare for the unknown. The military invests millions in developing and using complex simulations that prepare troops for different scenarios. Yet few companies engage in any simulation.
  • Keep meaning at the forefront. Meaning is the most powerful motivator. We gain energy and resolve if we see how our work contributes to the mission.
  • Pay attention to individuals. There is no substitute for direct, personal contact. As managers and leaders, we need to connect with those we want to retain. When people feel cared for, their stress is reduced and they contribute more.

The leaders we need are already here, emerging everywhere, among those who are stepping forward to create a future of possibility and hope.

Posted in Education and Career Management and Leadership

The Arrogant Mind

The Arrogant Mind The arrogant mind is fed by the delusion of man’s self-sufficiency. The person who recognizes his limitations will necessarily, feel modest about himself and, ever enthusiastic to broaden his point of view will reach out with compassion and gratitude towards new truths, regardless of their source.

On the other hand, he who lives by the illusion of his own sufficiency will close his mind to the world, remaining hostile towards those who bring him new ideas, since he regards his own truth, his own life, as complete, without need of amplification.

The arrogant mind is one more defense mechanism that keeps the narcissist a legend in his own mind, free from the stain of the imperfection of other human beings.

The arrogant are guilty of the idolatry of self-worship. It is only God who is beyond the need of amplification, because only He is self-sufficient, only He is perfect. And when men presume to be possessors of the full truth, to be complete and self-sufficient beings, they arrogate to themselves the characteristics belonging to God.

The arrogant man will be puffed up with pride and exalt himself over his fellow creatures. He may make an impressive external show, but his life will be barren. He may believe that they are greater than the cause.

The mountains make a grand appearance, but they are rocky and unproductive. They cannot retain the water, which alone nourishes life, and sustains new growth. Water settles in the valley. It is the lowlands, which yield the greatest bounty for humankind.

Posted in Mental Models and Psychology

Advice to Entrepreneurs: Facebook’s Mark Zuckerberg on Moving Fast and Taking Risks

America is captivated by entrepreneurs, especially the ones who seem to live by their own rulebook and changed the world. Here is advice from Mark Zuckerberg on moving fast and taking risks. Mark Zuckerberg is the founder and CEO of Facebook, the world’s largest social network.

  • Mark Zuckerberg, founder and CEO of Facebook On having focus and moving fast: you need to focus on a few things you care about. Moving fast. You need to give up some things you need to do that.
  • On taking risks: the biggest risk you can take is to take no risk. In a world that is moving quickly, you know that if you don’t change you lose. Not taking risk is the riskiest thing you can do. You have to do things that are kind of bold even if they are not obvious.

'World Changers: 25 Entrepreneurs Who Changed Business as We Knew It' by John A. Byrne (ISBN 1591844509) Source: “World Changers: 25 Entrepreneurs Who Changed Business as We Knew It” by John A. Byrne. John Byrne, a former editor at BusinessWeek and Fast Company magazines, co-authored Jack: Straight from the Gut with Jack Welch, former General Electric Chairman and CEO. In “World Changers,” John Byrne recounts discussions with and words of wisdom from 25 entrepreneurs who have changed the world—people like Microsoft’s Bill Gates, Virgin Group’s Richard Branson, and Grameen Bank’s Muhammad Yunus. John Byrne concludes that the three distinguishing characteristics of successful entrepreneurism are the opportunistic mindset, an ability to embrace risk, and sense of independence, control and urgency.

Recommended Reading

Posted in Business and Strategy Leaders and Innovators Management and Leadership

Value Investing: Seek Companies with Franchise Value and Economic Moats

Value Investing: Seek Companies with Franchise Value and Economic Moats

Warren Buffett recognized the value of franchises before most investors, and the results speak for themselves. Simply, a franchise or a business exists where a company benefits from “barriers to entry” that keep potential competitors away. It practically protects that if competitors enter, they will function at a harsh disadvantage. In Jim Rasmussen’s “Billionaire Talks Strategy with Students”, article in the 2-Jan-1994 edition of the Omaha World-Herald, Warren Buffett is quoted about the franchise value of See’s Candies:

If you own See’s Candy, and you look in the mirror and say, “mirror, mirror on the wall, how much do I charge for candy this fall?” and it says “more”, that’s a good business.

When Tino de Angelis salad oil scandal hit American Express in 1963, for a short time, an American Express subsidiary found itself possibly liable for hundreds of millions of dollars of damage claims arising from the sale of salad oil that did not exist, and the stock dropped sharply in the market. Warren Buffett was able to establish that the “franchise” value of the company’s basic business, notably its credit card and the traveler’s checks with their huge “float” were intact. Overtime, Berkshire Hathaway accumulated over 14% of all of American Express’s outstanding stock.

Commanding competitive advantages (obvious examples are Google’s brand in internet search and Apple’s control of the personal music player system) produce a moat around a business such that it can keep competitors at bay and harvest remarkable growth and profits.

Successful long-term investing comprises more than just recognizing solid businesses, or discovering businesses that are developing promptly, or buying cheap stocks. Successful investing also involves appraising whether a business will stand the test of time. In a competitive business world, rivals can sooner or later consume any excess profits earned by a successful business. That is to say, competition makes it difficult for most firms to generate strong growth and margins over an extended period of time.

Therefore, moat, as defined by Warren Buffett, refers to the ability of a business to preserve competitive advantages over its competitors so as to safeguard its long-term profits and market share from vying firms. In the 1995 annual meeting of Berkshire Hathaway’s shareholders, Warren Buffett said,

Wonderful castles, surrounded by deep, dangerous moats where the leader inside is an honest and decent person. Preferably, the castle gets its strength from the genius inside; the moat is permanent and acts as a powerful deterrent to those considering an attack; and inside, the leader makes gold but doesn’t keep it all for himself. Roughly translated, we like great companies with dominant positions, whose franchise is hard to duplicate and has tremendous staying power or some permanence to it.

It is extremely difficult for a company to be able to sustain, much less expand, its moat over time. In a 1995 video “Warren Buffett Talks Business,” Warren Buffett said, “You need a moat in business to protect you from the guy who is going to come along and offer (your product) for a penny cheaper.” Economic moat often consists of a unique competitive position and a high degree of operational effectiveness. In Carol Loomis’s 22-Nov-1999 feature in Fortune Magazine, “Mr. Buffett on the Stock Market,” Warren Buffett said,

The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products and services that have wide, sustainable moats around them are the ones that deliver rewards to investors.

Recommended Reading on Warren Buffett & Value Investing

Posted in Investing and Finance

Make connections with People by Applying President Reagan’s Three Simple Principles

President Ronald Reagan - Great Communicator

Ronald Reagan’s Chief Strategist Dick Wirthlin walked into the Oval Office and found President Reagan at his desk holding a photograph.

“Mr. President, what’s that?”

“Well, Dick, I just got off the phone with this young man.”

As the President turned the photograph around, Dick winced at the haunting image staring him in the face. It was the picture of a 12-year-old boy who had been severely burned while attempting to rescue his two younger brothers when their family’s trailer caught fire. While frantically searching through the flaming trailer, the young man sustained severe burns before carrying his siblings to safety. As a result, the boy’s face and body had been seriously scarred and disfigured.

“I called this little fella to see how he was doing and to tell him how proud I was of his heroism,” Reagan said.

He then looked back down at the little boy’s visage. “Dick, at the end of our conversation the youngster said, ‘President Reagan, I sure wish I would have had my tape recorder on so I could remember our call together.’

So I said, ‘Do you have it there?’ He said he did. So I told him, ‘Well, son, turn it on and let’s chat some more.”

Did you catch that? “Let’s chat some more.” This is the language of leadership. These aren’t the words of a great communicator. These are the words of one of the greatest communicators.

Three Core Lessons

Ronald Reagan taught us three core lessons that all leaders must embrace.

Lesson 1: Issues Change, Values Endure

'Ronald Reagan: Life Changing Lessons!' by William Wyatt (ISBN B00HRLDLHO) Ronald Reagan believed values are the lynchpins of effective persuasion. The reason: while issues change, values endure.

New challenges emerge—sometimes daily. This constant state of flux can create uncertainty about how the leader will respond. If, however, he or she is guided by a core set of beliefs that have been articulated consistently, you can know the direction your leader’s decision making “compass” is likely to point. By knowing a leader’s values, you know where they will lead, regardless of shifting circumstances.

This assumes, of course, that the leader has identified his or her guiding values and embedded them in their communications. While this requires thought, the rewards can be immense.

When it was time to devise his 1980 acceptance address for the Republican National Convention, Reagan designed his speech around three value-laden institutions and two core values: family, work, neighborhood, peace, and freedom.

Once Reagan was finished, the nation had a firm grasp of who Reagan was and where he wanted to lead.

Ronald Reagan Spokesman for General Electric

Lesson 2: Persuade through Reason, Motivate through Emotion

'An American Life: The Autobiography' by Ronald Reagan (ISBN 145162073X) You can persuade through reason, but you motivate through emotion. How? By doing what Ronald Reagan did best: using stories to showcase values and frame his vision.

Even during his days as a radio sports announcer and spokesperson for General Electric, Ronald Reagan always loaded his speeches with stories that illustrated his values. He was never the focal point of the stories. Instead, he told stories that exemplified his values while elevating the importance of others and their contributions. This leadership trait was summarized in the placard on his desk: “There’s no limit to what a man can do or where he can go if he doesn’t mind who gets the credit.”

Reagan believed that sincere emotion was the spark that ignites the fuse of action. Many leaders feel uncomfortable infusing emotion into their communications, but ignoring this element is a mistake. People don’t just want to make intellectual connections; they want to experience emotional ones as well. To be sure, leaders can go overboard in their use of emotion by banging the drum of values too forcefully. But the greater danger is to appeal only to the mind and to ignore the heart. Ronald Reagan knew how to balance the two.

Ronald Reagan Debate with Walter Mondale

Lesson 3: Humor Makes a Human Connection

'Ronald Reagan: How an Ordinary Man Became an Extraordinary Leader' by Dinesh D'Souza (ISBN 0684848236) Ronald Reagan loved to laugh and tell jokes. It revealed his core love of people, and he used it to build bridges between people, even those with whom he disagreed. Still, his use of humor was often strategic.

Take, for example, Reagan’s second debate with Walter Mondale. After their first debate, some questioned whether Reagan was too old to serve a second term. When the question about his age came up, Reagan delivered one of the most famous lines in presidential debate history: “I will not make age an issue of this campaign. I am not going to exploit, for political purposes, my opponent’s youth and inexperience.”

The line was a masterstroke, and it was all his own. Reagan had displayed self-deprecation and supreme confidence while defusing a divisive issue.

The Greatest Communicator has now exited the stage. Yet in his passing he has left behind a legacy of leadership. Americans rate Ronald Reagan as the greatest president in American history. But while politics was one of Reagan’s passions, it was not his greatest passion. This he reserved for people.

Reagan took time out of his day to invest in people and make them feel special. You can do the same.

Recommended Reading: Ronald Reagan

Posted in Leaders and Innovators Management and Leadership