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A Value Investing Checklist from ‘Poor Charlie’s Almanack’

'Poor Charlie's Almanack' by Charles T. Munger (ISBN 1578645018)

From Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger

Risk—All investment evaluations should begin by measuring risk, especially reputational

  • Incorporate an appropriate margin of safety
  • Avoid dealing with people of questionable character
  • Insist upon proper compensation for risk assumed
  • Always beware of inflation and interest rate exposures
  • Avoid big mistakes; shun permanent capital loss

Independence—“Only in fairy tales are emperors told they are naked”

  • Objectivity and rationality require independence of thought
  • Remember that just because other people agree or disagree with you doesn’t make you right or wrong—the only thing that matters is the correctness of your analysis and judgment
  • Mimicking the herd invites regression to the mean (merely average performance)

Preparation—“The only way to win is to work, work, work, work, and hope to have a few insights”

  • Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day
  • More important than the will to win is the will to prepare
  • Develop fluency in mental models from the major academic disciplines
  • If you want to get smart, the question you have to keep asking is “why, why, why?”

Intellectual humility—Acknowledging what you don’t know is the dawning of wisdom

  • Stay within a well-defined circle of competence
  • Identify and reconcile disconfirming evidence
  • Resist the craving for false precision, false certainties, etc.
  • Above all, never fool yourself, and remember that you are the easiest person to fool

Analytic rigor—Use of the scientific method and effective checklists minimizes errors and omissions

  • Determine value apart from price; progress apart from activity; wealth apart from size
  • It is better to remember the obvious than to grasp the esoteric
  • Be a business analyst, not a market, macroeconomic, or security analyst
  • Consider totality of risk and effect; look always at potential second order and higher level impacts
  • Think forwards and backwards—Invert, always invert

Allocation—Proper allocation of capital is an investor’s number one job

  • Remember that highest and best use is always measured by the next best use (opportunity cost)
  • Good ideas are rare—when the odds are greatly in your favor, bet (allocate) heavily
  • Don’t “fall in love” with an investment—be situation-dependent and opportunity-driven

Patience—Resist the natural human bias to act

  • “Compound interest is the eighth wonder of the world” (Einstein); never interrupt it unnecessarily
  • Avoid unnecessary transactional taxes and frictional costs; never take action for its own sake
  • Be alert for the arrival of luck
  • Enjoy the process along with the proceeds, because the process is where you live

Decisiveness—When proper circumstances present themselves, act with decisiveness and conviction

  • Be fearful when others are greedy, and greedy when others are fearful
  • Opportunity doesn’t come often, so seize it when it comes
  • Opportunity meeting the prepared mind; that’s the game

Change—Live with change and accept unremovable complexity

  • Recognize and adapt to the true nature of the world around you; don’t expect it to adapt to you
  • Continually challenge and willingly amend your “best-loved ideas”
  • Recognize reality even when you don’t like it—especially when you don’t like it

Focus—Keep things simple and remember what you set out to do

  • Remember that reputation and integrity are your most valuable assets—and can be lost in a heartbeat
  • Guard against the effects of hubris and boredom
  • Don’t overlook the obvious by drowning in minutiae
  • Be careful to exclude unneeded information or slop: “A small leak can sink a great ship”
  • Face your big troubles; don’t sweep them under the rug
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Bernard Baruch’s 10 Rules of Investing

Bernard Baruch (1870–1965) was the son of a South Carolina physician whose family moved to New York City when he was eleven year old. By his mid-twenties, he is able to buy an $18,000 seat on the exchange with his winnings and commissions from being a broker. By age 30, he is a millionaire and is known all over The Street as “The Lone Wolf”.

Bernard Baruch's 10 Rules of Investing Born in Camden, South Carolina, and raised in New York City, Bernard Mannes Baruch graduated from the City College of New York in 1889. His original job on Wall Street, at the brokerage firm of A. A. Housman & Co., paid $3 a week, but he became a millionaire by the time he was thirty. He was a director of the New York Stock Exchange, a front-runner in mining finance, and an irregular investor in properties ran by the Guggenheim household. Even though he did not sell out just before the stock market crash of 1929, as fable has it, he did recover the bulk of his fortune.

In his two-volume 1957 memoirs, My Own Story and The Public Years, Baruch left us with the following timeless rules for investing

Being so skeptical about the usefulness of advice, I have been reluctant to lay down any ‘rules’ or guidelines on how to invest or speculate wisely. Still, there are a number of things I have learned from my own experience which might be worth listing for those who are able to muster the necessary self-discipline.

  • Don’t speculate unless you can make it a full-time job.
  • Beware of barbers, beauticians, waiters—of anyone—bringing gifts of “inside” information or “tips.”
  • Before you buy a security, find out everything you can about the company, its management and competitors, its earnings and possibilities for growth.
  • 'Baruch My Own Story' by Bernard Baruch (ISBN 1607969130) Don’t try to buy at the bottom and sell at the top. This can’t be done—except by liars.
  • Learn how to take your losses quickly and cleanly. Don’t expect to be right all the time. If you have made a mistake, cut your losses as quickly as possible.
  • Don’t buy too many different securities. Better have only a few investments which can be watched.
  • Make a periodic reappraisal of all your investments to see whether changing developments have altered their prospects.
  • Study your tax position to know when you can sell to greatest advantage.
  • Always keep a good part of your capital in a cash reserve. Never invest all your funds.
  • Don’t try to be a jack of all investments. Stick to the field you know best.

Baruch would afterwards continue from Wall Street to Washington DC as an consultant to both Woodrow Wilson and to Franklin D. Roosevelt during World War II.

Later on, he became identified as the Park Bench Statesman, due to his keenness for debating policy and politics with his associates in the open air.

He lived until a few days before his 95th birthday in 1965. You could do worse than to invest and live based on these facts.

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Peter Cundill Quotes from ‘There’s Always Something to Do’

Peter Cundill Quotes from 'There's Always Something to Do'

F. Peter Cundill (1938–2011) was a Canadian value investor of the Benjamin Graham investment school. He was most well known for his flagship investment fund, Cundill Value Fund. His The Mac Cundill Value Fund Series A has returned 10.1% per annum during 1993 until 2003, compared with 8.1% for the benchmark Citigroup World Equity index, according to Morningstar.

  • On Forecasting: “I think that intelligent forecasting (company revenues, earnings, etc.) should not seek to predict what will in fact happen in the future. Its purpose ought to be to illuminate the road, to point out obstacles and potential pitfalls and so assist management to tailor events and to bend them in a desired direction. Forecasting should be used as a device to put both problems and opportunities into perspective. It is a management tool, but it can never be a substitute for strategy, nor should it ever be used as the primary basis for portfolio investment decisions.”
  • On Skepticism: “Scepticism is good, but be a sceptic, not an iconoclast. Have rigour and flexibility, which might be considered an oxymoron but is exactly what I meant when I quoted Peter Robertson’s dictum ‘always change a winning game.’ An investment framework ought to include a liberal dose of scepticism both in terms of markets and of company accounts. Taking this a step further, a lot of MBA programs, particularly these days, teach you about market efficiency and accounting rules, but this is not a perfect world and there will always be anomalies and there is always “wriggle room” within company accounts so you have to stick to your guns and forget the hype.”
  • On Patience for Investors and Selling Too Early: “This is a recurring problem for most value investors—that tendency to buy and to sell too early. The virtues of patience are severely tested and you get to thinking it’s never going to work and then finally your ship comes home and you’re so relieved that you sell before it’s time. What we ought to do is go off to Bali or some such place and sit in the sun to avoid the temptation to sell too early.”
  • 'There is Always Something to Do' by Peter Cundill (ISBN 0773535373) On Statistical Overvaluation: “I almost stopped selling Japan short in the last quarter of 1989 because I couldn’t stand it anymore. But intellectually I was convinced that I was right and so I carried on and then in the first quarter of 1990 the Japanese market fell by 25% in eight weeks and I made back everything I’d given away since 1987 plus a good deal more. But I tell you statistical overvaluation is a funny thing—it can go on for a very long time, far beyond the limits of rationality, and it is a problem for the value investor in two ways: it can tempt one to compromise standards on the buy side and it may lure one into selling things far too early. I have less of a problem with the selling temptation because I have always loved cash—if you’ve got lots of it you will never have to pass up a great opportunity.”
  • On Curiosity: “Curiosity is the engine of civilization. If I were to elaborate it would be to say read, read, read, and don’t forget to talk to people, really talk, listening with attention and having conversations, on whatever topic, that are an exchange of thoughts. Keep the reading broad, beyond just the professional. This helps to develop one’s sense of perspective in all matters.”
  • On Patience: “For all my emphasis on the virtues of patience in value investment it has to go hand in hand with minute attention to the detail, with conviction and determination, otherwise patience is just futile endurance.”
  • On Intellectual Distractions for Investors: “Just as many smart people fail in the investment business as stupid ones. Intellectually active people are particularly attracted to elegant concepts, which can have the effect of distracting them from the simpler, more fundamental, truths.”

On the Worst Investment He Ever Made

The worst investment we have ever had was Cable & Wireless, which had built up a large cash pile through the sale of telephone companies in Hong Kong and Australia and their mobile telephone business in the UK. They were well negotiated, judicious sales. What they had left was a stand-alone operation in the Caribbean, which still exists, and they were in the fibre optic business that was blowing cash. So we said, look they’ve got cash, they’ve got a valuable, viable business and let’s assume the fibre optic business is worth zero—it wasn’t, it was worth less than zero, much, much less! Their accounting was flawed to say the least and they became obsessed by a technological dream. In this respect it was reminiscent of Nortel and that should have caused me to think twice.

I talked to John Templeton about it afterwards and he took a worse hit than us. He said “this is why we diversify, if you are right 60% of the time and wrong 40% you’re always going to be a hero, if you are right 40% of the time and wrong 60% you will be a bum.” I think he probably put it more elegantly than that! But there’s one more thing. We had put a huge amount of time and energy into that one and we were willing it to save itself and, on the face of it, it could have. What we needed was a dissenter in the team—a contrarian among contrarians, a lateral thinker watching out for the left field. On that occasion there wasn’t one. So my thought is, if there’s no natural sceptic on an investment maybe it would be wise to appoint one of the team to play Devil’s Advocate anyway.

'Routines and Orgies- The Life of Peter Cundill' by Christopher Risso-Gill (ISBN 0773544720) Peter Cundill was the founder of Cundill Investment Research and was named Canada’s fund manager of the year at the Canadian Investment Awards gala held in early December 2004. Born in Montreal and based in London, Cundill spent much of the year scouring the globe in search of value opportunities for Mackenzie Financial‘s Cundill fund family.

On Investors’ Biggest Challenges

The ultimate skill in this business is in knowing when to make the judgement call to let profits run. While it is true that 99% of investment effort is routine, unspectacular enquiry, checking and double checking, laboriously building up a web of information with single threads until it constitutes a complete tableau, just occasionally a flash of inspiration may be necessary. Once we have begun to build a position it has to be recognized that our intentions may change in the course of its construction. An influential, or even controlling, position quite often results from a situation where a cheap security does little or nothing price-wise for such a long time that we are able to buy a significant percentage of the equity. Whether our intentions remain passive under these circumstances depends on an assessment of the outlook for the company and the capability of its management, but I don’t think that we ought to be pro-active merely for the sake of it. My task is principally the identification of opportunity and the decision to press the buy button. This may sometimes turn out to be a catalyst in itself, but normally we should rely on others to do the promotional work or to put the company directly into play. Otherwise it will turn into a constant and time-consuming distraction from our prime objective of finding cheap securities to buy.

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Tesla’s Elon Musk is a Snarky CEO

Books Recommended by Elon Musk

On the 02-May-2018 quarterly results call, Elon Musk, CEO of Tesla, snubbed Wall Street analyst who called his performance “bizarre.”

When Toni Sacconaghi, a senior sell-side equity research analyst at Sanford C. Bernstein, asked about the company’s capital expenditures, Musk responded, “Excuse me, next. Next. Boring questions are not cool.” When Joseph Spak of RBC Capital asked how many of those who’d reserved a Model 3 sedan have actually gone ahead with the reservation, Musk directed the call’s operator to switch to YouTube remarking, “These questions are so dry. They’re killing me.”

Prominent Tesla bear, Cowen & Co.’s Jeffrey Osborne, wrote a note where he declared that “Tesla’s earnings calls have always been one of the best free sources of entertainment out there, but this one was the over top [sic].” He added,

In one of the most bizarre earnings calls we have ever heard, Tesla refused to address analyst questions on capex, cash burn and other “boring bonehead questions” while providing commentary on “barnacle” like third-party contractors and anecdotes on an ineffectual “flufferbot”.

'Elon Musk' by Ashlee Vance (ISBN 0062301233) On the first-quarter call, CEO Elon Musk also promised a reorganization” this month. He said,

I’m feeling quite confident about hitting positive cash flow in Q3. This is not a certainty. It does appear quite likely in my view. We are going to conduct a reorganization, restructuring of the company this month and make sure we are well set up to achieve that goal. In particular the number of third-party companies we’re using has gotten out of control. We’re going to scrub the barnacles on that front.

Osborne had previously said,

The story keeps breaking down here in terms of the ability to hit overambitious targets from management … so the tone of the release last night certainly has been a bit watered down and I think they’re just starting to try to regain a little bit more credibility … but in general we just see continued execution delays, a lack of profitability over the next two to three years and, with Elon Musk’s world domination strategy, just with the additional factories he wants to build over about 15 to 20 billion dollars of additional capital that he’s going to need to build these battery and car factories in Europe as well as in China.

Tesla stock promptly dropped more than 5% in after-hours trading.

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Materialism and the Early Materialists

Materialism

Materialism is the idea that nothing exists independently of the material or physical world.

Many ancient thinkers appeal to supernatural or extranatural entities in order to account for certain features of the natural world. Materialists, however, deny the existence of any non-natural events, entities, or forces.

Early materialists include the Greek atomists, Democritus (c. 460-c. 370 BCE) and Leucippus (fl. early fifth century BCE), who argued that the world consists of nothing but atoms in empty space (even the soul was thought to be composed of atoms), and Epicurus (341-270 BCE), who postulated that the atoms move only in an up-down direction.

The significance of materialism is typically found in discussions of philosophical questions, such as how to account for the properties of objects and how to explain consciousness. For example, while Plato (c. 424-c. 348 BCE) sought to explain why, say, two blue objects look exactly the same by arguing that they participate in pre-existing (ante rem) universals, Aristotle (384-322 BCE) argued that all universals are present in existing objects (in re), and was thus a materialist about properties. However, both men seem to appeal to an immaterial divine being to explain the origin of physical reality, and to an immaterial soul to explain consciousness. Thus, it was deemed possible to be a materialist about some things and not others.

The comprehensive materialism of the sort defended by the atomists gained popularity in the late nineteenth and early twentieth centuries as advancements in science reduced the apparent need for extra-natural explanations, and pluralism in mathematics challenged the idea of a unique, Platonic reality of mathematical forms. More recently, advancements in our understanding of the brain have undermined older appeals to immaterial substances or properties to explain consciousness, but they have also served to highlight the limitations of materialism.

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Everyone is a Self-made Person, but Only the Successful Admit it

The Fundamental Desire of Life is the Desire to Exist

Desire of Life is the Desire to Exist In the orchestration of our existence, our own efforts play only a small part. We live and have our being because we have inherited from successive generations all kinds of assets of body as well as of mind. From the moment we are born, a world we did not make is at our disposal, to furnish as the tools with which we begin shaping our destiny. The inconvenience that is taken in attending to tidiness, order, and temperance, never fails to be rewarded with a healthy ship’s company, to the great gratification and individual comfort of the commander, and the dreadful vantage of the public service.

Our assets are, however, not only the gifts of man and his world. They are also the gifts of a beneficent Creator. He has enriched the fruits of heredity with all kinds of additional endowments, which make us original creations, unique personalities, capable of carrying life into new directions. In addition, it is the Creator Who performs afresh the miracle of birth from the seeds of immortality, which He has planted in all His creatures.

What we make of all these gifts is our achievement, but when we sing the saga of our lives, other voices than our own join in to create the mighty harmony. Nevertheless, before we enter into a minute representative of the style in which vision is performed, we must explain more circumstantially the nature of light itself, which thus make the eye open of seeing.

Let no one claim then that he is a self-made man. No man can make himself, any more than a tree can. Such a claim is born of blindness, and it is the source of conceit and arrogance. A man whose eyes have been opened to the wonder of life knows that his existence is a privilege, a blessing, a gift. Moreover, he feels due humility.

It will break free of all thralldoms and present itself. You cannot suppose how much they were both ridiculed for their discernment. It does not punctuate the opposite qualities of yielding, letting go and relinquishing. The dance band had arrived, set up, and done sound checks during the later afternoon, so that when the music started it would be passable.

The Destination of Life is Not to Win

The Destination of Life is Not to Win The first rule is to retrench one-third part from the flesh eaten at dinner; of whatever kind that is. If we did not use our agency to receive and act on what others have done for us, we would not have benefited. Russell Means, the prominent activist for the rights of Native American people, wrote in For America to Live, Europe Must Die,

Humans are the weakest of all creatures, so weak that other creatures are willing to give up their flesh that we may live. Humans are able to survive only though the exercise of rationality since they lack the abilities of other creatures to gain food through the use of fang and claw.

But rationality is a curse since it can cause human beings to forget the natural order of things in ways other creatures do not. A wolf never forgets his or her place in the natural order. American Indians can. Europeans almost always do. We pray our thanks to the deer, our relations, for allowing us their flesh to eat; Europeans simply take the flesh for granted and consider the deer inferior. After all, Europeans consider themselves Godlike in their rationalism and science. God is the Supreme Being; all else must be inferior.

It is a reality we perceive to be impelled by a series of events we are caught up in, within which we live and look for happiness, but which, in truth, is a rat race to nowhere. The key difference of opinion between a list post and a how-to post is that readers do not demand to abide by the list from start to end: they can dip in and use those points that seem most applicable to their own state of affairs. Consequently, these issues are substantial. The outcome of such methods is but unappealing.

The destination of life is not to win. The intention of life is to grow and to share. When you come to look back on all that you have done in life, you will get more satisfaction from the joy you have brought into other people’s lives that you will from the times that you surmount and overwhelmed them.

A person of understanding will never be arrogant. He will always walk humbly with his God. His was a humble plan, and worked a little.

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Secrets of the Self-Made Billionaires

Secrets of the Self-Made Billionaires In examining the Forbes’ list of the wealthiest, one is astonished by the concentration of so much wealth in so few hands. Such excessive inequality is indeed bothersome: because not only it is an ethical outrage but also it is undercutting growth and creating one of the most significant hurdles to ending poverty.

Observe the “humble beginnings” of many on the Forbes lists. Much of the self-made fortunes are ascribable to vibrant entrepreneurial capitalism. Few become billionaires by exploiting others … most get rich through millions of happy customers.

Intersting Trivia About the Forbes’ Billionaires List

  • Of the Forbes’ billionaires, John Paul DeJoria, Richard Branson, and Leonardo Del Vecchio never attended college. Ross Perot attended community college.
  • Many individuals going to great lengths to keep their finances discreet. Public companies are required to disclose information. Private companies can be trickier. Forbes calculates net worth by trying to determine the value of every asset and use only what they can prove. They also always give the billionaire a chance to provide input.
  • There are possibly many billionaires that aren’t on the list, whether due to secrecy or lack of evidence. It’s hard to amass that much money and hide its source or where it’s parked without drawing attention.

Secrets of the Self-Made Billionaires

  • President Donald Trump’s contrarian advice: “Screw ’em back. If someone screws you, nail them to the wall.”
  • Telecommunications mogul Kenny Troutt‘s hardest lesson he had to learn: “Money does not buy happiness.”
  • Media proprietor and investor Mortimer Zuckerman‘s greatest guilty pleasure: “There used to be guilt associated with most of my pleasures and now there is none.”
  • Media proprietor and investor Mortimer Zuckerman on the correct amount to leave to children: “Enough to support them, but not enough to leave them without ambition.”
  • Banker Sanford Weill‘s hardest lesson he had to learn: “Recognizing a problem and addressing it right away before it becomes a bigger problem.”
  • Sports promoter O. Bruton Smith‘s contrarian advice: “Hard work overcomes a lot of incompetence. You can talk about trying to be highly qualified with an MBA and all of that, but hard work seems to overcome so many negatives in life.”
  • Investor and money manager Ken Fisher‘s hardest lesson he had to learn: “That others usually don’t see me as I see myself.”
  • Retail entrepreneur John Catsimatidis‘s hardest lesson he had to learn: “Some people may just not like you for no reason at all.”
  • American attorney Joseph Jamail Jr.‘s contrarian advice: “Don’t trust politicians who are convinced they have the answer and who say “trust me.””
  • Sports team owner Michael Heisley‘s greatest guilty pleasure: “Stealing an hour or two to be completely alone and not reachable.”
  • Sports team owner Michael Heisley‘s hardest lesson he had to learn: “Wealth is one of the most corrupting influences in my life.”
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How American Express Realizes the Enormous Opportunity of eService

The internet represents an enormous opportunity to transform and improve old businesses and engage in new ones.

American Express is constantly transforming its business, eventually putting American Express’s old products out of business with new product innovations. All of its Internet initiatives are designed to accelerate its business transformation by capitalizing on interactive capabilities.

The assets that have made American Express one of the leading global financial services companies are highly relevant on the Internet.

American Express eStrategy #1: Become or Remain a Leader in Online Payments American Express has one of the most recognized and respected brands in the world, representing security, integrity and trust. American Express has a large card member base with 50 million cards in force worldwide. It owns or manages nearly $300 billion of assets for its 2.3 million financial services customers. In addition, it transacts with millions of merchants in over 200 countries and territories. It has a broad and diverse product set catering to the financial and travel-related needs of its consumer, small business, and corporate customers.

American Express provides superior value and service to its customers, and runs first-class operations that are nimble enough to conceive and launch major products in Internet time. The Internet is an extension of its business, and American Express believes the “bricks and clicks” strategy will ultimately prevail. In fact, an increasing number of online-only players have recently announced the desire to acquire physical assets as their virtual business models have run their course.

American Express’s eStrategy consists of four parts.

American Express eStrategy #1: Become or Remain a Leader in Online Payments

Currently, of the $5 trillion in consumer payments in the U.S., only about 30 percent occurs on card-related payment products. In addition, of this $5 trillion, less than 1 percent is transacted online. However, as a greater share of spending moves online, most spending will occur on plastic or its electronic cousins as consumers and merchants look for standard ways to transact in a secure fashion. The three key drivers of success as an online payments provider will be merchant acceptance, authentication, and security.

  • On merchant acceptance, American Express has 97 percent coverage of the 100 top e-commerce sites, which accounts for approximately 70 percent of all online spending. In addition, of the top 500 sites, American Express has 95 percent coverage.
  • On authentication and security, American Express’s Online Fraud Protection Guarantee, Private Payment, and Online Wallet allow customers to shop in a secure fashion. Private Payments provides customers with choice and protection when shopping online. Online Wallet offers one-click order fulfillment and form-fill capability that allows users to automatically and securely checkout virtually anywhere on the Internet. The Blue smart chip offers an extra layer of authentication and protection.

As corporations move their purchasing to dynamic online exchanges, they have a need for payment, financing, trust facilitation, and risk management products to support these transactions. American Express is positioning itself to support these types of transactions.

American Express eStrategy #2: Become a Preferred Ecommerce Destination

American Express eStrategy #2: Become a Preferred Ecommerce Destination Becoming a preferred destination for American Express’s current and potential customers who are looking for content, products, and services across financial services, lifestyle, and travel. AmericanExpress.com is the nexus for all of its product and service offerings. This website receives over two million visitors a month.

Many of the products it is developing—such as Membership B@nking and its Online Brokerage—require new skills and capabilities. To succeed, American Express has focused on simple product functionality with differentiating value propositions, all introduced in Internet time. American Express’s Membership B@nking offering includes no-fee interest checking and account access through the American Express ATM network, the second largest in the U.S. And American Express Brokerage offers free online trading for accounts over $100,000.

Despite American Express’s relatively light marketing efforts, response to these offerings has been extremely positive. This popularity attests to the power that an established physical world company can wield by extending the strength of its brand onto the Internet in a way that offers its customers something of value.

American Express has a comprehensive web offering. To simplify the interaction for customers, American Express gives them the flexibility to customize their on-line dealings with American Express through “My American Express.” It has also added Online Extras to The Offer Zone where customers can access savings with local restaurants, merchants, and online retailers.

Another feature is American Express Online Services, the common entry point to all of American Express’s card products and services. Upon authentication, Online Services allows customers to access their American Express accounts as well as special or new offers. Based on a customer’s preference, it can communicate offers, services, and information directly to the customer’s e-mail address.

Through the combination of American Express’s physical assets and web site, it can serve customers when, where and how they want. American Express is increasing share of wallet with customers and providing them with greater levels of service by broadening American Express’s relationships across multiple channels.

American Express eStrategy #3: Provide Online Service that American Express’s Customers Value

American Express eStrategy #4: Improve American Express's Operating Structures Provide online service that American Express’s customers value across all of its entire businesses and products. Online Services already has several servicing options including Bill presentment and bill payment, Membership Rewards account management and online redemptions, and online card applications. American Express also is continuing to develop its online services for merchant, small business, and corporate customers.

If a customer encounters a problem adding an additional card to their Online Services account, a pop-up button will appear that they can click on to reach a customer service representative in real-time to resolve the issue.

Another application, American Express @ Work, moves customer-servicing capabilities online. American Express’s goal is to make the interactive channel one of the preferred methods of servicing.

American Express eStrategy #4: Improve American Express’s Operating Structures

American Express eStrategy #3: Provide Online Service that American Express's Customers Value Use interactive capabilities to dramatically improve American Express’s operating structures through reengineering on the cost and revenue sides. American Express constantly reengineers its business activities to increase its value to American Express’s customers, employees, and shareholders and to develop new capabilities and products. Most of its online reengineering initiatives focus on using the Internet as an additional channel to conduct functions such as online account acquisition, program enrollments, order fulfillment, and targeted, customized marketing campaigns.

American Express’s eStrategy Integrates the Internet with Core Banking Operations

Going forward, American Express plans to use the Internet to change the way it interact with customers, which can have a substantial impact on its cost structure and business processes. American Express is moving to integrate the Internet more closely into its operations and redesign its processes to allow it to be more nimble and proactive in meeting the needs of its customers. Consumers today expect to pay less online for the same products and services they once received through physical channels. Reengineering enables American Express to adjust its cost structure to meet customers’ needs and ensure that they receive superior value.

Create and implement a plan to improve your eService. You might seek ways to use the internet to change how you interact with customers

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The Science of Fear

'The Science of Fear' by Daniel Gardner (ISBN 0452295467) Confirmation bias leads us to accept more readily perceived facts that keep to our existing worldview more willingly than objectively considering all of the evidence. Many corporate leaders leverage disruptive change by making targeted, courageous moves toward new market opportunities. Many companies face up to risk with a strategic framework based on extenuating and managing the probable consequences but that line of attack might build bigger protective walls without guarding against the greatest risks—the ones that are unidentified. The uncertainty advantage is something different: an approach that compels managers to recognize the unknown as a market differentiator and an opportunity to give a free rein to innovative solutions that appeal to customers, investors, strategic partners, regulators, and competitors. Concisely, it is an opportunity to go well beyond the characteristic meaning of risk management—that is, seeking ways to achieve the best of the worst outcomes—to create new and sustainable value out of confusion.

In his book, The Science of Fear: How the Culture of Fear Manipulate Brain, New York Times bestselling author Daniel Gardner describes some of our pitfalls when it comes to framing risk properly:

Once a belief is in place, we screen what we see and hear in a biased way that ensures our beliefs are “proven” correct. Psychologists have also discovered that people are vulnerable to something called group polarization—which means that when people who share beliefs get together in groups, they become more convinced that their beliefs are right and they become more extreme in their views. Put confirmation bias, group polarization, and culture together, and we start to understand why people can come to completely different views about which risks are frightening and which aren’t worth a second thought.

It’s also much easier to simply be afraid of that with which we can easily recall to memory. Gardner uses Daniel Kahneman’s two systems of thought to explain:

You may have just watched the evening news and seen a shocking report about someone like you being attacked in a quiet neighborhood at midday in Dallas. That crime may have been in another city in another state. It may have been a very unusual, even bizarre crime—the very qualities that got it on the evening news across the country. And it may be that if you think about this a little—if you get System Two involved—you would agree that this example really doesn’t tell you much about your chance of being attacked, which, according to the statistics, is incredibly tiny. But none of that matters. All that System One knows is that the example was recalled easily. Based on that alone, it concludes that risk is high and it triggers the alarm—and you feel afraid when you really shouldn’t.

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You Can’t Prove Anything About the Future

'Security Analysis' by Graham and Dodd (ISBN 0071592539) Venture investing plays an important role in entrepreneurship not only because financial resources are important to new ventures, but also because early investors help shape the ventures’ managerial and strategic destiny. Value investing is conceivably the most prevalent and durable style of investing.

However, despite its reputation, the theoretical foundations of value investing have developed little since the ground-breaking work of Benjamin Graham and David Dodd espoused in their classic Security Analysis (1934). They advise value investors to focus their attention on securities “which are selling below the levels apparently justified by careful analysis of the relevant facts.” They further encourage value investors to concern themselves with “the intrinsic value of the security and more particularly with the discovery of discrepancies between the intrinsic value and the market price.” In providing wide-ranging guidance for the estimation of intrinsic value, they write down that:

In general terms it is understood to be the value which is justified by the facts, e.g. the assets, earnings, dividends, definite prospects, as distinct, let us say, from market quotations established by artificial manipulation or distorted by psychological excesses. But it is a great mistake to imagine that intrinsic value is as definite and as determinable as is the market price. Some time ago intrinsic value (in the case of common stock) was thought to be about the same thing as “book value,” i.e. it was equal to the net assets of the business fairly priced. This view of intrinsic value was quite definite, but it proved almost worthless as a practical matter because neither the average earnings nor the average market price evinced any tendency to be governed by the book value. Hence this idea was superseded by a newer view, viz., that the intrinsic value of a business was determined by its earnings power. But the phrase “earnings power” must imply a fairly confident expectation of certain future results. It is not sufficient to know what the past earnings have averaged, or even that they disclose a separate line of growth or decline. There must be plausible grounds for believing that this average or this trend is a dependable guide to the future.

Variation in long-horizon security returns is governed by fundamentals. Reckoning the prospective yield by aggregating expected earnings over more than a few future years dominates existing approaches to measuring value. This analysis highlights significant opportunities for improvement in the relative-value metrics used by academics and practitioners. To determine the source of variation in future stock returns to various investment strategies. The book-to-market ratio is a comparatively poor measure of value and that much of its prognostic ability with respect to future stock returns appears to arise from other sources.

Investor Howard Marks Renowned investor Howard Marks (b. 1946) of Citibank, TCW Group, and Oaktree Capital Management at “Investor Series” interview with Oaktree founder and American investor Bruce Karsh at Wharton School, University of Pennsylvania:

There’s no such thing as analysis of what’s coming. We don’t know anything about the future, and you can’t prove anything about the future.

But if you’ve been in business and you’ve seen some cycles, and you’ve gained some experience and you’ve gone through those cycles with your eyes open saying “What are the implications of cycles for our behavior?”, then I think you can reach a point where you say, “You know what, it just feels like the power is in the hands of the issuers, not the buyers. It feels like there aren’t many sellers, just a lot of buyers. And the market is not acting in a disciplined way.”

We want to buy when the market in panicked, not when the market is sanguine. [Warren] Buffett says that “The less prudence with which others conduct their affairs, the greater the prudence with which we must conduct our own affairs.”

When other people are optimistic, we should be worried. When other people are panicked, we should turn aggressive.

Comports with Sir John Templeton‘s famous dictums “If you want to have a better performance than the crowd, you must do things differently from the crowd” and “Invest at the point of maximum pessimism.”

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