CDOQ

Reality

2012-01-27T23:49:00.000-08:00

The world exists in my head.

Language

2012-01-20T02:44:00.000-08:00

Human communication is still not evolved enough to accurately articulate emotions.

Civilization

2012-01-13T02:26:00.000-08:00

What is the goal of civilization? Does it have one? If it does, who decides what the goal is?

Meaning

2011-12-31T05:21:00.000-08:00

Why do humans look for meaning in randomness of life? Does the fragrance of a flower have meaning? There is no meaning. It just is.

Plates

2011-12-24T11:02:00.000-08:00

When you dine out in the US, why are the waiters/busboys in a rush to take your plates? Is there a plate-shortage in casual restaurants?:-)

The New Goliaths

2011-12-24T10:20:00.000-08:00

Not long ago, the big retailers were considered as the sharks eating the small independent retailers. Today, these sharks are getting eaten by the web savvy companies. Booksellers are good examples. Borders is bankrupt. Barnes and Noble is not doing so well. These are the same companies that were thought to drive independent booksellers out of business. Now they are going out of business. The Internet companies may the new Goliaths. However, the new Davids may be the ones who combine web savvy with mobility and social networks. I see business very similar to biology. The species (companies) that survive are the ones who are the most adaptable to the change in the environment [Darwin].

Dogs and People

2011-12-24T09:33:00.000-08:00

I wonder how the world would be like if people showed same affection to unknown people that they show to unknown dogs.

Innovation in Technology and its Challenges

2011-12-23T16:24:00.000-08:00

Innovation is one of the latest buzz-words in the business world. And, there is a lot of debate in academia about what innovation is. Is it any invention? Is it anything new? Do x number of people have to buy the new "thing" before it is considered innovation? Is a new feature added to an existing product an innovation? Is any new product or service innovation? And on and on...the debate continues. The problem is that the academics spend most of their time and energy on discussing what innovation is and not enough on how to innovate. And, the people who are innovating are not usually discussing it.

Innovation is very contextual subject. In the business world, most of the times, innovation is related to revenue growth. For this article, innovation is new revenue creation with commercialization of new high-technologies or finding applications of existing high-technologies. Furthermore, this article is based on a recent talk I gave at the Santa Fe Institute business network event on innovation.

Imagine the CEO of your company calls you and says that you have to create significant new revenue i.e. it can not be incremental revenue from an existing business, in the next x years. The 'x' varies with the industry. Where do you begin (when you are doing a startup, you have some idea what you are going to do)? Well, the first thing to do is to study (re-study) the organization. This will help you better understand the core-competencies (CC) of the organization today (vs. what they were few years ago) and to see what are the opportunities currently not addressed by the organization. [If you are new to the organization then the most important thing to understand would be the culture of the organization. The culture is like the soil, just like what crop you can grow depends on the soil, what new products you can produce in an organization depends on the culture of the organization.] Given that knowledge, look at the undeniable mega-trends and/or customer needs/problems. Understanding customer needs is tricky especially in the consumer world (vs B2B world). People don't know what they need and can't always articulate what they need. So, understanding of human behavior greatly helps with understanding of customer needs/problems and how the humans may use the technology you are developing. Then, find where the mega trends/customer needs intersect with how technology is evolving (and what are the technology disruption possibilities) and then think about where you can expand the CC. The expansion of CC helps with addressing more opportunities and with creating a competitive advantage. This expansion requires good judgment and is a risk and it does take time. Usually, longer than you think. The following slide may visualize the concept.

These intersections will give you many opportunities to investigate. However, you can not do everything. The second thing to do would be to develop a filter for these opportunities i.e. which ones to investigate further. The filter includes the organization's culture and risk appetite, your budget, product life cycles, etc. This filter should be converted to a shared vision across the organization because if people don't see you and what you are doing as part of the organization then they will reject you and what your produce.

Another approach is leading by technology i.e. develop new technologies and find the use for it later on. This is commonly referred as "solution looking for a problem". A lot of big things happen with this approach. For example, the Internet, electricity, phones, etc. However, chances of success with this approach are lower compared to the customer need focused approach and it takes a lot of time and money for these "solutions" to find "problems". Furthermore, usually people who make money with the technology-led approach are different than the ones who came up with the technology.

Coming back to the customer-led innovation, we have identified filtered areas of investigation, let's dig deeper into how we create new things. There are three ways which have worked for me:

1. BRC (Break the Rubik's Cube): Take what technologies exist in the market and combine them in a new way to create a new product. Just like breaking multiple Rubik's cubes and creating a cube with one color. The whole is new but the parts are not.

Rubik Cube 1

Rubik Cube... n

New Cube

This is not an elegant way of doing things and usually engineers don't like this approach because it is not original. It is easier, does not require a lot of money, is faster to test new ideas. It works! Innovation is not about winning a noble prize.

A good example of this approach would be the first iPhone. It combined many existing technologies (multi-touch user interface, visual voicemail, 620 MHz micro-processor, 16GB storage, 120MB Memory, etc.). These technologies existed in the world in different places. Apple combined them in a unique way to create a Smartphone user-experience which was far better than anything that was in the market at the time. Another example is the laptop which basically took a lot of existing parts from the desktop computer and created new product. Microsoft Kinect is another very good example of BRC. It is a spatial gesture sensing device that combines RGB camera, depth sensor, microphone array, etc. to create a new input mechanism for the Microsoft XBox gaming console. Kinect sold 8M units in the first 60 days of its release and is considered the fastest selling consumer electronics device.

2. CPE (Copy Paste Edit): Take a technology from a different industry, adapt it to fit into your product and voila you have a new product.

High-Tech industry is full of CPE products. Camera phones are a good example. Take cameras from the Consumer Electronics and adapt them to fit into a mobile phone. Now a days, you probably can not find a phone without a camera. The use of motor and displays in various products in different industries always fascinates me. I have a motor in my shaving razor. There are display screens on the back of airplane seats and car seats. There are gyroscopes in Smartphones. Before we used CPE to bring gyroscopes to the phones, they were used in satellites and aeroplanes.

It is rather difficult to maintain a competitive advantage with CPE because they are easier to copy. However, you can find ways to sustain the competitive advantage by creating a better user experience and continue doing CPE faster than others.

If you look closely, a lot of innovation we see falls under BRC and CPE.

3. IRM (Inverted Rogers Model): Everett Rogers, one of my heros, developed a model for adoption of innovations i.e. how people adopt innovations. The model outlines five attributes of innovations that decide if and how widely the innovation would be adopted. You can see the model here. These five attributes of innovations are:

1. Relative Advantage (relative to what exists in the market today)

2. Interoperability (backward and forward to what exists and what will exist)

3. Simplicity (to use and to communicate)

4. Trialability (ease and expense of trying the innovation before buying it)

5. Observability (by others who are currently not using the innovation)

We can invert the Rogers model and design products which have the five attributes of innovation. It is difficult to know if anyone designed products with these attributes in mind. However, you can look at anything widely adopted and you will see these products have high degree of these attributes. I have lead product developed in some of my jobs and have designed successful products using IRM. You can also look at something new and predict how widely it would be adopted. See an example here. The example is about Apple TV and a lot has changed since the article was written four years ago. However, you will get the idea re applying Rogers Model.

Now we know what to investigate, what are the boundaries, and how to investigate. To execute on these concepts, there is a simple four-prong approach. See:

1. Technology Feasibility: Can we actually create a new product using BRC/CPE/IRM that is within the boundary conditions. Does the new product work as expected? Can we source all the parts?

2. Market Feasibility: Is the market ready? Can you meet the price points? Is the value chain ready? Can we influence the ecosystem?

A lot of times the markets are not ready when the technologies are ready.

Both Technology and Market Feasibilities can be done in parallel or in reverse order.

3. Prototype Development: Create a low-cost prototype what showcases the core value your product is going to provide. Usually, you learn a lot of new things during the prototype development and multiple iterations of prototypes are required before it is functional.

Life is relatively easier for consumer software companies where you can release a working prototype as a product and continue making refinements based on customer feedback. I think Gmail was in beta (prototype) for years. Things are more difficult when hardware is present in the innovation.

4. Customer Validation: This mainly applies to the B2B world. It is usually a good idea to design products with your customer's customer needs in mind in the B2B world. Hopefully, you have been talking to your customer during technology/market feasibility and prototype development. However, now is the time to get commitment. The customers usually have no risk in telling you to try making something new and they are interested. Things may change when they have to commit with money. Sometimes it is a good idea to have a lead customer to go to market with.

Again, everything we have discussed so far is contextual. If you are launching an App in iTunes store, you may not have to do any of the things we discussed. Or, in pharmaceuticals, where you are developing new drugs, BRC/CPE/IRM may not work.

To summarize, innovation is trial and error. However, applying the techniques we just discussed we can reduce the risk of losing a lot of money and increase our chances of success.

Somehow there is a perception that innovation is cool and sexy. Conceptually, yes! Good results, yes! Getting to results, no! It is a very messy business.

While innovating over the last few years, I faced the following challenges (and I still don't have the answers):

1. How do you measure progress?: For a running business, there are well established metrics to see how the business is doing. Revenue, bookings, COGS, etc. However, while innovating, you can only point to milestones which may show you progress but it maybe progress on a path that leads to nothing. If you are running the innovation business, you may know that you are making progress but it is hard to communicate to your peers and to your management. That is why trust from organization is necessary to do any innovation in a big company.

Whatever metrics you have developed to measure progress, are they stimulating thinking or are they replacing thinking? In a running business they usually replace thinking. Usually, people are happy or upset with results and do not spend enough time understanding why the results are the way they are.

Is there a quantitative way to measure progress in innovation?

2. What is the right team?: Given the complexity of the products today, growth/innovation may not be possible without an effective team. How do you build an effective team from scratch? You can build a team with highly specialized individuals or generalists. Of course, it is easier to say that have both specialized individuals and generalists but pragmatically finding these people, hiring them, making them work together is a big challenge. Furthermore, since we are dealing with the unknown it may not be possible to know what the right mix is. When building a new team, you also have to think about the balance between people from the organization you are part of and people from outside the organization.

The most important thing is chemistry. You can hire the geniuses and if they can't work together, no successful innovation will come out of the effort.

How do you know what the right team would be before the team is there?

3. Can you move the ecosystem faster?: This depends on the organization's position in the ecosystem. Given the techniques, BRC/CPE/IRM, we discussed re innovation, most likely, you would depend on co-operation with other companies to go to market with your new product. For example, Verizon (a wireless carrier in the US) may not be able to launch a new exclusive Smartphone without co-operation with a Smartphone OEM like Motorola or HTC. And, the OEMs can not launch a product without co-operation from its suppliers like nVidia, ADI, etc, and so on. Another good example is my previous start-up, Mjedi, where to execute on the simple idea that when you go shopping, the items you like get posted on Facebook, I had to align various groups within retailers-online sales, offline sales, marketing, IT, logistics, advertising agencies, etc. Aligning these various entities takes a lot of time. They have different sales cycles, mindsets, business processes, etc. There is a debate about how the new value created should be distributed. However, there is no way around it. And, by the time everyone is aligned, you may lose the relative advantage your innovation is providing. Of course, there are exceptions like Apple and Disney which command heavy influence over the entire ecosystem because of their market position. I am curious to see how long this influence will last.

Is there a way to move the ecosystem faster?

4. Can you deliver on the vision with high-complexity of execution?: When you have been innovating for some time, sooner or later you develop a vision re how you want the new product to look, feel, behave, etc. At the same time, there are deadlines, budgets, and global teams. Life in the corporate world is full of compromises. You have to be paranoid about delivering on your vision. It is much easier to make compromises and keep people happy. People's bonuses depend on delivering on-time and under-budget. So, if there is a deviation from your vision and you have to spend more money to fix the unexpected problems which also results in missing deadlines, and you are not willing to make any compromises to the product then you are going to upset a lot of people because they will miss their bonuses. If you make one compromise, the other very small compromises are made for you by the team. So, no-compromise is a good policy. The challenge becomes delivering on your vision without alienating people.

Is it possible to deliver on your vision and keep everyone happy?

5. How do you get the timing right?: This is really hard. There are many examples of companies which launched revolutionary products when the market was not ready. You are working on something that does not exist yet so it is difficult to know if the world is ready to accept it. Apple is considered an innovation leader today. Here is list of twelve major failures Apple had mainly because their products came out when the markets were not ready. Most likely, Apple's success today has something to do with learnings from these failures and doing it better the next time. Failure is inevitable in innovation. Take another example LED lights. Practical LEDs have been around since 1960s and their overall market share of lighting is still ~10%. Figuring out the market size of something that does not exist is another problem. In early 1980s Mckinsey, a management consulting firm, famously forecasted that by year 2000, the global market for mobile phones would be 900,000. In the year 2000, there were 400,000,000+ mobile phones globally and today there are 5,400,000,000+ mobile phones in the world. It is difficult to predict how your innovation would evolve and usually market-size predictions don't take into account the evolution of the product.

And then there is the problem of when do you give up, let's say you have been following a disciplined approach to innovation and things usually take longer than you anticipate and cost more than you think, do you continue forever? You create prototypes and the feedback requires you to spend a lot more money to make modifications and that risks recouping the investments. What do you do? It is hard to tell your engineers that something they worked day and night for a year is not going to go to market because now the business case does not make sense. Ideally, you can keep the Intellectual Property [IP] you have development in some kind of library which is available for future use. However, that usually does not result in anything fruitful because of organization dynamics.

How do know that the market is ready for your innovation?

6: Are you slave to your thinking?: What you do depends on what you think. How do you think? For most people, it comes from memory. And, memory is the result of the past. So, all thinking is based on the past. How can you create new things with old thinking? Can you really see things objectively without the past influencing what you are seeing? I recently took a workshop on paining and I learned the concept of negative space. The artists know how we don't have the ability to see objectively and the negative space helps with that. It is the space around the subject of your painting. When you are looking at something (subject) and painting it, you are not painting what you are seeing, you are painting an image of the subject from your head. To overcome that, the artists paint the areas around the subject and the unpainted space left on the canvas is the subject. This gives a much more realistic image of the subject. It works because the shapes around the subject are new to the mind and it can not invoke memory to see the shapes it wants to see it.

How do you think objectively?

Despite all the challenges, risks, low probability of success, it is a lot of fun to create new things. Innovation makes the world progress.

The cost of wrapping a gift

2011-12-17T10:57:00.001-08:00

It is $4.99 on Amazon.com!

Our Civilization today

2011-11-05T13:24:00.000-07:00

The following article was published in the European edition of The Wall Street Journal on October 28th, 2011 and provides a good example of what is wrong with our society today. The love of sensory pleasures has taken over the love for another human being.

The 'I Don't' Honeymoon

By JULIA REED

The honeymoon was to begin in Paris because that was, more or less, where we began. When I met my fiancé, I was in my early 20s and living in Washington, D.C. He was almost twice my age and living in London, so Paris is where we got together—where he romanced me over the course of seven years.

Hadley Hooper for The Wall Street Journal

Sometimes our visits were fevered two-day jaunts; sometimes, when we had the use of his sister's sprawling apartment, they'd last for more than a week. On one trip we stayed at a tiny hotel called the Sévigné. On another, it was the ultra-discreet San Régis, said to be a favorite of Lauren Bacall.

Like a lot of Aussies I've known, the man in question was determined to prove that he was more cultured than the Brits he lived among, and I was happy to benefit from his efforts. We ate Gilbert Le Coze's dazzling pounded tuna at Le Bernardin before he and his sister, Maguy, moved the restaurant to Manhattan; we toured the de Menil collection at the Centre Pompidou before it went off to its permanent home in Houston. I learned to enjoy a pastis before dinner, thrilled to the Jacques-Louis Davids at the Louvre and happily drank a hell of a lot of Château Giscours, his favorite Bordeaux.

The problem was, that had all taken place back when there was an "us"—an entity I'd rather abruptly shattered when I called off the wedding a few weeks before it was supposed to take place. Still, much to the disbelief of my mother and a great many other people who were similarly sane, we chose to take the trip that had been meant to celebrate our union.

I thought I was doing the civilized thing. I thought I'd be letting him down easy, that he could save face with friends and family (many of whom lived in Paris) if he could say it was the wedding and not the marriage I feared. There was also the fact that we already had first-class tickets (by this time we had racked up a gazillion miles), a suite at L'Hotel and, on my end, a particularly swell trousseau.

We got over the first hump, the bottle of champagne left in the room to welcome the new "Mr. and Mrs.," by drinking it—quickly. My jilted groom spent his days catching up with fellow foreign correspondents; I had my own pals in the form of my then-colleague at Vogue, André Leon Talley, and George Malkemus, CEO of Manolo Blahnik U.S.A., who was in town with him. André had a new wardrobe whipped up for my wedding, which included a double-breasted seersucker suit with matching shoes by Manolo. We dressed to the nines and lunched at Caviar Kaspia or on the Ritz terrace. We shopped at Madeleine Castaing and an ancient place George knew where I bought ropes of green cut-class beads that looked like emeralds.

I wore the latter with a white silk dress to dinner à deux with my would-be fiancé at Restaurant Jamin, Joel Robuchon's first place of his own in Paris. Tucking into Robuchon's justifiably famous potato puree (accompanied by lots of the aforementioned Giscours), I remembered why I'd fallen in love in the first place.

But the next morning we were off to Lyon, a city not nearly so romantic nor containing a single soul we knew, and by the end of day two we'd almost killed each other. (I fear we actually might have killed the Michelin three-starred chef Alain Chapel—all the electricity went off in his restaurant the night we dined there, and he died of a stroke less than 48 hours later.) By that point, I'd decided to bail on the rest of the journey, a foray further south to Cannes, and called André, who told me in typically colorful language to get myself on the first fast train back to Paris, where he would meet me in the bar at the Ritz.

Thus ensued one of the most entertaining nights of my life. For one thing, it was the occasion of my discovery of the Pimm's Royale, a Ritz specialty consisting of Pimm's No. 1 topped off with champagne and garnished with lots of sliced fruit and seriously potent brandied cherries. Somewhere around the third one, it seemed like a good idea to invite my almost-groom and his sister. By this time the room had filled up with people André knew, from Alain Mikli to Donna Karan, and we were all very jolly. Toward the end of the night, I found myself seated between a former Los Angeles Ram, who was one of Madonna's bodyguards, and actress Arlene Dahl, of all people, to whom I poured out my story.

The bill for the evening remains one of the largest of my life, but it was a small price to pay for finishing the "honeymoon" off in style, and even with a modicum of grace. I kept it as a reminder that even misguided intentions sometimes end up being not so crazy and that Paris can be a forgiving place—Bogart and Bergman are not the only ones who will always have it, after all. A Pimm's Royale remains one of my very favorite cocktails.

—Ms. Reed is the author of "Queen of the Turtle Derby and Other Southern Phenomena" and "The House on First Street: My New Orleans Story."

Age and Pragmatism

2011-10-09T22:05:00.000-07:00

People usually get more pragmatic with age.

Understanding

2011-10-08T23:55:00.000-07:00

It is better to understand oneself vs trying to understand others. If one understands oneself well then the behavior of others makes sense.

Love

2011-09-26T22:01:00.000-07:00

How do you learn to love? Is it possible to love truly if you have never been loved? Can you sustain love if it is not reciprocated?

Sleep

2011-09-23T21:52:00.000-07:00

Sleep is a wonderful thing.

What is Love?

2011-09-07T23:28:00.000-07:00

You say you love your wife. In that love is involved sexual pleasure, the pleasure of having someone in the house to look after your children, to cook. You depend on her; she has given you her body, her emotions, her encouragement, a certain feeling of security and well-being. Then she turns away from you; she gets bored or goes off with someone else, and your whole emotional balance is destroyed, and this disturbance, which you don't like, is called jealousy. There is pain in it, anxiety, hate and violence. So what you are really saying is , 'As long as you belong to me I love you but the moment you don't I begin to hate you. As long as I can rely on you to satisfy my demands, sexual or otherwise, I love you, but the moment you cease to supply what I want I don't like you.' So there is antagonism between you, there is separation, and when you feel separate from another there is no love. But if you can live with your wife without thought creating all these contradictory states, these endless quarrels in yourself, then perhaps - perhaps- you will know what love is. Then you are completely free and so is she, whereas if you depend on her for all your pleasures you are a slave to her. So when one loves there must be freedom, and not only from the other person but from oneself.

Adapted from talks by Jiddu Krishnamurti. Thanks to my friend, Amit, for introducing me to this great mind.

The Problem with Learning

2011-08-17T06:48:00.000-07:00

We learn how things were and how they should be but rarely how things really are. This causes a lot of misery and pain because things are never how they should be. Now, where does "should be" come from? "Should be" is based on religious or some other ideals or on the memories of the past or on anticipation of better future. All of these "should be" concepts are never fully realized and hence we spend our lives in conflict with the present.

Thought and Memory

2011-08-14T22:13:00.000-07:00

Is it possible to have thought without memory?

People Watching

2011-08-13T14:26:00.000-07:00

Why is people watching a popular time-pass around the world?

Conflicting Life Strategies

2011-08-11T22:44:00.000-07:00

I often wonder what the best life strategy is. Complex Systems and experience taught me that tit for tat is the best survival strategy. However, it is in direct conflict with what I learned from Gandhi i.e. an eye for an eye makes the whole world blind. Do I have to raise my consciousness to the level of Gandhi to live by "be the change you want to see in the world" (another lesson from Gandhi)? What do you think?

Independent Mind

2011-08-11T13:09:00.000-07:00

An independent mind is a rare thing.

Human Nature Summarized

2011-08-02T17:31:00.000-07:00

The basic human nature is same all over the world - reproduce, continuously satisfy senses, and pursue self-interest, all with the least amount of effort.

Management vs. Investment

2011-07-17T15:45:00.000-07:00

Smart people manage. Smarter people invest.

Context

2011-07-16T15:37:00.000-07:00

Context is not a well understood concept in context of decision-making:-) By context, I mean a set of conditions (mostly interconnected) under which something works or occurs.

We go to school (higher education) and learn theory which tells you how the world should work and not necessarily how it actually works. Subjects are taught in universal terms and not in relative (or context-specific) terms. How many classes have you seen on mastering context? So, how do you learn context? Mainly, by experience and thinking. However, most people are mentally lazy and they don't think about why something worked. One of my heroes, George Bernard Shaw, famously said, " Few people think more than two or three times a year. I have made an international reputation for myself by thinking once or twice a week."

We tend to think that success was because of our actions and failure was because of others' actions. We like simple rules of thumb which don't require us to think much and to react quickly. I have seen many successful entrepreneurs go to big organizations and fail and many executives from big organizations go to start-ups and fail. They replicate their decision that worked for them in the past and in a different context the same decisions produce different results.

The idea of being successful for many people is to do what the other successful people have done to become successful. However, we fail to understand the conditions that made someone successful and those conditions may not be available to us. It would be much more fruitful to understand how the successful people approached decision making, what skills did they have and analyze if you have those skill or could you acquire those skills.

The Golden Rule in most religions is "Do unto others as you would have others do unto you." It is a good rule in most cases but what if the others don't want what you want? Our social conditioning also encourages context-free rules and thinking. We tend to replicate the behavior of people we like. The other problem is communication and memory. It is really hard to communicate and make people remember, "well, this rule only works in conditions x,y,z".

The coming years represent an interesting problem. The world is getting more interconnected, there is too much information available, and everything is moving faster. So, we need to get better at understanding context but we may not have time to analyze the conditions. People who may do well are the ones who understand systems (which by its nature teaches you context) and those who effectively use machine intelligence for decision making.

Obituary: Jens-Uffe Andersen

2011-07-12T07:38:00.000-07:00

My dear friend, Jens-Uffe Andersen, passed away on May 26th, 2011. Jens-Uffe was a great man and I admired him. He spent his life being a productive member of the society and made significant contributions to the success of SIEMENS in Denmark. Jens-Uffe taught me valuable lessons in business, specifically:

In a big centralized corporation, when managing a big account, one has to spend more time within the organization aligning various entities than with the customer.

Internal alliances are necessary to get anything done in a big organization.

People like to do business with with people they like even if it costs a bit more.

I am sure that I am not doing justice to wisdom of the man by just listing three things I learned from him because the list is very long.

May Jens-Uffe rest in peace. My condolences to his family.

Take Joy in Admitting Mistakes and other Wisdom from Charlie Munger

2011-07-06T23:37:00.000-07:00

Charlie Munger, my hero, answered questions from his fans at " A Morning with Charlie" in Pasadena, California on July 1, 2011 (formerly, this annual gathering with Charlie was known as Wesco Financial Annual Shareholder meeting).

Just like all the other meetings with Charlie, this one offered wisdom, humor, and admiration for the man. I could not attend the meeting and am thankful to Morgan Housel who complied the notes from the meeting for the Montley Fool. [click here for the original post]. Following are the notes:

----

On the Wall Street meltdown: It all started with an asinine bubble. The cause was a combination of megalomania, stupidity, insanity, and I would say evil on the part of bankers and mortgage brokers. And it was widespread. Alan Greenspan was a smart guy, but he totally overdosed on Ayn Rand when he was young. You can't give bankers the freedom to create gambling games. That's what it was. Wall Street was a gambling house, and the house's odds were better than a Vegas casino. And real casino operators have to build parking lots, fly in entertainers, pay for bars and restaurants. It's expensive. Wall Street was like a casino with no overhead. It was hog heaven for them. But it created vast damage with terrible consequences to civilization.

None of us should fall for the idea that this was constructive capitalism. In the 1920s they called it bucket shops -- just the name tells you it's bad -- and they eventually made it illegal, and rightly so. They should do the same this time.

On opportunity: Patience combined with opportunity is a great thing to have. My grandfather taught me that opportunity is infrequent and one has to be ready when it strikes. That's what Berkshire is. It's amazing how fast Berkshire acts when we find opportunity. You can't be timid -- and that applies to all of life. You can't be timid in marriage when you find the right spouse. It might be your only opportunity to be happy in life. Too many people don't act when they should. That's why half of all marriages don't work out.

On Berkshire's valuation: Berkshire's stock is at a point Buffett and I never anticipated it would go to. Part of this is due to weather [insurance losses], part of it is Europe being welcomed into what I call adult life.

On the future of Berkshire: Investors owning Berkshire at current prices will do quite all right just sitting on their rear ends.

On banks: Bernie Madoff expressed sorrow in court to get a lighter sentence, but it was all false. In prison he told a guy that he carried his clients for 25 years, and now he's serving 150 years. He doesn't think it's fair.

Many people don't. I bet Richard Fuld [former CEO of Lehman Brothers] doesn't have an ounce of contrition. It's just megalomania. When it's like that, you need rules to prevent catastrophe. When banks are borrowing the government's credit rating [FDIC insurance, etc.], you need rules to prevent stupid things. Clever derivatives broke dozens of companies. It killed them. Bankrupt. We don't need these kinds of innovation in finance. It's OK to be boring in finance. What we want is innovation in widgets.

On the power of Berkshire: People make contracts with Berkshire all the time just because they trust us to do well. They trust us to behave because they know others won't. It's a wonderful position to be in. And as the saying goes, "How nice it is to have a tyrant's strength, but how wrong it is to use it like a tyrant."

On lifetime learning: When we bought See's Candies, we didn't know the power of a good brand. Over time we just discovered that we could raise prices 10% a year and no one cared. Learning that changed Berkshire. It was really important. You have to be a lifelong learner to appreciate this stuff. We think of it as a moral duty. Increasing rationality and improving as much as you can no matter your age or experience is a moral duty. Too many people graduate from Wharton today and think they know how to do everything. It's a considerable mistake. Most of Berkshire's success grew from stupidity and failure that we learned from. I hope that makes you feel better about your own life.

On accountants: Banks showed income and assets for things that were neither/nor, and the accountants were totally fine with it. What kind of profession acts this way? The medical profession wants to eradicate epidemics. Accountants feel no similar responsibility toward their field. They feel no embarrassment about it. They just want to get the job done. It's contemptible behavior. At the top of an idiot boom, a bank's allowance for bad debt goes to zero. That's the accounting rule. What kind of maniac thinks this is good? A certified public accountant, that's who.

On financial collapse: The world learned what happened after World War I when we demanded that Germany repay. It was chaos and hyperinflation. The result, of course, was the rise of Hitler. And Hitler could have been more successful than he was; his kids or family members could still be in power today had things gone just a little differently. You don't ever want to do anything to push an economy to collapse. Terrible things result. Now think about this. During World War II, Japan tortured our soldiers to death. They marched them around. The Germans put people in ovens. Just awful. And what did we do after the war? We gave them money to rebuild. We said, "Let bygones be bygones." The result was a magnificent global economic system and a win for human rights. Who deserves the most credit for this? That would be John Maynard Keynes and his book The Economic Consequences of the Peace. People figured out he was right, and they just did it.

On our financial crisis vs. Japan's lost decade: There was an orthodoxy of the world that Keynesian tricks would goose an economy and solve and ameliorate recessions. Economists were so sure it would work that GDP would grind ahead. They thought it was a law, like the laws of physics. But then came Japan. Japan's crash was caused by factors similar to ours -- an idiot boom that burst. They tried every Keynesian trick they could think of, and the result was stasis. And I mean they tried everything. I once noted that you cannot find a piece of garbage on a Japanese mountain. They hired as many people as possible to clean it up. Yet the result was still stasis. Twenty years of stasis! And think, this couldn't have happened to a better group of people than the Japanese. They're uniquely capable of handling tragedy. They're polite, respectful. The outcome of 20 years of stasis in the United States would not be nearly as good. But it's more complicated than just looking at [Keynesian policies]. There are other explanations. Japan has an export-driven economy, and out of nowhere they suddenly faced huge and credible competition from China and Korea. Of course that will cause slower growth. It was a bad outcome all around.

On not jumping to conclusions: Matt Ridley wrote the terrific Book The Rational Optimist -- and that really is a good book. I've read it several times. But even someone as smart as him is too quick to jump to conclusions and a single explanation. His explanation for the success of modern capitalism is Adam Smith's division of labor. He repeats it over and over again. But this is a totally inadequate answer. Joseph Stalin can achieve division of labor and there would be benefits. That doesn't mean it's capitalism.The major success of capitalism is its ability to drench business owners in feedback and allocate talent efficiently. If you have an area with 20 restaurants, and suddenly 18 are out of business, the remaining two are in good, capable hands. Business owners are constantly being reminded of benefits and punishments. That's psychology explaining economics.

On taxes: During the Punic Wars, two-thirds of war debt was repaid before the war was even over. People who paid taxes thought it was the right thing to do. They had a sense of duty and patriotism. I don't like the idea that we can't add new taxes today when faced with such problems. At the same time, people are responding to real frustration. It's hard to be optimistic with current politicians. They just hate each other so much. It's all sound bites designed to please their constituents. Some of you might enjoy this. I don't.

On envy: There is nothing more counterproductive than envy. Someone in the world will always be better than you. Of all the sins, envy is easily the worst because you can't even have any fun with it. It's a total net loss.

On consumer credit: Banks don't offer free checking accounts because they don't want to make money. They do it because overdrafts generate big fees. Banks had computer programs to rank the largest withdrawal so as to generate the greatest number of overdraft charges. There's now a class action suit against this, as there should be. I don't want to sell credit to people who are going to hurt themselves with it. You should only sell products that are good for the people who use them. Some disagree with this, but I know I'm right. That is to say, you're talking to a Republican who admires Elizabeth Warren.

On the investing climate: It's a very different world today. Bill Gross of PIMCO has a very good concept called "the new normal." Bond yields are so low, and prices will, of course, fall when interest rates rise. And there's so much other trouble in the world. It could mean very modest returns for some time to come.

On high-speed traders: Fancy computers are engaging in legalized front-running. The profits are clearly coming from the rest of us -- our college endowments and our pensions. Why is this legal? What the hell is the government thinking? It's like letting rats into a restaurant.

On tech stocks with low P/E ratios: I don't know much about them. But it's hard to imagine Google (Nasdaq: GOOG ) not having a strong position in the future. I don't know how you can replace Google. For other tech companies, of course there are very real threats.

On what his favorite company is outside Berkshire: That's easy. It's Costco (NYSE: COST ) . Costco is a different kind of place. It's one of the most admirable capitalistic institutions in the world. And its CEO, Jim Sinegal, is one of the most admirable retailers to ever live on this planet. Costco will continue making huge contributions to society. It has a frantic desire to serve customers a little better every year. When other companies find ways to save money, they turn it into profit. Sinegal passes it on to customers. It's almost a religious duty. He's sacrificing short-term profits for long-term success. More of you should look at Costco.

On parallels between Rome and America: Of course there are parallels. Every great empire passes the baton. The failure rate of empires is 100%. But in one sense, the greatness of the past stays with us. What was great about the Athens of the past is still with us. You can be 100% certain America will pass the baton, but our best values will go with that baton. The most important people in Asia studied at American universities and learn from America like sponges. Most of what is achieved now will never die.

Responding to a comment about the dollar depreciating 95% in past half-century: If you think the past half-century was bad, you will have serious problems in life. Despite inflation, we've been a huge success. Real GDP has grown 2% per year per capita. That's fantastic. The period you describe as miserable was a tremendous time for the American economy. You've described success.

On hypocrisy of ripping on other financiers: To the extent that all I've done is pick stocks that have gone up, and sat on my ass as my family got richer, I haven't left much contribution to society. I guess it's a lot like Wall Street. The difference is, I feel ashamed of it. I try to make up for it with philanthropy and meetings like this one today. This meeting is not out of kindness. This is atonement.

On patience: Blue Chip Stamps was doomed a long time ago. But it had all this float, just like an insurance company. We had to do something intelligent with that float. Over decades, we only found three things to do with it: Buy See's Candy, the Buffalo Evening News, and Wesco. That's it -- just three ideas over the course of decades! That is very interesting, isn't it? Most think it's easy to go out and buy something. And it is. But most who do it will do so to the detriment of their shareholders. Study after study shows shareholders lose when management acquires businesses. Ours didn't. It was all because of patience.

On following his lead: Most people who try my way will end up unpopular and unsuccessful. There are certain peculiarities of my personality that I would not recommend. My irreverence. My insistence. These things will get most people into trouble. ... Basic morality works for everyone. Discipline works for everyone. Objectivity works for everyone. That's what you should focus on.

On pension funds: Public pensions are quite dishonorable. A police officer who earns $50,000 a year can work all this overtime in his last year and, because of it, collect a $100,000 pension for life. Of course, people think it's OK because he's an honorable police officer. But it's evil and overaggressive. It's wrong to have people behaving like that.

On Berkshire acquiring Wesco: I view myself as a captain of a ship. That ship's cargo -- Wesco -- is larger than anyone expected. But we're now at the port we always wanted to reach, at Berkshire. We've wanted this for so long, but the price was never right. It was never really feasible until now. I'm glad we waited. Berkshire has a history of waiting a long, long time before acting. It's a desirable outcome.

On Greek entitlement and bailouts: The Greeks describe failure as a job that consumes eight hours a day and five days a week. Of course, you're going to have problems with that mentality. Accepting Greece into the European Union was a huge mistake.You can't let their big banks fail. But when I heard of Greece's bailout, my first thought was, "Those poor children." They'll be paying for it. At some point, you have to draw the line. We did. I think Lehman Brothers was a good place to draw the line.

Coke today vs. past: Coca-Cola (NYSE: KO ) is not as good today as it used to be. It's just so big. Like Berkshire, it's hard to make the elephant move very fast.But it's still one of our favorites. The trouble with selling an expensive product is that it gives people the incentive to knock you off. Coke isn't like that. Branded companies that sell cheap products, and lots of them, is a fantastic business model to have.

On Berkshire paying a dividend: Some of you will live to see it. I hope I don't. It will only happen when we don't think we can get $1 of value for each $1 of retained earnings. I hope that never happens.

On an easy life: Assume life will be really tough, and then ask if you can handle it. If the answer is yes, you've won.

Asked if his children have benefited from his wealth: Of course they have. When rich parents make their kids sell newspapers on the sidewalk, the result is always the same: It breeds hate. It's no different than if a man indulges himself while leaving his wife in a small corner in the kitchen. That doesn't mean you can't have good, constructive children. They just won't be as motivated as ones who start out half-starving. It's a huge advantage to start from nothing [but be given an opportunity]. Of course, you simply won't find that in the Rockefeller descendants. It's too damn bad if you've grown so rich that your kids don't have that kind of motivation to succeed.

On challenge: Most dentists and doctors know what they're doing. They deal with problems they know they can fix. I don't want that. It's in my nature to move toward the really hard problems that haven't yet been solved.

On unemployment: I would be flabbergasted if jobs bounce back. Unemployment will be a considerable problem for a considerable amount of time. But it doesn't have to ruin your life. I was raised during the Depression, and people dealt with it. People with gumption today will deal with it. In a sense, our jobs problem is the same problem Japan has faced over the past 20 years: Huge competition from China. Part of the problem is that Asians are so damn smart. For years they were in this Malthusian trap, stuck in agriculture. Now they're unleashed, and human talent is just awesome when unleashed. They're formidable competitors.

On picking a good investment manager: We have recent experience picking investment managers, and it's quite humbling. It's really, really difficult. Lots of people come to us and they're all high-quality folks. You'd think it'd be like shooting fish in a barrel, but it's not. Most of them are good in small niches, but they can't scale. Warren and I could scale. You had to with Berkshire.

On success: You have to love what you do. My whole life I've never been good at anything that I wasn't interested in. Architecture is a terrible way to make a living, but a friend of mine who is an architect says he loves it so much that he never has to work. That's a great way to live. Everyone should try it.

On ETFs: I never look at them. In general, I approve of low-cost index funds. Most investors will do better with them -- and that goes for both individual and professional investors. But I don't touch them. I prefer to do better than average.

On valuation: When we buy businesses, we often pay liberal prices. Sometimes this comes at a great cost. Dexter Shoe, for example, which we bought with stock. We utterly failed on that one. But we rarely get cheap businesses. If you average it out, though, I like it that way, because we end up with good businesses. [You get what you pay for].

On adversity: Quitting under adversity or while being frightened just brings contempt. Living with adversity is the best chance for opportunity. There will always be panicky people. If someone else panics and you're calm, people will remember the calm one. Think about when Bobby Kennedy was brain dead and dying. Jackie was the only person in the family who could say, "It's over. Pull the plug." She was the only calm one. And who do people remember from that family? Jackie.

On investing in banks: A friend of mine won't touch banks. His attitude is that sooner or later the bastards will go crazy. I think that's irrational. You have to be able to recognize the ones that stick out. Wells Fargo (NYSE: WFC ) and US Bancorp (NYSE: USB ) avoid stupidity better than most. And Wells admits that it had its head up its ass when it made some of its mortgage loans. They know it wasn't their finest moment. I'm comfortable with people like that.

On humility: I like people admitting they were complete stupid horses' asses. I know I'll perform better if I rub my nose in my mistakes. This is a wonderful trick to learn.

On diverse learning: Economists have long been divided by a simple problem. When you go to the movie theater, soda and popcorn costs a totally unfair price compared with other locations. This just tortures economists. At least 1 million man-hours have gone into trying to solve this problem. Economists understand that a first-class ticket on an airplane costs more than coach. They get that one. It's marginal utility. But they can't figure out the movie theater to save their lives.Here's the Munger approach to the problem. In the auto world, a car manufacturer will sell a car for $40,000, and charge $200 for the extra gizmo. No one cares about the extra $200 when you're already spending $40,000. It's insignificant. The movie theater is basically the same thing. People are OK paying that much for a soda after they've paid so much for an admission ticket. Now, psychologists can explain this clearly. Economists can't for the life of them. It's so simple what happens when you think beyond your trained field. It's amusing to see someone spend 1 million man-hours on something I can solve with my left hand.

On the success of Iscar: Failure isn't an option in Israel. You're surrounded by enemies and you have no hydrocarbons.

On energy: It's like they say: It's the best of times and the worst of times.It's the worst with things like corn and ethanol. This was the most asinine idea in all of human history. People are just now starting to figure this out. But it's the best in things like renewable energy from things like wind. It can't happen everywhere or match coal, but without it, imagining a world without hydrocarbon looks so glum. And we'll find more hydrocarbon. Shale, for example, is seriously interesting. You can solve almost any problem with enough energy. Israel gets half its drinking water from the ocean.

A typical day in the life of Munger: Both Warren and I have amazingly open calendars. We're particularly brutal about saying no to new commitments. We just like to read and talk with people. It's an enormous advantage.

Why he likes BYD: Partly because they work hard at engineering problems, and partly because when they fail they put their heads down and admit it.

On improvement: When I was young I would sell the best hour of the day to myself. The most important investment was in myself. The rest of the hours I sold to clients.

On his favorite morning reads: I love the Wall Street Journal, but I've never liked its op-ed pages. The one I like the best is the Economist. I regard it as the adult publication of the modern world. But, in its field [news], The Wall Street Journal is still first.

Asked about parenting advice: Don't preach one set of values and live another. Whatever values you want to teach need to come with examples day after day.

On reading: Most books I read I don't finish the first chapter. I'm not burdened by awful books.

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See you if you can attend the Berkshire Hathaway Shareholder meeting next year to see and hear Munger live.

Charlie Munger's Parody of the Great Recession

2011-07-04T00:59:00.000-07:00

Charlie Munger, my hero, handed out the following parody at " A Morning with Charlie" in Pasadena, California on July 1, 2011 (formerly, this annual gathering with Charlie was known as Wesco Financial Annual Shareholder meeting).

The parody identifies the causes of the recent financial crises in the US. Most "experts" have not been able to do that. Furthermore, it offers valuable lessons in human behavior, economics, accounting, and morality. I am still laughing after having read the story twice:-). Enjoy!

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In the country of Boneheadia there was a man, Wantmore, who earned his income as a home mortgage loan originator. Wantmore operated conservatively. All his home loans bore interest rates of 6% or less, and he demanded of all borrowers large down payments, documented proof of adequate income and an immaculate credit-using history. Wantmore sold all his loans to life Insurance companies that, before closing purchases, checked loan quality with rigor—then held all loans to maturity. As Wantmore prospered, he eventually attracted the attention of Tweakmore, a very bold and ingenious investment banker. There was no other investment banker quite like Tweakmore, even in the United States. Tweakmore had become the richest person in Boneheadia, driven by an insight that had come to him when, as a college student, he had visited a collection of hotels that contained gambling casinos located in a desert. As Tweakmore saw immense amounts of cash pouring into cashiers’ cages surrounded by endless sand, in business operations that did not tie up any capital in inventories, receivables, or manufacturing equipment, he realized immediately that he was looking at the best business model in the world, provided one could also eliminate commitment of any capital or expense to hotel rooms, restaurants, or facilities providing parking or entertainment. Tweakmore also saw exactly how he could create for himself an operation that possessed all the characteristics of his ideal business. All he had to do was add to investment banking a lot of activities that were the functional equivalent of casino gambling, with the bank having the traditional “house advantage.” Such casino-type activities, masked by respectable sounding labels, Tweakmore foresaw, could easily grow to dwarfall the action in ordinary casinos. Determined to create and own his ideal business as fast as possible, Tweakmore quit college and entered investment banking.

Within twelve years, Tweakmore was the most important investment banker in Boneheadia Tweakmore rose so rapidly because he was very successful in convincing regulators and legislators to enlarge what was permissible. Indeed, by the time Tweakmore called on Wantmore, any investment bank in Boneheadia could invent and trade in any bets it wished, provided they were called “derivatives” designed to make counter parties feel better about total financial risks in their lives, outcomes that automatically happened. Moreover, an investment bank faced no limit on the amount of financial leverage it employed in trading or investing in derivatives or anything else. Also, Tweakmore had obtained permission to use ”Mark-To-Model” accounting that enabled each bank to report in its derivative book whatever profit it desired to report. As a result, almost every investment bank claimed ever—growing profits and had ownership of assets totaling at least thirty times an ever—swelling reported net worth. And despite a vast expansion of transaction—clearance risk, no big mess had so far occurred.

Tweakmore was pleased, but not satished, by what he had accomplished. And he now planned to revolutionize Boneheadia’s home mortgage loan business in a manner that would make Tweakmore a national hero. In his first proposal to Wantmore, Tweakmore held much of his ingenuity in reserver. All he proposed was that Wantmore hereafter sell all his home loans to Tweakmore at a higher price than life insurers would pay. Tweakmore said that he planned to put all loans into trusts with no other assets, Each trust would be divided into five “tranches” with different priorities in use of loan payments. Four tranches would use their shares of loan payments to pay off complex new fixed interest-bearing, freely-tradable debt instruments, called CDOs . The fifth tranch got a tiny residue in case all home loan payments were received as due. The CDOs would be sold by Tweakmore, using a highly—paid sales force, to anyone who could be induced to buy, even highly—leveraged speculators and small Scandinavian cities in the Arctic. To Wantmore, Tweakmore’s proposal at first appeared unfeasible. The planned operation seemed to resemble the operation of a meat vendor who routinely bought 1000 pounds ofchuck roast, sliced it up, and then sold 950 pounds as filet mignon and the balance as dog food. But Wantmore’s doubts melted away when Tweakmore revealed how much he would pay. Under the offered terms, Wantmore would double his income, something Tweakmore could easily afford because his own income was going to be three times that of Wantmore. After Wantmore accepted Tweakmore’s proposal, everything worked out exactly as Tweakmore had planned, because buyers of CDOs in aggregate paid much more than the life insurers had formerly paid. Even so, Wantmore, as he became familiar with Tweakmore’s prosperity, was soon dissatisfied with a merely doubled income. With Wantmore restive, Tweakmore now displayed the full range of his ingenuity.

What Tweakmore next proposed was that Wantmore add to his product line a new class of “subprime, pay-what-you-wish” home mortgage loans. All loans would bear interest at 7.5% or more, and borrowers would not he allowed to state anything except that they wanted the money. There would be no down payments and no credit checks or the like. Also, each loan would be very user—friendly in its first three years, during which the borrower could make only tiny payments with all unpaid interest being added to principal. After three years, very onerous loan service was required, designed to pay off the greatly swollen principal, plus all interest, over the next five years.

Ths proposal would have seemed preposterous, even hilariously satirical, if it had been presented to Wantmnre when Tweaknwre had first called. But by now Wantmore had doubled his income by going along with a peculiar idea of Tweakmore’s. So Wantmore’s credulity was easily stretched to allow acceptance of the new loan product, which Tweakmore projected would triple Wantmore’s already doubled income.

lt is easy to see why Wantmore became a “true believer” in the new loan product. But why did the already super-rich, prominent, and sophisticated Tweakmore believe his revised scheme would work safely and well for him? Well, we know the answer. As Tweakmore revealed in his prideful autobiography, his thought process was as follows:

1. There would be no significant troubles during the first three years. Under the accounting standards of Boneheadia, all its accountants would be required for a long time to reserve no loan—loss provision at all against unpaid principal and unpaid interest on the new loans. And CDOs would be valued highly in trading markets because underlying loans were booked at unreasonably high value. It wouldn’t matter that home buyers were making no down payments, had no personal liability at any time, and paid only a tiny portlon of interest accrued for three years. It also wouldn’t matter that any competent inquiry would have revealed extreme past improvidence on the part of most borrowers.

2. House prices in Boneheadia would not merely rise as they had done before. Prices would rise much faster as more and more people learned they could bid to acquire homes without using any oftheir own money, no matter how poor were their credit-using histories.

3. All the buyers of new CDOs would have a near perfect investment experience. Ever-rising house prices would cause full payment of all mortgage debt as due. The market for the new CDOs would expand and expand as investors reliably earned much more interest than they could get elsewhere. House prices in Boneheadia would rise faster and faster as the scheme fed on itself in a runaway feedback mode.

4. True, after the first three years many over-stretched home buyers were sure to suffer somewhat as they were forced, by threats of foreclosure, to sell their homes. This would often cost them their credit and the respect of their children, friends, and employers, but that would be the only trouble, and it would prove endurable by Tweakmore and everyone else, except the people forced out of homes.

5. The runaway feedback mode that drove up house prices would cause no significant trouble for decades, as had happened in Japan where a big bust in real estate prices occurred only after the Imperial Palace grounds in Tokyo were apparently worth more than the market value ofthe entire state of California.

6. The principles of economics would give the scheme a large tailwind and considerable popularity. As Tweakmore, a former student in elementary economics, knew from studying Galbraith, a large undisclosed embezzlement strongly stimulates spending because the perpetrator is much richer and the victim spends as before because he does not yet feel poorer. And what Tweakmore was creating was the functional equivalent of a long-running undisclosed embezzlement on steroids. The perpetrators would not be the only ones to spend more, as typically occurs during ordinary embezzlements. The CDO—buying victims also would spend more as they believed they were getting richer and richer from ever-growing paper gains embodied in accrual of interest at above normal rates.

7. To be sure, the scheme looked a little like a chain-letter scheme, and such schemes were usually ill regarded by prospective users, partly because the schemes were criminal and partly because the schemes always blew up so quickly, bringing criminal troubles so soon. Tweakmore’s scheme, in contrast, would, by design, be lawful and benevolent, and recognized as such, because it would create big macroeconomic stimulus as a public good.

8. And should the scheme eventually blow up alter decades, like the land-price bubble in lapan, who could fairly blame Tweakrnore? Nothing lasts forever. Besides, the blcwup might be lost in a miasma of other blowups like those sure to come in many irresponsible countries and subdivisions of countries.

Tweakmore’s revised scheme worked fantastically well for a considerable period. Naturally, there were some glitches, but Tweakmore turned each glitch into an opportunity to boost profit. For instance, when Wantmore was made nervous as hordes of scumball salesmen were drawn into his business by rich commissions paid for production of easy-to-sell ”subprime” pay-what-you-wish home loans, Tweakmore responded by buying Wantmore’s business. Then Tweakmore replaced Wantmore with a new CEO, Totalscum, who did not consider any business practice optimal unless it was depraved. Totalscum soon increased loan production by 400%, and his success caused Tweakmore to buy five additional loan businesses and replace their CEOs with people like Totalscum, causing profits to soar and soar, even though Twealtmore never again found anyone else whose depraved operations could produce results that matched those of Totalscum.

As Tweakmore’s scheme went on, it was necessary for its continuing success that the accountants of Boneheadia never stop treating as trustworthy a lot of hugely important loan- payment promises that any sensible person would deem unreliable. However, there was almost no risk that accountants would act otherwise than as Tweakmore desired. The accountants of Boneheadia were not allowed to be sensible, They had to use by rote “rules—based” accounting standards set by a dominating man, Countwrong, who was head of Boneheadia’s Accounting standards Setting Board. And Countwrong had ordained, in effect, that all loss provisions on the new loans must remain based on the zero-loss record that had existed before Wantmore met Tweakmore. And, so long as Countwrong was in charge, no one was going to use in accounting an understanding of runaway feedback modes, instead of Countwrong’s rules.

Of course, if Totalscum or Tweakmore ever started to have loan losses, he would have to start making loan-loss provisions against new loans. But there weren’t any meaningful loan losses for anyone for a very long time. Countwrong was so habit—bound as a thinker that he never recognized that his cognition was anti—social. He had always sought simplicity of process for accountants at the expense of “principles—based” rigor in thought that would better serve his country. He had been rewarded in life for his convictions, and he was now proud of his conclusions, even as they were contributing mightily to the supencatastrophe sure to come eventually from Tweakmore’s scheme. A large economic boom occurred in Boneheadia just as Tweakmore had expected. The boom made the regulators of Boneheadia feel extremely good about themselves as they passively watched the ever—enlarging operations of Tweakmore and Totalscum. A famous regulator named Oblivious was particularly approving. He had been over influenced in early life by classical economics. So influenced, Oblivious loved all the new derivatives, even those based on outcomes of parts of complex CDOs composed of parts of other complex CDOs. And he did not believe the government should rein in any investment banker until the banker’s behavior was very much worse than Tweakmore’s. The boom initiated by Tweakmore lasted only three years. He had underestimated the boom’s strength and the power of people to understand, in due course, super-sized folly. These factors had helped shorten the boom’s duration. Also, Boneheadia had proved less like Japan than had been hoped.

When the hoom—ending bust came, it was a doozy, Almost every investment bank had been made collapse-prone by Tweakmore’s innovations before he became interested in home loans. And now, in a huge bust, most big financial institutions were sure to disappear, causing total chaos and another “Great Depression” unless there was super—massive intervention by the government, financed by printing money. Fortunately, Buneheadia did so intervene, guided by effective leaders who somehow obtained support from politicians in both political parties. And, after this massive intervention, Boneheadia, with doubled unemployment, is enormously worse off than if the boom and bust had never happened. And its options in case offuture trouble are greatly reduced because, after its money-printing spree, it is nearer to facing general distrust of its money and credit. Boneheadia’s bust is now called the “Great Recession”. Yet, even so, not much has been learned by the ellte in Boneheadia. Among the protagonists and too—passive types who contributed so much to the mess, only one has expressed significant contrition. To his great credit, Oblivious has recognized that he was grossly wrong. The accounting profession remains unaware of its large contribution to public woe. And it does not recognize the cognitive defects of Countwrong, which are still believed to be virtuous qualities that reduce accountants’ litigation risks and their duty to cause antagonism by opposing the wishes of some of their best-paying clients.

The professoriate in economics has barely budged toward recognition of the importance of optimized, more conservative accounting in both macroeconomic: and microeconomics. And economics professors, even now, do not recognize what was so easily recognized by Tweakmore: the functional equivalent of undisclosed embezzlement can be magnified and have massive macroeconomic consequences when the victims, as well as the perpetrators, are led to believe they are getting richer under conditions that are going to last for a long time, How about the legislators in Boneheadia? Well, most are confused by what has happened to their most powerful friends and draw no useful implications from the outcome of Canadia, a country just north of Boneheadia that had no “Great Recession” because its simple laws and regulations kept in place home loan operations much like those of Wantmore before he embraced modern finance in the state preferred by Tweakmore.

How about the regulators? Well, very few important regulators or former regulators in all Boneheadia have expressed really serious doubts about the status quo and interest in really serious re-regulation of investment banking. One of the doubters is Follyseer, a long—retired former Minister of Finance. Follyseer has argued that all the contributions of Tweakmore to investment banking should now be removed and banned, because it is now obvious that (1) augmenting casino-type activities in investment banks was never a good idea, and (2) investment banks are less likely to cause vast public damage when they are forbidden to use much financial leverage and are limited to few long-traditional activities. Regarding accounting, no regulator now in power seems to understand, in a way that has any chance of causing effective remedial action, that the disaster triggered by Tweakmore couldn’t have happened if Boneheadia’s system of accounting regulation had been more ”principles—based,” with a different and less tradition-bound group creating accounting standards that were less easy to game.

The former regulator and life-long professor who seemed extra wise aher the Great Recession was England’s John Maynard Keynes, dead for more than half a century. Keynes had predicted, correctly, that “When the capital development of a country ls a by product of the operations of a casino, the job is likely to be ill-done.

Charlie Munger

Afterword: The foregoing parody is not an attempt to describe in a fair way real contributions to the “Great Recession” in the United States. Certain characters and industries, for instance, Tweakmore and investment banking, are grossly overdrawn as contributors to sin and mayhem, while other contributors are not discussed at all. The whole idea was to draw attention to certain issues in accounting, academic economics, and conceivable over-development of finance as a percentage ofthe entire economy, by making the characters and the story line extreme enough to be memorable.

Taiwan

2011-06-29T04:20:00.000-07:00

Taiwan is a fascinating place. We would be living in a very different world today if Taiwan had not found a way to mass produce consumer electronics (TV, laptops, Smartphones, etc. etc.) at low cost.

Taiwan used to be a Japanese colony and received its independence after WWII. Now, the political status of Taiwan is disputed. Commonly, Taiwan is also known as Republic of China (ROC) which is different than People's Republic of China (PRC) commonly known as China. PRC claims ROC to be part of PRC after PRC was established by the communist party in China in 1949.

The Taiwanese people speak Mandarin but are closer to the Japanese than to the Chinese in terms of culture. Taiwanese do not have animosity towards the Japanese because they built the infrastructure in Taiwan. And, Taiwan is one of the top tourist destinations for the Japanese. The relationship between the Chinese people and the Taiwanese people is still not trustworthy. Because of its history, Taiwan culture is unique. It is a blend of Japanese, Chinese and some unique Taiwanese traits.

Most people in the high-tech industry in Taiwan work twelve+ hours a day seven days a week. And, they don't complain about it. The competition is fierce among the high-tech companies and that keeps everyone working hard and long hours. This is one of the reasons that we can afford our iPhones, LCD TVs, etc. in the west. Lately, the actual manufacturing of the consumer electronics devices has moved to mainland China because of lower labor costs in that area. All Americans should visit Taiwan. After the visit, they will gain a new appreciation for their jobs.

There are a lot of migrant workers from Thailand and Philippines. These workers usually do not integrate with the society and do the unwanted jobs. However, the social/geographical integration is unique in Taipei. The corporate offices, fancy restaurants, street vendors, pawn shops, red-light district, bars, residential areas, etc. can all be found within the same block. The smell created by this mixture is quite unique.

Most of the Taiwanese economy is in the Taipei area which is very expensive. Many people who live in Taipei want to have kids but can't afford to have them and raise them. I find this very sad. The government has started programs to encourage people to have kids because the population is on the decline. This policy is very different than the Chinese policy on population control.

Just like in Japan, service in Taiwan is very good. The taxi drivers wear a black suit and white gloves. People bow to you as a sign of respect. However, the cellphone etiquette in Taiwan is very different than in Japan. I was getting the famous Taiwanese foot massage and the guy who was massaging my feet was talking on his cellphone while giving the massage.

I made a new friend, Wayne, on my recent visit to Taiwan. Wayne is one of the nicest guy I ever met. He did a masters in bio-medical engineering after an undergrad in electrical engineering just because he wanted to have good conversation with his wife who was a nurse at the time:-).

Visit Taiwan!

Diversity of thought

2011-06-29T03:31:00.000-07:00

Thought varies more widely among women.

Attitudes for Happy Life

2011-05-30T11:10:00.000-07:00

I just finished reading a fantastic book-Seeking Wisdom: From Darwin to Munger by Peter Bevelin. The book offers a systematic approach to becoming a better thinker and a better decision maker. It synthesizes thinking of two of my heroes- Charlie Munger and Charles Darwin.

The book gives you fundamentals from various disciplines- biology, physics, chemistry, mathematics, and psychology and then shows you how they are applied to reality. The core idea of the book is to understand that there 28 common misjudgments people make, why we make them, and if we just learn to avoid them, we will be much better decision makers and will live better lives. And, it also outlines guidelines to better thinking.

One of the guidelines of better thinking is better attitudes. I think that changing attitudes can do wonders for people. Following are the attitudes for better living adapted from the book:

1. Life is long if we know how to use it.

Focus on what you know
Don't waste time
Love what you do or do what you love

Ask yourself: What is my nature? What motivates me? What is my tolerance of pain and risk? What has given me happiness and unhappiness in the past? What things and people am I a comfortable with? What are my talents and skills? Do I know the difference between what I want and What I am good at? Where do I have an edge over others? What are my limitations?

2. Be honest

Listen to the words of Mark Twain: "Always do right. This will gratify some people and astonish the rest."

Honesty is the first chapter of the book of wisdom- Thomas Jefferson.

3. Act as an exemplar

As you rise in the society, you have a big duty as an exemplar. It is the best way to teach ethics.

4. Treat people fairly

Respond intelligently even to unintelligent treatment- Lao-Tsu

5. Don't take life too seriously

Life is too important to be taken seriously- Oscar Wilde

Have perspective. View failure as learning experience.
Have positive attitude.
Do what you enjoy.

6. Have reasonable expectations

Blessed is he that expects nothing, for he shall never be disappointed- Benjamin Franklin

Munger's iron prescription for life:

Whenever you think that some situation or some person is ruining your life, it is actually you who are ruining your life...Feeling like a victim is perfectly disastrous way to go through life. If you just take the attitude that however bad it is in any way, it's always your fault and you just fix it as best as you can- the so-called "iron-prescription"- I think that really works.

7. Live in the present

The superior man does not waste himself on what is distant, on what is absent. He stands in the here and now, in the real situation- Confucius

8. Be curious and open-minded. Always ask "why"

Sit down before facts like a child, and be prepared to give up every preconceived notion, follow humbly and to whatever abysses nature leads, or you shall learn nothing- Thomas Henry Huxley

The book ends with the following quote:-)

I confess that I have been as blind as a mole, but it is better to learn wisdom late than never to learn at all- Sherlock Holmes (Arthur Conan Doyle in The man with the Twisted Lip)

Independent Mind and Happiness

2011-05-30T09:57:00.000-07:00

If you stop caring about what others think and develop an independent mind, I guarantee that you will live a happy life.

Life and Time

2011-05-30T09:48:00.000-07:00

Why do we complain of Nature? She has shown herself kindly; life, if you know how to use it, is long. But one man is possessed by an avarice that is insatiable, another by a toilsome devotion to tasks that are useless; one man is besotted with wine, another with is paralyzed by sloth; one man is exhausted by an ambition that always hangs upon the decisions of others, another, driven on by the greed of the trader, is led over all lands and all seas by the hope of gain...many are kept busy either in pursuit of other men's fortune or in complaining of their own; many, following no fixed aim, shifting and inconstant and dissatisfied, are plunged by their fickleness into plans that are ever new; some have no fixed principle by which to direct their course, but Fate takes them unawares while they loll and yawn- so surely does it happen that I cannot doubt the truth of that utterance which is greatest of poets delivered with all the seeming of an oracle: "The part of life we really live is small." For all the rest of existence is not life, but merely time.

You live as if you were destined to live forever, no thought of your frailty ever enters your head, of how much time has already gone by you take no heed. You squander time as if you drew from a full and abundant supply, though all the while that day which you bestow on some person or thing is perhaps your last. You have all the fears of mortals and all the desires of immortals. You will hear many men saying: "After my fiftieth year I shall retire into leisure, my sixtieth year shall release me from my public duties. "And what guarantee, pray, have you that your life will last longer? Who will suffer your course to be just as you plan it? Are you not ashamed to reserve for your self only the remnant of life, and to set apart of wisdom only that time which cannot be devoted to any business? How late it is to begin to live just when we must cease to live! What foolish forgetfulness of mortality to postpone wholesome plans to the fiftieth and sixtieth year, and to intend to begin life at a point to which few have attained!

-Adapted from Moral Essays by Lucius Annaeus Seneca

Good Intentions

2011-05-11T11:23:00.000-07:00

The road to hell is paved with good intentions -Saint Bernard of Clairvaux

Marry the best who will have you and other wisdom from Munger and Buffett

2011-05-02T00:19:00.000-07:00

I spent the last weekend in Omaha, Nebraska with two of the my heroes- Charlie Munger and Warren Buffett. After attending the Berkshire Hathaway (BH) for a few years, I still get amazed how a shareholder meeting attracts 40,000+ people and the meeting is about two guys having fun. Everyone else enjoys watching them have fun. The format is six hours of open Q&A. There is no preparation by Munger and Buffett. Anyone can ask anything about anything expect what BH is going to buy/sell next. You will see it in the notes that a wide variety of topics are covered. Notes from previous years are available here.

The David Sokol issue was covered by Buffett and that part of the meeting has been recorded so I have not covered it in my notes. You can see it here. Munger talked more this year compared to previous years. I just love this man. He is brilliant!

Following are my random notes from the meeting:

Buffett does two things in his job- 1) keep operating managers happy 2) allocate capital.
Make decisions based on opportunity cost. There is no better way.
Marry the best who will have you – Munger
“Lose money from the firm and I’ll be understanding. Lose a shred of reputation and I’ll be ruthless.” Buffett [from Salomon Bothers hearings].
The balance sheet does not represent goodwill very well. For example, the value of a new Geico customer is ~$1,500. If 66 people sign up today, Geico will get Goodwill worth $100k. And, these $100k won’t be represented anywhere on the Geico balance sheet.
Sometimes Net Income is a very deceptive but it gets a lot of media attention every quarter. The quarterly net income has no bearing on how satisfactory the quarter has been. For example, seasonality, long term business decisions, market conditions, accounting adjustments, etc. all affect the net income number.
Hubris is the only explanation on why really smart people do really stupid things.
Most interesting part of any proxy statement is “History of Transaction”.
One should not make important decisions in anger. And, one should not put an iota of ruthlessness than necessary when punishing someone. Like Tom Murphy said, “you can always tell a man to go to hell if it is such a good idea.”
The affect of POMO (Permanent Open Market Operation) ending in a few months would be minimal because the fact that POMO is going to end is well known.
The bible says, “meek shall inherit the earth” The question is, “will they stay meek?”
It has gotten better to replace CEO. However, it is still very hard to replace a mediocre CEO especially when he is the chairman of the board as well. To reduce the chances of getting a bad CEO, a company should have an independent chairman with large shareholdings and should have no desire to be a CEO.
The two sectors which Buffett and Munger want to invest in over next 50 years are Technology and Energy. However, both don’t believe that they have the expertise to invest in Tech/Energy. They have no desire to develop that expertise either:-). Therefore BH is not going to invest in Tech/Energy. Technology companies have high degree of disparity i.e. some win really big and others lose everything .Furthermore, a new technology can make a tech company irrelevant in a few years.
When making investment/acquisition decisions, Buffett looks at:

Industry Dynamics
How the business developed over time.
Easy of entry [for other companies to get into that business]
Durable Competitive Advantage
Economics of the business

He followed the same rules for Lubrizol acquisition.

BH is valued like an operating company. The value of the investing business is not reflected in the stock price.
Making acquisitions with stock is a bad idea. Stock has a intrinsic value of the company and it should be sparingly used as currency. When you are making an acquisition with stock what you are saying to shareholder is that I am giving away my business I already own and like for something that may be good. Doing an all stock deal is saying that either the seller is stupid or the buyer does not value his own business.
Intrinsic value is a range and not an exact number.
US is the most extraordinary economic story. Buffett was born on August 30, 1930. Since then the average standard of living has increased six times! Nothing happened for centuries re standard of living for average people. However, in the US since 1776 we have seen an economic miracle. Of course, the ride has been bumpy. We have problems all the time but the power of capitalism is enormous. The US has a bright future ahead.
The US is not going down. Rest of the world has caught up with the US.
Consumer products that take little capital to grow are wonderful businesses and they survive inflation well if they can tolerate price increases to offset inflation. For example, 20+ years ago, when BH bought Sees candy, it was a $25M/year business. Overtime, BH has invested ~$30M in assets in Sees candy and today it is a $300M/year business. On the other hand, businesses that have to invest capital to grow, manage inventory, receivables, etc. don’t do well during high inflation periods.
I’m a better investor because I’m a better businessman. And, I am a better businessman because I am a better investor- Buffett
When a company pays dividends, it is telling the shareholders that the company has lost the ability to convert a dollar into anything more than a dollar. BH has no plans of paying dividends .
In the coming years, US banking profits will be considerably less because the banks’ leverage is reduced. It is good for the society but not good for banks:-)
FDIC does not cost US taxpayers a penny.
One should read annual letter of M&T Bank and Jamie Dimon’s letter to understand what is going on in the banking world.
In capitalism, market creates a reward system that people who deal with money make the most money.
In words of Elizabeth Warren, the dollar bill should read “In government we trust” instead of “In God we trust”. It is government’s job to keep the currency valuable.
All currencies decline with time. The economic system works that way. Japan tried a different approach and it did not work.
Purchasing power of US$ will decline over time. The question is at what rate.
One dollar in 1930 is now worth $0.06. So, inflation has not destroyed us. We have adapted really well to inflation.
One can invest in three types of assets

Currency
Non-productive Assets (like Gold that do not produce anything)
Productive Assets (that produce something, like a business)

BH mainly invests in productive assets because you can value them and return is not based on other people’s speculation.

The Gold Story: If you take all the Gold in the world, and make a cube out of it, it will be a cube with side-length of 67 feet and it will weigh 170 metric tons. You can sit on top of it and feel like you are on top of the world for a few minutes. Then what? The cube does not do anything. The chapter 12th of Keynes book explains very well how the value of Non-Productive assets goes up. By investing in Gold, you are betting that other people will value it more at a later time.

Munger does like the idea of investing in Gold because the value of Gold goes up with the world goes to hell. The concept is bizarre. You dig gold out of ground in Africa, ship it to the US to Federal Reserve and the Fed puts it back in the ground (locker).

All Gold in the US is worth $8 Trillion and all farm land in the US (one billion acres) is worth only $2 Trillion. There is something wrong with this picture.

We don’t invest in paintings of soup cans either:-)-Munger
Buffett did not like selling securities because when the price of a security goes down, you have to face people. When Buffett started his partnership, he was very clear to investors that he will not provide visibility into how he will invest.
If you are starting a hedge fund, you have two jobs- 1) attract money 2) invest for above average returns. However, with the current fee structure, one maybe better off just focusing on attracting money:-)
BH conglomerate structure offers tax advantages. In the seventies and eighties the Conglomerates became generally unpopular because many of them were operating like semi-ponzi scheme i.e. they are were printing stocks and buying companies for confetti (stock). Buying real assets for confetti runs out of gas eventually.
How most mangers operate, “I know what I am going to report [next quarter] but I don’t know how I am going to do it.” This behavior causes managers to fudge numbers and do unethical things.
On how Buffett/Munger would like to be remembered after death

For old age. Munger wants people to say that “this is the oldest corpse I have ever seen.”
For “Fortune fairly won and wisely used.”-Munger
Or like Will Chamber said, “Finally, I sleep alone.”

Adam Smith said that a great civilization has a lot of ruin in it. Greece is still around. Munger does not understand that for a country whose main economic activity is tourism, the countrymen go on vacation during the busy holiday season.
I would rather be born in the US today than any other place at any other time-Buffett
An average investor should choose to invest in index funds over mutual funds because mutual funds charge high fees and do not perform better than index funds.
I am a big fan of lower expectations. That is how I got married. My wife lowered her expectations-Munger
It is so much fun to be trusted- Munger
BH has 260,000 employees. At any given point, someone is breaking some policy. Leaders should set an example on how they deal with the violation of integrity. Buffett sent his friend, who worked for BH, to jail because he was doing fraud.
The government has done a good job with Stimulus and has kept the economy going. Stimulus is part of how the government is operating today-they are taking in 15% of GDP and spending 25% of GDP.
We [Americans] are creating households faster than houses. Hence, the housing market will catch up and start growing again. Buffett’s best guess is that it will start happening by the year end.
Enabling companies which enable other companies to produce goods are doing well. Both TTI and Iscar sales are rising. Hence, the economy is back on track to grow.
If Munger were to design the tax system, he would make sure that the tax system discourages trading. And, Munger is not happy that 25% all engineers go into Finance. The current tax system is highly flawed. If I buy an S&P futures contract and hold it for ten seconds before selling it then 60% of my profit is taxed at long-term gain and 40% at short-term gain. There is something wrong with a tax system where a hedge fund manager has lower tax rate than a taxi driver.
It is tough to know the direction of oil and commodity prices. Oil and commodities are non-productive assets. You can’t really create an edge in guessing the price of oil.
Munger recommends reading “In the plex” a book about Google. He does not know how he is going to use what he learned in the book but that does not matter because what you are here for is to go to bed a bit wiser every day.
If the society has to intervene to save a company for the sake of society then the CEO of that company and his spouse should be left down broke. And, there should be severe penalties for the directors of the company. The current incentive system is misaligned.
Re too big to fail, we did not fix the problems so you can confidently expect that we will see more failure. It is a problem of stupidity and not of evil. Academia deserves a lot of the blame.
People attracted to finance today are better suited for snake charming -Munger
Serving on a lot of boards is for the birds-Munger
We spend every day thinking about earnings power and intrinsic value of BH.
It is almost impossible to have an edge in making equity investments today. That is one of the reasons BH is more focused on acquisitions.
May you live until the A stock splits-Munger [BH has no plans of splitting the A shares]
Ajit Jain has made no decision that I [Buffett] could have made better. He loves what he does which is important for doing well.
The secret of success in any field is getting interested in it:-Munger
When you see a duck on the pond rising, you should understand if it is doing it with its own merit or it is just raining- Buffett
When you evaluate underlying economics of a business, you should look at return on net tangible assets and not worry about goodwill. However, when you are allocating capital, you should look at goodwill. Amortization of goodwill does not make sense. However, if you paid too much for a company then goodwill write-off makes sense. AOL/Time Warner merger is a good example of goodwill write-off
Costco has extreme meritocracy and self-imposed extra-ordinary ethical duty. They have been able to achieve remarkable success. There is Costco in South Korea that is going to do $400M in sales this year. Munger is on the board of Costco.
Buffett told a story about Munger’s love for Costco. Both Munger and Buffett were traveling on a plane which was hijacked. The hijackers wanted to shoot both Munger and Buffett. However, they asked both of them for a last wish. Munger went first. He said he wants to give a talk about Costco to all passengers. The hijackers thought the wish was reasonable and granted it and they turned to Buffett for his last wish, Buffett said, “shoot me first.”
Business should be taught by studying companies. How they go up, come down, survive or disappear. In addition to Costco, other good companies to study are GM and IBM. No one made graphs that show how companies evolve. “I am yearning for these graphs” said Munger. Harvard used to do that and they stopped doing it because of bureaucracy. There should be a Harvard Case Study about that. In bureaucracy, people try to hold on to their territory.
Your kids should not get an idea that they are special regardless of how much money you have. Academically, it will be tough for American kids to compete with kids in emerging markets. Munger advised, “lose gracefully.”
Base price for the options for a new CEO should be set at market value of the company at the time. CEOs should be compensated on the increase in market value during their tenure.
Somebody in America has to be an exemplar of not grabbing it all he can. The new BH CEO will do that.
If there is enough energy then the water purification problem goes away. Israel makes drinking water out of sea water every day.
One should not measure deals based on other deals one has done. The goal should be to make a deal you can make at that time and it should have nothing do with other deals one has made in the past.
Woody Allen took a speed reading class and he was telling a friend that he finished war and peace in twenty minutes. It is about Russia. The goal of reading should be understanding and not how fast you can read.
The only thing more stupid than debt ceiling bill the congress did was in 1897 when Indiana House representative introduced a bill to reduce the value of π to 3 so that it is easier for kids.
Debt ceiling is a mistake. The debt carrying capacity of US is much higher today than twenty years ago. US will not have a debt crisis as long as we can keep on issuing debt in our own currency.
There is bipartisan stupidity in the government. Both parties are trying to see who is more stupid. They keep on topping each other.
20% of US electricity comes for nuclear power. And, 80% of France electricity comes from nuclear power.
It is CEOs job to be the Chief Risk Officer. Buffett is the Chief Risk Officer at BH.
BH stopped its charitable donation program, which allowed shareholders to donate to any charity of their choice and get tax write-offs, because people started boycotting Pampered Chef and was affecting livelihood of 50,000 employees of Pampered Chef which is a BH company.
BH does not rule out companies [for acquisition] that don’t represent high growth if the price is right. BH looks at earnings potential and future capital requirements.
The growth projections are useless and represent precise falsification. They do more harm than good. I [Buffett] have never seen an investment banker show earnings gowning down over time. It is like asking a barber if you need a haircut. We [Buffett and Munger] do calculations in our head re growth projections.
On BH investments in China, Munger said that it like a general went out south and came back and told his boss that the Indians always walk in a single file. When the boss asked how do you know. The general said that he saw one and he did. The point is that BH has not had enough experience investing in China yet. BYD investment is doing well.
All BH cash is in T-Bills. It is stupid to try to maximize gains from short-term investments.
BH can use its taxpaying capacity to use wind power [Wind Power offer tax benefits to corporations].
Advice to recent graduates: anything you can do to enhance your skills will pay-off eventually. Communication skills are very important. I [Buffett] only has one diploma hanging on my wall and that is for the $100 course I took with Dale Carnegie on communication. Do what you are passionate about and continue skill development. Focus on learning easy stuff. A field where the experts disagree is usually very hard to grasp. My [Buffett] economics courses in college were waste of time.
Re-insurance business looks easier than it is.
You cannot judge an investor in six months or a year. You need five years.
Alabama uses more brick per capita than any other US state.
Sees candy business loses money 8 months out of the year. So, we look at the business 3 out of 4 quarters, it looks bad. However, we know that Christmas comes every year and we will make up for the loses.

Enjoy and attend the meeting next year!

Lessons From The First Attempt At Entrepreneurship

2011-04-24T16:47:00.000-07:00

We are living in very exciting times. The wireless technologies are just beginning to change how we live. A great opportunity lies ahead in connecting the physical world with the virtual world using wireless technologies.

Two years ago, having that insight, I made an attempt at changing how the physical retail industry operates by launching a company- Mjedi. I started with focusing on the Fashion/Apparel industry. The embedded presentation will give you an idea what the company was about.

Mjedi was an interesting ride-we launched a product & a service, won a reputable award (CTIA-top 5 innovative startups 2009- to see the video, click on the link and look for Day Three Keynote Highlights on Left Hand Side menu and click on CTIA Fund Fest and then click on Mjedi pitch), and made inroads into major retailers. The main reason that Mjedi service is not running today is my lack of perseverance at the time. Other companies with similar concepts (GroupOn, Foursquare, Livingsocial, etc.) started around the same time frame are gaining ground. Following is the random log of learnings I kept while I was running Mjedi:

Raising series A costs ~$50k in legal fees

Investors need to have at least $1M in net worth to invest in a company

LLC can not take investor money

Investors prefer Delware C-corp for investments

Re product development, get an end-to-end product working in the market asap. Worry about covering all the user-case scenarios later

Most companies don't know how to utilize social media-Facebook/twitter

Having a team is critical

Entrepreneurship is hard

I need structure to work

REI has one-price policy across all channels

I met really smart people in the entrepreneurship world

Don't start with a fixed idea of how the customers will use your service/product.

Investors should not have power over you. Look at any successful company, the founders were in control.

In the entrepreneurship world, the amount of money you make equals respect. You should care, how much money you will make.

Reduce as much dependency as possible on big companies

Take out all the product/service features which are not core to your value proposition

Anything you think is immutable makes you risk averse

Don't lock yourself into where you want to be. Start offering value keeping the end goal in mind

In the investor pitch, clearly state the bet you want them to make

Every business has competition. Don't define what you are doing too narrowly

Domain expertise is important because it helps you understand what customers want and how they buy

Make investors aware of the risks

Make a list of all risks and show how you will overcome each of them

Investors like things which are hard to do

Jeff Bezos force ranked all the items he could sell online. Books came out as number 1. That is how Amazon started with books

In B2B space, look for companies/people who have history of buying new stuff

Look out for players who are adjacent to what you are doing.

If you are in an industry where the leaders understand that startups can kill you then focus on creating barriers. In industries where the leaders don't understand the role of startups, focus on gaining customers.

Always ask for more than you need

You should give the startup at least 18 months to see if you are getting any traction or not

Time is as valuable as money. Keep track of it every day

Execution is the single most important factor for startup success

VCs don't usually reserve money for the second round for all companies in their portfolio

Understand the real cost of raising money i.e. what does the lender want

Follow rituals on daily, weekly, quarterly basis. Disciple is critical

Startup teaches you self-awareness. Evaluate the skills you are missing and get someone else to do those things

Communication is as important in a startup as in a big company

Don't loose personal credibility when pitching

Understand the business levers and not the revenue forecast

Understand unit cost economics

I am grateful to my CTO, Andy, and to everyone else who shared his/her time and knowledge with me. The venture lasted ~1 year and I invested my own money in it. The learnings and the experience gained, far outweigh the investment:-) If you have not created a company, try it. Creation is thrilling!

The State of California

2011-04-24T11:33:00.000-07:00

California has become a diet-Coke civilization of consumer democracy, of services without taxes, like sweetness without calories, of rights without duties- Nathan Gardels

Industry and Amusement

2011-04-21T12:02:00.000-07:00

Like the bee, we should make our industry our amusement.- Oliver Goldsmith

The Current State of Capitalism

2011-04-16T13:15:00.000-07:00

The invisible hand has become quite visible and people have found ways to use it for self-interest.

Mass media and Society

2011-03-20T22:09:00.000-07:00

The influence of mass media on society is grossly underestimated.

The Great Japanese Community

2011-03-19T23:34:00.000-07:00

How the Japanese are behaving, after one of the worst natural disasters the world has ever seen, is remarkable.

Curiosity and Artists

2011-01-26T23:53:00.000-08:00

An artist without curiosity is like a flower without fragrance.

Nature and Circles

2011-01-09T21:59:00.000-08:00

Does nature produce anything square shaped? All natural things seem to be somewhat circular.

Western Celebration Ritual

2011-01-01T22:52:00.000-08:00

Why does celebration in the western world requires alcohol? Does alcohol make people happy? Is alcohol-induced temporary happiness good for you?

New Year Eve (NYE) Celebration

2011-01-01T16:01:00.000-08:00

If everyone goes out on NYE then no one will be able to go out. Most are able to go out because a few work.

Problems

2010-12-31T09:19:00.000-08:00

I have something to do with creation of all my problems. And, most of them exist only in my head.

Mind, Body, Spirit , and Chaos: The Interconnectedness of All Things

2010-12-27T20:32:00.000-08:00

I recently attended a workshop titled, " Mind, Body, Spirit ,and Chaos: New Perspectives from the Frontiers of Science". The workshop was led by Ralph Abraham and Bruce Lipton. Ralph is a brilliant man and is one of the co-founders of the Chaos Theory. Bruce is very impressive as well.

The workshop was very interesting and provided me new thought-provoking insights. Following are my random notes (you may have to read this post multiple times to find the interconnectedness of the thoughts shared):

Ralph & Bruce discussion

1. The third leading cause of deaths in the US is the medical profession.

2. Cancer occurs due to lifestyle induced changes. Kids who get adopted by cancer patients are highly likely to develop cancer. Less than 10% of cancer is heredity based.

3. Thoughts can create 30,000 variations of gene expression.

4. In the right state of mind, one can drink poison and not die. For example, some religious cults in the US used to drink strychnine during ceremonies with no effect on body.

5. The world of thoughts is a Complex Dynamical System.

6. 95% of human life is dictated by subconscious (i.e. we don't think about what we do)

7. Consciousness living is living in the present.

8. Mystical literature explains another reality which we don't see.

9. Genetics teaches that you are a victim i.e. your genes are what they are and you can not do anything about it.

Ralph's thoughts:

10. To understand where we are today, one should study the Paleolithic age. This is the time when agriculture was discovered and huge technological progress was made including the development of first stone tools.

11. Shanidar Caves are last known habitats of Neanderthals.

12. Shamanism (a belief system re communication with the spiritual world) started 200,000 years ago in South Africa.

13. First Art, which is 77,000 year old, was discovered in South Africa.

14. Shamanism is based on rituals of music, dance, meditation, and isolation.

15. Music predates homosapiens.

16. Lascaux caves in southwestern France have paintings which are 17,000 year old. The paintings are believed to be of spirit animals.

17. According to Lewis-Williams theory, Shamanism has three levels- Sub, Ordinary, and Super-Reality. [How I understood it is sub = subconscious/mind; Ordinary = physical world; Super-Reality = God]

18. Shamanism rituals occurred in the caves. The cave walls act as membranes between the sub and ordinary levels. The rituals of chant, music, dance, and psychedelics were used to change levels.

19. The Shamanism priests are now referred as ritual specialists.

20. Homosapiens developed language between 60,000 and 100,000 years ago.

21. In the beginning, homosapiens had vocabulary of grunts and moans and then came Proto-language which helped develop the frontal lobe of the brain and that enabled language processing.

22. Catalhoyuk (large neolithic settlement which existed between 7500 BC and 5700 BC in current Turkey) had Shamanic ceremonial centers and caves with animal paintings.

23. In ancient Egypt, it was believed that pyramids are cannons to shoot souls to the stars.

24. Sumer was an early civilization in southern Mesopotamia (current Iraq) during the Chalcolithic age. It was the first civilization to practice year-round agriculture (5000 BC). The first known writings (cuneiform ) are from Sumer (2600BC).

25. Sumerians made big advances in mathematics. They were the first ones to calculate the area of a triangle and the volume of a cube. The advances they made in metrology (4000 BC) resulted in creation of Arithmetic, Geometry, and Algebra. Abacus was invented by Sumerians.

26. Sumerians developed a sexagesimal (base 60) numerical system. They were the first ones to use a place value numerical system. Furthermore, they used a slide rule to do astronomical calculations. And, this is the first evidence of any astronomical calculations.

27. Sumerians were the first to organize the society in a city-state form (3000 BC).

28. Sumerians believed in a four tiered cosmos- God-World, Sea, Earth, and Underworld. And, they were the first ones to write down their beliefs.

29. Vedas are the first Indo-European texts (1700 BC). However, since Hinduism/India had oral literature tradition, Vedas are believed to have existed thousands of years before that.

30. Vedas created mythology and vibration metaphors (mantras, hymns, etc.).

31. Kashmiri Shaivism (KS) came into existence around 1,000 CE. The science believes that the Universe to have three dimensions- Space, time, and matter. KS believes the universe to be in 36 different levels (tattvas) of tiered cosmology. The KS belief system was developed based on experiments.

32. KS is very deep [I am still struggling to grasp it]. The basis idea is that the 36 tattvas can be divided into three different groups.

i) At the top is Shiva and right behind Shiva is Shakti. Shiva is abstract and can be thought of as Supreme bliss and Shakti is vibration and it can be thought of as ultimate energy.

ii) At the bottom are five five tattvas related to human psychology.

iii) In the middle are 29 tattvas which obstruct the vision of the top group. This group is called maya.

33. Another fundamental belief in KS is that consciousness is the one reality. Matter is not separated from consciousness, but rather identical to it. There is no gap between God and the world. The world is not an illusion, rather the perception of duality is the illusion.

34. According to the Kosha system in Yogic philosophy, the nature of being human encompasses physical and psychological aspects that function as one holistic system. The Kosha system refers to these different aspects as [5] layers of subjective experience. Layers range from the dense physical body to the more subtle levels of emotions, mind and spirit. Psychology refers to the emotional, mental and spiritual aspects of our being. Together, all aspects make up our subjective experience of being alive.

35. During different times in Greece believes were led by different philosophers and varied on structure of the universe:

i) Pythagoras, 572 - 497 BCE
Three tiered Universe: Ideas, souls, harmony

ii) Plato, 429 - 347 BCE
Four tiered Universe: The one, ideas, soul, nature (the cave)

iii) Ficino, 1433 - 1499 CE
Five tiered Universe: The one, ideas, soul, spirit, nature

36. The mind-body problem is a problem of interactionism. It states, "How can an immaterial mind cause
anything in a material body, and viceversa?" Where mind being consciousness and nonphysical; body being the brain/intelligence and is physical.

37. There was no mind body problem until 1,400 CE. It started with Descartes when he came up with the idea of dualism.

38. Nondualists think that all world problems exist because of believe in duality.

39. Collective Unconscious operates like a Complex Dynamical System.

40. There is no such thing as vacuum or emptyness in the physical world. According to Quantum Field Theory (QFT), the vacuum state is not truly empty but instead contains fleeting electromagnetic waves and particles that pop into and out of existence.

41. Schrodinger's cat experiment is an observation problem.

42. Time is an illusion. Future is not determined. Past is determined. Only the observation creates time. Furthermore, space and time are created out of consciousness.

43. Language, thoughts, and information processing occurs in the mind (not in the brain).

44. Soul represents consciousness and the unconscious mind. Furthermore, soul and mind are connected.

45. Nonlocality has been around in mysticism for a long time and is a recently discovery in physics. It enables telepathy.

46. Chaos Theory is a study of Complex Dynamical Systems where bifurcation is an integral part of a system.

47. Complex Dynamical Systems are highly sensitive to initial conditions. Small differences in initial conditions (such as those due to rounding errors in numerical computation) yield widely diverging outcomes for chaotic systems, rendering long-term prediction impossible. This happens even though these systems are deterministic, meaning that their future behavior is fully determined by their initial conditions, with no random elements involved^. In other words, the deterministic nature of these systems does not make them predictable^. This behavior is known as deterministic chaos, or simply chaos.

48. To better understand the relationship between Time and Dynamics using Chaos theory. See http://www.ralph-abraham.org/articles/MS%2367.Time/time2.html

49. A big part of world problems is the lack of mathematical understanding of the Universe.

Bruce's thoughts:

50. Life of a human cell is ~200 days.

51. In biology it used to be believed that the nucleus is the brain of the cell. So, if you remove the nucleus, the cell will die. The latest experiments show that after you remove the nucleus of the cell, not only it does not die but also it keeps on performing its function as before.

52. Genes are linear blueprints and they do not activate anything.

53. Human body has ~50 Trillion cells.

54. Cells have the same functions as the entire human body. Hence, cells are like mini people.

55. Proteins are made of 20 different kinds of Amino Acids and they are are folded linear strings. All proteins are unique and there are around 150,000 in the human body.

56. Proteins provide for the organismic structure of the body.

57. Cells are made of proteins.

58. Life comes from changing in the shape of the proteins.

59. Quantum Mechanics (QM) affects the structure of the protein. Specifically the following three wave charactericts of QM:

i) Tunneling

ii) Coherence

iii) Entanglement

60. When two waves are in same phase they result in constructive interference and when they are out of phase it results in destructive interference.

61. Field is defined as the invisible moving force that influences the physical world. This concept is similar to the concept of a Spirit.

62. The field is the sole governing agency of matter.

63. Proteins are influenced by environmental signals i.e. molecules and the field. That is why the same cell can become bone, muscle, or fat depending on the environment.

64. There are three levels of consciousness:

i) Super-Consciousness is interactive i.e. always evolving based on various interactions

ii) Self-Consciousness is manual i.e. active. It is influenced from instincts and experience

iii) Subconsciousness is on auto-pilot i.e. it records the behavior and plays it back. It is a linear process which takes input, processes, and produces output

95% of human life is dictated by subconscious (i.e. we don't think about what we do)

65. Cave of Brahma is considered the eye of the mind and it is a concept that goes back thousands of years.

66. Buddhism teaches you to be present and mindful i.e. live a life of [self] consciousnesses.

67. There are three ways to reprogram your subconsciousness:

i) Hypnosis

ii) New habits

iii) Super-learning

68. Talking to one's subconscious does not work because it is not a machine. For example, if you keep on saying to yourself that I will be happy, it usually does not make you happy.

69. ~50% of one's personality is developed before one is born. If the mother has a pattern of emotions then the child will have the same emotional pattern. See http://www.whylovematters.com/ for details.

70. 5% of known human diseases are due to birth defects. Rest are the result of the environment and habits.

71. Epigenetics is the study of inherited changes in phenotype (appearance) or gene expression caused by mechanisms other than changes in the underlying DNA sequence.

72. Stem cells are embryonic cells which can grow into various phenotypes. Perception creates the fate of stem cells.

73. Proteins wear out like parts of a car and that is why the body has to continuously replaces cells.

74. EFT is a technique to change gene expression.

75. Changing the organizational culture is similar to changing the belief system of a human.

76. A cell has 50k+ receptors.

77. Digestion is a selective process. The body only takes from the food what it wants.

78. When dealing with people feel the "vibe". Constructive interference with another person gives you good vibes and destructive interference gives you bad vibes (see #60). People can change the words but not the vibe.

79. US government spent $20M to study Remote Viewing.

80. The allopathic medicine sees the human body as a machine and is good at fixing the body when it breaks. However, it is not good at anything else.

Ralph & Bruce discussion

81. Modeling of the world economy is bogus. It is just not possible to predict.

82. According to chaos theory, stock markets are unpredictable.

83. Glacerization (ice age) on the earth is imminent. It should be a bigger worry than global warming.

84. Nothing is going to happen in 2012.

85. Dalai Lama said that the one thing that can change the world is American Women (because 80% or all purchases in the US are made/influenced by women and the rest of the world follows America in materialism).

This blog post has taken more time than any other blog post (so far) and I still don't understand the concepts well:-) Maybe you will. Enjoy!

Complexity and Execution

2010-12-25T14:30:00.000-08:00

Complexity of execution far outweighs complexity of conceptualization. I find it very amusing that people who teach complexity usually don't know how to execute/apply their complexity theories.

What do people want?

2010-12-25T13:24:00.000-08:00

People usually are not happy with what they have. They don't necessarily want what they don't have. However, they do want what others have.

Taste of Music

2010-12-25T12:36:00.000-08:00

How does one develop taste in music? Is there natural tendency to be drawn towards certain kind of music or it is all influenced by the society one lives in?

Feelings Expression

2010-12-21T07:49:00.000-08:00

The ability of the Japanese to express their feelings with tone variation is unmatched by any other culture.

Self-Awareness & Objectivity

2010-12-11T11:43:00.000-08:00

Humans show a severe lack of self-awareness and objectivity.

Innovation and Operational Efficiency

2010-12-11T11:36:00.000-08:00

An organization's ability to innovate is inversely proportional to its operational efficiency.

Society II

2010-11-27T17:55:00.000-08:00

I live in a society where people who are admired, followed, talked-about, and imitated the most are the ones who are good at being someone else i.e. they act and entertain.

Society

2010-11-27T17:45:00.000-08:00

Societies operate by law and not by morality.

From the movie The Reader

Drama

2010-11-26T13:16:00.000-08:00

There is no better drama than real life.

Interconnectedness of thoughts

2010-11-26T13:15:00.000-08:00

How does the mind go from one thought to another? Is it random? Or, is there interconnectedness of thoughts? How does the mind decide what thought will follow after the one you are having now?

Life

2010-11-25T12:51:00.000-08:00

Life is temporary. Enjoy it while it lasts!

Stories

2010-11-25T00:41:00.000-08:00

Why do humans love stories?

Famousness

2010-10-14T22:57:00.000-07:00

Is the desire to be famous innate in humans? Or, does it come from living in a society where being famous means wealth and being liked by the masses?

Past, Prsenent, and Future

2010-10-09T10:14:00.000-07:00

The present is the result of the past. The future does not have to be.

Food & Love

2010-10-09T10:01:00.000-07:00

There is no love like human love for food. People never get bored with getting joy from eating.

Details

2010-10-05T22:28:00.000-07:00

Is it possible to create great things without paying attention to details? Aren't details that make something extraordinary?What would Mona Lisa be without details? What would iPhone be without details? As the world becomes more complex, understanding of details and their interconnectedness would be more important for creating new great things.

People are Overconfident and other Learnings from the Ideas Conference

2010-10-04T00:27:00.000-07:00

A series of conferences on ideas is a good idea. I recently attend the second conference in the series of ideas conferences organized by The Economist magazine. The conference was an interesting opportunity to learn about human behavior and to hear words of wisdom from the best in world. Following are my random notes from the conference:

The world has moved away from the ideas that bind us to glorified materialism.
The most important thing people want around the world is a job.
3 Billion people live on less than $2 a day
The biggest issue in the 21st century is going to be class and not race.
The US suburbia is subsidized with tax payer money.
A sense of community and open minds bring innovation and wealth.
In the western world, if you make more than $75k/year even then you can not buy happiness. However, if you make less than $75k/year then you can definitely buy misery.
Americans define their life by being at work and the French define their life by being away from work.
People who seek urban life seek anonymity and want to get away from people.
The best way for high well being is to have conversation with your friends for six hours in a day. The second best reason for well being is for you to feel that your boss cares about your development.
52% immigrants in the US live in the suburbs.
There are around ~100M jobs in the US. 30M people in these jobs are highly engaged. 20M are actively disengaged or miserable. Rest, 50M, are in the middle.
If citizens of a country start feeling safe, the GDP of the country starts rising.
Now a days, by age 18, kids spend 10k hours gaming.
There are unusual number of people named Dennis who are Dentists and similarly, Lawrence is the most common name among lawyers.
We consume 12M bits of information per second. And, we can only retain 40M bits of information at any time to make decisions.
People like familiarity.
People who have the ability to delay gratification do well in life. The marshmallow experiment proved this hypothesis.
Pennsylvania was the first start-up in the US. It was the first state that implemented separation of church and state.
Picasso developed cubism by combining western art with African masks.
Buying furniture is one of the most complex decisions we make because it requires multilateral thinking- dimensions, form, color, interconnectedness, etc.
When you have to pick one option between the two available, choose immediately. However, when you have to pick one option among multiple options available, sleep on it.
The power of pause is underestimated in decision making.
94% of the professors think that they are above average teachers.
People are overconfident.
Rules and Norms have to align for good outcomes. For example, jaywalking is against the rule in both NY and Zurich. However, norm in NY is that everyone jaywalks and in Zurich no one does. Hence, unless rules and norms are aligned the society does not progress.
Human nature stays constant but institutions evolve.
Ryne Sandberg's Hall of Fame induction speech is very inspiring.
Use conscious rules to evolve the unconscious norms because norms are things we do without thinking.
Culture matters the most and the government can change culture.
When Chinese kids are asked to describe what they see in an aquarium, they talk about plants, different fish, and colors etc. When American kids are asked to the same, they talk about the biggest fish in the tank.
90% of communication is through gestures.
70% of disabilities are not visible.
The unemployment among disable people in the US is 40%.
70% of students with disabilities don't approach big US corporations for employment.
French take food seriously and sex lightly. Americans take food lightly and sex seriously.
The Wall Street employees operated with IBG-YBG strategy when it came to compensation. IBG-YBG is I'll Be Gone-You'll Be Gone.
200 kids tried to commit suicide at NYU last year.
Ikea effect = Things we build with our own hands are more valuable to us.
People you like look better.
Pleasure depends on how hard you had to work to get it.
Anarchy leads to violence.
In 18th century, US had death penalty for adultery.
Before 1945, Western European countries had a war every two years. We are in the longest peace period that ever existed.
Rape has declined 70% since 1970.
75% of men have fantasised about killing someone compared to 62% of women.
Humans have four inner demons which cause them to behave violently:

Exploitation
Dominance
Revenge
Ideology

Tens of thousands of deaths occur in car accidents every year. Much less by terrorism.
In a country, if the GDP per capita is $1,500 then risk of civil war is very high.
There are 20M students in US colleges today.
Artists are the most resilient people.
Design thinking is re-branded PowerPoint.
We need to make STEAM out of STEM for a progressive society. STEM = Science, Technology, Engineering, and Mathematics. A stands for Arts.
A journalist's job is to simplify and exaggerate.
Humans form most concepts in their mind between the ages of 11 and 14. These concepts always stay.
Generation Y people learn with feedback. Baby boomers see feedback as negative.
Technology does not change human behavior. It amplifies existing behavior.
A CEOs job is to create three different types of environments:

Performance Environment: Create processes that enable people to perform on the job.
Psychological Environment: Craft a vision, give meaning to the job, foster loyalty, and create emotional attachment to the organization.
Learning Environment: Constantly adapt to changing customer and market needs.

High creativity comes from high trust.
As a leader, one must only speak on things that really matter.
Leaders teach.
Peoples intuition about what motivates people are usually wrong.
Social Loafing is letting your co-workers pick up the slack.

The dumbest thing I heard at the conference was, "Creativity is not an individual resource - it is something between us." To my surprise, this was the most tweeted statement (#ideaseconomy)at the conference. I was surprised because most people attending the conference are highly intelligent and should not be believing something, without thinking, someone famous says on the stage. If creativity was not an individual resource, there would not be any great artists:-)

Problems

2010-09-27T21:36:00.000-07:00

People tend to ignore small problems until they become too big to ignore.

Time and Energy

2010-09-10T09:00:00.001-07:00

Is time another form of energy?

Ed Ruscha

2010-09-09T22:06:00.000-07:00

I recently discovered a new artist, Ed Ruscha, who is famous for making paintings of words. He looks at words as art forms. Fascinating!

Systems & Self-Worth

2010-08-21T12:58:00.000-07:00

People who don't understand systems, usually have an inflated sense of self-worth (as it relates to their contribution to the system).

Excitement

2010-08-20T14:50:00.000-07:00

Human ability to listen and observe declines as the personal excitement level rises.

Relationships

2010-08-16T13:28:00.000-07:00

The most talked about subject in social conversations is human relationships.

Love, God, and Songs

2010-08-16T13:21:00.000-07:00

Why is it that most songs in all cultures are about Love or God? What is about Love and God that makes people sing? And, why is there not much else that makes people sing?

Re Duality in America

2010-08-14T17:42:00.000-07:00

An American friend of mine has an interesting response to the Duality in America post. See the response below:

"I take exception with your assessment of people’s reaction to the tee shirt. Her pose is making a statement of what she thinks of the observer (me) as an individual (I’m meaningless or worthless to her). By wearing that tee shirt you are saying that you share her opinion of the observer (me).

America respects and encourages individualism up to the point where one’s individualism impedes on another. This is where friction develops between individuals and groups of people when one’s thoughts, actions or rights differ with or impede another’s thoughts rights or action. That’s where the civil and judicial systems need to determine if a person 1) has a right, 2) if that right was violated and 3) if there is a conflict of rights who’s right takes precedent. You could argue that the tee shirt is art whose purpose is to evoke an emotion. Offended individuals could argue they have a reasonable expectation when being out in public not to be exposed to lewd and provocative media (how do I explain your tee shirt to my 5 year old grandchild). I believe in most communities your tee shirt would be judged as not impeding on anyone’s rights but viewers likewise have the right not to like it and they are entitled to their negative reaction (short of violence which would violate your right).

As to your statement America is conservative based on Christian values, it’s a historic fact that America was established under Christian principles which unfortunately are fading. If you look at any successful individual (athlete, teacher, student, executive, etc) you will find they have some dedication and discipline in their lives (they trained, studied, sacrificed, dedicated themselves). That is what Christian (or any legitimate religion) values provide, a disciplined code to live by that includes love and respect for others (including respect for their rights and feelings). Unfortunately today more and more of the media is selling the idea of anything goes, no need for self discipline, self respect, or common courtesy (take things as far as you can). Regarding America’s openness, it too has religious roots. If you have nothing to hide then you should not need to hide in the darkness. The Christian Bible will tell you that Evil operates in the darkness (think Enron, MCI, Madoff, Catholic priest scandal, etc.). It is only when evil comes into the light (is exposed) that it can be addressed. In an open society the openness (light) should result in a fix or healing destroying the bad or evil. We should keep the light focused on injustice and poverty around the world (and probably your tee shirt too)."

Vinci's Seven Principles

2010-08-10T20:40:00.000-07:00

I think Leonardo da Vinci is the smartest man who ever lived. Most famous brilliant people are master of one subject, Vinci was master of various subjects. I live my life by Vinci's seven principles which are:

1. An insatiably curious approach to life

2. A commitment to test knowledge through experience

3. The refinement of the senses to clarify experience

4. A willingness to embrace uncertainty

5. Balancing science and art, logic and imagination to achieve whole brain thinking

6. The cultivation of grace, ambidexterity, fitness, and poise

7. A recognition of the interconnectedness of all things

However, I am still not a master of any subject:-) What life principles do you live by?

Inference

2010-08-10T20:28:00.000-07:00

It is also highly important for us to realize that we do not as a matter of fact lead our lives, make our decisions, and reach our goals in everyday life either statistically or scientifically. We live by inference. I am, let us say, your guest. You do not know, you cannot determine scientifically, that I will not steal your money or your spoons. But inferentially I will not, and inferentially you have me as a guest.

-William Thomas

Distractions

2010-08-08T14:41:00.000-07:00

When I am reading at a cafe, people around me speaking in a foreign language that I don't understand is significantly more distracting than people speaking in English. The question is why. Logically, if people are saying things that I understand then I should be able to focus less on what I am reading because the brain has to process two unrelated inputs simultaneously- reading and hearing. On the other hand, if I am hearing things in another language that I don't understand then my brain should be able to ignore this as noise and focus more on reading.

Does the brain have to work really hard to understand the foreign language even though it knows that it will not understand what is being said? Is that what causes the increased distraction? Do you know why?

Duality in America

2010-08-07T10:02:00.000-07:00

Recently, I was in south of France where people live more of a Bohemian lifestyle and I saw a few people wearing t-shirts with a picture of Kate Moss showing her middle finger.

There is a context behind the picture with Kate Moss drugs scandal and revival of her career after that.

I wondered how people would react if I wore the T-Shirt back home in a suburb of San Francisco. So, I bought the T-Shirt. Last week, I wore it and sat outside a cafe where a lot of people walking by could see the shirt.

The reactions were quite amusing. Some people were shocked. Some could not believe and they had to look again. Some were visibly angry others looked away after a glance. The people I know told me that I was wearing a radical shirt. However, they could not explain to me what was so radical about the shirt.

In business, technology, entertainment, and Science, the US leads the world in openness to new ideas, new people, and risks. However, the social life is still dominated by traditional Christian values.

America represents a fascinating duality of conservatism and openness in the same culture.

The Power of Thoughts

2010-08-07T09:16:00.000-07:00

How do thoughts gets generated?

Why is it easier to think about something you want to think about vs forgetting something? Is the explanation as simple as weight management - gaining weight is easy and losing weight is difficult?

Thoughts have physical affect on one's body. I can close by eyes and depending on what I am thinking, my heart rate goes up or down, tears come out of my eyes or I smile, I feel sensation in every part of my body or complete calmness. Unbelievable!

The environment triggers some thoughts and the body reacts automatically, at least for me. However bad I am feeling, I see a child playing and I can't help but smile. There is no conscious thinking that occurs in my head, my smile is an automatic reaction to seeing children.

Lately, when I see old homeless people, my heart rate goes up. I feel helpless. There is no conscious thinking involved here either.

Imagine what one can achieve when one learns to control one's thoughts. What are your thoughts?:-)

Women, Men, and their Relationships

2010-07-31T09:34:00.000-07:00

In my never-ending pursuit to better understand human behavior, I recently attended a workshop by Dr. Warren Farrell to learn how women think. Dr. Farrell has done a remarkable job of combining Psychology, Sociology, and Biology to create pragmatic insights on Romantic Relationships between Men & Women in the US.

Following are my random notes from the workshop:

The more creative a thought is the faster you will forget it because creative thoughts by nature are out of context and the brain does not retain thoughts which are out of context. So, when you get a creative idea, write it down immediately.

The secret to happy marriage is mutual respect between husband and wife and a happy wife. There is truth in the saying, "Happy wife = Happy life".

In their pursuit to find a man, women exercise "veto power" i.e. they wait for the men to approach them and then decide, after sizing up the men, if they want to go out with the men who approached them. Most women don't exercise their "original power" i.e. if you like a man, approach him. Who is stopping you from doing that?

The most important thing you can do when you like someone is to make contact with that person.

Since men approach the women, they get rejected very often by them. To deal with the rejection emotionally, men start objectifying women because it is easier to be rejected by an object then by a person.

[I had an offline debate with the professor on this point because I don't see what the big deal is if you ask a woman out and she says no. I understand that if I like a woman, she does not have to like me back. And, this "rejection" does not make me see that woman as an object. Supposedly, I am more mature than most men:-)]

Some women see men who are jerks as heroes. Somehow they relate "jerkness" to bravery.

Usually, people who are too attached to animals are not good with people.

In their approach to date women, men are looking to minimize the risk of rejection. Women see that as a manipulation plan.

Men have one condition before they have sex with a woman and women have Nine. One condition the men have is that the woman is attractive. The 9 conditions women have are:

Man's respect for himself
Man's respect for the woman
Man is single
Man is available
Both share common values
Man is emotionally available
Man is tall
Man is employed
Man can provide economic security

[I may have written down one or two conditions inaccurately]
[I am sure that many of my female friends would disagree with the 9 conditions:-)]

The nine conditions women have for marriage are same as nine conditions they have for sex. However, men have their own 9 conditions for marriage which they start thinking about after they have had sex with the woman. To learn more about nine conditions men have, read "The Myth of Male Power"

A man's primary fantasy is to have sex with a lot of young and beautiful women without fear of rejection. However, a man's primary need is love and intimacy from a woman.

A woman's primary fantasy is economic security. And, the primary need for a woman is economic security and some emotional support.

[I am sure many women will disagree]

So, when a man and a woman get married, the man is making a big sacrifice because he is giving up his primary fantasy for his primary need. The woman, on the other hand, is living her fantasy:-)

Men put all their "emotional eggs" in one basket i.e. wife/girlfriend. The only person a man emotionally opens up to is his wife/girlfriend. Women, on the other hand, have their emotional eggs in many baskets- friends, parents, children, etc. It is devastating for a man to lose a woman because he losses his single source of emotional support and women do just fine when the relationship ends because they have emotional support from other people.

Sometimes diversified "emotional eggs" strategy women have does not help the man-woman relationship because when there are problems in the relationship, women seek emotional support from other people and come to a conclusion, with encouragement from their friends, that they don't need the man.

When men talk about their feelings they are making themselves vulnerable. When women talk about their feelings they are getting emotional support.

If a man starts sharing his heart with a lot of people (like women do) then he is making himself vulnerable and hence reducing his chance of economic success. For men, no economic success means no women. That is why men don't share their feelings with anyone but their wives.

The qualities that make a man successful at work (economic security) are the opposite of the qualities that would make him successful at love. However, the dilemma is that women get attracted to the qualities that make the man successful at work and after marriage, women want men to change and start acquiring qualities that make him successful at love.

Women have other dilemmas. When a women starts making more than $70k/year, she seeks balance in life. The society consistently questions the women about marriage, children etc. So the balance is forced upon women by social pressures. For women, economic success becomes a straight jacket. On the other hand, a man who has achieved economic success does not feel these pressures from the society.

Men grow up in a society where they are not loved for not knowing the answer. Therefore, men are always trying to solve problems instead of just listening to women and providing emotional support. And, women just want men to listen and not solve the problem.

Men think that to show love you have to do something, you can't just show love with words.

For women, the relationship used to be like business because that was the only way women could make money.

For men, economic success = love.

When the relationship is in trouble, women give hints and they "over remember" things. Men can't decipher these hints and they "over forget" things.

When men see the bottom-line change i.e. they will lose the woman if they don't change, they change really fast.

Attraction between a man and a woman is created by chemistry in the brain. However, sustaining that attraction requires discipline.

Music is the best way to start/enhance the brain chemistry. People should know their partners' favorite music for different moods. And, play that music as often as possible.

After divorce or death of a spouse, the suicide rate among men is 10 times higher compared to women.

A man's need to be understood is stronger than his need for sex.

From marriage, men seek:

A woman who understands them
Feeling of being emotionally secure when they open up to the woman
To be loved sexually very well i.e. it is more than just physical sex. It is emotional and spiritual.

And for these three things, men are willing to give up their primary fantasy.

Women don't understand the strength of desire (biological) men have for sex. It is equivalent of having various alcoholic drinks around for an alcoholic. Hence, marriage is a huge sacrifice for a man and women don't understand it.

Women get attracted to high levels of testosterone in men because high level of testosterone increases chances of success at work.

Dr. Farrell conducted an anonymous survey among the couples who were in counseling because of troubled relationships. The survey asked the following question:

If your partner is going to die and you know that you can save your partner's life but there is 50% chance that you may die while saving your partners life then would you save your partners life?

95% of men responded yes and only 75% of women responded yes.

Economically successful woman have trouble finding a man because men feel that if a woman is successful then they are disposable.

After divorce, the only source of love men have is their children.

When a man opens up to a woman first time, more often he gets a punishment rather than a reward. Hence, he never opens up again.

Both sexes can't handle criticism which is given badly.

Children raised by men in intact marriages do extremely well.

Appreciation is done terribly by men and inadequately by women.

Our ability to handle personal criticism is our (human) Achilles heal.

Women are 45% more likely to connect with their parents after divorce.

People respond badly to honesty.

Our biological response to criticism is to kill the criticizer before he kills you. This is good survival mechanism but it is terrible for love. However, there is a way around it. We should create a safe environment where criticism is seen an opportunity to be loved.

There is good biological reason why men/women are not thinking when they are having sex. It used to be life changing/threatening experience. There was no protection so sex could result in a child which a man had to provide for and for women, they had a very high chance of dying while giving birth. Logically, if you think, you could not justify a few minutes of pleasure with these risks.

Power is about control over one's life. Pay is a paradox. To get the pay so that you can do things you like, you are giving up control over your time.

Fathers sacrifice their passion for their kids. A lot of men are not doing things they are passionate about because those things may not pay enough money to provide for the kids.

[I think mothers are making the same sacrifices]

The more fulfilling a job is the less it pays because more people want to do it. Teaching job is a good example.

All women are in a beauty contest all the time. And, all men are in competition with other men all the time.

Societies survive because of social pressures. For example, men are made heroes when they go to fight a war and if they don't go to the war they are made cowards. Hence, becoming more or less attractive to women based on the choices men make.

When the man is vulnerable, the woman usually pushes him away to alcohol or to more work which he knows will pay and that pay will be appreciated.

Women feel social pressure to show more skin because they see that it gets attention from men and if other women are showing skin then they won't get any attention.

Men and women in relationship should build routines/rituals because they are very powerful in reinforcing affection.

Kids without routine feel insecure.

One should find ways to give one's partner a feeling of security.

Before criticizing, think about what you want.

Couples should follow the DMA (Distort, Miss, Add) technique during arguments. Listen without interruption and then ask your partner:

Did I Distort anything?
Did I Miss anything?
Anything you want me to Add?

Anger is the vulnerability's mask. You only get angry with the person you care about.

Appreciation is the discipline you need to sustain the chemistry of love.

People don't like to be taken for granted. One should seek novelty with the partner because novelty creates attachment.

Men are weak on coming up with new compliments. They should think about new and very specific compliments everyday. There is nothing too small to be appreciated.

Couples should creates space related memories in the house. For example, leave a thank you/appreciation note inside the refrigerator on a juice bottle if your wife bought and served your favorite juice one day. After that every time she opens the refrigerator, she will think about you.

Forgiveness is a statement that the other person is wrong and you are being generous. Partners should be understanding and not forgiving.

There is no such thing as unconditional love. With time, love becomes more and more conditional.

The poorer the society, the more marriages stay together because there are fewer options.

The beginnings of all processes of human change are artificial.

What do you think?

Celebration

2010-07-22T05:41:00.000-07:00

Why is that celebration requires spending money in all cultures? How did we celebrate before there was money?

Balance vs. Focus

2010-07-17T15:46:00.000-07:00

If you seek happiness then achieve balance and if you seek success then achieve focus.

The Complexity of Wine

2010-07-17T15:39:00.000-07:00

Humans share 99% of DNA with rats. The Syrah grape grown in France compared to the same grape grown in Australia, where it is called Shiraz, has 12% difference in DNA.

Wine is one of the most complex things around.

Language Evolution

2010-07-17T12:51:00.000-07:00

How is it that different languages were created in different parts of the world during human evolution? Does geography play a role in language creation and evolution? What role does the society structure and culture play? Was there a generally accepted sign language in specific geographies before we had a language?

The State of Business Journalism in the US

2010-07-17T12:36:00.000-07:00

In today's Wall Street Journal (US print edition), the top most news is regarding a phone not working properly when held in a certain way. Less than 1% of the US population has this phone. And, people who have this device do not seem to care much about the problem.

Bizarre!

Imagination

2010-07-01T20:46:00.000-07:00

How was imagination like when there were no movies, no fiction reading, no performing arts? Has the entertainment industry help us become more imaginative and hence more innovative?

Past & Future

2010-06-27T15:51:00.000-07:00

Having a history with someone does not necessarily mean that you will have a future with that person.

Competition

2010-06-26T17:41:00.001-07:00

Compete with what is possible and not with what is available!

Future

2010-06-26T17:41:00.000-07:00

The problem with future is that it is not constant and eventually it arrives.

The Ten Commandments for Business Failure

2010-06-13T21:06:00.000-07:00

I just finished reading The Ten Commandments for Business Failure. It is a book recommended by Warren Buffett and written by Don Keough who is a former President of the Coca Cola company and currently a Berkshire Hathaway board member.

While most business books focus on what to do to be successful in business, Don's book focuses on what not to do. The book offers common sense packaged with straight talk and interesting stories.

Here are the ten commandments which guarantee business failure:

1. Quit Taking Risks
2. Be Inflexible
3. Isolate Yourself
4. Assume Infallibility
5. Play the Game Close to the Foul Line
6. Don't take time to Think
7. Put All Your Faith in Experts and Outside Consultants
8. Love Your Bureaucracy
9. Send Mixed Messages
10. Be Afraid of the Future

There is an eleventh one:

11. Lose Your passion for Work-for Life

I think these lessons are applicable to big and old companies and not to start-ups. A start-up by its nature does not have the problems Don highlights. Big corporations, on the other hand, face these challenges very often.

If you don't do any of the 11 things Don mentions then anything else you would do will have very very high chance of success.

Intentions & Destiny

2010-05-22T14:51:00.000-07:00

Your intentions influence your destiny.

-Ralph Abraham

You are Not Perfect and that is Good for You

2010-05-21T16:53:00.000-07:00

My friend, Arun Chaba, recently gave a brilliant speech on Evolution & Human Behavior. The speech was titled, "All is Well". Following is the transcript:

A friend of mine was about to become a daddy. For whatever reasons, his wife insisted that she wanted to have the baby born in her home town, where her mother would be around. My friend didn't want so. This was the cause of a serious conflict between them. A few months later, I read somewhere that humans are one of the few mammals who cannot have babies throughout their lives. About one third of their lives, human female cannot produce babies. During this time, because a woman doesn’t have to worry about producing and taking care of her own babies, she can concentrate on the well being of babies of her daughter and the chances of survival of new born babies multiply. This has given humans an evolutionary advantage. This phenomenon is called grandmother hypothesis and was first given by GC Williams in 1960s.

Clearly, my friend was not battling with his wife, he was battling with a natural phenomenon called the evolution that has been occurring for past millions of years and will keep happening. He won or lost was another thing, he was bound to get frustrated because he was fighting against a law of nature.

It led me to believe that we may be doing lot of things in our day to day lives that are against the basic laws of nature, so how do I figure out when I am moving with the nature and when I am moving against the nature. I got sort of an answer few weeks later when I was flipping channels on the TV and I came across this program on the Discovery channel when they were showing lions’ hunting habits. They showed that lions, cheetahs and other animals of this family have strong leg muscles, to enable them hunt. Deers and other such animals, which are most common preys to lions, have their eyes placed such that they get panoramic view of the things in front of them. That way, they can see a larger area of the field and can know if there is a predator around.

Lions – despite having strong leg muscles and big jaws, succeed in only 25% of their hunting attempts. Deers, despite being able to see a large area, don’t always succeed in escaping the lions. Does it mean they are perfect or imperfect? If they were perfect, they would never fail. If they were imperfect, they would not exist. So clearly, Perfection Vs Imperfection is less important. The bigger fact is – evolution, they are always continuously improving. The essence of Evolution is continuous and slow change, slow improvement. So I concluded that the law of nature is – a feeling of perfection in the current state along with a slow gradual improvement. If I think that my life will be perfect when I have that much money or if I have that quality, I am wrong. It’s already perfect in the given scenario, but I have to make continuous small improvements.

If we feel secure, comfortable and try to be better - it will be easier to improve ourselves, we will be more creative. If we feel desperate, insecure - we may try hard a few times but it will not be sustainable. When people feel secure, comfortable in their current situation, they are more likely to be creative and think out of the box. Insecurity doesn’t breed innovation, but leads to short sightedness, patch work, crisis feeling.

So we need to stop demanding too much from ourselves or from anyone else, just try to make a little improvement, not necessarily everyday, whenever we feel comfortable. On a broader perspective, everything is already perfect.

So, if you didn’t invest in the property at the right time, if you invested in the stock market at the wrong time, if your boss is a piece of junk, if you have been planning to start exercising for the past many years but are not able to do it – first of all, take it easy. And then see if you can improve the situation only little bit. Everything is fine, because we are all part of an eternal process called evolution and everything is perfect in the big picture. If you think I am talking sense that’s fine. If you think I am talking non-sense, it’s equally fine. Because at the end of the day – All is well.

Man and Yoga

2010-05-20T17:53:00.000-07:00

A man who understands yoga and practices it everyday, is never unhappy.

Latest Wisdom from Charlie Munger

2010-05-15T10:32:00.001-07:00

There are two big events I look forward to every year- Berkshire Hathaway shareholder meeting -Warren Buffett and Charlie Munger talk- and Wesco Financial shareholder meeting- Charlie Munger talk. This year, I could only attend the Berkshire Hathaway event. However, thanks to The Motley Fool & my friend Shrinivas Ganediwal, the notes from the Wesco meeting are available online. See http://www.fool.com/investing/value/2010/05/07/charlie-mungers-thoughts-on-just-about-everything.aspx

Enjoy.