Archive for the ‘Investing’ Category

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Don’t Conform, Succeed

April 23, 2008

I’m giving special consideration to this quote as I think it applies by my business as a solo consultant and my strategies as an investor:

No one can possibly achieve any real and lasting success or get rich in business by being a conformist.” –J. Paul Getty, industrialist, oil tycoon

First, as a solo consultant, it’s easy to fall in line with the crowd and achieve a modest level of success. The standard model for solo consulting is to become an hourly contractor. This model is the path of least resistance as there are contractor agencies everywhere looking to broker relationships between the clients and consultants. This is ideal for a new consultant who doesn’t already have a network of contacts. After a few years of success as a contractor, the consultant will hit a ceiling on the hourly rate that is possible as a contractor. The only way to break through this ceiling and achieve real success as a solo consultant is to be a non-conformist and start charging based on value. I’m currently focusing on making this transition myself so I really appreciated this quote.

Second, I believe this to be true of investing. In order to be a real success in investing, you have to be a non-conformist. Think about it, if you conform with the crowd, you will only match the market’s performance (which represents the crowd). Achieving a different result requires you to go against the crowd. The challenge is in determining when the crowd is right and when it’s wrong. Warning: being a non-conformist can also mean you do worse than the crowd. I have found my most successful investment picks to be when a great company’s stock is punished for the wrong reason. For example, the whole market tanks due to a panic but you can’t find a single bit of bad news about a great company’s performance that would justify a lower stock price. Going against the crowd during a panic takes courage but in my experience it can definitely payoff. I’ve also lost big on a stock because I didn’t agree with the crowd and watched it nose-dive to the tune of 50%. All I can hope for is to be right more times than I’m wrong when going against the crowd.

How about you? How are you conforming to the crowd today and how might your chances of success be improved by taking a non-conformist approach?

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Book Review | Boone by T. Boone Pickens, Jr.

April 13, 2008

My favorite type of book is the autobiography as it gives me a chance to learn from other’s experiences. This book is one of the better business autobiographies I have read. Boone Pickens Jr. is an entrepreneur who started out in the 1950s with $2500. Over the next 30 years, he built Mesa Petroleum, America’s largest independent oil company, worth close to $3 billion at the time this book was published. 

The most interesting thing about Mr. Pickens is that in addition to being an entrepreneur who has built successful businesses, he is also a dealmaker who has attempted hostile takeovers of some of the world’s largest companies, including Gulf Oil, Phillips, and Unocal. In each of these cases, he was unable to gain control of the companies but walked away with significant amounts of money as the management and boards of these companies spent enormous amounts of money and influence to keep their largest shareholder from taking away their control of the companies. Here is an interesting excerpt from the book:

“I pointed out that the managements and directors of the two hundred Business Roundtable companies owned less than one one-tenth of 1 percent of the stock in their own firms. A recent study revealed that 387 of the S&P 500 companies had adopted anti-shareholder proposals. Some 170 companies had changed their bylaws to restrict their shareholders’ ability to make charter changes. Forty-three had instituted poison pills, and more than two hundred had classified boards.” –Boone by T. Boone Pickens, Jr (p.285)

I find it interesting that an executive team and board of directors can have more control over a company than the owners. It definitely makes me realize the importance of evaluating the management teams and boards of companies I invest in to make sure they have a significant ownership position to ensure their objectives are aligned with the rest of the shareholders.

If you’re interested in studying big businesses and understanding how they operate at the top level, I highly recommend this book. It will give you an education, entertain you, and give you a glimpse into the world of hostile takeovers. 

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