Key takeaways from Dead companies walking

Companies failed because of one or more of the six common mistakes.

1)They learned from only the recent past.
-Instead of paying attention to larger, less frequent cyclical patterns.
Most people confine themselves to the history of the previous few years and assume that the more distant past is less important or relevant.

2)They relies too heavily on a formula for success.
-following the GARP formula will cause you to miss exceptional companies such as Costco, Mastercard, Starbucks.
-Beware of companies subscribing to the risky formula of hypergrowth ie aggressive store expansion.

3)They misread or alienated their customers.
-Ron Johnson and JC penny.
4)They fell victim to a mania
5)They failed to adapt to tectonic shifts in their industries.
-Blockbuster retail strategy to tackle Netflix.
-Watch out when two troubled businesses combine. Two money losing companies with identical obsolete business models do not merge to become one profitable business.

6)They were physically or emotionally removed from their companies’ operations.
-Ron Johnson and JC penny, Eddie lampert and Sears. Their self-
Imposed distance from their own workers. You are not able to make major changes in a company with thousands of employees unless you connect with them directly.


The two best indicators of a company on its way to bankruptcy - rapidly shrinking revenues and a quickly rising debt load.

Whenever you see ”sluggish economy” chestnut in a disappointing earning report, make sure to check how the company’s competitors are faring.

Key takeaways from How to win friends and influence people.

Fundamental techniques in handling people
Principle 1
Don’t criticize, condemn or complain.
-Criticism does not persuade people. It puts a person on the defensive and usually makes him strive to justify himself.
-Criticism is dangerous, because it wounds a person’s pride, hurts his sense of importance, and arouses resentment.
-An animal rewarded for good behavior will learn much more rapidly and retain what it learns far more effectively than an animal punished for bad behavior.

Principle 2
Give honest and sincere appreciation.
-Everyone likes a compliment. The deepest urge in human nature is “the desire to be important”
-Try to figure out the other person’s good points.

Principle 3
Arouse in the other person an eager want.
-The only way to influence people is to talk in terms of what the other person wants and not your own.
-If you need to persuade somebody to do something. Pause and ask yourself: “How can I make this person want to do it?”
-Understand the other person’s point of view and see things from that person’s angle as well as from your own.

Six ways to make people like you
Principle 1
Become genuinely interested in other people
-If you want to make friends, put yourself out to do things for other people- things that require time, energy unselfishness and thoughtfulness.

Principle2
Smile
-A smile enriches those who receive, without impoverishing those who give.

Principle 3
Remember that a person’s name is to that person, the sweetest sound.
-take the time and energy necessary to remember names.

Principle 4
Be a good listener. Encourage others to talk about themselves.
-Remember that the people you are talking to are a hundred times more interested in themselves and their wants and problems than they are in you and your problems.
-Ask questions that encourage people to talk about themselves and their accomplishments.

Principle 5
Talk in terms of the other person’s interest.
-By talking about things you knew would interest and please the other person. You made yourself agreeable.

Principle 6
Make the other person feel important and do it sincerely.
-The desire to be important and the craving to be appreciated is the deepest urge in human nature.
-Almost all the people you meet feel themselves superior to you in some way, and a sure way to their heart is to let them realise in subtle way that you recognize their importance, and recognise it sincerely.

12 ways to win people to your way of thinking.
Principle 1
The only way to get the best of an argument is to avoid it.
-If you argue, you may achieve a victory sometimes, but it will be an empty victory because you will never get your opponent’s good will.
-Listen first. Give your opponents a chance to talk. Do not resist, defend or debate.
-Look for areas of agreement. Dwell first on the points and areas on which you agree.
-Look for areas where you can admit error and say so. It will help disarm your opponents and reduce defensiveness.
-Promise to think over your opponents’ ideas. Your opponents might be right
-Postpone action to give both sides time to think through the problem.
-Could my opponent’s be right? Is there truth or merit in their argument?
What price will I have to pay if I win? If I am quiet about it, will the disagreement blow over?

Principle 2
Show respect for others opinions. Never say, you’re wrong
-Nothing good is accomplished and a lot of damage can be done if you tell a person straight out that he or she is wrong.
-When someone asserted something that I thought an error, deny yourself the pleasure of contradicting him abruptly and answering by observing that in certain cases, his opinion would be right.
-Forbade the use of word that import a fixed opinion such as certainly and adopt conceive, appear to me at present.


Principle 3
If you are wrong, admit it quickly and emphatically.
-If we know we are going to be rebuked, we should do it ourselves.

Principle 4
Begin in a friendly way
-The friendly approach and appreciation can make people change their minds more readily than all the bluster in the world.

Principle 5
Get the other person saying “yes,yes” immediately
-In talking with people, keep on emphasizing on the things which you agree.
-When you have said “no”, all your pride of personality demands that you remain consistent with yourself.

Principle 6
Let the other person do a great deal of the talking
-They know more about their business and problems than you do. So ask them questions.
-Our friends would rather talk about their achievements than listen to you yours. Because when our friends excel us, they feel important.

Principle 7
Let the other person feel that the idea is his or hers
-People have much more faith in ideas that they discover themselves.
-It is wiser to make suggestions and let the other person think out the conclusion.
-It’s bad judgement to try ram your opinions down the throats of other people.
-We much prefer to feel that we are acting on our own ideas. We like to be consulted about our wishes, our wants and our thoughts.

Principle 8
Try honestly to see things from the other person’s point of view
-Always think in terms of the other person’s point of view, and see things from that person’s angle as well as your own.
-Before asking anyone, try to think the whole thing through from another person’s point of view. Ask yourself:” Why should he or she want to do it?”

Principle 9
Be sympathetic with the other person’s ideas and desires.

Principle 10
Appeal to the nobler motives
-Individuals who are inclined to chisel will in most cases react favorably if you make them feel that you consider them honest, upright and fair.

Principle 11
Dramatise your ideas

Principle 12
Throw down a challenge

Nine ways to change people without giving offense or arousing resentment
Principle 1
Begin with praise and honest appreciation
-It’s always easier to listen to unpleasant things after we have heard some praise of our good points.

Principle 2
Call attention to people’s mistakes indirectly
-Many people begin their criticism with sincere praise followed by “but” and ending with a critical statement. The praise seemed only to be a contrived lead in to a critical inference of failure
-Use the word “and” instead of “but”

Principle 3
Talk about your own mistakes before criticizing the other person
-Admitting one’s own mistakes-even when one hasn’t corrected them can help convince somebody to change his behavior.

Principle 4
Ask questions instead of giving direct orders.
-Always gave suggestions, not orders.
-Makes it easy for a person to correct errors.
-Saves a person’s pride and gives him or her a feeling of importance.
-People are more likely to accept an order if they have had a part in the decision that caused the order to be issued.

Principle 5
Let the other person save face.

Principle 6
Praise the slightest improvement and praise every improvement. Be “hearty in your approbation and lavish in your praise”
-Singled out a specific accomplishment, rather than just making general flattering remarks, making it more meaningful.
-Abilities wither under criticism, they blossom under encouragement.

Principle 7
Give the other person a fine reputation to live up to.
-If you want to improve a person in a certain aspect, act as though that particular trait were already one of his/her outstanding characteristics. Give them a fine reputation to live up to.

Principle 8
Use encouragement. Make the fault seem easy to correct
-Tell people they are doing it all wrong, and you have destroyed almost every incentive to try to improve.
-Be liberal with your encouragement, make the thing seem easy to do and let the other person know you have faith in his ability to do it and he will practice.

Principle 9
Make the other person happy about doing the thing you suggest.
-Do not promise anything that you cannot deliver. Forget about the benefits to yourself and concentrate on the benefits to the other person.
-Know exactly what it is you want the other person to do.
-Ask yourself what is it the other person really wants.
-Consider the benefits that person will receive from doing what you suggest.
-Match those benefits to the other person’s wants.
-When you make your request, put it in a way that will convey to other person the idea that he personally will benefit.

Franklin’s book loan
Ask the other person to do a small favour- the performing of which gave him a feeling of importance.

On Fragility & Optionality

• Fragility from excessive debt.
• Fragility from absence of entry of barriers.

1. Unable to prevent competitors from taking market shares. (exceptionally prone are high margin gadgets)
2. Patent protection is not a source of competitive advantage.
3. First mover is not a source of competitive advantage.

• Fragility from likely disruption.
• Fragility from dependence.

1. High customer concentration
2. High supplier concentration
3. Dependence on debt/equity market
4. Protectionism(subsides from government)
5. Outsourcing of manufacturing supply(Nvidia). Although this leads to high margin in the short run, might lead to future competition from it outsourcers.
6. Dependence of commodity price.

• Fragility of the low margin business.

1. High input prices
2. No pricing power
3. Easy to slip into losses if something unforeseeable changes.

• Fragility from hidden structural risks

1. Responsible for liabilities even if the company is not negligent(PG&E)

• Fragility from a rigid cost structure.

1. High operating leverage.
2. High fixed costs(Airlines)

• Fragility from Asset Liabilities Mismatch.

1. Long term assets funded with short term borrowing.(LTCM)

• Fragility from the presence of multiple independent risk factors.

1. 90% chance an undesirable event won’t happen during year. 4 such independent events. What’s the chance that none of these events will occur during a year.0.9*4=65.6%
2. What’s the chance that at least one of them will happen during a year.1-65.6%=34.4%
3. What’s the chance that at least one of them will happen sometimes during the next 5 years?1- probability of none of these events occurring sometime during the next 5 years 1-(0.3439)^5=99.52%

• How to avoid fragility?

1. Avoid
2. Position sizing
3. Uses a lower valuation

• Fragility model is a series of win followed by a huge loss.
• Optionality model is a series of loss followed by a huge win.

Key takeaways from Nassim Nicholas Taleb skin in the game

Lindy effect. 

• Watch old movies, drink old wine, read old books and keep old friends.
• Things that survive for a long time do so for a reason, whether or not that reason is visible to human beings.
• Not everything that happens, happens for a reason, but everything that survives, survives for a reason.

Sequence matters and the presence of ruin disqualifies cost-benefit analyses

Risk and ruin are different, volatile things are not necessarily risky. Take a lot of risks that don’t have tail risks but offer tail profits.

All risks are not equal, never compare a systemic and fat tailed risk(Ebola) to a idiosyncratic, and thin-tailed one (car accident)

Beware of the person who gives advice, telling you that a certain action on your part is “good for you” while it is also good for him, while the harm to you doesn’t directly affect him.