Do financial services companies provide value? There is an interesting Forbes article by John Bogle in the November 17 issue.

To summarize, Bogle determined that in a recent year, the "financial services" industry effectively took $620 billion off the top for a 7% fee on $9.5 trillion value of stocks, or 2% of a $30 trillion value of bonds, or 1.5% of $40 trillion value of US securities. Now we're not sure who Bogle has included in his definition of the "financial services industry as the "croupiers," "the money shufflers and middlemen." It doesn't really matter because his point is not about the specific cost but the role of those folks in the market.

Bogle refers to Warren Buffett's letter (PDF) in the 2005 annual report for Berkshire Hathaway. In his extended analogy, Buffett makes the general point that if one family owns all the shares of all the companies, some family members paying advisors to get a net larger slice of the pie vis-a-vis other family members is unwise because the total FCF for distribution is the same and the advisors will take away from the distributions to the family. Of course, the question of whether the family as a whole is better off is, perhaps, the right question but not the one actually being presented. Each family member in the hypothetical is trying to increase that person's FCF without regard to the FCF of the rest of the family. (OPEC & the difficulty in keeping cartel members from cheating or the more basic prisoner's dilemma are obvious parallels.)

Once the option exists to choose individual investments, as opposed to market-wide index funds, advice to optimize the portfolio becomes a rational alternative to consider, with the rationality of the choice a separate issue that is more complicated. Buffett, and now Bogle, seems to say that seeking advice does not make sense.

Do portfolio-pickers and brokers (and that's the category with which Bogle seems most concerned) cost too much? Maybe. Some do, some don't. Doesn't the performance of the pick matter? Consider a relatively simple question of choosing a traditional market-cap weighted index fund vs. a dollar-weighted index fund or equally weighted index fund. Those returns are different. Is the investment advice that points you to the right one worth more? At least worth something?

What this article sparked for us was the recognition that companies are in fact much like Buffett's fictional family and yet also very different. On the one hand, a company consists of a portfolio of products, services, customers, and assets. Each company would be hard pressed to justify internal competition that doesn't have the effect of improving firm FCF. So advice doesn't make sense.

At the same time, cannibalization is a growing in acceptance as a part of corporate strategy. So each company is like an individual family member looking to improve its poosition as against its competition. Certainly, advice then makes sense.

So, while TSC can be described as a financial services company, we don't really operate in the same market that troubles Bogle. We help companies determine how to improve their free cash flow by analyzing the datastream of their business portfolio. Our insights may revolve around the acquisition of capital, the growth of revenue, the control over costs, and the reinvestment in the business, but in many ways they're fundamentally different from pure stock market advice. Of course, we have considered the application of our algorithms and equations to private wealth portfolio management, the selection of pairs of securities appropriate for hedged opportunities, synthetic M&A trading strategies, and portfolio optimization -- so maybe we are more of a financial services company than we think.

Labels: execution, IDM, performance, tips

Saturday, December 06, 2008 :: posted by Rick Colosimo @ 1:32 PM

Software Bounty: $250 for blackberry email tweak Wanted: a work-for-hire (so it can be released under a CC license for non-commercial use, exact license TBD) software "widget" that, at a minimum, works on a GSM Blackberry Pearl (AT&T) using Hosted BES from Intermedia.

Feature: allows for an option-type (i.e., one time) setting to auto-BCC a single address on every email sent from the device.

Reference: When using the blackberry in a non-corporate environment, using the Blackberry Internet Service, it is possible to set an option that allows the user to BCC an address on every email. However, when we shifted to a hosted Blackberry Enterprise Server platform, that option disappeared. We want to be able to BCC ourselves automatically rather than type in the address each time. The solution could take many forms, as long as the feature is delivered without other errors. Constraints caused by the solution may be acceptable.

Reward: $250 for first working version. Submissions to rick@thoughtstorm.com. I will test the applet myself and then have a colleague confirm the solution is acceptable. All submissions will be recognized here.

Labels: nonprofit, software bounty, tips

Thursday, October 02, 2008 :: posted by Rick Colosimo @ 4:31 PM

Rethinking your workspace In this article, David Allen of GTD fame discusses the office hardware that supports his implementation of GTD. And by hardware, I don't mean computers, I mean the aluminum, wood, and plastic contraptions and tools that populate our offices, that create the environmental backdrop for our workdays.

We've come across a similar analysis of office supplies that focuses more on actual specifics of style and even daily usage guidelines. Pierre Khawand, of People-OnTheGo, has an entire seminar on Accomplishing More with Less. Pierre's seminars actually exist in both live and web-based versions so you don't have to be local to the SF Bay Area to participate.

The piece of this seminar that really grabbed my attention was so good that I really do hesitate to reveal it here. Let me say just that Pierre walks participants through a complete reconstruction of their work (and home, if you do/leave work there) environments to help you rationalize everything that you use to capture, store, use, and transmit information. It's a service I've long thought he should provide on an individual basis to busy executives and professionals.

Those of you interested in learning more about AML should contact Pierre directly; anyone interested in customized service should contact me and we'll work out a plan of attack to get Pierre's system working in your office. This plan is not about office organization; it's about rationalization in a one-person-sized unit of business process reengineering: it's BPR for your desk.

Labels: performance, tips

Tuesday, June 24, 2008 :: posted by Rick Colosimo @ 11:37 PM

Principles of War - Military

In OCS (for Rick) and at West Point (for Mike), we were both tasked with learning bits of "required knowledge." These were bits of useful or historical information, such as lifesaving steps or MacArthur's Duty, Honor, Country quote, or mnemonics used commonly in the US Army, such as OCOKA (obstacles, cover & concealment, orientation, key terrain, avenues of approach).

One of the items that we've carried with us long past our active duty days and see as relevant across many business situations is the 9 Principles of War. Each of these principles represents one aspect of military decision making. It is important to note that they are not rules; they are more like factors to be considered by military leaders in planning and execution.

We'll run through these principles one-by-one in the coming days, and we'll also create and refine a parallel version that puts these into a business context for greater relevance and accessibility.

9 PRINCIPLES of WAR

1. Mass - Concentrate combat power at the decisive place and time
2. Objective - Direct every military operation towards a clearly defined, decisive, and attainable goal
3. Offensive - Seize, retain, and exploit the initiative
4. Surprise - Strike the enemy at a time, at a place, or in a manner for which he is unprepared
5. Economy of force - Allocate minimum essential combat power to secondary efforts
6. Maneuver - Place the enemy in a position of disadvantage through the flexible application of combat power
7. Unity of command - For every objective, ensure unity of effort under one responsible commander
8. Security - Never permit the enemy to acquire an unexpected advantage
9. Simplicity - Prepare clear, uncomplicated plans and clear, concise orders to ensure thorough understanding

Labels: leadership, military, tips

Tuesday, May 13, 2008 :: posted by Rick Colosimo @ 11:58 AM