Portfolio Management Quotes

We believe in active portfolio management but not aggressive portfolio management.

Nature is great at hedging investments. Nature doesn’t hedge by betting for and against the same things. Nature hedges by cultivating resilience.

The wise study the numbers and their ways. The wise count their movements and their stays.

A portfolio that exists in service to God is a portfolio blessed by God.

I try to be a good investment to God. All the good things he’s given me, I aim to multiply and return to him and his purposes a maximum ROI. I’m just a tree in his fruit garden aiming to produce good fruit.

Portfolio resilience protects assets from loss.

Half of all U.S. mutual fund portfolio managers do not invest a cent of their own money in their funds, according to Morningstar.69 This might seem atrocious, and surely the statistic uncovers some hypocrisy.

senior managers’ goal here should be to manage their portfolio of businesses to wisely balance between profitable growth and cash flow at a given point in time.

Investment Portfolios should be actively managed.

And of course Brian was far more upset about separation from those two blond moppets than about leaving Louise. There shouldn't be any problem loving both, but for some reason certain men choose; like good mutual-fund managers minimizing risk while maximizing portfolio yield, they take everything they once invested in their wives and sink it into their children instead. What is it? Do they seem safer, because they need you? Because you can never become their ex-father, as I think I might become your ex-wife?

But the simple truth is this: the more complex an investment is, the less likely it is to be profitable. Index funds outperform actively managed funds in large part simply because actively managed funds require expensive active managers. Not only are they prone to making investing mistakes, their fees are a continual performance drag on the portfolio.

In nature, capital is never stagnant. Capital exists in service to life - at all times.

To acquire an asset at greater cost than value is simply unwise.

At Mayflower-Plymouth, we view a portfolio as an ecosystem.

One way to improve efficiency is to streamline processes according to schedules, required inputs and expected outputs.

Everyone knows about market risk and management risk. But there are a variety of non obvious risks to consider when managing a portfolio of investments. They include political risk, share premiums and discounts risk, Interest Rate risk, Income Risk, Tax law changes risk, valuation risk, and liquidity risk, among others. This is why professional active portfolio management is the way to go.

Jesus taught us to be good stewards of capital.

We believe that active management and passive management are not necessarily contradictory ideas.

All stakeholders should benefit from the capital we allocate in our portfolio, on a net value add basis.

We believe that the capital in our portfolio should be a platform for utility and a facilitator of life.

We believe that capital must be cared for – stewarded.

Being net value adders puts us better positioned for long-term growth and longevity – because in the long term, capital flows to net value adders.

Nature was a quant way before all of these MBAs and Economists were quants. I respect MBAs, and I respect economists. I just happen to respect nature more.

Nature ensures efficiency through self-sustaining systems. Businesses should do the same.

If you are inexperienced, start with a fraction of your money. Don’t play with money that is not yours.

If I could manage a portfolio like he manages a kiss, I’d be a millionaire.

Managing a portfolio is like managing a garden. You don’t just want different kinds of plants in your garden. You want those different plants to have synergy and to work together harmoniously to maximize productivity. In the same way, when different elements in the portfolio have synergy and work together to help each other maximize individual productivity, their collective yields can then be reinvested to maximize the productivity of the whole portfolio. There’s a compounding effect and a multiplicative value effect that takes place with the permaculture investing approach.

Since business is an exchange of value, with the greatest profits afforded to the businesses that add the most value most additionally – being a net value adder positions us to achieve the greatest ROI.

At Mayflower-Plymouth, we analyze global markets, analyze businesses and employ a range of strategies that emulate natural ecosystems to deliver holistic and industry-consistent investment returns. Our approach emphasizes preservation, steady compounding growth and steady returns for our capital partners and clients.

Our Principles of Permaculture Capital Stewardship set us apart from other Asset Management firms. These principles allow us to model nature in the way we steward Capital to ensure portfolio resilience, steady ROI and profit.

It is imperative to acquire assets at a financial cost that is less than their value. Timing the purchase based on changes in the marketplace or other factors may present great opportunity to widen the margin between cost and value.

In the mutual fund industry, for example, the annual rate of portfolio turnover for the average actively managed equity fund runs to almost 100 percent, ranging from a hardly minimal 25 percent for the lowest turnover quintile to an astonishing 230 percent for the highest quintile. (The turnover of all-stock-market index funds is about 7 percent.)

Business will forever be a platform for people to exchange value. People are largely unpredictable, and value is largely subjective. This is the space where humans will always outperform AI – the space where active management will always be necessary.

The fee asset managers charge is for the value they provide. If a farmer grows a fruiting tree, you pay him more for the tree than you would pay him for just a seedling. Why? Because of the effort, energy and skill the farmer put into growing that tree plus the added value of the income (fruit) that tree provides are a testament to the farmers value add and he deserves to be compensated for that value add. It’s the same kind of thing with the 2 & 20 you pay the portfolio manager.

Wide diversification is only required when investors do not understand what they are doing.

It is a common misconception that if you diversify, you don’t need to learn anything. Just buy a bunch of stocks, and you will be good. Nothing can be further from the truth.

No amount of diversification can replace investment research. If you want to invest, you have to learn.

Money managers tend to make irrational decisions just to protect their calendar year performances, even if they believe that decision is not in the best interest of investors.

Annual performance means nothing to individual investors.

it is not a calculated risk if you haven’t calculated it.

Leveraging is not evil but must be used with extreme caution and care. You must understand that over-leveraging is the prime reason for all market blowups.

There is an excellent characteristic of stock investment that it can only go to zero.

It may take some time, but capital will eventually flow to the most logical place.

The stock market, as a whole, has and will recover from every downturn.

You must start investing as early as possible. Yesterday was better than today, and today is better than tomorrow. Don’t wait for a significant market drop.

When you buy a stock, you buy a piece of business, not a quote from a broker. As long as the company is doing good, your investment is safe.

Proper diversification can be achieved with a handful of assets. On the other hand, a poorly selected portfolio with hundreds of stocks and bonds can be inadequate for diversification purposes.

All of life is Capital stewarded by God. And he allows us to steward some of it according to his purposes. And the more we model him in our stewardship, the more he seems to allow us to steward.

The index fund is a most unlikely hero for the typical investor. It is no more (nor less) than a broadly diversified portfolio, typically run at rock-bottom costs, without the putative benefit of a brilliant, resourceful, and highly skilled portfolio manager. The index fund simply buys and holds the securities in a particular index, in proportion to their weight in the index. The concept is simplicity writ large.

Kovner lists risk management as the key to successful trading; he always decides on an exit point before he puts on a trade. He also stresses the need for evaluating risk on a portfolio basis rather than viewing the risk of each trade independently. This is absolutely critical when one holds positions that are highly correlated, since the overall portfolio risk is likely to be much greater than the trader realizes.

Diversification, the easy accessibility of funds, and having a skilled professional money manager working to make your investment grow are the three most prominent reasons that mutual funds have become so popular.

This tendency of overconfidence and poor outcomes is not confined to only retail investors. Institutional investors suffer from overconfidence equally if not more, and their investment results are not superior either.

Every all-time high of the stock market proves that the market has eventually recovered from all downturns, 100% of the time. This strategy is the only one that worked every time without a single failure for centuries.

Product people are business people, first and foremost. They work across functions and serve to integrate or synchronize the work of others so that products and portfolios can be planned, developed, launched, and managed.

One reason nature is efficient is because there is no waste. Everything produced creates value for others and is consumed by others on the basis of value. What one life may discard as not valuable is consumed by another life because of its valuable. And all things produced and consumed are continually upcycled, becoming more valuable each cycle. Perhaps it’s because nature has a capital-centric view of things; everything in nature is capital and produces capital which to varying degrees provides value to all other things in nature. Imagine if economies worked like this. Imagine if investment portfolios worked like this. Imagine if businesses worked like this. What a beautiful world it would be.

Don't mention that you also happen to manage a six-figure portfolio to your "voluntary simplicity" friends and don't mention that you only have one bedroom to your investment friends unless you're prepared for the resulting discussion.

The problem with fiat is that simply maintaining the wealth you already own requires significant active management and expert decision-making. You need to develop expertise in portfolio allocation, risk management, stock and bond valuation, real estate markets, credit markets, global macro trends, national and international monetary policy, commodity markets, geopolitics, and many other arcane and highly specialized fields in order to make informed investment decisions that allow you to maintain the wealth you already earned. You effectively need to earn your money twice with fiat, once when you work for it, and once when you invest it to beat inflation. The simple gold coin saved you from all of this before fiat.

I believe when using leverage, the following four conditions must be met. 1. Leverage must be in the general direction of a secular trend. 2. Leverage should never expire. 3. Leveraged positions should not be subject to forced sell. 4. The maximum possible loss should not be more than the invested capital.

Organizations that manage IT delivery as projects instead of products are using managerial principles from two ages ago and cannot expect those approaches to be adequate for succeeding in this one. Visionary organizations are creating and managing their Value Stream Networks and product portfolios in order to leapfrog their competition in the Age of Software

To be sure, the cost of managing capital and of “formal” financial intermediation (that is, the investment advice and portfolio management services provided by a bank or official financial institution or real estate agency or managing partner) is obviously taken into account and deducted from the income on capital in calculating the average rate of return (as presented here). But this is not the case with “informal” financial intermediation: every investor spends time—in some cases a lot of time—managing his own portfolio and affairs and determining which investments are likely to be the most profitable. This effort can in certain cases be compared to genuine entrepreneurial labor or to a form of business activity.

Social validation, sometimes referred to as herding, is a powerful, hardwired behavior. It is observed in nearly all species, including geese, deer, fish, and insects. Herding is frequently critical for survival, so to go contrary to it is incredibly difficult. The lesson of our past is that sticking out from the crowd by doing something different is dangerous.

Establishing and maintaining an unconventional investment profile requires acceptance of uncomfortably idiosyncratic portfolios, which frequently appear downright imprudent in the eyes of conventional wisdom. Unless institutions maintain contrarian positions through difficult times, the resulting damage of buying high and selling low imposes severe financial and reputational costs on the institution.

most important distinction in the investment world does not separate individuals and institutions; the most important distinction divides those investors with the ability to make high quality active management decisions from those investors without active management expertise. Few institutions and even fewer individuals exhibit the ability and commit the resources to produce risk-adjusted excess returns.

Any so-called 'radical' strategy that seeks to empower the disempowered in the realm of social reproduction by opening up that realm to monetisation and market forces is headed in exactly the wrong direction. Providing financial literacy classes for the populace at large will simply expose that population predatory practices as they seek to manage their own investment portfolios like minnows swimming in a sea of sharks. Providing microcredit and microfinance facilities encourages people to participate in the market economy but does so in such a way as to maximise the energy they have to expend while minimising their returns. Providing legal title for land property ownership in the hope that this will bring economic and social stability to the lives of the marginalised will almost certainly lead in the long run to their dispossession and eviction from that space and place they already hold through customary use rights.

Jesus does not say blandly that treasure in heaven results from our generosity on earth. More passionately, he urges his followers to pursue treasure in heaven, the way a thirsty desert wanderer pursues water, or a savvy portfolio manager scours the financial landscape for investments. John comes nowhere close to the Biblical conclusion. Not through faulty reasoning, but the Objectivist simply starts from a different premise. That premise leads him to the “primacy of the individual.

In forests – Seeds are planted in the soil (capital) and become trees that shed leaves as they grow. Those shedded leaves become added capital to the soil (dividends/yields). The tree also provides a home for other life forms which return capital to the soil. Upon the death of the tree, it’s entire body becomes capital as it is returned to the soil. In this cycle, every tree is an investment which results in the long term accumulation of soil (capital) over time. As the soil grows, it becomes better able to invest in future trees and host future forests. And the yield of them all collectively becomes greater and greater as the capital accumulates. In fact, everything in a natural ecosystem both is capital and exists in service to capital. This duality of capital in natural ecosystems is why capital in natural ecosystems is able to compound and multiply so well. So when it comes to investing - managing portfolios, we apply this duality of capital perspective and pair it with our stewardship identity, which allows us to grow portfolios and maximize wealth.

This is the same problem that established companies experience. Their past successes were built on a finely tuned engine of growth. If that engine runs its course and growth slows or stops, there can be a crisis if the company does not have new startups incubating within its ranks that can provide new sources of growth. Companies of any size can suffer from this perpetual affliction. They need to manage a portfolio of activities, simultaneously tuning their engine of growth and developing new sources of growth for when that engine inevitably runs its course.

If you are going to use probability to model a financial market, then you had better use the right kind of probability. Real markets are wild. Their price fluctuations can be hair-raising-far greater and more damaging than the mild variations of orthodox finance. That means that individual stocks and currencies are riskier than normally assumed. It means that stock portfolios are being put together incorrectly; far from managing risk, they may be magnifying it. It means that some trading strategies are misguided, and options mis-priced. Anywhere the bell-curve assumption enters the financial calculations, an error can come out.

In March 1997, Jules and Dennis went to dinner at Ash and Ethan's house along with Duncan and Shyla, the portfolio manager and the literary advocate. The prick and the cunt, Jules had once called them. Jules and Dennis had never understood why Ash and Ethan liked this couple so much, but they'd all been thrown together so many times over the years, for casual evenings and more formal celebrations, that it was too late to ask. Duncan and Shyla must have felt equally puzzled at Ash and Ethan's fidelity to their old friends the social worker and the depressive. No one said a word against anyone; everyone went to the dinners to which they were invited. Both couples knew they satisfied a different part of Ash and Ethan, but when they all came together in one place, the group made no sense.

Leaders nourish and uphold the culture of an organization. They make choices that inevitably limit the size and scope of activities that the organization undertakes. A good leader will only work in a firm where there is clear and effective governance to protect the culture, philosophy and investment discipline of the firm. The most effective leaders create a non-hierarchical environment in which idea sharing is encouraged, and diligent execution is rewarded. They also establish a solid foundation, a durable framework, and processes for successfully managing an organization that can maintain these qualities. And last, a great investment leader has a zero tolerance policy for breaches of integrity. By integrity, we mean not only honesty and fulfillment of fiduciary obligation, but process integrity.

When applying agile practices at the portfolio level, similar benefits accrue: • Demonstrable results—Every quarter or so products, or at least deployable pieces of products, are developed, implemented, tested, and accepted. Short projects deliver chunks of functionality incrementally. • Customer feedback—Each quarter product managers review results and provide feedback, and executives can view progress in terms of working products. • Better portfolio planning—Portfolio planning is more realistic because it is based on deployed whole or partial products. • Flexibility—Portfolios can be steered toward changing business goals and higher-value projects because changes are easy to incorporate at the end of each quarter. Because projects produce working products, partial value is captured rather than being lost completely as usually happens with serial projects that are terminated early. • Productivity—There is a hidden productivity improvement with agile methods from the work not done. Through constant negotiation, small projects are both eliminated and pared down.

On Diversification for Stress Management The below came from me asking, “What advice would you give your 30-year-old self?”: “My 30-year-old self wouldn’t have access to medical marijuana, so I’d have a limited canvas with which to paint. I’ve always made it a top priority since I was a teenager—and had tons of stress-related medical problems—to make that job one: to learn how to not have stress. I would consider myself a world champion at avoiding stress at this point in dozens of different ways. A lot of it is just how you look at the world, but most of it is really the process of diversification. I’m not going to worry about losing one friend if I have a hundred, but if I have two friends I’m really going to be worried. I’m not going to worry about losing my job because my one boss is going to fire me, because I have thousands of bosses at newspapers everywhere. One of the ways to not worry about stress is to eliminate it. I don’t worry about my stock picks because I have a diversified portfolio. Diversification works in almost every area of your life to reduce your stress.

Where to stash your organizational risk? Lately, I’m increasingly hearing folks reference the idea of organizational debt. This is the organizational sibling of technical debt, and it represents things like biased interview processes and inequitable compensation mechanisms. These are systemic problems that are preventing your organization from reaching its potential. Like technical debt, these risks linger because they are never the most pressing problem. Until that one fateful moment when they are. Within organizational debt, there is a volatile subset most likely to come abruptly due, and I call that subset organizational risk. Some good examples might be a toxic team culture, a toilsome fire drill, or a struggling leader. These problems bubble up from your peers, skip-level one-on-ones,16 and organizational health surveys. If you care and are listening, these are hard to miss. But they are slow to fix. And, oh, do they accumulate! The larger and older your organization is, the more you’ll find perched on your capable shoulders. How you respond to this is, in my opinion, the core challenge of leading a large organization. How do you continue to remain emotionally engaged with the challenges faced by individuals you’re responsible to help, when their problem is low in your problems queue? In that moment, do you shrug off the responsibility, either by changing roles or picking powerlessness? Hide in indifference? Become so hard on yourself that you collapse inward? I’ve tried all of these! They weren’t very satisfying. What I’ve found most successful is to identify a few areas to improve, ensure you’re making progress on those, and give yourself permission to do the rest poorly. Work with your manager to write this up as an explicit plan and agree on what reasonable progress looks like. These issues are still stored with your other bags of risk and responsibility, but you’ve agreed on expectations. Now you have a set of organizational risks that you’re pretty confident will get fixed, and then you have all the others: known problems, likely to go sideways, that you don’t believe you’re able to address quickly. What do you do about those? I like to keep them close. Typically, my organizational philosophy is to stabilize team-by-team and organization-by-organization. Ensuring any given area is well on the path to health before moving my focus. I try not to push risks onto teams that are functioning well. You do need to delegate some risks, but generally I think it’s best to only delegate solvable risk. If something simply isn’t likely to go well, I think it’s best to hold the bag yourself. You may be the best suited to manage the risk, but you’re almost certainly the best positioned to take responsibility. As an organizational leader, you’ll always have a portfolio of risk, and you’ll always be doing very badly at some things that are important to you. That’s not only okay, it’s unavoidable.

Here are some of the handicaps mutual-fund managers and other professional investors are saddled with: With billions of dollars under management, they must gravitate toward the biggest stocks—the only ones they can buy in the multimillion-dollar quantities they need to fill their portfolios. Thus many funds end up owning the same few overpriced giants. Investors tend to pour more money into funds as the market rises. The managers use that new cash to buy more of the stocks they already own, driving prices to even more dangerous heights. If fund investors ask for their money back when the market drops, the managers may need to sell stocks to cash them out. Just as the funds are forced to buy stocks at inflated prices in a rising market, they become forced sellers as stocks get cheap again. Many portfolio managers get bonuses for beating the market, so they obsessively measure their returns against benchmarks like the S & P 500 index. If a company gets added to an index, hundreds of funds compulsively buy it. (If they don’t, and that stock then does well, the managers look foolish; on the other hand, if they buy it and it does poorly, no one will blame them.) Increasingly, fund managers are expected to specialize. Just as in medicine the general practitioner has given way to the pediatric allergist and the geriatric otolaryngologist, fund managers must buy only “small growth” stocks, or only “mid-sized value” stocks, or nothing but “large blend” stocks.6 If a company gets too big, or too small, or too cheap, or an itty bit too expensive, the fund has to sell it—even if the manager loves the stock. So

One executive team I worked with had at one time identified three criteria for deciding what projects to take on. But over time they had become more and more indiscriminate, and eventually the company’s portfolio of projects seemed to share only the criterion that a customer had asked them to do it. As a result, the morale on the team had plummeted, and not simply because team members were overworked and overwhelmed from having taken on too much. It was also because no project ever seemed to justify itself, and there was no greater sense of purpose. Worse, it now became difficult to distinguish themselves in the marketplace because their work, which had previously occupied a unique and profitable niche, had become so general. Only by going through the work of identifying extreme criteria were they able to get rid of the 70 and 80 percents that were draining their time and resources and start focusing on the most interesting work that best distinguished them in the marketplace. Furthermore, this system empowered employees to choose the projects on which they could make their highest contribution; where they had once been at the mercy of what felt like capricious management decisions, they now had a voice. On one occasion I saw the quietest and most junior member of the team push back on the most senior executive. She simply said, “Should we be taking on this account, given the criteria we have?” This had never happened until the criteria were made both selective and explicit. Making our criteria both selective and explicit affords us a systematic tool for discerning what is essential and filtering out the things that are not.

The 12 Principles of Permaculture Investing are: 1. Accumulate & Compound Capital: Consistently save and invest to grow your capital base over time, leveraging the power of compound interest. 2. Utilize Capital: Actively deploy your capital into productive investments that generate returns, rather than letting it sit idle. 3. Retain Maximum & Gradiented Liquidity: Maintain a balance between liquid assets (easily accessible cash) and less liquid investments, ensuring you can meet immediate needs while still investing for the long term. 4. Actively Manage Passive: While focusing on passive income sources, actively monitor and adjust your investments to optimize returns and mitigate risks. 5. Prioritize Long-Term Growth: Focus on investments that offer potential for significant growth over the long term, even if they don't provide immediate high yields. 6. Prioritize Consistent Yields: Balance your portfolio with investments that provide reliable, consistent income to support your financial needs. 7. Add Net Value to all Stakeholders: Invest in ways that benefit not only yourself but also the broader community, environment, and all parties involved. 8. Provide Authentic Data: Be transparent and honest in your financial reporting, providing accurate information to all stakeholders. 9. Collect & Utilize Authentic Data: Base your investment decisions on reliable, verified data rather than speculation or rumors. 10. Diversify Holistically: Diversify your investments across different asset classes, industries, and geographical regions to reduce risk and maximize potential returns. 11. Harvest Yields Equitably: Distribute profits fairly among all stakeholders, ensuring everyone benefits from the investment's success. 12. Reinvest Yields in Most Profitable Assets: Continuously evaluate your portfolio and reinvest profits into the most promising opportunities to further compound your growth.

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The final principle is that, more often than not, originality lies on the far side of unoriginality. The Finnish American photographer Arno Minkkinen dramatizes this deep truth about the power of patience with a parable about Helsinki’s main bus station. There are two dozen platforms there, he explains, with several different bus lines departing from each one—and for the first part of its journey, each bus leaving from any given platform takes the same route through the city as all the others, making identical stops. Think of each stop as representing one year of your career, Minkkinen advises photography students. You pick an artistic direction—perhaps you start working on platinum studies of nudes—and you begin to accumulate a portfolio of work. Three years (or bus stops) later, you proudly present it to the owner of a gallery. But you’re dismayed to be told that your pictures aren’t as original as you thought, because they look like knockoffs of the work of the photographer Irving Penn; Penn’s bus, it turns out, had been on the same route as yours. Annoyed at yourself for having wasted three years following somebody else’s path, you jump off that bus, hail a taxi, and return to where you started at the bus station. This time, you board a different bus, choosing a different genre of photography in which to specialize. But a few stops later, the same thing happens: you’re informed that your new body of work seems derivative, too. Back you go to the bus station. But the pattern keeps on repeating: nothing you produce ever gets recognized as being truly your own. What’s the solution? “It’s simple,” Minkkinen says. “Stay on the bus. Stay on the fucking bus.” A little farther out on their journeys through the city, Helsinki’s bus routes diverge, plunging off to unique destinations as they head through the suburbs and into the countryside beyond. That’s where the distinctive work begins. But it begins at all only for those who can muster the patience to immerse themselves in the earlier stage—the trial-and-error phase of copying others, learning new skills, and accumulating experience.

do you think Jesus would do if he came back to earth tonight in Bremerton?” C asked, as he spooned some rice onto his plate. “I don’t know,” I said, savoring a mouthful of Mongolian beef. “Would he come in a white robe and sandals, or the dress of this time?” C pressed on. I shrugged my shoulders, forking in the fried rice. “Would he be white, black, Asian, or maybe look like Saddam Hussein instead of Kevin Costner or Tom Cruise? What if he didn’t fit our image of him? What if he was bald? Or, for God’s sake, what if he was gay? “He wouldn’t have any cash, no MasterCard, Visa, Discover Card, or portfolio of any kind. If he went to a bank and said, ‘Hello. I’m Jesus, the son of God. I need some of those green things that say “In God We Trust” on them to buy some food and get a place to stay,’ the bank manager would say, ‘I’m sorry, but I looked in my computer and without a social security number, local address, and credit history, I can’t do anything for you. Maybe if you show me a miracle or two, I might lend you fifty dollars.’ “Where would he stay? The state park charges sixteen dollars a night. Could he go to a church and ask, ‘May I stay here? I am Jesus’? Would they believe him?” As I took a sip of my drink, I wondered just who this character was sitting across from me. Was he some angel sent to save me? Or was he, as the Rolling Stones warned in their song, Satan himself here to claim me for some sin of this life or a past life of which I had no recollection? Or was he an alien? Or was he Jesus, the Christ himself, just “messing” with me? Was I in the presence of a prophet, or just some hopped-up druggie? “‘Ask, and it will be given you; seek, and you will find; knock, and it will be opened to you.’ That’s what Jesus said. What doors would be opened to him?” he asked. “The Salvation Army—Sally’s?” I guessed. “That’s about all,” C said. “Unless he saw Tony Robbins’ TV formula to become a millionaire and started selling miracles to the rich at twenty-thousand dollars a pop. He could go on Regis, Oprah, maybe get an interview with Bill Moyers, or go on Nightline. Or joust with the nonbelievers on Jerry Springer! Think of the book deals! He

Was this luck, or was it more than that? Proving skill is difficult in venture investing because, as we have seen, it hinges on subjective judgment calls rather than objective or quantifiable metrics. If a distressed-debt hedge fund hires analysts and lawyers to scrutinize a bankrupt firm, it can learn precisely which bond is backed by which piece of collateral, and it can foresee how the bankruptcy judge is likely to rule; its profits are not lucky. Likewise, if an algorithmic hedge fund hires astrophysicists to look for patterns in markets, it may discover statistical signals that are reliably profitable. But when Perkins backed Tandem and Genentech, or when Valentine backed Atari, they could not muster the same certainty. They were investing in human founders with human combinations of brilliance and weakness. They were dealing with products and manufacturing processes that were untested and complex; they faced competitors whose behaviors could not be forecast; they were investing over long horizons. In consequence, quantifiable risks were multiplied by unquantifiable uncertainties; there were known unknowns and unknown unknowns; the bracing unpredictability of life could not be masked by neat financial models. Of course, in this environment, luck played its part. Kleiner Perkins lost money on six of the fourteen investments in its first fund. Its methods were not as fail-safe as Tandem’s computers. But Perkins and Valentine were not merely lucky. Just as Arthur Rock embraced methods and attitudes that put him ahead of ARD and the Small Business Investment Companies in the 1960s, so the leading figures of the 1970s had an edge over their competitors. Perkins and Valentine had been managers at leading Valley companies; they knew how to be hands-on; and their contributions to the success of their portfolio companies were obvious. It was Perkins who brought in the early consultants to eliminate the white-hot risks at Tandem, and Perkins who pressed Swanson to contract Genentech’s research out to existing laboratories. Similarly, it was Valentine who drove Atari to focus on Home Pong and to ally itself with Sears, and Valentine who arranged for Warner Communications to buy the company. Early risk elimination plus stage-by-stage financing worked wonders for all three companies. Skeptical observers have sometimes asked whether venture capitalists create innovation or whether they merely show up for it. In the case of Don Valentine and Tom Perkins, there was not much passive showing up. By force of character and intellect, they stamped their will on their portfolio companies.

It’s a common theme among the highly concentrated investors profiled in this book. Permanent capital—capital not subject to withdrawal or redemption—is an essential component for achieving high returns in concentrated portfolios because it offers the luxury of ignoring the short-term fluctuations of the market:65 Why would we want those artificial constraints? Lou had considerable periods in the dotcom bubble when the averages were outperforming Lou. It was years and he got well all at once. Nobody was saying to him, “How can you do this to us for three years running?” The money management business is not necessarily a good way to manage money if you are really trying to maximize your returns over 30 years.

Recently, a large company offered to buy one of our portfolio companies. The deal was lucrative and compelling given the portfolio company’s progress to date and revenue level. The founder/CEO (I’ll call him Hamlet—not his real name) thought that selling did not make sense due to the giant market opportunity that he was pursuing, but he still wanted to make sure that he made the best possible choice for investors and employees. Hamlet wanted to reject the offer, but only marginally. To complicate matters, most of the management team and the board thought the opposite. It did not help that the board and the management team were far more experienced than Hamlet. As a result, Hamlet spent many sleepless nights worrying about whether he was right. He realized that it was impossible to know. This did not help him sleep. In the end, Hamlet made the best and most courageous decision he could and did not sell the company. I believe that will prove to be the defining moment of his career.

Keynes had been appointed to the board of the National Mutual, one of the oldest institutions in the city, in 1919.107 He had served as chairman of the insurer, and helped manage its investment portfolio from 1921. That portfolio lost £641,000 ($61 million), an enormous sum of money in 1937. While Keynes was recuperating from a heart attack, F. N. Curzon, the acting chairman of the insurer called him to account for the loss.108 Curzon and the board criticized Keynes’s investment policy of remaining invested in his “pet” stocks during the decline.109 In a response to Curzon in March 1938, Keynes wrote:110 1. I do not believe that selling at very low prices is a remedy for having failed to sell at high ones. . . . As soon as prices had fallen below a reasonable estimate of intrinsic value and long-period probabilities, there was nothing more to be done. It was too late to remedy any defects in previous policy, and the right course was to stand pretty well where one was. 2. I feel no shame at being found owning a share when the bottom of the market comes. I do not think it is the business, far less the duty, for an institutional or any other serious investor to be constantly considering whether he should cut and run on a falling market, or to feel himself open to blame if shares depreciate on his hands. . . . An investor is aiming, or should be aiming, primarily at long-period results, and should be solely judged by these. . . . The idea that we should all be selling out to the other fellow and should all be finding ourselves with nothing but cash at the bottom of the market is not merely fantastic, but destructive of the whole system. 3. I do not feel that we have in fact done particularly badly. . . . If we deal in equities; it is inevitable that there should be large fluctuations.

From peak to trough (June 1998 through March 2000), Warren Buffett's Berkshire Hathaway fell 51% in value! During this time, I estimated that Buffett's net worth fell by more than $10 billion. How much Berkshire did Buffett sell? How much Cisco did he buy? Zero point zero. Not tempted by tech stocks, Buffett remained committed to value investing, and it paid off.1 One of the keys to successfully managing your money is to accept, like Buffett did, that there will be times when your style is out of favor or when your portfolio hits a rough patch. It's when you start to reach for opportunities that you can do serious damage to your financial well‐being.

a blindfolded chimpanzee throwing darts at the stock listings can select a portfolio that performs as well as those managed by the experts.

Total Market Index Funds do not suffer the impact of front running because they hold nearly every publicly-listed stock. If a stock is sold by a small-cap index and bought by a mid-cap index, it makes no difference to the passive manager of a total market index fund because the index fund manager neither sells nor buys the stock, thus avoiding front running and other hidden turnover costs.

Business Owner Planning Business owners have additional and complex Retirement Planning needs. Counting only on the sale of your business requires tremendous luck and success. If business owners consider the business as simply one asset among many, then they should seriously consider additional assets such as: -Executive Bonus Arrangements -Nonqualified deferred compensation plans -Qualified retirement plans -General investment portfolio Motto for Business Owner Planning As I look back on thirteen years of entrepreneurship, I can see that the best and smartest thing to do is to have a plan with the end in mind and you in mind. The time still goes by and time is expensive. That sentence is really a whole book and you should or will understand sooner than later, hopefully. That would have looked like business succession planning. Proper business succession planning requires sound preparation in order to have a smooth and equitable transition. Financial, tax and legal planning are all necessary for a success.

There are many potential explanations for the less-than-robust performance, but IBM’s current strategy suggests that one component at least is a challenge to the traditional shrink-wrapped software business. As much as any software provider in the industry, IBM’s software business was optimized and built for a traditional enterprise procurement model. This typically involves lengthy evaluations of software, commonly referred to as “bake-offs,” followed by the delivery of a software asset, which is then installed and integrated by some combination of buyer employees, IBM services staff, or third-party consultants. This model, as discussed previously, has increasingly come under assault from open source software, software offered as a pure service or hosted and managed on public cloud infrastructure, or some combination of the two. Following the multi-billion dollar purchase of Softlayer, acquired to beef up IBM’s cloud portfolio, IBM continued to invest heavily in two major cloud-related software projects: OpenStack and Cloud Foundry. The latter, which is what is commonly referred to as a Platform-as-a-Service (PaaS) offering, may give us both an idea of how IBM’s software group is responding to disruption within the traditional software sales cycle and their level of commitment to it. Specifically, IBM’s implementation of Cloud Foundry, a product called Bluemix, makes a growing portion of IBM’s software portfolio available as a consumable service. Rather than negotiate and purchase software on a standalone basis, then, IBM customers are increasingly able to consume the products in a hosted fashion.

I’ve reluctantly discarded the notion of my continuing to manage the portfolio after my death – abandoning my hope to give new meaning to the term ‘thinking outside the box.’ ” -2007 letter

Thus, purchasing a fund holding all the stocks in a broad-based index will produce a portfolio that can be expected to do as well as any managed by professional security analysts.

Mutual fund investors, too, have inflated ideas of their own omniscience. They pick funds based on the recent performance superiority of fund managers, or even their long-term superiority, and hire advisers to help them do the same thing. But, the advisers do it with even less success (see Chapters 8, 9, and 10). Oblivious of the toll taken by costs, fund investors willingly pay heavy sales loads and incur excessive fund fees and expenses, and are unknowingly subjected to the substantial but hidden transaction costs incurred by funds as a result of their hyperactive portfolio turnover. Fund investors are confident that they can easily select superior fund managers. They are wrong.

Experience conclusively shows that index-fund buyers are likely to obtain results exceeding those of the typical fund manager, whose large advisory fees and substantial portfolio turnover tend to reduce investment yields. Many people will find the guarantee of playing the stock-market game at par every round a very attractive one. The index fund is a sensible, serviceable method for obtaining the market’s rate of return with absolutely no effort and minimal expense.

In the great majority of cases the lack of performance exceeding or even matching an unmanaged index in no way reflects lack of either intellectual capacity or integrity. I think it is much more the product of: (1) group decisions—my perhaps jaundiced view is that it is close to impossible for outstanding investment management to come from a group of any size with all parties really participating in decisions; (2) a desire to conform to the policies and (to an extent) the portfolios of other large well-regarded organizations; (3) an institutional framework whereby average is “safe” and the personal rewards for independent action are in no way commensurate with the general risk attached to such action; (4) an adherence to certain diversification practices which are irrational; and finally and importantly, (5) inertia.6 Classical

am managing my own portfolio of investments, as well as consulting with other independent investment managers.

Passage Five: From Business Manager to Group Manager This is another leadership passage that at first glance doesn’t seem overly arduous. The assumption is that if you can run one business successfully, you can do the same with two or more businesses. The flaw in this reasoning begins with what is valued at each leadership level. A business manager values the success of his own business. A group manager values the success of other people’s businesses. This is a critical distinction because some people only derive satisfaction when they’re the ones receiving the lion’s share of the credit. As you might imagine, a group manager who doesn’t value the success of others will fail to inspire and support the performance of the business managers who report to him. Or his actions might be dictated by his frustration; he’s convinced he could operate the various businesses better than any of his managers and wishes he could be doing so. In either instance, the leadership pipeline becomes clogged with business managers who aren’t operating at peak capacity because they’re not being properly supported or their authority is being usurped. This level also requires a critical shift in four skill sets. First, group managers must become proficient at evaluating strategy for capital allocation and deployment purposes. This is a sophisticated business skill that involves learning to ask the right questions, analyze the right data, and apply the right corporate perspective to understand which strategy has the greatest probability of success and therefore should be funded. The second skill cluster involves development of business managers. As part of this development, group managers need to know which of the function managers are ready to become business managers. Coaching new business managers is also an important role for this level. The third skill set has to do with portfolio strategy. This is quite different from business strategy and demands a perceptual shift. This is the first time managers have to ask these questions: Do I have the right collection of businesses? What businesses should be added, subtracted, or changed to position us properly and ensure current and future earnings? Fourth, group managers must become astute about assessing whether they have the right core capabilities. This means avoiding wishful thinking and instead taking a hard, objective look at their range of resources and making a judgment based on analysis and experience. Leadership becomes more holistic at this level. People may master the required skills, but they won’t perform at full leadership capacity if they don’t begin to see themselves as broad-gauged executives. By broad-gauged, we mean that managers need to factor in the complexities of running multiple businesses, thinking in terms of community, industry, government,

Employee Engagement is such a complicated corporate challenge of recent years, that it has turned decades old corporate belief "any can hold portfolio of Human Resource Manager" into myth.

To fill this gap in the capital market, Davis and Rock set themselves up as a limited partnership, the same legal structure that had been used by a short-lived rival called Draper, Gaither & Anderson.[18] Rather than identifying startups and then seeking out corporate investors, they began by raising a fund that would render corporate investors unnecessary. As the two active, or “general,” partners, Davis and Rock each seeded the fund with $100,000 of their own capital. Then, ignoring the easy loans to be had from the fashionable SBIC structure, they raised just under $3.2 million from some thirty “limited” partners—rich individuals who served as passive investors.[19] The beauty of this size and structure was that the Davis & Rock partnership now had a war chest seven and a half times larger than an SBIC, and with it the ammunition to supply companies with enough capital to grow aggressively. At the same time, by keeping the number of passive investors under the legal threshold of one hundred, the partnership flew under the regulatory radar, avoiding the restrictions that ensnared the SBICs and Doriot’s ARD.[20] Sidestepping yet another weakness to be found in their competitors, Davis and Rock promised at the outset to liquidate their fund after seven years. The general partners had their own money in the fund, and thus a healthy incentive to invest with caution. At the same time, they could deploy the outside partners’ capital for a limited time only. Their caution would be balanced with deliberate aggression. Indeed, everything about the fund’s design was calculated to support an intelligent but forceful growth mentality. Unlike the SBICs, Davis & Rock raised money purely in the form of equity, not debt. The equity providers—that is, the outside limited partners—knew not to expect dividends, so Davis and Rock were free to invest in ambitious startups that used every dollar of capital to expand their business.[21] As general partners, Davis and Rock were personally incentivized to prioritize expansion: they took their compensation in the form of a 20 percent share of the fund’s capital appreciation. Meanwhile, Rock was at pains to extend this equity mentality to the employees of his portfolio companies. Having witnessed the effect of employee share ownership on the early culture of Fairchild, he believed in awarding managers, scientists, and salesmen with stock and stock options. In sum, everybody in the Davis & Rock orbit—the limited partners, the general partners, the entrepreneurs, their key employees—was compensated in the form of equity.

Rock and his partner articulated an approach to risk management that would resonate with future venture capitalists. Modern portfolio theory, the set of ideas that was coming to dominate academic finance, stressed diversification: by owning a broad mix of assets exposed to a wide variety of uncorrelated risks, investors could reduce the overall volatility of their holdings and improve their risk-return ratio. Davis and Rock ignored this teaching: they promised to make concentrated bets on a dozen or so companies. Although this would entail obvious perils, these would be tolerable for two reasons. First, by buying just under half of a firm’s equity, the Davis & Rock partnership would get a seat on the board and a say in its strategy: in the absence of diversification, a venture capitalist could manage his risk by exercising a measure of control over his assets. Second, Davis and Rock insisted that they would invest only in ambitious, high-growth companies—ones whose value might jump at least tenfold in five to seven years. To critics who called this test excessively demanding, Davis retorted that it would be “unwise to accept a less stringent one.” Venture investing was necessarily speculative, he explained, and most startups would fail; therefore, the winners would have to win big enough to make a success of the portfolio.[25]

Test-drive employees Interviews are only worth so much. Some people sound like pros but don’t work like pros. You need to evaluate the work they can do now, not the work they say they did in the past. The best way to do that is to actually see them work. Hire them for a miniproject, even if it’s for just twenty or forty hours. You’ll see how they make decisions. You’ll see if you get along. You’ll see what kind of questions they ask. You’ll get to judge them by their actions instead of just their words. You can even make up a fake project. In a factory in South Carolina, BMW built a simulated assembly line where job candidates get ninety minutes to perform a variety of work-related tasks.* Cessna, the airplane manufacturer, has a role-playing exercise for prospective managers that simulates the day of an executive. Candidates work through memos, deal with (phony) irate customers, and handle other problems. Cessna has hired more than a hundred people using this simulation.† These companies have realized that when you get into a real work environment, the truth comes out. It’s one thing to look at a portfolio, read a resumé, or conduct an interview. It’s another to actually work with someone.

The former head of this operation, Gary Wendt, who is credited with much of the enormous success of GEFS, used his personal agenda as a simple but inordinately powerful tool for growing the business into ever new entrepreneurial arenas. Over the years, he used his personal agenda to make it unequivocally clear that he expected entrepreneurial business growth from every member of management. At every major meeting, the topic of business development was on the agenda (usually in the number one spot). In every annual review, managers were asked to demonstrate the revenues they had created from businesses that did not exist five years before. From division heads to newly hired analysts, everyone was held accountable for some set of activities having to do with creating entrepreneurial revenue and profit streams. In short, no one who worked in the organization could avoid the unremitting focus on new business development. You need to make sure that you are similarly consistent, predictable, and focused, and that you sustain this emphasis over a long period. Pressure applied only once is soon forgotten, and alternating pressure (as in flavor-of-the-month management) will cause people to be confused, disillusioned, or angry. Wendt’s consistent, visible, and predictable attention to business development created a pressure in GEFS for entrepreneurial business growth that took it from the $300 million installment loan portfolio we looked at in chapter 6 to a financial services behemoth with $250 billion in assets under management when he left in 1998. Examples of Wendt’s single-minded determination to drive growth through entrepreneurial transformation at GEFS are numerous. Years ago, for instance, he was asked whether his agenda would change if someone rushed in and told him that the computer room was on fire (implying that his business could be completely destroyed). Wendt replied that he employed firefighters to handle such emergencies. As the leader, his most important job was to keep people focused on business development. Since business development is an uncomfortable and unpredictable process, Wendt knew that if he allowed it to appear to be a low priority for him, all those working for him would heave a sigh of relief and go back to business as usual, with new businesses struggling to find a place on the priority list. In fact, as he remarked, even if he did try to get involved in putting out the fire, he would probably only interfere with the efforts of the highly competent people employed to do so.