Here is a speech by Steve Blank, a professor at Stanford and Berkeley, and a thought leader in the start-up community. Blank’s talk is from the Staford Graduate School of Business Entrepreneurship Week. Below is a great quote; maybe I like it so much because it helps me cope with the one-size-fits-all solutions that I’m hearing over and over at business school…
“Everything you learn in the business school about large company management is destructive for an early-stage venture. Big idea. It’s not kind of useful, or geez I’ll just change it. What you’ll hear later and I’ll explain why, it’s desctructive. Good news is, in the entrepreneurial group at GSB, we teach the right things about early-stage ventures. But they are not interchangeable. And you’ll hear me say this throughout this talk: Large corporations execute existing business models, start-ups search for them. The tools needed, techniques needed, and people needed for execution versus search is what we now know to be radically different.“
Graham, and by extension Greenwald, focus on the analysis of cheap companies, or put another way: They focus on Value Investing. Often, this means analyzing, and potentially purchasing companies with low P/E multiples. To me, Graham and Greenwald’s discussion of value investing is intellectually interesting, but frankly, I find its application practically elusive. It is difficult to discern whether a (more…)
Warren Buffett’s right-hand man, Charlie Munger, has a great 18-page article on the art of stock picking. The first half of Munger’s article turns out to be more about broad business principles than narrow number crunching. As someone who’s searching for the next career step, I particularly like this quote.
“Every person is going to have a circle of competence. And it’s going to be very hard to advance that circle. If I had to make my living as a musician…. I can’t even think of a level low enough to describe where I would be sorted out to if music were the measuring standard of the civilization.
So you have to figure out what your own aptitudes are. If you play games where other people have the aptitudes and you don’t, you’re going to lose. And that’s as close to certain as any prediction that you can make. You have to figure out (more…)
Following up on my prior post, here are more interesting startups: GroupMe, Uber, GetJar and Top Prospect. GroupMe, a text-based listserv, is a service that I have been longing for. I can now replicate “reply all” e-mail communication via text — much better for real-time mass messaging of friends.
When one of the younger partners in the firm started, Don took him aside and drew a four square quadrant. Along one axis, he put “easy to get along with” on one end and “hard to get along with” on the other end. One the other axis, he put “normal” on one end and “brilliant” on the other end.
He then said, “sometimes we make money with brilliant people who are easy to get along with, most often we make money with brilliant people who are hard to get along with, but we rarely make money with normal people who are easy to get along with.”
Update 4/19/11: I got accepted to the Student Investment Fund and have an updated stock pitch template here.
Update 10/24/11: Oracle has announced its acquisition of RightNow.
The interview process at most equity focused buyside shops (e.g. mutual funds or hedge funds) require a “stock pitch”. In my case, the need for a stock pitch was heightened by my application to the USC Student Investment Fund (the “SIF”), which is an academic program that gives portfolio management and stock picking responsibilities to current MBA students. Student managers oversee approximately $4 million of the USC endowment. Whether for the SIF or a buyside interview, the line of questioning goes the same way, interviewers will say, “Tell me about a stock you have been following and why it’s a buy?”.
Answering this question is as much a sales job as it is an analysis of a company’s market and financial performance. Below is my pitch. And here is the Word document and Excel file. If you would like, feel free to use these as a template for your own interview prep with a few caveats: 1) the revenue build is pretty weak in this model; you may want to do a better job a building a revenue sheet that shows average selling price * volume, 2) the working capital and depreciation figures could be more precise; this is more of a banker “swag” than equity analyst build using A/R and A/P turns, 3) beware of the deferred revenue adjustment in the working capital calculation; it’s a complex issue and this model only captures part of the issue correctly (hey, give me a break, I was in a rush when I built this!!); and 4) the write-up is nearly 2 pages; I think it’s best if you can fit all of the topics onto one page. (more…)
Today was another interesting day in my entrepreneurial finance class with Duke Bristow. I love the format of this class. We begin every session with a ~20 minute discussion of the Wall Street Journal before diving into lecture material. The professor enjoys provoking feedback, opinions and insight on currents event from students, and then he provides his own commentary on the topic (which usually has a small government and economist spin).
Today we discussed an article in the WSJ titled No Rush to Hire Even as Profits Soar. The Wall Street Journal offers a graph (see right) of quarterly U.S. employment and profits in support of its point that while profits have rebounded sharply since Q4 ’08, job creation has been meager. Logically, one might think, “Hey, profits are back, so why the hell aren’t these greedy corporations hiring anyone?!!” The professor encouraged a little logic test to tease out why job creation may be slow. I know, logic to news is a terrible habit; you might not believe everything you read, a disaster :). (more…)
I’m sitting in my Financial Analysis and Valuation class taught by Julia Plotts. I’ll admit, I took the class because I needed a “gimme” to lighten my workload as a I seek both a school-year and summer internship. A lot of the accounting and valuation topics are review, however, today I really appreciated the Professor’s points as we analyzed Blockbuster’s financial statements. When analyzing a statement of cash flows, she suggests the following:
Scan the Big Picture
Pinpoint Good and Bad News
Analyze the Major Sources and Uses of Cash
Determine whether CFO covers CapEx (i.e. do they have to raise debt or equity to grow the business)? In other words, do a “sources” and “uses” of cash analysis.
What does the Statement of Cash Flow tell us about the company’s positioning?
(Sidenote: For anyone considering taking this class, I highly recommend both the subject matter and the Professor!)
Similar to the assured income provided by dividends on stocks, rental income provides real estate investors with a defined cash flow for return on investment, as opposed to capital appreciation (i.e. praying that real estate values increase). Stock investors prefer higher yields to lower ones, so as a real estate investor, wouldn’t you also like a higher yield? Yes. And the yield can be measured by the Price-to-Rent Ratio. Trulia, a real estate search engine, has created an interesting map of the U.S. which displays its Rent vs. Buy Index for 50 of the largest cities by population. Here is a snapshot.
Trulia’s Rent vs. Buy map relies on its calculation of the Price-to-Rent Ratio, which Trulia more fully explains as follows: (more…)
The red USC cloud (fitting) and the green Duff & Phelps cloud aren’t surprising, however, I find the blue San Francisco cloud interesting. Nearly everyone that I met during undergrad sits in the San Francisco cloud along with my broader San Francisco network accumulated since high school. I’m guessing this means one of two things. Either, I am well connected in San Francisco so LinkedIn grouped all UCSB contacts into this cloud, or I never really branched out during college. I’m hoping it’s the former! Now go have some fun with LinkedIn’s new toy.