This is the book by Michael Malone on MIPS Computer and the Entrepreneurial Dream. It is an account of how the company went public interspersed with vignettes about the executives who made it possible. Some may see going public as the culmination of a dream to build something and to share it with the world but it can also be seen as a tale of greed - by "entrepreneurs" who want to cash in as quickly as possible, investment bankers who want to earn the fees and "venture capitalists" who want to get in on the IPO and then get out as quickly as the can so that regular investors suffer the downside of the wonders of the modern capitalist market system.
... assuming an opening price of $15 per share, MIPS's management team would see at least $7.2 million in new wealth and conceivably $15 million or more. Not bad for a team whose average tenure with the company was less than two years. (pg. 109)
Chapter 10 on how to read a prospectus with a skeptical view is probably the best part of the book. Chapter 9 on the prospectus writing process was also a good read.
... a comparatively mild "Certain Transactions" section - just a few signing bonuses and bridge loans ... None of the juicy stuff sometimes encountered in prospectuses of wilder, less disciplined start ups - company yachts, divorce settlements, questionable payoffs to litigous former employees, stock options to mistresses, company "garderners" who work at executives' houses. (pg. 112)
Some also somewhat surprising factoid on why the IPO had to be priced at double digits (and resulted in a reverse stock split prior to the IPO):
... Wall Street institutional investors and the like who buy 90 to 95 percent of all stock, simply don't like single digit stocks and avoid purchasing them. Many, in fact, actually have prohibitions against buying single digit stocks. (pg. 22)
Pros and cons of being a public company (the cons not being enough to deter the process of going public):
The top four most troubling consequences of going public, the CEOs said, were the cost and time of dealing with Wall Street and shareholders, the emphasis on short-term results and ever increasing expectations, the lack of secrecy, and constant outside criticism. The upside was enhanced credibility, visibility, more options for future financing, better employee morale, and improved recruiting. ... "I feel like a squirrel in a carousel," ... "I just keep on running." (pg. 196)
"There has to be something that holds a company together beyond making a lot of money; otherwise the company will begin to deteriorate as everyone begins to say, 'Now that I'm rich, I can do whatever I want to do.' You take an engineer who is making $80,000 to $100,000 a year and give him a million dollars and he's liable to say, 'Well now that I can make $100,000 a year on interest without working, I don't have to put up with this shit.' ... "(pg. 256)
On the seeming arbitrariness of the SEC delay in approving the prospectus as related by CFO Ludvigson:
... more companies were going public during this period when the SEC was coming down hard on MIPS. "I saw the prospectus of a company that went public about the same time we planned to. Well, I'm reading this thing and I see the chairman of the company was part of a divorce trial in which a restraining order was issued against him, which he violated and got thrown into either a jail or a mental institution for six days. There are three pages of lawsuits ranging from not paying their suppliers to not paying their taxes, from defaulting on bank loans to tax infringement. The company has only $57,000 in cash. Fifty-one percent of their revenue is going to a Bahamanian corporation owned by one of the board members. Ann all the directors issue themselves eleventh hour stock options before the IPO at like 1 cent a share.
"And these guys go public! ... here's this bizarre little company and they make it through the review process. Meanwhile, we don't have a single lawsuit, no debt and the SEC is busting our chops." (pg. 201-202)
Also an interesting anecdote on how Frank Quattrone (at Morgan Stanley at the time and was the lead investment bank) almost derailed the IPO by giving a supposedly off the record interview during the mandated "quiet" period on page 211.
Friday, October 9, 2009
Tuesday, October 6, 2009
Memoirs of a Geisha
This was a pretty good read although if I had just seen the movie without reading the book I'd probably have been disappointed. The prose is light and mesmerizing (at least up through about half the way for me) and the voice is consistent which is always a surprise to me when a man writes from a woman's perspective.
The sea was violent, with waves like stones chipped into blades, sharp enough to cut. It seemed to me the world itself was feeling just as I felt. Was life nothing more than a storm that constantly washed away what had been there only a moment before, and left behind something barren and unrecognizable? ... The storm was coming in earnest now; I could hear its roar. The fisherman on the inlet began to soften as they disappeared within the curtain of the rain, and then they were gone completely. (pg. 13)
Grief is a peculiar thing; we're so helpless in the face of it. It's like a window that will simply open of its own accord. The room grows cold, and we can do nothing but shiver. But it opens a little less each time, and a little less; and one day we wonder what has become of it. (pg. 255)
The sea was violent, with waves like stones chipped into blades, sharp enough to cut. It seemed to me the world itself was feeling just as I felt. Was life nothing more than a storm that constantly washed away what had been there only a moment before, and left behind something barren and unrecognizable? ... The storm was coming in earnest now; I could hear its roar. The fisherman on the inlet began to soften as they disappeared within the curtain of the rain, and then they were gone completely. (pg. 13)
Grief is a peculiar thing; we're so helpless in the face of it. It's like a window that will simply open of its own accord. The room grows cold, and we can do nothing but shiver. But it opens a little less each time, and a little less; and one day we wonder what has become of it. (pg. 255)
Effect of the 2008 crisis on Norm
Norm Brodsky writes about how the crisis affected his company:
In the fall of 2008, Allied Capital [an investor in his company] began closing offices and laying off staff, including the two guys who had been working with us and who served on our board. During this same period, the media were filled with stories about how mark-to-market accounting rules -- which required periodic adjustments of the value of assets -- were aggravating the problems of financial-services businesses. It dawned on us that our majority partner was probably Exhibit A. Although it had steered clear of the subprime mortgage market, it couldn't escape the general drop in asset values. With each passing day, its investments in companies were declining in value, as would-be acquirers reduced the multiples of EBITDA they were willing to pay. At the time of the sale, for example, businesses like ours were going for nine to 10 times EBITDA. A year later, the same businesses were being sold for six or seven times EBITDA. Thus, even if a company's EBITDA had increased in the interim, its valuation had declined. As long as the business remained fundamentally sound, its equity would recover sooner or later, but the mark-to-market rules required Allied Capital to reflect the decline in its quarterly financial statements. As a result, Allied was in increasing danger of being found in violation of its bank loan covenants, which stipulated that it must always have twice as much in assets as it does in debt.
Question: Was the impact of margin calls as severe during the dot com bust or the previous crises?
In the fall of 2008, Allied Capital [an investor in his company] began closing offices and laying off staff, including the two guys who had been working with us and who served on our board. During this same period, the media were filled with stories about how mark-to-market accounting rules -- which required periodic adjustments of the value of assets -- were aggravating the problems of financial-services businesses. It dawned on us that our majority partner was probably Exhibit A. Although it had steered clear of the subprime mortgage market, it couldn't escape the general drop in asset values. With each passing day, its investments in companies were declining in value, as would-be acquirers reduced the multiples of EBITDA they were willing to pay. At the time of the sale, for example, businesses like ours were going for nine to 10 times EBITDA. A year later, the same businesses were being sold for six or seven times EBITDA. Thus, even if a company's EBITDA had increased in the interim, its valuation had declined. As long as the business remained fundamentally sound, its equity would recover sooner or later, but the mark-to-market rules required Allied Capital to reflect the decline in its quarterly financial statements. As a result, Allied was in increasing danger of being found in violation of its bank loan covenants, which stipulated that it must always have twice as much in assets as it does in debt.
Question: Was the impact of margin calls as severe during the dot com bust or the previous crises?
Friday, October 2, 2009
Why do self help books
sometimes sound so flakey?
... in doing the dishes mindfully, you may come to see with great vividness the reality of impermanence. Here you are, doing the dishes again. How many times have you done the dishes? How many more times will you do them in your life? What is this activity we call doing the dishes? ... By inquiring in this way, by looking deeply into this ordinary routine of "doing the dishes," you may find that the whole world is represented in it, that you can learn a lot about yourself and the world by doing the dishes with your whole being, with alert interest and an inquiring mind.
This is from page 135 of Full Catastrophe Living: Using the Wisdom of Your Body and Mind to Face Stress, Pain, and Illness.
This passage reminded me of the following:
"It depends on what the meaning of the word 'is' is. If ... 'is' means is and never has been, ... that is one thing. If it means there is none, that was a completely true statement ... (Bill Clinton, grand jury proceedings 1998?)
This book is a good follow up to Ellen Langer's Mindfulness. The real "guts" of the book (i.e. the practical, how-to stuff) is in the first 10 chapters of the book.
... in doing the dishes mindfully, you may come to see with great vividness the reality of impermanence. Here you are, doing the dishes again. How many times have you done the dishes? How many more times will you do them in your life? What is this activity we call doing the dishes? ... By inquiring in this way, by looking deeply into this ordinary routine of "doing the dishes," you may find that the whole world is represented in it, that you can learn a lot about yourself and the world by doing the dishes with your whole being, with alert interest and an inquiring mind.
This is from page 135 of Full Catastrophe Living: Using the Wisdom of Your Body and Mind to Face Stress, Pain, and Illness.
This passage reminded me of the following:
"It depends on what the meaning of the word 'is' is. If ... 'is' means is and never has been, ... that is one thing. If it means there is none, that was a completely true statement ... (Bill Clinton, grand jury proceedings 1998?)
This book is a good follow up to Ellen Langer's Mindfulness. The real "guts" of the book (i.e. the practical, how-to stuff) is in the first 10 chapters of the book.
Three books on defunct computer companies
The books are:
1. Lessons: An Autobiography by Dr An Wang with Eugene Linden
2. The Ultimate Entreprenuer: The Story of Ken Olsen and Digital Equipment Corporation by Glenn Rifkin and Geoge Harrar
3. The Soul of a New Machine by Tacy Kidder
The biggest irony is that these books were written around the time when the companies were probably at their peak. The decline at Data General (Kidder's book) was in retrospect obvious by the time the book was published. The minicomputer that was the focus of the book extended the life of the company by about a decade. Likewise, Digital stayed around for about just as long while Wang filed for bankruptcy in 1992 and reemerged in some form later but then pretty much disappeared. Of the three, Wang seemed to have been the hardiest (1951-1999), followed by Digital (1957-1998) which was taken over by Compaq and subsequently HP, while Data General which tried to challenge Digital began in 1968 and was defunct in 1999.
Its hard not to look back on these companies and be overwhelmed by how much innovation can create and destroy. All these companies underestimated IBM (ironically they thought they could take on IBM) and the PC revolution. (Although this was also a time that workstations/Unix were also challenging the market.) Even though they survived into the 90s for the most part, the last decade of their lives were pretty precarious.
Of the three books, Wang's book is mostly a pat in the back book that glosses over its failings while the book on Digital while not an attack on Ken Olsen (who did not participate in the book) per se did reveal the resulting politics and confusion of his management style (the once celebrated matrix management method). This book might have been a lot better if there were more source notes. I realize a lot of the interviews were given in confidence but without the notes it reads a lot like hearsay. Kidder's book (which won a Pulitzer) tries to convey the tecnical aspects of creating a new computer which I thought was only partially successful. It's easy to talk about bits as ones and zeros but the more technical concepts are hard to convey to layman and although Kidder tried I could not follow most of it (and in some cases it was hard enough that he chose not to try).
Some choice quotes from the Rifkin & Harrar book on Digital pretty much sums up why these companies are no longer here today:
"There is no such thing .. as personal computing." Ken Olsen, page 130.
Shields [senior VP of sales and service] liked to inspire his sales troops by telling them the projected date that DEC would surpass IBM in revenue: July 2007. Thinking the idea would spark up the sales force, the company went so far as to print up invitations: "We're going to have a party!" the note said. "If our current growth rates continue (and they will), and if IBM's current growth continues (and they will be hard pressed to do that), we will pass them in revenue and in profit by July 10, 2007.
(page 293-294. The notes were quickly pulled after customers and analysts were shocked by the boast.)
Olsen didn't hestitate to air his pet peeves publicly. ... "Graphics are terrible," he railed. "They are the second worst contribution to society after spreadsheets. Spreadsheets will go down in history as the worst thing that ever happened to business.... "
(page 297)
1. Lessons: An Autobiography by Dr An Wang with Eugene Linden
2. The Ultimate Entreprenuer: The Story of Ken Olsen and Digital Equipment Corporation by Glenn Rifkin and Geoge Harrar
3. The Soul of a New Machine by Tacy Kidder
The biggest irony is that these books were written around the time when the companies were probably at their peak. The decline at Data General (Kidder's book) was in retrospect obvious by the time the book was published. The minicomputer that was the focus of the book extended the life of the company by about a decade. Likewise, Digital stayed around for about just as long while Wang filed for bankruptcy in 1992 and reemerged in some form later but then pretty much disappeared. Of the three, Wang seemed to have been the hardiest (1951-1999), followed by Digital (1957-1998) which was taken over by Compaq and subsequently HP, while Data General which tried to challenge Digital began in 1968 and was defunct in 1999.
Its hard not to look back on these companies and be overwhelmed by how much innovation can create and destroy. All these companies underestimated IBM (ironically they thought they could take on IBM) and the PC revolution. (Although this was also a time that workstations/Unix were also challenging the market.) Even though they survived into the 90s for the most part, the last decade of their lives were pretty precarious.
Of the three books, Wang's book is mostly a pat in the back book that glosses over its failings while the book on Digital while not an attack on Ken Olsen (who did not participate in the book) per se did reveal the resulting politics and confusion of his management style (the once celebrated matrix management method). This book might have been a lot better if there were more source notes. I realize a lot of the interviews were given in confidence but without the notes it reads a lot like hearsay. Kidder's book (which won a Pulitzer) tries to convey the tecnical aspects of creating a new computer which I thought was only partially successful. It's easy to talk about bits as ones and zeros but the more technical concepts are hard to convey to layman and although Kidder tried I could not follow most of it (and in some cases it was hard enough that he chose not to try).
Some choice quotes from the Rifkin & Harrar book on Digital pretty much sums up why these companies are no longer here today:
"There is no such thing .. as personal computing." Ken Olsen, page 130.
Shields [senior VP of sales and service] liked to inspire his sales troops by telling them the projected date that DEC would surpass IBM in revenue: July 2007. Thinking the idea would spark up the sales force, the company went so far as to print up invitations: "We're going to have a party!" the note said. "If our current growth rates continue (and they will), and if IBM's current growth continues (and they will be hard pressed to do that), we will pass them in revenue and in profit by July 10, 2007.
(page 293-294. The notes were quickly pulled after customers and analysts were shocked by the boast.)
Olsen didn't hestitate to air his pet peeves publicly. ... "Graphics are terrible," he railed. "They are the second worst contribution to society after spreadsheets. Spreadsheets will go down in history as the worst thing that ever happened to business.... "
(page 297)
Thursday, October 1, 2009
Sometimes saving a marriage is too much work
As Sandra Tsing Loh discovers:
Sadly, and to my horror, I am divorcing. This was a 20-year partnership. My husband is a good man, though he did travel 20 weeks a year for work. I am a 47-year-old woman whose commitment to monogamy, at the very end, came unglued. ... In women’s-magazine parlance, I did not have the strength to “work on” falling in love again in my marriage. And as Laura Kipnis railed in Against Love, and as everyone knows, Good relationships take work.
Which is not to say I’m against work. Indeed, what also came out that afternoon were the many tasks I—like so many other working/co-parenting/married mothers—have been doing for so many years and tearfully declared I would continue doing. I can pick up our girls from school every day; I can feed them dinner and kiss their noses and tell them stories; I can take them to their doctor and dentist appointments; I can earn my half—sometimes more—of the money; I can pay the bills; I can refinance the house at the best possible interest rate; I can drive my husband to the airport; in his absence, I can sort his mail; I can be home to let the plumber in on Thursday between nine and three, and I can wait for the cable guy; I can make dinner conversation with any family member; I can ask friendly questions about anybody’s day; I can administer hugs as needed to children, adults, dogs, cats; I can empty the litter box; I can stir wet food into dry.
Which is to say I can work at a career and child care and joint homeownership and even platonic male-female friendship. However, in this cluttered forest of my 40s, what I cannot authentically reconjure is the ancient dream of brides, even with the Oprah fluffery of weekly “date nights,” when gauzy candlelight obscures the messy house, child talk is nixed and silky lingerie donned, so the two of you can look into each other’s eyes and feel that “spark” again. Do you see? Given my staggering working mother’s to-do list, I cannot take on yet another arduous home- and self-improvement project, that of rekindling our romance.
Sadly, and to my horror, I am divorcing. This was a 20-year partnership. My husband is a good man, though he did travel 20 weeks a year for work. I am a 47-year-old woman whose commitment to monogamy, at the very end, came unglued. ... In women’s-magazine parlance, I did not have the strength to “work on” falling in love again in my marriage. And as Laura Kipnis railed in Against Love, and as everyone knows, Good relationships take work.
Which is not to say I’m against work. Indeed, what also came out that afternoon were the many tasks I—like so many other working/co-parenting/married mothers—have been doing for so many years and tearfully declared I would continue doing. I can pick up our girls from school every day; I can feed them dinner and kiss their noses and tell them stories; I can take them to their doctor and dentist appointments; I can earn my half—sometimes more—of the money; I can pay the bills; I can refinance the house at the best possible interest rate; I can drive my husband to the airport; in his absence, I can sort his mail; I can be home to let the plumber in on Thursday between nine and three, and I can wait for the cable guy; I can make dinner conversation with any family member; I can ask friendly questions about anybody’s day; I can administer hugs as needed to children, adults, dogs, cats; I can empty the litter box; I can stir wet food into dry.
Which is to say I can work at a career and child care and joint homeownership and even platonic male-female friendship. However, in this cluttered forest of my 40s, what I cannot authentically reconjure is the ancient dream of brides, even with the Oprah fluffery of weekly “date nights,” when gauzy candlelight obscures the messy house, child talk is nixed and silky lingerie donned, so the two of you can look into each other’s eyes and feel that “spark” again. Do you see? Given my staggering working mother’s to-do list, I cannot take on yet another arduous home- and self-improvement project, that of rekindling our romance.
EMH and rational expectations
While Roubini is optimistic he serves up a reminder for those who believe in The Wisdom of Crowds, rational expectations, efficient markets and market based regulation and incentives:
Instead of the wisdom of the crowd, we got the madness of the crowd.
We should remind ourselves of Extraordinary Popular Delusions and the Madness of Crowds.
Imagine this scenario:
We're in a crowded theatre and someone shouts fire. Everyone starts running for the doors. Do you:
A. Head for the nearest exit pushing and shoving to make sure you're the first one out?
B. Find out who shouted fire and then proceed to determine whether the there is indeed a fire and decide whether the person who shouted "Fire!" was rational and then whether it is rational and efficient to head for the exit pushing, shoving and screaming.
Instead of the wisdom of the crowd, we got the madness of the crowd.
We should remind ourselves of Extraordinary Popular Delusions and the Madness of Crowds.
Imagine this scenario:
We're in a crowded theatre and someone shouts fire. Everyone starts running for the doors. Do you:
A. Head for the nearest exit pushing and shoving to make sure you're the first one out?
B. Find out who shouted fire and then proceed to determine whether the there is indeed a fire and decide whether the person who shouted "Fire!" was rational and then whether it is rational and efficient to head for the exit pushing, shoving and screaming.
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