Dropbox Founder Drew Houston’s MIT Commencement Address: ‘I stopped trying to make my life perfect, and instead tried to make it interesting.’

Drew Houston’s Commencement address

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Drew Houston ’05 displays his Brass Rat during his Commencement Address.
‘I stopped trying to make my life perfect, and instead tried to make it interesting.’

June 7, 2013

Below is the prepared text of the Commencement address by Drew Houston ’05, the CEO of Dropbox, for MIT’s 147th Commencement held June 7, 2013.

Thank you Chairman Reed, and congratulations to all of you in the class of 2013.
I’m so happy to be back at MIT, and it’s an honor to be here with you today. I still wear my Brass Rat, and turning this ring around on graduation day is still one of the proudest moments of my life.
There are a lot of reasons why this is a special day, but the reason I’m so excited for all of you is that today is the first day of your life where you no longer need to check boxes.
For your first couple decades, success in life has meant jumping through one hoop after another: get these test scores, get into this college. Take these classes, get this degree. Get into this prestigious institution so you can get into the next prestigious institution. All of that ends today.
The hard thing about planning your life is you have no idea where you’re going, but you want to get there as soon as possible. Maybe you’ll start a company, or cure cancer, or write the great American novel. Or who knows? Maybe things will go horribly wrong. I had no idea.
Being up here in robes and speaking to all of you today wasn’t exactly part of my plan seven years ago. In fact, I’ve never really had a grand plan — and what I realize now is that it’s probably impossible to have one after graduation, if ever.
I’ve thought a lot about what’s different about the life you’re beginning today. I’ve thought about what I would do if I had to start all over again. What got you here was basically being smart and working hard. But nobody tells you that after today, the recipe for success changes. So what I want to do is give you a little cheat sheet, the one I would have loved to have had on my graduation day.
If you were to look at my cheat sheet, there wouldn’t be a lot on it. There would be a tennis ball, a circle, and the number 30,000. I know this doesn’t make any sense right now, but bear with me.
I started my first company in a Chili’s when I was 21. My cofounder, Andrew Crick, and I had never done this before. We were wondering if you needed to wear a suit to City Hall, or if you needed to make a company seal for stamping important documents. It turns out you can just go online and fill out a form and be done in about two minutes. It was a little anti-climactic, but we were in business. Over onion strings we decided that our company was going to make a new kind of online course for the SAT. Most kids back then were still using these old-school 800-page books, and the other online prep courses weren’t very good. We called it Accolade, an SAT vocab word meaning an award of distinction. Well, actually, we called it “The Accolade Group, LLC” which we thought sounded a lot more impressive.
I stopped at Staples on the way home to pick up some card stock. Clearly, the most important order of business was to Photoshop a logo and print out some business cards that said “Founder” on them. The next order of business was to hand them out at conferences, and tell girls “why yes, I do have a company.” It was awesome.
But the best part was learning all kinds of new things. I lived in my fraternity house every summer, and up on the fifth floor there’s a ladder that goes up to the roof. I had this green nylon folding chair that I’d drag up there along with armfuls of business books I bought off Amazon and I’d spend every weekend reading about marketing, sales, management and all these other things I knew nothing about. I wasn’t planning to get my MBA on the roof of Phi Delta Theta, but that’s what happened.
A couple years later, things started going downhill. I felt like I had to paddle harder and harder to make progress, and at some point I just snapped and couldn’t deal with any more math questions about parallel lines or the train leaving Memphis at 3:45. I figured something was wrong with me. I felt guilty for being so unproductive. Starting a company had been my dream, and, well, maybe I didn’t have what it takes after all.
So I took a little break. Of course, if you’re in course 6, sometimes “taking a break” means writing a poker bot. For those of you who don’t know what a poker bot is, what happens when you play poker online is first, you sit for hours and click buttons, and then you lose all your money. A poker bot means you can have your computer lose all your money for you.
But it was a fascinating challenge. I was possessed. I would think about it in the shower. I would think about it in the middle of the night. It was like a switch went on — suddenly I was a machine.
In the middle of all this, my mom and dad wanted all of us to come up to New Hampshire to spend a family weekend together. But I really wanted to keep working on my poker bot. So I pull up in my Accord and open the trunk, and next I’m dragging all my computer stuff and all these wires into our little cottage. The dining room table wasn’t big enough so I started moving all the pots and pans off the stove to make room for all my monitors. This time it was my mom who thought something was wrong with me. She was convinced I was going to jail.
I was going to say work on what you love, but that’s not really it. It’s so easy to convince yourself that you love what you’re doing — who wants to admit that they don’t? When I think about it, the happiest and most successful people I know don’t just love what they do, they’re obsessed with solving an important problem, something that matters to them. They remind me of a dog chasing a tennis ball: their eyes go a little crazy, the leash snaps and they go bounding off, plowing through whatever gets in the way. I have some other friends who also work hard and get paid well in their jobs, but they complain as if they were shackled to a desk.
The problem is a lot of people don’t find their tennis ball right away. Don’t get me wrong — I love a good standardized test as much as the next guy, but being king of SAT prep wasn’t going to be mine. What scares me is that both the poker bot and Dropbox started out as distractions. That little voice in my head was telling me where to go, and the whole time I was telling it to shut up so I could get back to work. Sometimes that little voice knows best.
It took me a while to get it, but the hardest-working people don’t work hard because they’re disciplined. They work hard because working on an exciting problem is fun. So after today, it’s not about pushing yourself; it’s about finding your tennis ball, the thing that pulls you. It might take a while, but until you find it, keep listening for that little voice.
Let’s go back to the summer after my graduation, the summer you’re about to have. One of my fraternity brothers, Adam Smith, and his friend Matt Brezina were starting a company and we decided it would be fun for all of us to work together out of one apartment.
It was the perfect summer — well, almost perfect. The air conditioner was broken so we were all coding in our boxers. Adam and Matt were working around the clock, but as time went on they kept getting pulled away by potential investors who would share their secrets and take them on helicopter rides. I was a little jealous — I had been working on my company for a couple years and Adam had only been at it for a couple months. Where were my helicopter rides?
Things only got worse. August rolled around and Adam gave me the bad news: they were moving out. Not only was my supply of Hot Pockets cut off, but they were off to Silicon Valley, where the real action was happening, and I wasn’t.
Every now and then I’d give Adam a call and hear how things were going. Things were always pretty good. “We met with Vinod this afternoon,” he would tell me. Vinod Khosla is the billionaire investor and cofounder of Sun Microsystems. Then Adam dropped the bomb. “He’s going to give us five million dollars.”
I was thrilled for him, but it was a shock for me. Here was my faithful beer pong partner and my little brother in the fraternity, two years younger than me. I was out of excuses. He was off to the Super Bowl and I wasn’t even getting drafted. He had no idea at the time, but Adam had given me just the kick I needed. It was time for a change.
They say that you’re the average of the 5 people you spend the most time with. Think about that for a minute: who would be in your circle of 5? I have some good news: MIT is one of the best places in the world to start building that circle. If I hadn’t come here, I wouldn’t have met Adam, I wouldn’t have met my amazing cofounder, Arash, and there would be no Dropbox.
One thing I’ve learned is surrounding yourself with inspiring people is now just as important as being talented or working hard. Can you imagine if Michael Jordan hadn’t been in the NBA, if his circle of 5 had been a bunch of guys in Italy? Your circle pushes you to be better, just as Adam pushed me.
And now your circle will grow to include your coworkers and everyone around you. Where you live matters: there’s only one MIT. And there’s only one Hollywood and only one Silicon Valley. This isn’t a coincidence: for whatever you’re doing, there’s usually only one place where the top people go. You should go there. Don’t settle for anywhere else. Meeting my heroes and learning from them gave me a huge advantage. Your heroes are part of your circle too — follow them. If the real action is happening somewhere else, move.
The last trap you might fall into after school is “getting ready.” Don’t get me wrong: learning is your top priority, but now the fastest way to learn is by doing. If you have a dream, you can spend a lifetime studying and planning and getting ready for it. What you should be doing is getting started.
Honestly, I don’t think I’ve ever been “ready.” I remember the day our first investors said yes and asked us where to send the money. For a 24 year old, this is Christmas — and opening your present is hitting refresh over and over on bankofamerica.com and watching your company’s checking account go from 60 dollars to 1.2 million dollars. At first I was ecstatic — that number has two commas in it! I took a screenshot — but then I was sick to my stomach. Someday these guys are going to want this back. What the hell have I gotten myself into?
You already know this feeling: at MIT we call it “drinking from the firehose.” It’s about as fun as it sounds, and all of us have the internal bleeding to prove it. But we’ve also learned it’s good for you. Today, one valve shuts off. Now you need to go out and find another firehose.
Dropbox has been mine. As you might expect, building this company has been the most exciting, interesting and fulfilling experience of my life. What I haven’t really shared is that it’s also been the most humiliating, frustrating and painful experience too, and I can’t even count the number of things that have gone wrong.
Fortunately, it doesn’t matter. No one has a 5.0 in real life. In fact, when you finish school, the whole notion of a GPA just goes away. When you’re in school, every little mistake is a permanent crack in your windshield. But in the real world, if you’re not swerving around and hitting the guard rails every now and then, you’re not going fast enough. Your biggest risk isn’t failing, it’s getting too comfortable.
Bill Gates’s first company made software for traffic lights. Steve Jobs’s first company made plastic whistles that let you make free phone calls. Both failed, but it’s hard to imagine they were too upset about it. That’s my favorite thing that changes today. You no longer carry around a number indicating the sum of all your mistakes. From now on, failure doesn’t matter: you only have to be right once.
I used to worry about all kinds of things, but I can remember the moment when I calmed down. I had just moved to San Francisco, and one night I couldn’t sleep so I was on my laptop. I read something online that said “There are 30,000 days in your life.” At first I didn’t think much of it, but on a whim I tabbed over to the calculator. I type in 24 times 365 and — oh my God, I’m almost 9,000 days down. What the hell have I been doing?
(By the way: you guys are 8,000 days down.)
So that’s how 30,000 ended up on the cheat sheet. That night, I realized there are no warmups, no practice rounds, no reset buttons. Every day we’re writing a few more words of a story. And when you die, it’s not like “here lies Drew, he came in 174th place.” So from then on, I stopped trying to make my life perfect, and instead tried to make it interesting. I wanted my story to be an adventure — and that’s made all the difference.
My grandmother is here today, and next week we’ll be celebrating her 95th birthday. We talk more on the phone now that I’ve moved out to California. But one thing that’s stuck with me is she always ends our phone calls with one word: “Excelsior,” which means “ever upward.”
And today on your commencement, your first day of life in the real world, that’s what I wish for you. Instead of trying to make your life perfect, give yourself the freedom to make it an adventure, and go ever upward. Thank you.

Chobani Yogurt’s Hamdi Ulukaya, the new World Entrepreneur of the Year, likened entrepreneurship to a quest, “like crossing the ocean or climbing Mount Everest: When you put yourself through this journey, you find out who you really are.”

New ‘World Entrepreneur’ has a beef with Canada

Rick Spence | 13/06/08 | Last Updated: 13/06/10 11:33 AM ET

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Hamdi Ulukaya, founder and CEO of New York State yogurt producer Chobani Inc., was named World Entrepreneur of the Year 2013.

MONTE CARLO — The newly selected World Entrepreneur of the Year has a problem. And it’s Canada.

At a posh Monaco banquet hall on June 8 overlooking the Mediterranean Sea, Hamdi Ulukaya, founder and CEO of New York State yogurt producer Chobani Inc., was named World Entrepreneur of the Year 2013. The world event, founded by Ernst & Young, brought together the winners of 47 national Entrepreneur of the Year programs in a global playoff adjudicated by a panel of seven experienced business owners representing six continents.

The judges believed that Ulukaya’s story represents the best rags-to-riches aspects of global entrepreneurship. Born to a dairy-farming family in east Turkey, Ulukaya moved to upstate New York in 1994, to learn English and attend business school. He never finished his studies, but he started a business producing feta cheese. Read more of this post

Leadership: Art of delegation provides key to success; Such enlightenment, however, is usually only gained by a founder through a painful learning process

June 11, 2013 12:13 am

Leadership: Art of delegation provides key to success

By Jonathan Moules

Entrepreneurship is often presented as the achievement of individuals, defying the odds and proving that their idea or way of doing business was superior to what went before. But there is a problem with this image of entrepreneurial champions, because the world’s most successful companies have never been built on the achievements of just one person. It is a misunderstanding partly perpetuated by the media, profiling individual founders as if they alone created their companies’ successes. Some of these people no doubt believe their own PR, but the most successful are usually those with enough humility to admit their need to step back from running everything to let others take charge and grow their operations. The celebrated British entrepreneur, Sir Richard Branson, may be among the world’s best self-publicists, but he also readily admits that his most valuable skill is an ability to find good people to run the individual businesses within his Virgin empire. Such enlightenment, however, is usually only gained by a founder through a painful learning process. Read more of this post

Europe’s Top 25 Businesses and Leaders 2013

EUROPE’S TOP 25 BUSINESSES AND LEADERS 2013

ARTICLE | 10 JUNE, 2013 10:09 AM

The winners of the Families in Business Awards, in association with Societe Generale Private Banking, are soon to be announced, so take a look at the achievements of CampdenFB’s shortlisted candidates. The award ceremony will take place tomorrow, 11 June, at the Cercle National des Armées, in Paris.

Brembo Group
• FAMILY: Bombassei
• SECTOR: Automotive
• COUNTRY: Italy

Since Brembo was founded in Bergamo in 1961 by Emilio Bombassei and Italo Breda – along with current group president Alberto Bombassei, then aged 20 – it has supplied brakes to Aston Martin, Bugatti, Daimler, Ferrari, General Motors, Lamborghini and Porsche, and its products are sold in 70 countries. It has supplied brakes to Formula One cars since 1975. Celebrating its 50th anniversary in 2011 seems to have given the 58% family-owned northern Italian manufacturer a boost: net profits in 2012 were 81% higher than the previous year at €77.8 million, on sales of €1.4 billion. It now has more than 6,000 employees in 15 different countries. Read more of this post

Transferring the core values of the family is one of the key challenges facing a family-owned business in ensuring its long-run viability

Values transfer keep family firms afloat

Kwanchai Rungfapaisarn 
The Nation June 11, 2013 1:00 am

B Grimm head outlines fundamentals to sustainability

Transferring the core values of the family is one of the key challenges facing a family-owned business in ensuring its long-run viability.
Harald Link, chairman of B Grimm and a member of the third generation of the founding family, said yesterday that the core values of his family applied by or transferred from generation to generation are the desire to contribute, caring for ordinary people and compassion in daily life. 
“This means that we make a strong effort to be caring, reliable and responsible towards all people we deal with in our daily lives, be happy for other people’s successes and invest our time and money in social development projects that further education, culture, the environment, sports, religion and care for those in need,” he said. Read more of this post

Forget Revolution. More Like Renovation. At many U.S. manufacturing plants, the winds of change have barely caused a ripple

Updated June 10, 2013, 12:18 p.m. ET

Forget Revolution. More Like Renovation.

At many U.S. manufacturing plants, the winds of change have barely caused a ripple

By JAMES R. HAGERTY

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CLEVELAND—As part of reparations exacted after World War II, U.S. authorities confiscated a metal-forging press made in Germany during the 1930s. The 62-foot-tall machine was taken apart, shipped across the Atlantic and reassembled at a plant operated here by Alcoa Inc. AA +0.36% More than 60 years later, Alcoa is still using that press to squeeze hot aluminum alloys into dies for aircraft wheels and brakes. Computerized controls have been added and many parts updated, but the basic iron structure and other original parts remain. “It was very well-designed by the Germans,” says Eric Roegner, a senior Alcoa executive whose duties include overseeing the plant Alcoa’s cavernous Cleveland Works forging plant is a reminder that manufacturers often choose to make do with equipment that is decades old, instead of rushing to buy the latest technology. They find it can make more economic sense to renovate old machinery than risk investing in something entirely new—especially in a slow-growing market like the U.S. “In manufacturing, people won’t spend money unless there’s a guaranteed return on investment,” says Craig Resnick, a vice president at ARC Advisory Group, a Dedham, Mass., consulting firm that specializes in industrial automation. Often, he says, it is difficult to know precisely how much will be gained by installing new equipment. And there is a nagging worry: What if the new stuff doesn’t work? Read more of this post

A Revolution in the Making; Digital technology is transforming manufacturing, making it leaner and smarter—and raising the prospect of an American industrial revival

Updated June 10, 2013, 1:15 p.m. ET

A Revolution in the Making

Digital technology is transforming manufacturing, making it leaner and smarter—and raising the prospect of an American industrial revival

By JOHN KOTEN

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On a dark and stormy night two weeks ago in Schenectady, N.Y., Ken Hislop was relaxing at home when his cellphone suddenly began buzzing in his pocket. It was an urgent text message—from the General Electric Co. GE -0.34% factory where he works.

Soon, a second message arrived. And then another, and another. The texts were being sent by tiny sensors embedded inside a series of machines, some of which look like enormous upside-down cement mixers. A violent thunderstorm passing through the area had caused something to go wrong.

“I knew right away we’d lost power at the plant,” says Mr. Hislop, a manufacturing engineer. He quickly switched on his iPad and accessed animated schematic maps that signaled everything happening at the $170 million facility, which makes massive batteries for things like cellphone towers and power plants. Though the outage had been momentary, much of the equipment at the factory had to, in effect, reboot, and any blip could mean costly lost production time. Read more of this post

How 3-D Printing Works; The process turns conventional manufacturing on its head, producing objects from the bottom up

Updated June 7, 2013, 7:02 p.m. ET

How 3-D Printing Works

The process turns conventional manufacturing on its head, producing objects from the bottom up

People have traditionally made things—from doorknobs to scalpels to engine cylinders—in one of two ways. They start with a solid block or sheet of metal, wood or other material and cut, stamp, drill or shave it to create a desired shape. Or they use a mold made of metal or sand, pour liquefied plastic or metal into it and let it cool to create a metal casting or molded plastic part. Now for something completely different. Three-dimensional printing and other forms of what is known as additive manufacturing use neither machining nor molds. They build an object from the bottom up by piling razor-thin layers of material on top of each other until a three-dimensional shape emerges. The computer-guided technologies enables individuals to create objects, particularly prototypes, without a shop full of metal presses, cutting lathes or plastic injection molds. There are a variety of processes for 3-D printing. Some of the most widely used rely on a printer that makes objects from powdered material. A 3-D printer bears little resemblance to a document printer in an office. It has two major parts: a “build box” that contains a smooth, thin bed of finely ground material such as pulverized stainless steel or powdered plastic; and a printing head. Depending on the type of printer, the head contains either a heat source, such as a laser or an electron beam, that melts the powdered material or jets that spray binder over the powder in a precise pattern. The binder functions as a glue for the material as an object is built. The world-wide market for 3-D printing, which includes materials, machines and service, totaled $2.2 billion last year, up 29% from 2011, according to industry estimates. But the process has some limitations. For high-volume jobs, 3-D printing can’t yet match the speed and efficiency of traditional fabrication methods and machinery. Not all materials are suitable for powder-based additive manufacturing, and not all objects, particularly those made of metal, are able to stand up to high-stress use. For manufacturers of 3-D equipment, the future of their nascent industry depends on broadening the appeal of their equipment by expanding its uses and versatility.

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Maps That Live and Breathe With Data; largely missing from Google’s Maps is the social component; With Waze, the mob is the map, and like a mob, it can be churning with energy

June 10, 2013

Maps That Live and Breathe With Data

By VINDU GOEL

SAN FRANCISCO — Maybe real estate agents should start selling mobile phones on the side. Why? Because with phones, as with homes, location is everything. As mobile phones become all-in-one tools for living, suggesting where to eat and the fastest way to the dentist’s office, the map of where we are becomes a vital piece of data. From Facebook to Foursquare, Twitter to Travelocity, the companies that seek the attention of people on the go rely heavily on location to deliver relevant information, including advertising. Maps that are dynamic, adapting to current conditions like traffic or the time of day, are the most useful of all. The importance of such maps to mobile services helps explain why Google is deep in negotiations to buy Waze, a social mapping service used by millions of drivers around the world, for more than $1 billion. Although a final agreement has not yet been struck, people with knowledge of the discussions say that an acquisition could be announced as soon as this week. Read more of this post

Tech start-ups: Innovation hubs all over world seek to follow Silicon Valley lead

June 11, 2013 12:13 am

Tech start-ups: Innovation hubs all over world seek to follow Silicon Valley lead

By Jonathan Moules, Enterprise Correspondent

When Peter Alfred-Adekeye founded cloud-computing business Multiven in 2005, he was in the obvious place to do it – Silicon Valley. Five years later, however, he relocated his operation to Zurich, one of the least likely cities for start-ups.

Some might imagine the move away from the global entrepreneurship capital would be shocking to a serial entrepreneur such as Mr Alfred-Adekeye. Admittedly the relocation was partly forced after his US work visa was rescinded. Read more of this post

China Everbright Bank placed itself directly in the firing line when reports it had defaulted started to circle

Swimming naked in China

David Keohane

| Jun 10 12:19 | 5 comments | Share

China Everbright Bank placed itself directly in the firing line of terrible puns last week when reports it had defaulted started to circle.

Thankfully, Anne Stevenson-Yang from J Capital read into the news a bit further than most:

The interbank defaults last Thursday provided definitive, if indirect, proof that the cash coming into China is for financial investment and interest arbitrage. It masquerades as a trade surplus but is not. With the tightening of the domestic central bank credit window, Chinese banks are heavily dependent on these inflows for the cash they need to roll over loans. That is why the banks immediately went into distress when regulators decided to clamp down on fraud on the trade account. Read more of this post

Strains Show in China’s Job Market; Labor Strife Increases as High Wages, Low Demand Send Some Employers Packing, While Others Close

Updated June 11, 2013, 2:27 a.m. ET

Strains Show in China’s Job Market

Labor Strife Increases as High Wages, Low Demand Send Some Employers Packing, While Others Close

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BEIJING—A wave of strikes and worker protests in China’s southern export belt is a fresh sign that slowing growth and rising wages have started to pinch the labor market on the world’s factory floor.

China Labour Bulletin, a Hong Kong-based labor group, has recorded 201 cases of labor disputes, including strikes, in the first four months of the year in China, almost double the number of cases in the same period last year. In the export hub of Shenzhen alone, 17 cases have been recorded. Read more of this post

Shock over departure of creative director behind Mulberry’s rise to top

Shock over departure of creative director behind Mulberry’s rise to top

Shares plunge 8% on news of Emma Hill’s decision to quit after rumoured row with company’s chief executive

Simon Neville and Lauren Cochrane

The Guardian, Monday 10 June 2013 22.56 BST

MULBERRY Emma HillMulberry shares graphic

Emma Hill has announced her intention to quit Mulberry. Photograph: Mulberry

The woman widely credited with transforming Mulberry from a quiet British fashion house into a must-have global brand has shocked the luxury goods world, and the City, by announcing her intention to quit, in a move that wiped nearly £40m off the company’s value. Emma Hill joined Mulberry as creative director at the depth of the recession in 2008 and, hitching the firm’s conservative reputation to hipster royalty such as Alexa Chung and Lana Del Rey, helped spur a fivefold increase in its share price. Mulberry issued a terse confirmation that one of the industry’s most successful partnerships is coming to an end, amid rumours of a falling out between Hill and the chief executive, Bruno Guillon, over the company’s direction. Read more of this post

Australian Dollar Plunges as Home Loans Dive; Australia Insolvencies Hit Record

Australian Dollar Plunges as Home Loans Dive; Australia Insolvencies Hit Record; Worst is Yet to Come

Posted: 10 Jun 2013 08:32 PM PDT

Mike “Mish” Shedlock

Curve Watchers Anonymous has its eye on the Australian dollar. As expected, it has taken a big dive in conjunction with a housing bust and a slowdown in China that impacts the demand for commodities.

The only thing surprising to me about this plunge is how long it took, but here we are.
Aussie Falls to Lowest in More Than Two Years
Bloomberg reports Aussie Falls to Lowest in More Than Two Years as Home Loans Slow

Australia’s dollar fell to the lowest in more than two years versus the greenback after home-loan approvals grew at the slowest pace in three months, boosting the case for further cuts to borrowing costs. Read more of this post

Global shale resources are vast enough to cover more than a decade of oil consumption, according to the first-ever US assessment of reserves from Russia to Argentina.

June 10, 2013 7:53 pm

World has 10 years of shale oil, reports US

By Gregory Meyer in New York

Global shale resources are vast enough to cover more than a decade of oil consumption, according to the first-ever US assessment of reserves from Russia to Argentina.

The US Department of Energy estimated “technically recoverable” shale oil resources of 345bn barrels in 42 countries it surveyed, or 10 per cent of global crude supplies. The department had previously only provided an estimate for US shale reserves, which it on Monday increased from 32bn barrels to 58bn. Read more of this post

What are the Characteristics of Firms that Engage in Earnings Per Share Management Through Share Repurchases?

What are the Characteristics of Firms that Engage in Earnings Per Share Management Through Share Repurchases?

Kathleen A. Farrell University of Nebraska-Lincoln

Jin Yu Saint Cloud State University – G. R. Herberger College of Business

Yi Zhang Prairie View A&M University

July 2013
Corporate Governance: An International Review, Vol. 21, Issue 4, pp. 334-350, 2013

Abstract: 
Manuscript Type. Empirical. Research Question/Issue. This study examines US firms’ share repurchases during 1997–2006 to determine what factors are associated with firms that use share repurchases to manage earnings per share (EPS). Specifically, we analyze firm and governance characteristics associated with firms that engage in share repurchases that increase annual EPS by at least one cent in a given year and that had EPS less than or equal to annual EPS forecast prior to the share repurchase. Research Findings/Insights. We find that growth firms are less likely to use share repurchases to increase EPS for earnings management purposes. We also provide evidence that firms with a more independent board, a separation of the roles of CEO and chairman of the board, or a low entrenchment index (E‐Index) are less likely to engage in earnings management through share repurchases. Finally, we find evidence that high CEO share ownership restrains managers from using share repurchases as a mechanism to manage EPS. Theoretical/Academic Implications. Our empirical results support some of the best practices advocated by various shareholders groups regarding corporate governance. Also, strong shareholder rights can mitigate incentives to manage earnings, highlighting the importance of corporate governance mechanisms/provisions in ensuring the integrity of the financial reporting system. Practitioner/Policy Implications. This research is important to investors in the face of the growing popularity of share repurchases. In particular, our study suggests strong corporate governance, strong shareholder rights, and high percentage CEO stock ownership discourages repurchase‐based earnings management.

Bamboo Innovator mentioned on TEDxWallStreet

TEDxWallStreet

Byron Wien’s 20 Lessons Learned Throughout His Investing Career: Read all the time

Byron Wien’s 20 Lessons Learned Throughout His Investing Career

Posted: 10 Jun 2013 11:20 AM PDT

MarketFolly.com

Byron Wien is Vice Chairman at Blackstone and prior to that worked at hedge fund Pequot Capital and Morgan Stanley.  Earlier this year, he released an addendum to his usual commentary about lessons he’s learned in 80 year investing career.  His words of wisdom are below:
Byron Wien’s 20 Lessons Learned
1.  Concentrate on finding a big idea that will make an impact on the people you want to influence.  The Ten Surprises, which I started doing in 1986, has been a defining product.  People all over the world are aware of it and identify me with it.  What they seem to like about it is that I put myself at risk by going on record with these events which I believe are probable and hold myself accountable at year-end.  If you want to be successful and live a long, stimulating life, keep yourself at risk intellectually all the time. Read more of this post

Fitch warns on risks from shadow banking in China; “A 1 percent NPL ratio has little signaling value when 36% of all outstanding credit resides outside Chinese banks’ loan portfolios”

Fitch warns on risks from shadow banking in China

12:56pm EDT

FRANKFURT (Reuters) – China’s unregulated shadow banking sector poses an increasing risk to the country’s financial stability that could spread to other countries, credit rating agency Fitch said on Monday. China has tens of thousands of non-bank lenders that are providing increasing amounts of credit to businesses and government outside the mainstream, regulated banking sector, a situation that is stoking systemic risk, Fitch said. There is little visibility on where the money is going, who is lending it or what the credit quality of assets is, meaning traditional warning signs of trouble will not function properly. “It is a wild west atmosphere in many respects and that is one of the reasons why we are so worried,” Fitch Senior Director Charlene Chu told a conference in Frankfurt. Regulators had little insight into the non-bank sector. “It is a material risk because a growing amount of credit is being extended through channels that they don’t have transparency or control over,” Chu said. Read more of this post

Pimco Wary on Asia Junk Debt as Slowdown Hurts Company Profits

Pimco Wary on Asia Junk Debt as Slowdown Hurts Company Profits

Investors should be wary of high-yield borrowers as slowing growth in Asia threatens profitability, according to Pacific Investment Management Co., manager of the world’s biggest fixed-income fund.

Companies in Asia outside Japan almost tripled junk bond sales to $19.2 billion this year compared with $6.85 billion during the same period in 2012, data compiled by Bloomberg show. China’s economy will slow to average 6 percent to 7.5 percent annual expansion during the next five years from 9 percent the past five, weighing on the region’s growth, according to a report from Newport Beach, California-based Pimco.

“The slow-growth landscape favors higher-quality credits and warrants caution on higher yielding names that could become impaired in an environment where profits will be challenged,” Tokyo-based Tomoya Masanao, the head of portfolio management for Japan, wrote in the report due for release today. “The emphasis should move away from risk assets that have benefited purely from the central bank liquidity wave in which valuations have become detached from fundamentals.” Read more of this post

CT Scans in Children May Trigger 5,000 Cancers in U.S.

CT Scans in Children May Trigger 5,000 Cancers in U.S.

The radiation from 4 million annual computerized tomography scans in U.S. children younger than 15 may lead to almost 5,000 cancers each year in the future, a study found.

The use of CT scans of the head, abdomen or pelvis, chest or spine in children 14 years and younger more than doubled from 1996 to 2007 before beginning to decline through 2010, according to research released today by JAMA Pediatrics. Those at greater risk for cancer were younger patients, girls, and those who underwent CT scans of the abdomen/pelvis or the spine rather than other areas of the body, the researchers said. Read more of this post

Intel, which has been using Sponsors of Tomorrow as its marketing theme since 2009, is replacing the phrase with a less ethereal entreaty: Look Inside

Intel: The inside job

New York — Intel, which has been using Sponsors of Tomorrow as its marketing theme since 2009, is replacing the phrase with a less ethereal entreaty: Look Inside. The new theme purposely echoes the Intel Inside cooperative advertising programme it has been running since 1991 with companies like Dell, which buys Intel’s chips. The idea is for each theme to reinforce the persuasive effect of the other.

BY –

5 HOURS 26 MIN AGO

New York — Intel, which has been using Sponsors of Tomorrow as its marketing theme since 2009, is replacing the phrase with a less ethereal entreaty: Look Inside. The new theme purposely echoes the Intel Inside cooperative advertising programme it has been running since 1991 with companies like Dell, which buys Intel’s chips. The idea is for each theme to reinforce the persuasive effect of the other.

Said Ms Deborah Conrad, Vice-President and Chief Marketing Officer at Intel: “Look Inside is a call to action, and Intel Inside says ‘Hey, here I am’.” The new theme also “serves all our new businesses and existing businesses”, she added, whereas Sponsors of Tomorrow was perceived, not surprisingly, as less relevant to Intel’s current products. Read more of this post

India Rate-Cut Room Dented as Rupee Drops Most in Asia to Record; “Currency stability has become a new worry”

India Rate-Cut Room Dented as Rupee Drops Most in Asia to Record

The slump in the rupee to a record low has narrowed the Reserve Bank of India’s scope to cut interest rates next week for a fourth straight meeting. Governor Duvvuri Subbarao will keep the repurchase rate at 7.25 percent on June 17, 10 of 18 analysts said in a Bloomberg News survey. The rest called for a reduction to 7 percent. The currency’s 6.6 percent drop versus the dollar this quarter, the biggest in Asia, threatens to make imports more expensive. The rupee reached its weakest level yesterday, weighed down by an unprecedented current-account deficit, the slowest Indian economic expansion in a decade and speculation the dollar will gain if the U.S. scales back monetary stimulus. Subbarao said May 30 that depreciation may stoke inflation and increase the cost of servicing foreign-currency debt.

“Currency stability has become a new worry,” said Rajeev Malik, an economist at CLSA Asia-Pacific Markets in Singapore. “A rate cut is unlikely to do much in reviving growth, but it will renew the pressure on the rupee to weaken further.” Read more of this post

Hard part begins in Myanmar’s quest for foreign investment; “Actually there isn’t that much investment coming in,” Nobel Peace laureate and opposition leader Suu Kyi

Hard part begins in Myanmar’s quest for foreign investment

NAYPYITAW — In a cramped auditorium in Myanmar’s capital, pro-democracy champion Aung San Suu Kyi had a message for the world’s business elite: Her country is teeming with foreign investors scouting for opportunities in one of Asia’s final frontier markets, but not many are actually investing.

BY –13 HOURS 3 MIN AGO

NAYPYITAW — In a cramped auditorium in Myanmar’s capital, pro-democracy champion Aung San Suu Kyi had a message for the world’s business elite: Her country is teeming with foreign investors scouting for opportunities in one of Asia’s final frontier markets, but not many are actually investing.

Interviews with foreign and local business leaders on the sidelines of last week’s World Economic Forum in the Myanmar capital, Naypyitaw, show why.

Shoddy infrastructure, opaque regulations, red tape, recent bouts of sectarian violence and lingering uncertainty over US sanctions are hampering large-scale foreign investment in the country, strategically nestled between India and China. “Actually there isn’t that much investment coming in,” Nobel Peace laureate and opposition leader Suu Kyi told reporters. Read more of this post

Casino Dubai’s Rebound Pitch Ignored by Global Investors

Casino Dubai’s Rebound Pitch Ignored by Global Investors

Dubai is back with the big plans. What it doesn’t have are the biggest property investors.

Surging home prices in parts of Dubai and rebounding shopping and tourism markets are prompting developers to announce projects on a scale not seen since the emirate’s property market collapsed in 2008. So far, sovereign wealth, pension and insurance funds are staying away even as they splurge on real estate elsewhere.

“It’s a thin market and it has a reputation of being something of a casino,” said Richard Price, chief executive for Asia at CBRE Global Investors, which manages $93 billion of property assets. “I struggle to think of any real client appetite for exposure.” Read more of this post

History may repeat itself for Mexico, Peru as Fed eyes exit

History may repeat itself for Mexico, Peru as Fed eyes exit

Sun, Jun 9 2013

By Krista Hughes

MEXICO CITY (Reuters) – Mexico and Peru’s popularity among foreign investors means they are among the emerging market economies most exposed to losses when the United States finally moves to take its foot off the monetary accelerator. History shows that when U.S. interest rates jump – widely anticipated when the Federal Reserve begins reducing its $85 billion a month bond purchases – new foreign investment in Peruvian and Mexican financial assets drops by almost two-thirds. Bonds in Brazil, Colombia and Peru also sold off and major Latin American currencies fell on average 5.5 percent on the mere hint of a limit to the cheap cash that has pushed many emerging markets to record highs. Read more of this post

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