The Power of Admitting Your Own Errors-Like Tom Brady? Michelangelo on Poverty, Creative Integrity, and the Right Not To Be Interrupted – Bamboo Innovator Daily: 31 Jul (Fri)

Life

  • The Power of Admitting Your Own Errors-Like Tom Brady? WSJ
  • Michelangelo on Poverty, Creative Integrity, and the Right Not To Be Interrupted: BP
  • 5 easy steps to building a phenomenally successful career in any field: Be deeply curious about advancing in your field. Learn how to get the people around you to do the best they can. Care deeply. BI
  • Programming for four-year-olds: How to teach computer science in nursery school: Economist
  • This one-minute morning routine can improve your productivity all day long: BI
  • The ‘cookie monster’ study reveals how power corrupts people: BI
  • Want to be president? Show us how you’d handle a disaster. WaPo
  • I just binge-read eight books by Donald Trump. Here’s what I learned. WaPo
  • Never too early to start succession planning in a family business; From the moment the Yung Kee restaurant sold its first goose in Wellington Street, Central, in the 1960s, its founder Kam Shui-fai groomed two of his sons for management roles. Following his death, the younger son Ronald Kam Kwan-lai underhandedly stripped the eldest son Kinsen Kam Kwan-sing of his management role at the restaurant: SCMP
  •  7 scientists who are helping us understand how the world works: BI
  •  8 classic novels that will make you a better leader: BI

Books

  • The Resilient Enterprise: Overcoming Vulnerability for Competitive Advantage: Amazon

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“Immerse yourself in the common ground of the universe so that your true voice – not the egoistic voice that clamors vainly for power (for it will ruin you if you listen to it) – your authentic voice may be heard.”; 9 books that will inspire your kids to build, invent, and engineer – Bamboo Innovator Daily: 30 Jul (Thurs)

Life

  • “Immerse yourself in the common ground of the universe so that your true voice – not the egoistic voice that clamors vainly for power (for it will ruin you if you listen to it) – your authentic voice . may be heard.”: BP
  • 9 books that will inspire your kids to build, invent, and engineer: BI
  • LinkedIn founder Reid Hoffman shares 3 lessons he learned from the failure of his first company: BI
  • The Power Of Words: GF1, GF2
  • Poland’s wealthiest entrepreneur, Jan Kulczyk, dies, aged 65; Jan Kulczyk, who played a central role in Poland’s post-communist transformation has died, aged 65, after complications following surgery: FT
  • Unlocking the Three-fold Secret to Great Leadership: K@W
  • The First Step to Successful Innovation? Choosing the Right Partners: K@W
  • Organizational Culture: The Payoff Is in the Blend: CFO
  • Today’s Exhausted Superkids: NYT
  • That ‘Useless’ Liberal Arts Degree Has Become Tech’s Hottest Ticket: Forbes
  • The non-business classics that inspire; works of fiction, biographies and histories can offer solid career and business advice to the ambitious because they are more reflective of the deeper human psyche: FT
  • Shareholder value is a cover for over-mighty chief executives; The critique of dividends and buybacks by the BoE’s Andy Haldane begs a vital question: FT
  • How Intelligence Shifts With Age; We seem to get slower and wiser at the same time: WSJ
  • 3 common words that make you sound rude in emails: BI

Books

  • The Folly of Fools: The Logic of Deceit and Self-Deception in Human Life: Amazon

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‘Shark Tank’ investor Kevin O’Leary shares the best advice he received in his 20s: “To be or not to be?” isn’t the question. The question is: “What are you willing to do in order to be what you want to be?” You have to want to do all the necessary difficult things that are required to support that goal; The Structure of Gratitude; G. K. Chesterton wrote that “thanks are the highest form of thought, and that gratitude is happiness doubled by wonder.” – Bamboo Innovator Daily: 29 Jul (Wed)

Life

  • ‘Shark Tank’ investor Kevin O’Leary shares the best advice he received in his 20s: “To be or not to be?” isn’t the question. The question is: “What are you willing to do in order to be what you want to be?” You have to want to do all the necessary difficult things that are required to support that goal. BI
  • The Structure of Gratitude; G. K. Chesterton wrote that “thanks are the highest form of thought, and that gratitude is happiness doubled by wonder.”: NYT
  • How To Build Your Resilience To Be An Entrepreneur: Forbes
  • ‘Shark Tank’ investor Kevin O’Leary’s 5 best business mantras: BI
  • A 2004 email from Jeff Bezos explains why Powerpoint presentations aren’t allowed at Amazon: The reason writing a 4 page memo is harder than “writing” a 20 page powerpoint is because the narrative structure of a good memo forces better thought and better understanding of what’s more important than what, and how things are related. BI
  • Why most definitions of leadership are wrong: BI
  • Why Leaders Should Create Meaningful Environments; Organisations that empower and give meaning to their members are not only more dignified but also more innovative. BI
  • How great leaders create conditions for performance; The best leaders start with caring, then create the “right” emotions for success. Nation
  • How This Mom Built a $10M Pest-Control Business From Home: Forbes
  • 5 Big Mistakes Poor Negotiators Make: Forbes
  • How to borrow some of the start-up genie’s magic; Working with accelerators and incubators can help established companies: FT
  • This Italian company pioneered innovative startup culture—in the 1930s: qz
  • Mark Cuban just praised Donald Trump for being ‘the best thing to happen to politics’ in recent history: He gives honest answers rather than prepared answers. This is more important than anything any candidate has done in years: BI
  • ‘Impossible’ propellantless engine appears to work despite breaking laws of physics: TheAge

Books

  • Rising Strong by Brene Brown: When we deny our stories, they define us. When we own our stories, we get to write the ending.: Amazon
  • Stronger: Develop the Resilience You Need to Succeed: Amazon

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To master any skill, use the learning technique that scared Bruce Lee; 13 secrets for performing better under pressure – Bamboo Innovator Daily: 28 Jul (Tues)

Life

  • To master any skill, use the learning technique that scared Bruce Lee: qz
  • 13 secrets for performing better under pressure: BI
  • David Politis of BetterCloud: Start by Working Beyond Your Résumé; “Whether it’s a company or a market, go where you can actually have a real impact on the business” : NYT
  • The music you like says a lot about how your brain processes information: BI
  • The Ten Golden Rules of Leadership: Classical Wisdom for Modern Leaders: Farnam
  • Love of learning is the key to success in the jobless future: WaPo
  • Not an Introvert, Not an Extrovert? You May Be An Ambivert; Sometimes social, sometimes solitary, ambiverts often make good sales people: WSJ

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Being Strong and Resilient in a World Where Things Go Wrong: The Case of Mahindra & Mahindra, a Different Sort of “India’s Berkshire Hathaway” – Bamboo Innovator Weekly Insight

 “Bamboo Innovators bend, not break, even in the most terrifying storm that would snap the mighty resisting oak tree. It survives, therefore it conquers.”
BAMBOO LETTER UPDATE | July 27, 2015
Bamboo Innovator Insight (Issue 93)

  • The weekly insight is a teaser into the opportunities – and pitfalls! – in the Asian capital jungles.
  • Get The Moat Report Asia – a monthly in-depth presentation report of around 30-40 pages covering the business model of the company, why it has a wide moat and why the moat may continue to widen, a special section on “Inside the Leader’s Mind” to understand their thinking process in building up the business, the context – why now (certain corporate or industry events or groundbreaking news), valuations (why it can compound 2-3x in the next 5 years), potential risks and how it is part of the systematic process in the Bamboo Innovator Index of 200+ companies out of 15,000+ in the Asia ex-Japan universe.
  • Our paid Members from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing.
Dear Friends,

Being Strong and Resilient in a World Where Things Go Wrong: The Case of Mahindra & Mahindra, a Different Sort of “India’s Berkshire Hathaway”

“Deere John, I have found someone new.”

Deere JohnThis was the caption in a billboard ad featuring a blonde, pony-tailed American woman driving a little red tractor that was produced and sold by an Asian wide-moat innovator. The ad, done so with a humor designed to appeal to Americans,  was a tongue-in-check in response to Deere & Company (NYSE: DE, MV $30.8bn), the largest farm equipment manufacturer in the world, who promised a seemingly short-lived and desperate $1,500 cash rebate to any American farmer who traded in this Asian tractor for a John Deere. Only a handful responded to the offer. And the offer had the unintended effect of further promoting this Asian brand, who had overtaken Deere, New Holland (NYSE: CNHI, MV $12.4bn), AGCO (NYSE: AGCO, MV $4.6bn) and Japan’s Kubota (TSE: 6236 JP, MV $20.7bn) to become the largest tractor maker in the world by sales volume, selling about 234,000 tractors.

Would Buffett’s decision to invest in Deere change if he had known about the story of the Asian wide-moat innovator behind this ad? Buffett had disclosed in March 2015 that he had built up in 2014 a 5% ownership in Deere, which has paid steady or increasing dividends since 1987, giving it a streak of 28 consecutive years without a dividend reduction. Since this 2007 ad and losing the #1 title, Deere is up around 10%, underperforming the 40% rise in the S&P 500 index.

Mahindra & Mahindra (NSI: M&M) Stock Price Performance 1994-2015 Vs Nifty index and Deere

M&M

This Asian innovator is Mahindra & Mahindra (NSE: M&M, MV $12.9bn) who recently acquired a 33% stake in Mitsubishi Agricultural Machinery, a subsidiary of Mitsubishi Heavy Industries (TSE: 7011 JP, MV $19bn), for about $25m in May 2015. The popularity of M&M’s tractors stemmed from producing sturdy low-powered tractors (under-70 horsepower) suited for fragmented landholdings in India and China. M&M realized that there is an underserved market in the United States to which its low-powered tractor is well-suited: hobby farming. Baby boomers are retiring from stressful urban lives in California to places like Arizona where for the price of a luxury condo in San Francisco, they can buy over 15 acres of land, ideally suited to tilting by hobby farmers and suburban lawn masters who don’t need a monster tractor and like M&M’s reliability. Many of M&M’s customers in the United States are women, hence the “Deere John” ad.

Flying under the radar of Deere when it first entered US, M&M built close relationships with small dealerships, particularly family-run operations. Rather than saddle dealers with expensive inventory, M&M allowed them to run on a just-in-time basis, offering to deliver a tractor within 24 to 48 hours of receiving the order. M&M also facilitated financing. In return, Mahindra benefited from the trust the dealers enjoyed in their communities. M&M also built close relationships with customers. Some 10 to 15% of M&M tractor buyers got phone calls from the company’s president, who asked whether they were pleased with the buying experience and their new tractors. M&M also offered special incentives such as horticultural scholarships to neglected market segments such as female hobby farmers. Following the example of Hyundai Motor (KOSPI: 005380), which used especially long product warranties to gain acceptance in the American auto market, Mahindra offers a five-year warranty on its tractors in the US, compared with the standard two years offered by Deere. M&M has also rolled out a military appreciation program providing U.S. and Canadian veterans and their families with $250 rebates, with its website stating: “We appreciate your service and commitment to our country and would like to show our support.”

Anand“I call America our emerging market; they find it very amusing when I said that. Our goal was to say we are second to none in technology. We don’t want to be value for money tractor that is beating out John Deere and all. This product has incorporated auto technology in the tractor. If you look at electronics, suspension, ergonomics. The state-of-the-art knowledge of R&D we had in auto has come in to our tractors,” commented Anand Mahindra, the chief architect of the M&M Group, who describes his country’s malaise using the metaphor of “Star Wars”. Graft and cronyism in India are like an evil Empire that has struck back. His hope is that young Indians become Jedi knights to battle the Dark Side. Anand Mahindra has kept M&M away from industries that require “a competence for lobbying”, and he says he avoids Delhi, India’s capital, like the plague.

M&M was founded as a steel trading company in 1945 by K.C. Mahindra, J.C. Mahindra and Ghulam Mohammed, under the name Mahindra & Mohammed. Mohammed in 1947 migrated to Pakistan to become its first finance minister. M&M entered automotive manufacturing in 1947 to bring the iconic Willys Jeep on to Indian roads. Besides holding the #1 title for tractors, M&M is also the #1 SUV maker in India. Now, M&M is present across the entire automotive spectrum – two-wheelers, commercial vehicles, SUVs and sedans. Whether it is tractor or SUV or two-wheelers, the M&M brand is defined not by horsepower or engines, but instead by the fact that it stands for ruggedness, few frills, no-nonsense performance and an honest price tag. “M&M psychographically is about safe, strong, powerful, rugged vehicles, irrespective of the segments.”

Today, M&M is a diversified conglomerate who employs over 180,000 people around the world and operates in industries such as automobiles, defence, aerospace, information technology and BPOs, financial services, hospitality and retail; the automotive & tractors business continues to be the largest contributor at two-third of group revenue.

“We don’t call it a conglomerate, we call it a federation,” Anand Mahindra says. “If you look at a spectrum between General Electric and Berkshire Hathaway, GE is a conglomerate, one single monolithic company with divisions, Berkshire Hathaway has multiple investments. M&M is more Berkshire Hathaway than GE.” Anand focused on having independent presidents who would focus on their line of business, segmented in six areas: auto, technology, hospitality, retail, defence and aerospace, and steel. “These six new sub-entrepreneurs have made significant gains in their own wealth because they share the business,” Anand says. Anand looks for niches. It’s a contrast to the business strategies followed by some leading business houses in India. Anand cites the example of Reliance Industries – the company wants to dominate competition with its size. This is not M&M’s strategy. Also, there is a central pool of money that can be used in different businesses. In the M&M Group, each company has its own balance sheet and its own cash flow to fund growth. Anand’s mantra is not about winning all the time, but to ensure that failure does not cripple. Anand has the vision to build a live, growing organisation—one that can evaluate, incubate, build and scale up businesses continuously that can escape gravity and transcend boom-bust business cycles, even while the flops fall by the wayside. Each company is ring-fenced from the damage failure elsewhere can do, even while being free to finance its own growth and make its own mistakes, to grow and find its own capital without betting the whole ranch. M&M, the flagship, is the major shareholder and the spine of the structure – the lever that makes things work. Mahindra sees his role as group head to assess risk with a team. “Measured risk-taking is at the heart of entrepreneurship,” Anand says. M&M’s approach is “segmented strategy”. M&M’s annual War Rooms are where crucial go-or-no-go decisions are discussed and decided. These are high-powered forums meant for interaction with individual companies that form the Mahindra federation.

Anand Mahindra is J.C. Mahindra’s grandson. Anand Mahindra joined the group’s Mahindra Ugine in 1981 after finishing his MBA from Harvard. Businesses in India were governed by the licence raj, where the government would select five to six companies to make or sell in any segment. Mahindra Ugine, headed by Anand’s father Harsh, was one of the six players which had licence to make specialised steel products for electric arc furnaces. As Anand recalls, “It was a cosy market, and nobody cared that I had joined”. But suddenly, in 1981, the government gave licences to 36 players to make electric arcs. As a result there was excess competition, something which Indian business houses were not used to. Prices plunged and there was surplus capacity in the sector. Ugine did not cut price and sales plummeted and the company posted its first loss. “When all hell broke loose, it was an opportunity for somebody new,” Anand Mahindra says, who turned around the company gradually by selling inventory and squeezing the supply chain.

Anand went on to take over as head of the group’s flagship vehicle business in 1991, even though his uncle and K.C. Mahindra’s son, Keshub Mahindra, was still the chairman. When India liberalized in 1991 Mahindra was sprawling and flabby like many of its peers—making everything from jeeps to lifts. After liberalisation, there were rumours of M&M businesses winding up. No one thought that Indian automakers would survive with companies like Ford, Daewoo and General Motors coming to India. What Anand found at M&M’s vehicle manufacturing business shocked him: an almost complete lack of integration among the departments and the needs of the customer were completely ignored. In short, everything has gone wrong for M&M during that turbulent period.

the resilience dividendIn her fascinating book “The Resilience Dividend: Being Strong in a World Where Things Go Wrong”, Judith Rodin, president of The Rockefeller Foundation, recounted the well-known story of Anand’s near death experience – and resilience – in the day before the Diwali festival in 1991.

Anand was attempting to turn around the business…

<ARTICLE SNIPPED>

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Interestingly, Anand has his own unique view about innovation as the engine to drive the M&M federation. Anand believed that low-cost innovation is essential for solving many problems facing India. Yet, he believed that the famous concept of “jugaad” should not be confused with frugal innovation:

“India desperately needs big innovations to address large-scale problems and make use of opportunities in the country and not just stick to the now famous concept of `jugaad’. It really bothers me that we have become so smug about `look, how good we are’. `Jugaad’ means you use whatever little resources you have and make something happen. Jugaad does imply a positive ‘can-do’ attitude, but unfortunately, also involves a ‘make-do’ approach. It can, hence, lead to compromises on quality and rarely involves cutting edge or breakthrough technology. ‘Constraint-led Innovation’ is a better approach. It targets the most advanced technology but with a philosophy of ‘more for less’. The time has come for India to move from ‘jugaad’ (somehow) to ‘jhakkas’ (superb).”

Thus, with the “constraint-led innovation” embedded by Anand Mahindra into the company’s culture that propelled M&M forward over the years since the turbulent period of India’s liberalization, this different form of “India’s Berkshire Hathaway” has been able to recover from shocks and stresses and to adapt and grow from disruptive experiences, creating and taking advantage of new opportunities in good times and bad. Just like the values of the Bamboo Innovator, bend not break even in the wildest of storm, staying strong and resilient in a world where things go wrong.

Read more about the story of “India’s Berkshire Hathaway”

at the Moat Report Asia: http://www.moatreport.com/updates/

Warm regards,

KB

The Moat Report Asia

www.moatreport.com

A new monthly issue of The Moat Report Asia is now available!

Access the in-depth idea presentation:

http://www.moatreport.com/members/

This month of July, we highlight Asia ex-Japan’s largest maker of a mission-critical automotive electronics part that is dubbed the “nervous system” in cars whose electronic content is rising due to the Green, Connected, and Autonomous automotive trends. Without this “nervous system”, the various auto parts cannot start and work. While it is considered a Tier-2 auto parts supplier, [Company’s name] directly participates in the design process of Tier-1 suppliers for most of its [Flagship product’s name] to be “designed-in” and as a result, enjoys sole supplier rights during the first 2-3 years following a new model launch. In addition, [Company’s name] has changed its sales model in China from a distributor model to direct selling, forging Tier-1 relationship with the major Chinese automakers, including accounting for over 50% of [Flagship product’s name] used in emerging electric vehicle maker BYD (1211 HK). Its top ten customers account for around 44-50% of sales. [Company’s name] has pursued the strategy of a diversified customer base to lower operating risk so that “no one “no one customer can seal the life and death of [Company’s name]”, and the rest of sales are contributed by hundreds of customers.

In the ruthless cut-throat automotive industry, the fact that [Company’s name]’s EBITDA margin at 33% is twice that of world-class Bosch India (BOS IN), arguably the best auto parts company listed in Asia, and [Company’s name]’s ROE of 20.5% is also higher than Bosch’s 14.5% speaks volume about [Company’s name]’s wide-moat advantage in securing long-term pricing power and earnings sustainability with the major OEM carmakers by winning their trust to strike long-term partnership. Bosch India trades at an expensive valuation premium of EV/EBITDA 42.9x compared to 12.2x for [Company’s name]. [Company’s name], with its technical superiority in developing low-cost innovative solutions and in generating higher profitability and growth, deserves to command comparable a higher valuation. Short-term downside is protected by a decent cash dividend yield of 4% and supported by a healthy net-cash balance sheet generated from internal free cashflow as opposed to external equity or debt funding.

Led by the highly inspiring Mr. C, [Company’s name] has toiled for more than 10 years since it entered China before bearing some of the fruits. [Company name]’s sales has climbed nearly 31% since FY11 while EBITDA growth is stronger at 78% with the impressive improvement in gross margin from 34.2% to 42.1% due to greater sales weight of higher value-add products that include [Flagship product’s name] for electric vehicles (EVs). Now the growth momentum has hit the tipping point for [Company’s name] to accelerate its profitability significantly in its visible long runway to supply the mission-critical automotive electronics part that is dubbed the “nervous system” in cars whose electronic content is rising due to the Green, Connected, Autonomous automotive trends. Net profit and EBITDA could potentially double in the next 5 years by FY2020, pointing towards a doubling in market value.

Daniel Kahneman: ‘What would I eliminate if I had a magic wand? Overconfidence’; Why Empathy Matters In Investing – Bamboo Innovator Daily: 27 Jul (Mon)

Life

  • Daniel Kahneman: ‘What would I eliminate if I had a magic wand? Overconfidence’: Guardian
  • 10 CEOs who prove liberal arts degrees aren’t worthless: BI
  • Susan Cain Instigates a ‘Quiet Revolution’ of Introverts With Speeches and Company: NYT
  • 7 things you can do to be a better communicator: BI
  • 7 ways to talk about yourself without sounding like a jerk: BI

Investing Process

  • Why Empathy Matters In Investing: Fundoo
  • The going gets tough for value managers: FT

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The one thing all entrepreneurial people have in common; Higher Ambition: How Great Leaders Create Economic and Social Value; The Key: How Corporations Succeed by Solving the World’s Toughest Problems – Bamboo Innovator Daily: 26 Jul (Sun)

Life

  • The one thing all entrepreneurial people have in common: BI
  • How an investing giant taught Chicago kids financial literacy and disproved the doubters: Fortune
  • People Offer Better Ideas When They Can’t See What Others Suggest: HBR

Books

  • Higher Ambition: How Great Leaders Create Economic and Social Value : amazon
  • The Key: How Corporations Succeed by Solving the World’s Toughest Problems : amazon
  • High Commitment High Performance: How to Build A Resilient Organization for Sustained Advantage: amazon

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《中国好声音》:林燕《别来纠缠我》

‘Shark Tank’ investor Robert Herjavec shares 6 business lessons he learned from waiting tables; 4 Powerful Mantras to Help You Deal with Fear and Anxiety; 7 ways mentally strong people take advantage of solitude – Bamboo Innovator Daily: 25 Jul (Sat)

Life

  • ‘Shark Tank’ investor Robert Herjavec shares 6 business lessons he learned from waiting tables: BI
  • 4 Powerful Mantras to Help You Deal with Fear and Anxiety: TinyBuddha
  • 7 ways mentally strong people take advantage of solitude: BI
  • The Singular Mind of Terry Tao: A prodigy grows up to become one of the greatest mathematicians in the world.: NYT
  • Dangers of the culture of obedience: Star
  • Father of modern human resources: Rather than ‘roadblocks, impediments and policy police’, HR units can instead be enablers of business results, says consultant Dave Ulrich. BT
  • How These Independent Artists Reached No. 1 On The iTunes Chart: Forbes
  • The Science of Stress and How Our Emotions Affect Our Susceptibility to Burnout and Disease: BP

Books

  • Floating City: A Rogue Sociologist Lost and Found in New York’s Underground Economy: Amazon

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An Investing Principles Checklist From Poor Charlie’s Almanack; Why you should pursue your dreams even if no one encourages you; Why a safe job is risky business – Bamboo Innovator Daily: 24 Jul (Fri)

Life

  • Why you should pursue your dreams even if no one encourages you: BI
  • Why a safe job is risky business for Singapore: ST
  • This is what makes Mark Zuckerberg an excellent CEO: The willingness to admit failure and the ability to understand and recognize disruption before it takes hold: BI
  • Lee Kuan Yew had ‘very deep influence’ on me: PM Lee: BT
  • Creator Toru Iwatani explains why people have loved Pac-Man for 35 years; “The reason why Pac-Man has been a worldwide hit for so long is because we considered human feelings when developing the concept for this game, he appeals to simple human emotions: Fortune
  • 9 habits of the most influential people: BI
  • The More Experience You Have, the Worse You Are at Bootstrapping: HBR
  •  20 successful entrepreneurs share the most important lesson they learned in their 20s: BI
  • The 3 things that separate a leader from a manager: Managers keep an organization functioning and leaders work to build a shared vision. Managers rely on control and leaders inspire trust. BI
  • How to identify annoying tourist-trap restaurants; Good restaurants are often situated away from popular locations.: AsiaOne
  • Why half of the life you experience is over by age 7: WaPo
  • How Happy Do Weekends Actually Make Us? A new study finds that people who like their jobs aren’t any happier on the weekends: Bloomberg
  • How Shiism evolved: Powers of persuasion; Modern Shiites have a long and complicated history: Economist
  • The enemy within: Rogue employees can wreak more damage on a company than competitors: Economist
  • Strategies to soothe disrupted staff: FT
  • Four of the five musicians with the biggest vocabularies are rappers—and the fifth is Bob Dylan: qz
  • How a Cartoon Caption Contest Can Make You a Better Writer: HBR
  • A Quick Guide to Avoiding Common Writing Errors: HBR
  • Teaching Social Skills to Improve Grades and Lives: NYT
  • Children With Autism Shouldn’t Be Forced to Socialize; Of course this doesn’t mean that children with autism are void of feelings, empathy or love; they are just less interested in pleasing others; people with autism place less emphasis on preserving their reputation or the impressions they leave. It is often these types of people who will advance society because they aren’t scared to suggest new ideas and stand out from the crowd in fear of embarrassment or ostracism. Conversation

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How Good Habits Can Make You Happier; The Rebellious and Revolutionary Life of Galileo, Illustrated; How a college dropout reordered the heavens and forever changed our understanding of our place in the universe – Bamboo Innovator Daily: 23 Jul (Thurs)

Life

  • How Good Habits Can Make You Happier: K@W
  • The Rebellious and Revolutionary Life of Galileo, Illustrated; How a college dropout reordered the heavens and forever changed our understanding of our place in the universe.: BP
  • 23 of the Most Amazingly Successful Introverts in History: Inc
  • The head coach of the 49ers once quit a six-figure job and lived out of a car while working as an unpaid college football assistant: BI
  • 10 beliefs highly successful people share:BI
  • Hiring for goodness not greatness lets startup founders manage less and trust more: BRW
  • Culture, Capacity And Craftsmanship: How To Hire For A Startup: Techcruch
  • Why Are There So Many Young Adult Writers On The Top-Earning Authors List?: Forbes
  • 7 habits that can turn an employee into the CEO: BI
  • What does the discovery of the world’s oldest Quran tell us?: qz
  • Global CEOs Who Lack Language Skills Get Lost in Translation: Bloomberg

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Google cofounder Sergey Brin says these 2 books changed his life; What if the objective of one’s life is something other than optimization of discrete blocks of time and monetizing that time? – Bamboo Innovator Daily: 22 Jul (Wed)

Life

  • Google cofounder Sergey Brin says these 2 books changed his life: BI
  • 30 inspiring quotes from super-successful people that every professional should read: BI
  • 10 Simple Statements That Will Make You Think Differently; Short bits of wisdom from good books. Fool
  • “A single kindness can change everything” ; Pixar’s ‘The Good Dinosaur’ Trailer Promises a Visually Stunning, Emotional Journey: WSJ
  • Do You Know What Your Time Is Really Worth? New online tools help people value an hour; the time vs. money trade-off; What if the objective of one’s life is something other than optimization of discrete blocks of time and monetizing that time? WSJ
  • How to write, according to the woman who wrote some of Pink Floyd’s biggest hits: qz
  • 7 Challenges Successful People Overcome: Forbes
  • In big move, Accenture will get rid of annual performance reviews and rankings; “The art of leadership is not to spend your time measuring, evaluating,” ; The death knell for performance (review) anxiety?: WaPoTheAge
  • Here’s how to get through the workday after a sleepless night: BI
  • I tried a strange fruit some scientists think could solve world hunger: BI
  • After more than a decade, one of the best comic series which showed why adults should care about fairy tales is coming to an end: BI
  • How to preserve a startup culture as a company grows: Forbes

Books

  • Why Don’t We Learn from History?: Amazon
  • Myths and Mortals: Family Business Leadership and Succession Planning; Review: Myths and Mortals, Why Family Business Succession Fails: Amazon, FT
  • The Bully Pulpit: Theodore Roosevelt, William Howard Taft, and the Golden Age of Journalism : Amazon
  • Book: The Biology of Desire: Why Addiction Is Not a Disease; Kicking the Habit: If addiction is a brain disease, addicts are mad, sick and defective. If it’s a failure of will, users are bad, immoral and weak.: WSJ

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Life lessons 9 successful people learned from failing; The Power of Gratitude; Riveted: The Science of Why Jokes Make Us Laugh, Movies Make Us Cry, and Religion Makes Us Feel One with the Universe; Scepticism can help us to build resistance to riveting ideas that turn out to be duds – Bamboo Innovator Daily: 21 Jul (Tues)

Life

  • Life lessons 9 successful people learned from failing: BI
  • The Power of Gratitude: Insead
  • Billy Beane on Making Better Decisions, Challenging Entrenched Thinking, and Avoiding Biases: Farnam
  • How Situations Influence Decisions: Farnam
  • The key to long-term success; Growing a business goes beyond selling high-quality products. Fortune
  • Write 40+ books in your lifetime using Anthony Trollope’s 15-minute daily routine: qz
  • 12 psychological tricks to winning people over: BI
  • A scientist who studies psychopaths found out he was one by accident – and it completely changed his life: BI
  • Daughters taking over the family business; “One dirty little secret is that the advisers don’t like family businesses successors; they perceive that they are spoiled and entitled. But they are human beings like everyone else, and they sometimes have an agenda”: AsiaOne

Books

  • Riveted: The Science of Why Jokes Make Us Laugh, Movies Make Us Cry, and Religion Makes Us Feel One with the Universe : Amazon

Read more of this post

Mickey Vs Mario: Buffett’s Omission Mistake in Disney and Any Magic Character Innovators in Asia? – Bamboo Innovator Weekly Insight

 “Bamboo Innovators bend, not break, even in the most terrifying storm that would snap the mighty resisting oak tree. It survives, therefore it conquers.”
BAMBOO LETTER UPDATE | July 20, 2015
Bamboo Innovator Insight (Issue 92)

  • The weekly insight is a teaser into the opportunities – and pitfalls! – in the Asian capital jungles.
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Dear Friends,

Mickey Vs Mario: Buffett’s Omission Mistake in Disney and Any Magic Character Innovators in Asia?

Walt Disney: “I only hope that we never lose sight of one thing – that it was all started by a mouse.”

Nintendo’s Shigeru Miyamoto, creator of the character Super Mario: “Since we first created Mario, people have compared him to Mickey Mouse. I’ve always said Mickey Mouse evolved with each evolution in animation. From early on, I wanted Mario to be that character in the digital world, so that with each digital evolution, he was there to usher in the next era.”

Buffett: “Well, I made a terrible mistake. We owned a chunk of Cap Cities/ABC and merged with us and we kept the Disney stock for a while and then we sold it. That was before Iger took over. We probably shouldn’t have sold Cap Cities/ABC because ESPN – we owned 80 percent of ESPN and that of course has been the home run asset of all time.. Bob Iger is a home run hitter. I mean he is really, really good. And he’s a great guy on top of that.”

Buffett: “We bought 5% of the Walt Disney Company in 1966. It cost us $4 million dollars. $80 million bucks was the valuation of the whole thing. 300 and some acres in Anaheim. The Pirate’s ride had just been put in. It cost $17 million bucks. Mary Poppins had just come out. Mary Poppins made about $30 million that year, and seven years later you’re going to show it to kids the same age. It’s like having an oil well where all the oil seeps back in….in 1966 they had 220 pictures of one sort or another. They wrote them all down to zero – there were no residual values placed on the value of any Disney picture up through the ‘60s. So for $80 million bucks, and you got Walt Disney to work for you. It was incredible. You didn’t have to be a genius to know that the Walt Disney company was worth more than $80 million. And the reason was, in 1966 people said, ‘Well, Mary Poppins is terrific this year, but they’re not going to have another Mary Poppins next year, so the earnings will be down.’ I don’t care if the earnings are down like that. You know you’ve still got Mary Poppins to throw out in seven more years…I mean there’s no better system than to have something where, essentially, you get a new crop every seven years and you get to charge more each time…I went out to see Walt Disney (he’d never heard of me; I was 35 years old). We sat down and he told me the whole plan for the company – he couldn’t have been a nicer guy. It was a joke. If he’d privately gone to some huge venture capitalist, or some major American corporation, if he’d been a private company, and said ‘I want you to buy into this’…they would have bought in based on a valuation of $300 or $400 million dollars. The very fact that it was just sitting there in the market every day convinced people that $80 million was an appropriate valuation. Essentially, they ignored it because it was so familiar. But that happens periodically on Wall Street.”

Warren Buffett missed holding on to and sold out his investment in Disney (DIS, MV $201bn)twice.

What are the important timeless investment lessons that value investors can learn from Buffett’s candid and wise admission of his omission mistake in Disney so as to identify and evaluate the scalability and sustainability of character-based or content business models? In Asia, Nintendo (7974 JP, MV $24.3bn)’s Super Mario and Sanrio (8136 JP, MV $2.5bn)’s Hello Kitty immediately comes to mind as the “Disney of Asia” with their popular characters, including the unlisted publishing giant Hitotsubashi Group-Shogakukan’s bluish robot cat character Doraemon controlled by the secretive Ōga family. Besides Nintendo and Sanrio, are there overlooked character innovators in Asia who have the potential to globalize their characters?

Character-based or content business model is able to reaps gains from the same intangible character asset over and over again and with profit multiplier effect as the character is leveraged into weaving products (merchandise, games) and services (theme parks, movies) around the character. However, the very strength of the intangible character asset is also its biggest weakness as the business model suffers blowup risks when this core key asset becomes stale from neglect, complacency and underinvestment.

First up was in 1966 when Buffett used a sum-of-the-parts (SOTP) valuation analysis to evaluate Disney’s intrinsic value. Disney was assessed to be undervalued at $80m with its hidden assets in the library of 220 films in the vault, the emergent growth of the theme park business with 300 acres in Orange county where the Anaheim park attracted 9 million customers a year, and an innovative owner-operator in Walt Disney running the place. Importantly, Buffett did not commit the common serious mistake made by SOTP in being overly obsessed with the hidden asset value and overlooking the more important aspect of the core content-character business driving Disney’s earnings. While the consensus view the Disney characters, such as “Mary Poppins” that was created in the musical fantasy film which was widely considered to be one of the greatest films of all time and Walt Disney’s “crowning achievement”, as unsustainable in generating blockbuster-like earnings year after year, Buffett believe these characters can be shown to kids the same age seven years later, and that they are “like having an oil well where all the oil seeps back in” and that “you get a new crop every seven years and you get to charge more each time”. Classics such as Sleeping Beauty and Cinderella are still refreshed, remade and retold since they were created more than 60 years ago, reinforcing merchandise and theme park sales and the brand equity of the Magic Kingdom.  However, Buffett was eager to prove his worth to his clients and did not wait till seven years to realize his Disney crop. Buffett sold the stock a year later after it climbed 50% from his investment of $4m for a 5% stake, now worth over $10bn.

Second wasBuffett_Disney nearly 30 years later when Buffett’s 1979 investment in Tom Murphy-Dan Burke’s Capital Cities-ABC was acquired for $19bn by Disney in 1995. Buffett got his payment in Disney shares. At the news conference announcing the deal, Buffett sat on the dais with Disney Chairman Michael Eisner and Cap Cities/ABC Chairman Thomas Murphy, and said: “This deal makes more sense than any other deal I have seen except for the [1986] Cap Cities and ABC deal.  It is a merger of the No. 1 content company [Disney] with the No. 1 distribution company [ABC].” Buffett sold off his Disney shares which went on to compound over 500%.

Why did Buffett sell off his Disney shares for the second time? The decision appears to have something to do with his assessment of the management, “before Iger took over” in 2005. The long-running legal battle in removing Disney president Michael Ovitz in 1996 had resulted in an extraordinary statement in 2006 by the chief judge of the Delaware Chancery Court who wrote that Eisner had “enthroned himself as the omnipotent and infallible monarch of his personal Magic Kingdom” and described Eisner’s behavior as falling “far short of what shareholders expect and demand from those entrusted with a fiduciary position.” The deterioration in the management quality culminated in 2003 when Roy E. Disney, the son of Disney co-founder Roy O. Disney and nephew of Walt Disney, resigned from his positions as Disney vice chairman and chairman of Walt Disney Feature Animation. His reason for resigning was his feeling that there was too much micromanagement within the studio, flops with the ABC television network, the company’s growing timidity in the theme park business, Eisner’s refusal to establish a clear succession plan, the studio releasing a string of box-office movie flops starting in the year 2000, and the Walt Disney Company turning into a “rapacious, soul-less” company.

When the key intangible asset that drives the profit-multiplier business model becomes stale, all the tangible pieces and financial numbers in the Magic Kingdom from merchandise, movies and theme parks start crumbling off, just like Cinderella reduced back to her rags when the spell wears off after midnight. Who could have faulted Buffett for selling off Disney shares for the second time to get off the Cinderella ride before midnight?

So how can value investors better assess the management quality and culture that nurture and harness the profit-multiplier power of the fragile intangible character asset? We like to recap what we wrote in our 23 March 2015 article “The Physics of Music and the Asian Innovators”:

“In our years of interacting and observing entrepreneurs and managers in Asia, we find that there seemed to be two kinds: some who would look for flaws in ideas and people, and then pounce to kill them; and others who started from a place of seeking and promoting good, new and original ideas and people. When the “idea and people promoter” saw flaws, they pointed them out gently, in the spirit of improving them – not eviscerating them. The “idea and people killer” were not aware that they were serving some other agenda, which was often to show others how high their standards are. The innovators understand the difficult, ephemeral process of developing the new. The innovators understand that looking beyond the pretty and rigorous checklist for something original, authentic, something surprising and unproven, are necessary for genuine value creation – and must be a conscious effort.

We also want to observe that the corporate culture are NOT infested with the kind of people that populated Disney in the late 1970s as remarked by Pixar’s founder Ed Catmull in his inspiring and thought-provoking book Creativity, Inc.: Overcoming the Unseen Forces That Stand in the Way of True Inspiration:

“Unbeknownst to me, soon after our meeting at Lucasfilm, John Lasseter would lose his job at Disney. Apparently, his supervisors felt that The Brave Little Toaster was – like him – a little too avant-garde. They listened to his pitch and, immediately afterward, fired him. What John hadn’t realized when he joined Disney Animation, however, was that the studio was going through a rough, fallow period. The animation there had plateaued much earlier – no significant technical advances had been made since 1961’s 101 Dalmatians, and many of its young, talented animators had left the studio, reacting in part to an increasingly hierarchical culture that didn’t value their ideas. When John arrived in 1979, Frank Thomas, Ollie Johnston, and the rest of the Nine Old Men were getting up in years – the youngest was 65 – and had stepped away from day-to-day business of moviemaking, leaving the studio in the hands of a group of lesser artists who had been waiting in the wings for decades. These men felt in was their turn to be in charge but were so insecure about their standing within the company that they clung to their newfound status by stifling – not encouraging – younger talents. Not only were they not interested in the ideas of their fledgling animators, they exercised a sort of punitive power. They were seemingly determined that those beneath them not rise in the ranks any faster than they already had.”

We think this lesson from Disney is poignant for Asia which is at a critical transition phase in succession risk (and opportunity) with the patriarchs and matriarchs handing over the reins of their business empires to the right capital allocators, whether to their heirs or professional managers. Many of the Asian successors are like Disney’s highly experienced and well-qualified men-in-charge in the late 1970s.

Above all, we think a corporate culture focused on KPIs is downright unhealthy as it results in gaming of the performance measurement system and distances people from creating an idea larger than oneself that can involve co-creators in the value creation process.”

The culture to foster – and limit! – innovators can be seen in Nintendo when it hired a student product developer named Shigeru Miyamoto in 1977.

Nintendo PeopleMickey MarioNintendo

<ARTICLE SNIPPED>

Read more about the stories of the trials and tribulations of Nintendo and Shintaro Tsuji’s Sanrio

at the Moat Report Asia: http://www.moatreport.com/updates/

********

DisneyDo you have a good dream?

Value investors will do well in character-content business model by assessing the goodness of the dream, the willingness of the leaders to love the drudgery it involves and not take short-cuts and engage in complex opportunistic financial engineering activities to generate short-term profits that lead to the festering of long-term problems and impairments down the road.

Commitment, attitude, care and dedication have much more to do with character than pay and perks. At the center of character are dreams for life and work. Behind the rational, practical-minded efforts in building a “business”, the Bamboo Innovators like Walt Disney, Yamauchi-Iwata-Miyamoto and Shintaro Tsuji are pursuing their dreams. Walt Disney’s dream popped out from a mouse character to reflect and reveal the human in us in a perturbed world:

“Mickey Mouse popped out of my mind onto a drawing pad 20 years ago on a train ride from Manhattan to Hollywood at a time when business fortunes of my brother Roy and myself were at lowest ebb and disaster seemed right around the corner. We have created characters and animated them in the dimension of depth, revealing through them to our perturbed world that the things we have in common far outnumber and outweigh those that divide us. When people laugh at Mickey Mouse, it’s because he’s so human; and that is the secret of his popularity.”

A good dream is a crucial inner resource for leaders. Great businesses and great ideas usually originate in an individual’s deepest aspirations. A compelling image – of a better world and a best life for themselves – impels them forward through obstacles and hardships and engages the aspirations and dreams of others.

The important test of a good dream can be the willingness to sacrifice other dreams for it. Even the greatest leaders, with all their extraordinary talents, have had to make great sacrifices to pursue what they valued most. Commitment to a dream for life or work usually has real costs. A good dream is a calling, a vocation. Perhaps the unorthodox wisdom for a good dream is as British essayist Logan Pearsall Smith wrote: “The test of a vocation is the love of the drudgery it involves.” Love of drudgery may be a better test of a healthy dream than excitement or inspiration. Good dreams have deep roots in a person’s character and everyday life, not in the images and seductions of the society around them. Bamboo Innovators make a difference in the world by refracting their dreams through an endless series of small and large efforts – over hours, weeks, and years. The journey is long and arduous, with many challenges, temptations, and ordeals along the way. What finally determines success or failure are the hand of fate, the strength of the commitment to one’s dream, and one’s moral code.

Warm regards,

KB

The Moat Report Asia

www.moatreport.com

A new monthly issue of The Moat Report Asia is now available!

Access the in-depth idea presentation:

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This month of July, we highlight Asia ex-Japan’s largest maker of a mission-critical automotive electronics part that is dubbed the “nervous system” in cars whose electronic content is rising due to the Green, Connected, and Autonomous automotive trends. Without this “nervous system”, the various auto parts cannot start and work. While it is considered a Tier-2 auto parts supplier, [Company’s name] directly participates in the design process of Tier-1 suppliers for most of its [Flagship product’s name] to be “designed-in” and as a result, enjoys sole supplier rights during the first 2-3 years following a new model launch. In addition, [Company’s name] has changed its sales model in China from a distributor model to direct selling, forging Tier-1 relationship with the major Chinese automakers, including accounting for over 50% of [Flagship product’s name] used in emerging electric vehicle maker BYD (1211 HK). Its top ten customers account for around 44-50% of sales. [Company’s name] has pursued the strategy of a diversified customer base to lower operating risk so that “no one “no one customer can seal the life and death of [Company’s name]”, and the rest of sales are contributed by hundreds of customers.

In the ruthless cut-throat automotive industry, the fact that [Company’s name]’s EBITDA margin at 33% is twice that of world-class Bosch India (BOS IN), arguably the best auto parts company listed in Asia, and [Company’s name]’s ROE of 20.5% is also higher than Bosch’s 14.5% speaks volume about [Company’s name]’s wide-moat advantage in securing long-term pricing power and earnings sustainability with the major OEM carmakers by winning their trust to strike long-term partnership. Bosch India trades at an expensive valuation premium of EV/EBITDA 42.9x compared to 12.2x for [Company’s name]. [Company’s name], with its technical superiority in developing low-cost innovative solutions and in generating higher profitability and growth, deserves to command comparable a higher valuation. Short-term downside is protected by a decent cash dividend yield of 4% and supported by a healthy net-cash balance sheet generated from internal free cashflow as opposed to external equity or debt funding.

Led by the highly inspiring Mr. C, [Company’s name] has toiled for more than 10 years since it entered China before bearing some of the fruits. [Company name]’s sales has climbed nearly 31% since FY11 while EBITDA growth is stronger at 78% with the impressive improvement in gross margin from 34.2% to 42.1% due to greater sales weight of higher value-add products that include [Flagship product’s name] for electric vehicles (EVs). Now the growth momentum has hit the tipping point for [Company’s name] to accelerate its profitability significantly in its visible long runway to supply the mission-critical automotive electronics part that is dubbed the “nervous system” in cars whose electronic content is rising due to the Green, Connected, Autonomous automotive trends. Net profit and EBITDA could potentially double in the next 5 years by FY2020, pointing towards a doubling in market value.

‘We support Grouchy Smurf’: billlionaire owner-operator of Kyobo Life Insurance Shin Chang-jae encourages Kyobo staff to voice grumbles; “Think of an orchestra. If there are no musical notes, they will just stare at the conductor all the time” – Bamboo Innovator Daily: 20 Jul (Mon)

Life

  • ‘We support Grouchy Smurf’: billlionaire owner-operator of Kyobo Life Insurance Shin Chang-jae encourages Kyobo staff to voice grumbles; “Think of an orchestra. If there are no musical notes, they will just stare at the conductor all the time”: FT
  • Disneyland’s diamond anniversary: can it keep the magic for another 60 years? The first Disneyland opened 60 years ago this weekend and no competitor since has managed to dent Disney’s dominance. But change is afoot. Can the Mouse House stay on top?: Telegraph
  • Change Comes From the Margins: Opinionator
  • The productivity trick one author used to write over 40 books: BI
  • Wanted in College Graduates: Tolerance for Ambiguity; Excelling at any job is about doing the things you weren’t asked to do. – Mary Egan, founder of Gathered Table in Seattle and former senior vice president at Starbucks: Linkedin

Books

  • Situations Matter: Understanding How Context Transforms Your World: Amazon
  • The Emotionally Intelligent Investor: How self-awareness, empathy and intuition drive performance : Amazon

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As we journey through life, we must look beyond the current circumstances and let hope prevail – Bamboo Innovator Daily: 19 Jul (Sun)

Life

  • As we journey through life, we must look beyond the current circumstances and let hope prevail. Star
  • Optical Inventions Opened the Modern World; The glass industry empowered the lens industry, which created reading glasses, microscopes, telescopes, and the modern world of science. Barron’s

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The Benefits Of Being A Total Zero; How a 60-year-old woman turned her $35 domain name into a $1.5 billion business – Bamboo Innovator Daily: 18 Jul (Sat)

Life

  • The Benefits Of Being A Total Zero: Techcrunch
  • How a 60-year-old woman turned her $35 domain name into a $1.5 billion business: BI
  • 5 Ways To Use Life’s Challenges To Make You Better, Not Bitter: Forbes
  • Capitalism: Morality and the money motive; Growth’s guilty secret: the capitalist system is able to lift people out of poverty but struggles to create a just society: FT
  • Angela Merkel’s incredible rise from quantum chemist to the world’s most powerful woman: BI
  • From Gladiators to Mickey Mouse: Disneyland Turns 60: WSJ
  • This guy came up with a brilliant way make his résumé stand out and heard back from 8 companies in a month: BI
  • Heineken CEO explains the counterintuitive strategy that helped him become one of the company’s youngest leaders: BI

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Ben Horowitz: Great leaders aren’t born. But they’re not made, either; Seven intelligent fanatics from India; At Japan’s Nidec, the CEO as Comic Book Hero who says motivation, not smarts, was key to building one of Japan’s most profitable companies – Bamboo Innovator Daily: 17 Jul (Fri)

Life

  • Ben Horowitz: Great leaders aren’t born. But they’re not made, either. Fortune
  • At Japan’s Nidec, the CEO as Comic Book Hero who says motivation, not smarts, was key to building one of Japan’s most profitable companies; 6S = Seiri (Keep things organized), Seiton (Keep things available), Seiketsu (Keep yourself clean), Seiso (Keep things clean), Saho (Keep good manners), Shitsuke (Keep good discipline). Bloomberg
  • TED Before Bed: One mother’s nightly ritual with her son: TED
  • 9 TED Talks to inspire smart conversation: TED
  • Jack Welch on the one skill that can make or break your career: BI
  • 13 things mentally strong people don’t do: BI
  • Reading their minds: Animal congnition is an ever-growing field: Economist

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Billionaire Charlie Munger’s favorite life hack can help anyone be more successful; Here’s what Jeff Bezos says he’s looking for in an Amazon show: “One way you can think about TV is you can say, ‘I want to make something that millions and millions of people are going to watch.’ If that’s your starting point, you paint yourself into a corner and you often end up with homogenized, uninteresting content. If you say, ‘Let’s hire the world’s greatest storytellers. Let’s encourage them to take risks,’ then you’re going to end up with a remarkable story, and remarkable stories always find an audience.” – Bamboo Innovator Daily: 16 Jul (Thurs)

Life

  • Billionaire Charlie Munger’s favorite life hack can help anyone be more successful: BI
  • Here’s what Jeff Bezos says he’s looking for in an Amazon show: “One way you can think about TV is you can say, ‘I want to make something that millions and millions of people are going to watch.’ If that’s your starting point, you paint yourself into a corner and you often end up with homogenized, uninteresting content. If you say, ‘Let’s hire the world’s greatest storytellers. Let’s encourage them to take risks,’ then you’re going to end up with a remarkable story, and remarkable stories always find an audience.”: BI
  • 25 super-successful people share their best career advice for 20-somethings: BI
  • 5 habits visionary thinkers have in common: BI
  • July 15, 1838: Young Emerson’s Extraordinary Harvard Divinity School Address; Speak the truth, and all nature and all spirits help you with unexpected furtherance.  BP
  • How a debate between two of Wall Street’s most powerful CEOs went completely off the rails; “the problems you had in ’07, where you had brand names on a lot of these housing things; but worse than that, they believe there is liquidity here”: BI
  • 3 ways flat management structures can kill your business; It’s not about choosing the trendiest flat organization to adopt. It’s about finding the one that works best for your company. FastCo
  • Growing beyond the core business: McKinsey
  • Diebold Grows Bold: The ATM maker is remaking itself into a services-driven company. An Interview with Christopher A. Chapman, SVP and CFO, Diebold. CFO
  • Trump Builds One Brand and Damages Another; His true gift is an ability to exploit other people’s emotions, even those whose response to him is revulsion. It’s the art and craft of a demagogue.  NYT
  • Here’s why Salma Hayek’s billionaire husband made her go back to work after having a baby: BI
  • A Case of Successful Failure: Strategy&

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Pixar’s Ed Catmull: If something works, you shouldn’t do it again – Bamboo Innovator Daily: 15 Jul (Wed)

Life

  • Pixar’s Ed Catmull: If something works, you shouldn’t do it again. Fortune
  • Apple’s HR chief: Working with Tim Cook ‘actually helps you to be a better human being’: BI
  • One of the top producers in Hollywood shares the ‘superpower’ that’s shaped his success; Brian Galvin made it his mission to meet “every expert in the movie business” and ask them questions. He credits that spirit of inquiry – of genuine curiosity: BI
  • The liberating power of the ‘Plan Z’ worst-case scenario: FT
  • Patents are a terrible way to measure innovation: WaPo

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不择手段是豪杰,不改初衷真英雄; 坏人猖獗是因为好人沉默,沉默也是一种作恶; 提一口气,点一盏灯,有灯就有人。只有见惯了世间善恶,人世冷暖,充分的【入世】,最后才能在茫茫世界里找到自己这一叶孤舟,才能实现【道】的终极目标——【出世】。何安下是以极其真挚的态度来对待这个世界的,就是不管遇到什么挫折,他的赤子之心都从未改变。

Monk_Comes_Down_the_Mountain423398

Self-Driving Cars and the Economy of Fuel by Beth Kelly

14 July 2015

Self-Driving Cars and the Economy of Fuel

By Beth Kelly

Internet search leader Google is testing its self-driving automobiles on public roads this summer. This latest phase of testing follows previous successful trials, further indicating the fact that the reality of driverless cars is coming ever-closer to fruition. It’s only a matter of time before these autonomously operating vehicles begin to displace “traditional” human-directed cars – a development that will have serious repercussions across the whole of society.

There have been plenty of features introduced over the years to make driving a car easier, like power steering and cruise control, but Google’s driverless cars are a whole new ballgame. The on-board computer will handle accelerating, braking, steering, lane positioning and all other functions without human intervention, turning the “driver” into little more than a glorified babysitter. These awesome capabilities are made possible by the fusion of sophisticated sensors and cameras with heavy-duty computing machinery to process the incoming data and determine the correct action for the vehicle to take at all times. Indeed, it’s fair to say that this new type of automobile will be more tech gadget than horseless carriage.

fuelfuel-from-congestion

bull-and-bearcar_timeline-1400695895039

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Larry Page’s new role model: Warren Buffett; Here’s how billionaire Mark Zuckerberg defines happiness: “To me, happiness is doing something meaningful that helps people and that I believe in with people I love.” – Bamboo Innovator Daily: 14 Jul (Tues)

Life

  • Here’s how billionaire Mark Zuckerberg defines happiness: “To me, happiness is doing something meaningful that helps people and that I believe in with people I love.”: BI
  • Larry Page’s new role model: Warren Buffett: BI
  • The CEO of a $2.8 billion startup says his favorite interview question is something we’ve all been answering since we were kids: BI
  • What Entrepreneurs Can Learn From Authors: Forbes
  • Rihanna reveals the hidden rock ‘n’ roll world of accountants: FT
  • How To Improve Your Writing: 5 Secrets From Hollywood: Barker
  • Beyond Bias: Neuroscience research shows how new organizational practices can shift ingrained thinking. Strategy&

Read more of this post

Four Ways Nintendo’s Iwata Changed the World of Gaming; Industry Foes, Fans Pay Tribute to Nintendo’s Late President; “On my business card, I am a corporate president. In my mind, I am a game developer. But in my heart, I am a gamer” – Bamboo Innovator Daily: 13 Jul (Mon)

Life

  • Four Ways Nintendo’s Iwata Changed the World of Gaming; Industry Foes, Fans Pay Tribute to Nintendo’s Late President; “On my business card, I am a corporate president. In my mind, I am a game developer. But in my heart, I am a gamer”: Bloomberg1, Bloomberg2
  • Everybody is vulnerable at every stage of their lives; everybody is subject to illness, accident, personal tragedy, political and economic reality. This doesn’t mean that people aren’t also resilient and resourceful. Bearing other people’s vulnerability entails being able to bear one’s own. Indeed it would be realistic to say that what we have in common is our vulnerability; it is the medium of contact between us, what we most fundamentally recognize in each other. BP
  • How billionaire Michael Bloomberg made his fortune: BI
  • Researchers just discovered more than 5,000 new viruses in the ocean: BI

Books

  • Surviving Survival: The Art and Science of Resilience: Amazon
  • Deep Survival: Who Lives, Who Dies, and Why: Amazon
  • The Unthinkable: Who Survives When Disaster Strikes – and Why: Amazon
  • Verbal Judo: The Gentle Art of Persuasion: Amazon

iwatawithmariobros

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“A Community First, A Company Second”: Berkshire Hathaway’s Frugal Innovator DaVita and Are There Similar Wide-Moat Companies in Asia? – Bamboo Innovator Weekly Insight

 “Bamboo Innovators bend, not break, even in the most terrifying storm that would snap the mighty resisting oak tree. It survives, therefore it conquers.”
BAMBOO LETTER UPDATE | July 13, 2015
Bamboo Innovator Insight (Issue 91)

  • The weekly insight is a teaser into the opportunities – and pitfalls! – in the Asian capital jungles.
  • Get The Moat Report Asia – a monthly in-depth presentation report of around 30-40 pages covering the business model of the company, why it has a wide moat and why the moat may continue to widen, a special section on “Inside the Leader’s Mind” to understand their thinking process in building up the business, the context – why now (certain corporate or industry events or groundbreaking news), valuations (why it can compound 2-3x in the next 5 years), potential risks and how it is part of the systematic process in the Bamboo Innovator Index of 200+ companies out of 15,000+ in the Asia ex-Japan universe.
  • Our paid Members from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing.
Dear Friends,“A Community First, A Company Second”: Berkshire Hathaway’s Frugal Innovator DaVita and Are There Similar Wide-Moat Companies in Asia?CNBC’s Becky Quick: “Mark Blakely from Tulsa, Oklahoma, wrote in and said, ‘Would Ted Weschler explain what he likes about DaVita HealthCare Partners and why he finds this company such a great investment? Since Berkshire signed an agreement not to own more than 25% of DaVita, does Ted or Berkshire have any other intentions besides being a large shareholder?’”

Berkshire’s Ted Weschler: “Okay. I followed the dialysis industry for, mmmm 30 years now. Right outta college I started– studying. And so I know the space reasonably well. And I think the broad filters that I apply for healthcare investment in general is: Number one, ‘Does the healthcare company deliver better quality of care than somebody could get anywhere else?’ And DaVita falls into that. Number two, ‘Does it deliver a net savings to the healthcare system?’ In other words, is the total bill for U.S. healthcare cheaper because of the efficiency that the company provided? DaVita checks that box. And lastly, ‘Do you get a high return on capital, predictable growth– and, you know, shareholder-friendly management?’ Absolutely. And all three of those together– you know, you’ve got healthcare is whatever, 17%, 18% of GDP. You got an incredibly talented team running that company. I’m not sure what the stock will do over the next year or the next two years, but very comfortable at five years from now it’ll be a more valuable franchise.”

Does the healthcare company deliver better quality of care than somebody could get anywhere else?

Does it deliver a net savings to the healthcare system?

These are the two great questions asked by Ted Weschler, one of the two stock pickers Buffett hired as part of his succession plan, in assessing Berkshire Hathaway’s investment in Denver-based DaVita (NYSE: DVA, MV $17bn), the second largest operators of kidney dialysis centers with a network of 2,100 outpatient centers serving over 180,000 patients with around 34% market share in the United States, behind leader Fresenius (NYSE: FMS, MV$26.4bn). Berkshire Hathaway had accumulated 27.2m shares, or about 13% of DaVita in 4Q11, a stake increased to 38.5m shares worth $3.1bn, nearly doubling in value from its cost of investment while the S&P index was up around 50% during the same period.

These two questions are the hallmark characteristics of a frugal innovator, which encompasses the ability to do more with less, creating more business and social value because of the business model innovation in the way they operate, build and deliver sustainable solutions with cost-effectiveness, care, integrity and without putting strains on the broader societal system. Exploring further into the business model of Berkshire’s DaVita and frugal innovators will be useful for serious value investors to identify and assess sustainable wide-moat compounders in Asia.

Anyone who has seen a diabetes patient in a kidney dialysis center can immediately feel the morale and emotional commitment that is essential to the long-term health of the patient. Not only do they have to endure the pain of having two thick and long needles stuck in them as they sit hooked up to a machine, but also they had to come to the dialysis center for four hours or more three times a week. These scheduling left the patients feeling they have no control over their lives. Patients become depressed. Patients on dialysis often suffer other diseases such as cardiovascular disease. Patients missed their dialysis appointments because they found the treatment and its logistics unpleasant. And patients chose to end their treatment and therefore end their lives; about one out of five deaths of patients on dialysis was a deliberate decision by the patients.

What if dialysis patients are managed by a patient-centric “membership” plan that coordinates their total healthcare needs at a fixed fee – and the fee is potentially lowered over time as their overall health shows a consistent improvement? Thus, instead of paying for visits, procedures, and tests, patients pay for care per member. The nature of such contracts puts the provider “at-risk” for the costs required to care for each member, thereby creating an incentive to reduce costs through preventive care and improving overall health such that fewer and timely treatments are required. The mindset will be shifted to that of a frugal innovator to provide quality value-add solutions while sharing the benefits of the cost savings to get the best outcome for patients with the lowest consumption of high-cost, low-value inputs, such as unnecessary surgeries and treatment, duplicative tests, etc. For instance, the provider could arrange for the patient to use that four-hour time in dialysis chair on general needs, such as eye and foot exams. Physicians and care providers in the “at-risk” network are also rewarded with bonus based on clinical outcomes, patient satisfaction, and the performance of the larger group or region. This “at-risk” model is the alternative to the existing fee-for-service (FFS) which creates the distorted incentive to maximize the volume of services, as evident from the recent horrifying case of the Michigan cancer doctor who prescribed $35 million worth of unnecessary chemotherapy just so he could bill healthcare companies.

DaVita (NYSE: DVA) Stock Price Performance 1995-2015 Vs S&P 500 Index

DaVita

DaVita controls about $33,000 in Medicare spending for each dialysis patient, but those clients often are very sick with multiple illnesses and cost about $55,000 more each year in other health needs. Kent Thiry, chief executive of DaVita, says the company could manage the entire $88,000 healthcare needs per patient, saving the government money while improving quality at the same time. This coordinated managed care business model is a result of DaVita’s acquisition of HealthCare Partners (HCP), America’s largest operator of medical groups and physician networks with more than 150 medical clinic locations and more than 8,300 independent doctors, in May 2012 for $4.4 billion at the valuation of 8.4 times FY11 EBITDA.

HCP represents one of the few organizations that has actually demonstrated that ability for years via its strong primary care base, emphasis on prevention, integrated healthcare information technology infrastructure, chronic care management and care coordination efforts, performance measurement and reporting, and experience with taking “at-risk” patients. For instance, patient medical records are standardized and shared as part of a data-driven, team-based approach that coordinates the efforts of primary care physicians, specialists, hospitalists, nurses, care managers, and social workers. Patient data are analyzed to develop a best care plan for each patients; automatic intervention alerts help ensure patients take their medication and get proper preventive and follow-up care; home-care teams help keep patients stable in their home – all helping to avoid more costly ER (emergency room) visits and hospital admissions that also put further strains on the healthcare system. HCP’s integrated care management program for inpatient bed days per 1,000 among seniors was half the Medicaid fee-for-service average and the 30-day readmission rate was one-third lower – but with better quality measures. HCP is synergistic to DaVita’s existing VillageHealth which provides advanced care management services to government agencies with non-dialysis cost savings of 15% vs fee-for-service Medicare.

It was hard to imagine that when Kent Thiry took the helm in 1999 as CEO of Total Renal Care (TRC) with its 460 dialysis centers, the former name of DaVita, the company was near bankruptcy. It was losing more than $60m per year, was under investigation for fraud by the federal government, had a 40% staff turnover, exhibited poor clinical outcome measures relative to its peers, and had its bank covenants broken by this performance. Share price had plunged from $23 to $1.71 and was heading even lower. TRC was founded by Victor Chaltiel who tried to do financial engineering and M&A deals at the kidney dialysis centers based on his earlier success in flipping a former company for a good profit using such methods. Senior executives paid scant attention to the dialysis centers themselves, which were seen more as an avenue of corporate growth where patients and caregivers were economic units in a bigger financial structure. This headquarter-centric, financially-oriented operating culture did not win friends among the healthcare practitioners who worked hard in the field to deliver quality care.

Kent Thiry and his management team made a decision that was baffling at that time given that it was a crisis period: they emphasized the importance of the “softer issues” of values and principles, that the company should be a “A community first, a company second”: “Think of a small town where people have to pay taxes, this is OK if people feel they get value, a good police force, roads, parks. Similarly, there is no problem with shareholder profit in return for capital put into the business as long as the right things are done for the patients and teammates. But it must be fair and transparent.” The company was renamed DaVita, the name chosen by employees, meaning “giving life”. DaVita experienced a remarkable turnaround between 2000 and 2005, a transformation based on building a strong values-driven culture, with an emphasis on fact-based decision making (“no brag, just facts”) and the theme of “one for all, all for one” and an emphasis on company as community. From near-bankruptcy status, DaVita went on to become strong enough to acquire its Swiss rival Gambro, make its way onto Fortune’s World Most Admired Companies list, and market cap compounded from $200m to $17bn.

Kent Thiry, affectionately called KT many teammates in the company, reflected on the transformation:

“I realized that many corporations are lifeless, emotionally sterile, and culturally empty despite the fact that people spend a lot of their life in them. This was especially critical to address how decentralized our teammates are, how pressurized their work is helping patients with renal failure, and how easy it is to create a gap between management and the people at the front lines, and that was something I felt had to be addressed to have a sustainable strategy for DaVita. Equally important, it is just a better way to live. We call this the DaVita village, a place where we care for each other, sacrifice for each other, support each other, and together, create meaning in our work and in our lives, as we embarked on a quest to build the greatest dialysis company the world has ever seen.”

The organization was designed to be flatter and Kent Thiry began answering hundreds of emails from employees all over the company, compressing the distance from the CEO to the front line. A big part of the new philosophy was to recognize that the dialysis centers, where patient care was delivered and where most DaVita teammates worked, were key to the company’s success. To emphasize the importance of the centers, Thiry had all senior managers, himself included, “adopt” a center and drop by occasionally. The adopt-a-center program was adapted to “Reality 101” which entailed spending a week in a center helping to do the day-to-day work. Executives participated in activities such as machine set-up prior to dialysis, machine tear-down and disinfection post-treatment, helping with blood pressure monitoring, or whatever tasks they felt comfortable in performing. Thiry believed it was important not to push people to do things they felt uncomfortable or unskilled at doing, but it was important for people to experience what it was like to get up at 4 o’clock in the morning to get to the center at 5.am. so that it could be open for the first patients at 6 a.m. and to see what life in a center was about. Thiry understood that they needed the involvement, cooperation, energy and ideas of the clinic managers, the front-liners who make the centers work. A DaVita University and DaVita Academy were set up to provide training and build friendship and a feeling of team spirit among those who took the class together and to engage people fully in the DaVita spirit and way of relating to each other. The importance and role of DaVita’s values were embedded into the recruiting process.

From the case of Berkshire’s DaVita, value investors can draw a mental model of frugal innovators:

  • Unique business model with a deep domain knowledge that solves a major problem, creates a sustainable, mass-customized personalized solution, and shares in the benefit from the customer’s improved experience
  • Customer involvement throughout lifecycle, shaping customer behavior, using customers to motivate employees, and co-creating value with customers: With its unique total “managed care” business model for the customers, they are more engaged at every stage of the product or service life cycle, and this longer-term engagement can be capitalized into making the operational and innovation process frugal with more market-focused, cost-effective and agile R&D solutions, saving precious time and labor in the process. The business unlearns the insular and costly business practices that have been built on long and linear development cycles with little, or at best arm’s length, customer involvement.
  • Flexing of organizational assets, sharing of resources, “distribution” and “delivery” to the last mile, integration of technology into the business model to bring about an informational advantage in the delivery of customer experience
  • Emphasis that frontliners matter in the value creation process, engaging and empowering them with decision rights and accountability, transferring the deep domain knowledge to frontliners, acknowledging their efforts and potential as a whole person
  • Fostering a unique aspirational culture with Focus, Purpose and bold Commitment
  • NO COMPLEX FINANCIAL ENGINEERING SCHEMES TO GENERATE SHORT-TERM OPPORTUNISTIC PROFITS

In Asia, when we hear frugal innovation, perhaps one of the first images that come to mind could be Tata Motors Nano car, the lowest priced car in the world, which underperformed its massive expectations. Nobody wants to be seen driving the lowest-priced car! Frugality was not crafted into a higher purpose of values that customers aspire towards, akin to the case of Ryohin Keikaku (TSE: 7453 JP), the owner and operator of MUJI, the “no-brand” retailer whom we had written in the earlier article “Brand It Like Buffett in Asian Wide-Moat Consumer-Brand Innovators” in how they made “frugality” and simplicity an aspirational value for its loyal base of hardcore consumers to embrace. Another image that comes to mind is China’s Xiaomi, the low-cost smartphone that was first launched with basic features and then use suggestions from millions of consumers to add new and better functions to their products, which they bring to market within weeks and using their own online distribution platforms to cut out the middleman. Thus, there are astounding success stories in Asia about frugal innovators that value investors and entrepreneurs can learn from. We find that the most outstanding successes are usually organizational-wide business model innovations, like DaVita and MUJI, as opposed to product innovations. Unless of course these product innovators are like the Godrej Group who has fostered a culture of innovation over the decades to create continuous product innovations.

Godrej Consumer (NSI: GODREJCP) Stock Price Performance 2001-2015 Vs Nifty Index

GodrejGodrej2

Godrej’s steel almirah was made in 1923 and built to last, one of Godrej’s guiding philosophies for all its products. It is also a timeless icon of a father’s love for his daughter as her wedding gift that says, Keep my love safe, You are my gold. G. Sunderraman and Sanjay Lonial with the ChotuKool, a low-cost refrigerator designed for India’s poorest households.

We wrote about the frugal innovator Godrej and its low-cost refrigerator ChotuKool targeted at the bottom-of-the-pyramid consumers in an earlier article “Keepers of the Flame: Revisiting the Origins of Compounders in India and Asia” when we visited leading companies in India (Mumbai, Delhi, Pune) in Dec 2013:

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Benjamin Franklin, one of the founding fathers of the United States and the archetypal Bamboo Innovator says it best about frugal innovators:

“The way to wealth is as plain as the way to market. It depends chiefly on two words, industry and frugality: that is, waste neither time nor money, but make the best use of both. Without industry and frugality nothing will do, and with them everything.”

Which are the other three frugal Bamboo Innovators in Asia mentioned in the article?

Read more at the Moat Report Asia: http://www.moatreport.com/updates/

PS: An Announcement…

We have shared our earlier plans to launch a series of innovative and transparent smart-beta indexing products based on the Bamboo Innovator methodology to systematically identify and invest in neglected, overlooked, misunderstood and underappreciated wide-moat resilient business models with a scalable fund capacity build-up.

In order to accelerate this collaborative plan, I will be joining a listed investment holding company, which has a market capitalization value of over S$300 million, with effective from 1 September 2015 as their Chief Investment Officer (CIO) to spearhead this business project, in addition to taking care of the sustainable outperformance of the listed equities investments, and to source for and add value to undervalued high quality private equity opportunities, together with a dedicated team of seven business analysts (including myself). I am very excited and grateful to be joining the team to create value for the supporters; over 200 shareholders turned up at the Annual General Meeting last week asking great questions.

AGM

Back in 1997, Dell CEO and founder Michael Dell had been quoted as saying that he would liquidate Apple and return all the cash to shareholders if he owned the company. This prompted Steve Jobs to get up in front of his team and say the following:

“The world doesn’t need another Dell or HP. It doesn’t need another manufacturer of plain, beige, boring PCs. If that’s all we’re going to do, then we should really pack up now. But we’re lucky, because Apple has a purpose. Unlike anyone in the industry, people want us to make products that they love. In fact, more than love. Our job is to make products that people lust for. That’s what Apple is meant to be.”

To paraphrase Jobs, perhaps the investment world does not need another star fund manager, as opposed to an asset management organization that is able to scale up sustainably because of its process-driven investment know-how. There seems to be something missing in the long hard chase for performance in the asset management and wealth management industry. Stage 1.0 is revolutionized by John Bogle’s passive low-cost index model introduced 40 years ago in 1975 as Vanguard. Stage 2.0 is disrupted by Robert Arnott’s Research Affiliates (RAFI) in 2002 and Jonathan Steinberg’s WisdomTree (WETF) in 2006 with their fundamentals-weighted indexing with quant-based criteria that include sales, earnings, book value, cashflow, dividend yield, and so on. Over $2 trillion in funds have shifted from the conventional fund management business to these indexes. However, fundamentals-indexing has become an overcrowded strategy with everyone copying and chasing the same quant factors generating diminishing marginal risk-adjusted returns and also made unnecessarily complicated with multi-factors thrown into the black box that is increasingly darker.

Importantly, the existing smart indexes are not necessarily adapted to the Asian capital jungles with (1) its distinctive potential accounting tunneling fraud and misgovernance risks with high-net-cash-in-balance-sheet stocks unravelling in accounting scandals, as well as (2) the type of business models that are competitive and increasingly valuable in the Asian business environment.

Imagine if there is a smart-index that can take away the fear factor of investing in Asian accounting fraudulent stocks with deceptive visual signals that include low price-to-book, low PE ratios, high profit margins and ROE, decent accounts receivables and inventory turnover period, and high net cash as percentage of market cap.

The index also goes one more step to eliminate the alluring value traps without a resilient and innovative business model.

This systematic process combines financial data with a wide array of contextual information – including the analysis of governance, group structure and ownership, suspicious related-party transactions, money-go-round off balance-sheet activities, textual/linguistic analysis of news about the company and management, the proprietary Bamboo Innovator business model analysis – and looking through this lens to reach fresh insights in assessing firm value and performance. More than 96% of companies are eliminated in the process – around 30% are those with a higher likelihood of fraud or governance breakdown, and around 60% are potential “value traps”. What’s left is a Watchlist of around 550 companies. This watchlist filters down to 230+ companies, or 1.5% of the original investment universe.

The Asian Bamboo Innovator Index fund will be scalable with a clear and scalable fund capacity buildup of at least $1 billion (an equal-weighted index of 200 stocks meeting liquidity requirements with up to $5 to $20 million in each stock), rebalanced every quarter and periodically in the event of major corporate actions such as spinoffs or corporate restructuring. Related funds using the same scalable know-how, including a concentrated fund that holds 20-30 stocks, will also be offered for investors.

This is what we wrote in our very first issue of the Bamboo Weekly Insight on 6 June 2013:

Intuit’s former Chief Technology Officer and entrepreneur David Murray summed up his years of experience in remarking that we are great at solving problems but less adept in defining the right problems. LinkedIn’s founder Reid Hoffman expounded on this when he said that it’s really asking “How can I help?” and to “fulfill needs, solve problems”. The primary problem for value investors in Asia is that the beautiful macro Siren is alluring but dangerous at the micro or firm-level, leaving even experienced money managers shipwrecked before they reach their target destination for their clients. This Bamboo Innovator research product is meant to solve this problem.

A longer-term plan in the works will be to develop a Bamboo Innovator index product. The self-indexing trend to embed “smart-beta” investment strategies, such as weighting companies by low-volatility or by fundamentals such as dividends or “value” attributes, have proven to be a meaningful displacement to the active fund managers, private bankers and financial advisors who have thrived by shifting client’s assets around according to the “flavor of the month” or some hot popular themes to generate lucrative fees and expenses to the detriment of the investor. Gather assets via attractive middleman/intermediaries/deals and churn the assets. This “people-based” approach has been a contrast to the “know-how”-based management of assets by a resilient investment process to scale up funds to generate sustainable outperformance. The acid test to distinguish between the two approaches is simple: Just ask whether “Is there a larger idea and purpose than the people?” Such “people-based” fund managers and intermediaries have been hit during the global financial crisis as a significant number of Asian fund managers get their “long-term” track record numbers before Oct 2007 while the newer funds are benefiting from the general uptrend from the March 2009 bottom but may not last in the upcoming painful transition phase in Asia for the next five to ten years. Many of them have the mindset to just lure assets in, get the fees, get deals, and cash out.

There is a balance sheet constraint to earnings manipulation both at the country and company level and Asia is in the vortex of this transition phase. Coordinated macro-based and monetary policies – Let’s print and pump together! Let’s all build infrastructure and capacity! – that worked to temporarily overcome the 2007/08 crisis will need to diverge as a result of differences in balance sheet constraints. The pouring in of the thunderous credit growth has not translated into real growth with diminishing returns and even losses from malinvestments.

Interestingly, Rob Arnott’s Research Affiliates who pioneered weighting companies by their fundamentals and economic footprints rather than by market value has resulted in over $100 billion in assets invested or advised by them during the past five years in the aftermath of the crisis. However, perhaps there has been a crowding of assets and most end up pursuing similar quant-based “fundamentals” strategy, resulting in correlated performance and destructive destabilizing price impact in deleveraging crises situations.

Gaining a deeper insight about Asia through the eyes of the innovative resilient compounders and not through the myriad confusing macro, sector and thematic prognosis or even simplistic quant-based “fundamentals” is critical in the next decade as the innovators break apart to outperform in uncertain times. In other words, opportunities will be about identifying and weighting companies by their “moats” and business models, as Morningstar did for its Wide Moat ETF and hopefully the Bamboo Innovator index.

Investing has to be simple in complex times to outperform and compound value, staying clearheaded when we are guided by the Bamboo Innovator as the inner compass in the Asian jungle.

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It is with great sadness that I am bidding farewell to my students in the Singapore Management University (SMU). I am fortunate to have the chance in helping the students to acquire the required technical accounting competencies and sharing with them the importance of sharpening their critical thinking skills and embracing the right values and ethics. Some kind feedback from the students includes:

  • “I am writing to show my gratitude for Prof Kee Koon Boon for his outstanding teaching. As a graduating student in SMU and through my four years education in SMU, Prof Kee is one of the most passionate and knowledgeable lecturers/professors that SMU has.. I cannot emphasize how important is this module to accounting and finance professionals. There have been widespread media reports on accounting fraud scandals in China-based companies. To put it across bluntly, these reports are ex-post and the harm has been done. What the public needs is ex-ante reports to identify these potential accounting frauds. Despite me getting A+ for Financial Accounting module, Management Accounting module and Corporate Reporting & Financial Analysis module, it never occurred to me to judge the accounting numbers beyond their face value. This module has brought great insights to me through the various methods taught to detect accounting fraud. For SMU to continue producing excellent financial professionals, this module on Accounting Fraud should be expanded to take in a larger amount of students genuinely interested in this subject.”
  • “I was moved into writing this letter of appreciation letter for Professor Kee Koon Boon for his work done for the module Accounting Fraud in Asia. This module.. will undeniably be one of the most useful course SMU undergraduates will find themselves taking.. his exemplary teaching quality and methods will continue to help nurture graduates with an edge who will be highly sought after by corporations. What Prof Kee is teaching is vitally important, because most accounting systems today are focused on post-mortem fraud, investors today are not equipped with the vital skill of fraud detection ex-ante.. His constant encouragement.. shows his deep concern for our core growth and maturity, not just in terms of academic development and technical skills, but also in terms of our character development and desire to do good for society. He is truly an educator and a teacher, in every sense.”
  • “I am touched by your spirit and passion, so keep this teaching style spirit going and impact more students! With that, I would like to thank you for the sharing session from interview to fraud class lessons as well as thank you for leading me in finding the energy of myself.”
  • “Besides the technical skills and knowledge, I think there are other aspects of my life that you “value add” to. For example, how to persevere and be positive, how to “hold on together” so that “our dreams will never die”. These are values which other professors will not share. You are one of the most dedicated, hardworking and “on the ball” professors that I have come across.“
  • “I have thoroughly enjoyed your lessons so far. In fact your lessons are something that I look forward to during the week. After working in the hedge fund industry for 8 months last year, I find that it is really rare for someone like you to come out and share your insights and experiences with the world, or even to undergraduates like us without expecting anything in return. I truly admire your spirit and generosity that is similar to that of Benjamin Graham or Bruce Greenwald, reputable masters in their own rights. The learning goes beyond the classroom, and the website is a great tool for students and the general investing public to learn as well. At the end of the day, what really matters is how much value you have added in this world. For that, I believe your work has benefited many of the enthusiastic students in class and have educated investors who are keen to invest in Asia but are looking to arm themselves with background knowledge to finesse their way through the Asian capital jungle.”
  • “Right on the cusp of entering the working world, we are thoroughly grateful to be on this journey with you. And I say this in a continual manner because I’m certain our journey doesn’t end here. Thank you for your generosity in sharing your knowledge with the class. Thank you for your passion in uncovering fraudulent activities for the good of investors and the quest for rightness. Thank you for your being the genuine spirit that you are, truly committing yourself to the noble cause of educating us and leading us along with you in the pursuit wisdom and character.”
  • “There is no thread of doubt that we are learning highly proprietary and beneficial stuff from you and the goodness is beginning to take shape in us slowly. These seeds once sown will grow further with time and I must thank you for showing us to the gates of this new realm and equipping us with the necessary weapons to outlast if not conquer the Asian Capital Jungle eventually. Beyond these, having been through 7.5 semesters with just 5 weeks of SMU life remaining, I must tell you that I count myself really fortunate to have taken your class right before leaving school. I must honestly say that you are the most enthusiastic Prof I’ve met in school and just like the video of the Chinese singer you showed us in class, your great work shines through and has inspired me a lot. Beyond technicalities, it has taught me to be really really thorough in the pursuit for excellence, esp as a young entrant into the financial industry. Your class contains the most practical wisdom compared to other mods in SMU and all this are what ‘true value’ in education really mean.”
  • “Thank you for your passion and guidance during the past 4 months. Through this course, I was able to see the various ways accounting fraud can be perpetuated in Asian society. I indeed have a greater awareness of my own shortcomings and have a clearer sense of direction on which career path I should choose in future – to avoid being swayed towards greed and worldly pleasures but instead lead a life of sufficiency, gratefulness and service.”
  • “Thank you for the effort and dedication in the materials & speakers you have provided for us! I have learnt knowledge that have been picked up from valued experiences from yourself as well as speakers like Mr Hemant Amin, knowledge that I would not be able to amass unless through the course. I am thankful to have taken Accounting Fraud because you have taught us values together with knowledge. A compass that will continue to guide us in our journey.”
  • “The instructor is very dedicated to his job… He also has great experience and insights into current issues and always tries to bring them into context with what we are learning.”
  • “… willing to share his insights into different subject matters and let us think deeper into what is taught to us.”
  • “… a very caring and understanding professor who takes the effort to encourage students – concepts learnt can be readily applicable to the working world”.
  • “… a very responsible and helpful professor who is willing to share his insights to the class. He is also extremely knowledgeable in many aspects and there is a lot to learn from him.”
  • “Prof is very approachable and I’m most impressed by his sincerity and passion in sharing valuable lessons with us.”
  • “Patient, kind, caring and considerate of individual, special needs of students. Always warm and approachable.”
  • “Prof Kee has inspired me with his enthusiasm in learning and the vast knowledge that he possessed. He was very willing to share his wisdom with us and is definitely a great teacher.”
  • “Prof Kee is very friendly prof. He makes an effort to get to know each student and is genuinely interested in the conversations of us students. He is also very knowledgeable and passionate about learning. His sincerity is heartwarming and he is a good role model for students. Thank you Prof Kee!”

We will be continuing our course Accounting Fraud in Asia and Wide-Moat Analysis of Bamboo Innovators periodically for lifelong adult learners, professionals and serious value investors. We are grateful to have the economic crime prosecutors at AGC (Attorney’s General Chambers) and institutional fund houses who have expressed interest in these courses.

We are grateful to have your support all this while. Please rest assured that we will continue to pour forth our dedication and utmost effort to deliver more unique value-added solution to our Members.

Warm regards,

KB

The Moat Report Asia

www.moatreport.com

A new monthly issue of The Moat Report Asia is now available!

Access the in-depth idea presentation:

http://www.moatreport.com/members/

This month of July, we highlight Asia ex-Japan’s largest maker of a mission-critical automotive electronics part that is dubbed the “nervous system” in cars whose electronic content is rising due to the Green, Connected, and Autonomous automotive trends. Without this “nervous system”, the various auto parts cannot start and work. While it is considered a Tier-2 auto parts supplier, [Company’s name] directly participates in the design process of Tier-1 suppliers for most of its [Flagship product’s name] to be “designed-in” and as a result, enjoys sole supplier rights during the first 2-3 years following a new model launch. In addition, [Company’s name] has changed its sales model in China from a distributor model to direct selling, forging Tier-1 relationship with the major Chinese automakers, including accounting for over 50% of [Flagship product’s name] used in emerging electric vehicle maker BYD (1211 HK). Its top ten customers account for around 44-50% of sales. [Company’s name] has pursued the strategy of a diversified customer base to lower operating risk so that “no one “no one customer can seal the life and death of [Company’s name]”, and the rest of sales are contributed by hundreds of customers.

In the ruthless cut-throat automotive industry, the fact that [Company’s name]’s EBITDA margin at 33% is twice that of world-class Bosch India (BOS IN), arguably the best auto parts company listed in Asia, and [Company’s name]’s ROE of 20.5% is also higher than Bosch’s 14.5% speaks volume about [Company’s name]’s wide-moat advantage in securing long-term pricing power and earnings sustainability with the major OEM carmakers by winning their trust to strike long-term partnership. Bosch India trades at an expensive valuation premium of EV/EBITDA 42.9x compared to 12.2x for [Company’s name]. [Company’s name], with its technical superiority in developing low-cost innovative solutions and in generating higher profitability and growth, deserves to command comparable a higher valuation. Short-term downside is protected by a decent cash dividend yield of 4% and supported by a healthy net-cash balance sheet generated from internal free cashflow as opposed to external equity or debt funding.

Led by the highly inspiring Mr. C, [Company’s name] has toiled for more than 10 years since it entered China before bearing some of the fruits. [Company name]’s sales has climbed nearly 31% since FY11 while EBITDA growth is stronger at 78% with the impressive improvement in gross margin from 34.2% to 42.1% due to greater sales weight of higher value-add products that include [Flagship product’s name] for electric vehicles (EVs). Now the growth momentum has hit the tipping point for [Company’s name] to accelerate its profitability significantly in its visible long runway to supply the mission-critical automotive electronics part that is dubbed the “nervous system” in cars whose electronic content is rising due to the Green, Connected, Autonomous automotive trends. Net profit and EBITDA could potentially double in the next 5 years by FY2020, pointing towards a doubling in market value.

Charlie Munger: The Complete Investor – Bamboo Innovator Daily: 12 Jul (Sun)

Life

  • The CEO of one of the fastest growing business apps ever used an ingeniously simple analogy to explain why companies succeed; Stewart Butterfield of Slack: Is Empathy on Your Résumé?: BI, NYT
  • Successful Startups Don’t Make Money Their Primary Mission: HBR
  • Communicating a Corporate Vision to Your Team: HBR
  • What If Everything You Knew About Disciplining Kids Was Wrong? Negative consequences, timeouts, and punishment just make bad behavior worse. But a new approach really works.: MJ
  • Meet the ‘Sherlock Holmes’ of the art world: AsiaOne
  • D.I.Y. Education Before YouTube: NYT

Books

  • Charlie Munger: The Complete Investor: Amazon
  • Never Be Lied to Again: How to Get the Truth In 5 Minutes Or Less In Any Conversation Or Situation: Amazon

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Empathy Is Actually a Choice; What Would Buddha Say?: 1,501 Right-Speech Teachings for Communicating Mindfully; How Would Buddha Act?: 801 Right-Action Teachings for Living with Awareness and Intention – Bamboo Innovator Daily: 11 Jul (Sat)

Life

  • Empathy Is Actually a Choice: NYT
  • Why Sherlock Holmes endures; Holmes put it best: “Education never ends, Watson.”: WaPo
  • The importance of diversity of thought for solving wicked problems: Forbes
  • The Great Gift of Reading Aloud; To curl up with children and a good book has long been one of the great civilizing practices of domestic life, an almost magical entry point to the larger world of literature. WSJ
  • Thoughts on corporate governance: Forbes
  • Zappos CEO Tony Hsieh believes rave culture holds a key to business strategy: qz
  • Career advice for millennials (and really, anyone) from Margaret Heffernan; In her career, Margaret Heffernan has been the CEO of five businesses. What advice does she have for people just starting their careers? TED
  • Warren Buffett revealed this ‘great philosophy of life’ in a letter to a hedge fund manager: “I follow the dictum praise by name, criticize by category.”: BI
  • With over 37 million YouTube subscribers and a reported $7.4 million earned last year, Felix “PewDiePie” Kjellberg is among the top YouTubers in the world : BI
  • The CEO of A&E Networks shares the 3 types of people you need on every team: “You’re either a thinker, a doer, or a feeler.” : BI, NYT
  • The world’s most popular TED speaker explains why schools should be more like farms, not factories: BI

Books

  • What Would Buddha Say?: 1,501 Right-Speech Teachings for Communicating Mindfully: Amazon
  • How Would Buddha Act?: 801 Right-Action Teachings for Living with Awareness and Intention: Amazon
  • Taking Smart Risks: How Sharp Leaders Win When Stakes are High: Amazon
  • The Great Detective: The Amazing Rise and Immortal Life of Sherlock Holmes : Amazon
  • Straight to Hell: True Tales of Deviance, Debauchery, and Billion-Dollar Deals, Amazon, BI

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29 incredibly successful people who failed at first – Bamboo Innovator Daily: 10 Jul (Fri)

Life

  • 29 incredibly successful people who failed at first: BI
  • The founder of Sam Adams created a unique ‘speed coaching’ method for entrepreneurs: BI
  • What we can all learn from the gutsy way 13-year-old Steve Jobs landed a job at HP: BI

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The Key to Making Smarter Long-term Decisions; Instead of following your passion, find a career that changes people’s lives; Flannery O’Connor on Art, Integrity, and the Writer’s Responsibility to His or Her Talent – Bamboo Innovator Daily: 9 Jul (Thurs)

Life

  • The Key to Making Smarter Long-term Decisions: K@W
  • Instead of following your passion, find a career that changes people’s lives: qz
  • Flannery O’Connor on Art, Integrity, and the Writer’s Responsibility to His or Her Talent: BP
  • Ten Pairs of Opposite Traits That Creative People Exhibit: Farnam
  • Leadership Is a Contact Sport: The “Follow-up Factor” in Management Development: Strategu&
  • Researchers discovered a psychological trick that will help you stop procrastinating: BI
  • Who’s In Charge Of Asia’s Family Businesses? Forbes
  • Are Marshall Goldsmith’s Triggers the Only Way to Change?: Strategy&

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A former Apple employee reveals the most memorable piece of advice he ever heard from Steve Jobs; Entrepreneurs need to think like scouts, not tourists: Look for the “software,” not the “hardware.” Pay more attention to scale-up and growth, than to startup. Look beyond what people tell you. Try to identify and meet the hidden heroes – Bamboo Innovator Daily: 8 Jul (Wed)

Life

  • A former Apple employee reveals the most memorable piece of advice he ever heard from Steve Jobs: BI
  • Entrepreneurs need to think like scouts, not tourists. Look for the “software,” not the “hardware.” Pay more attention to scale-up and growth, than to startup. Look beyond what people tell you. Try to identify and meet the hidden heroes: HBR
  • 9 super-successful people share their biggest leadership secrets: BI
  • What every employee can teach their boss: Be caring; Believe; Give more; Maintaining a solid team requires honesty, openness, and a willingness to listen. Fortune
  • Professional qualifications convey a message but they foster potentially misleading generalisations: FT

Books

  • Gomorrah: A Personal Journey into the Violent International Empire of Naples’ Organized Crime System : Amazon
  • ZeroZeroZero; From the author of the #1 international bestseller Gomorrah comes an electrifying investigation of the international cocaine trade, as vicious as it is powerful, and its hidden role in the global economy: Amazon

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