Category: Book

Book

Book Review: It’s How We Play The Game

by MQDuong1 Comment on Book Review: It’s How We Play The Game

The story of how Dick’s Sporting Goods grew from a modest store in New York to one of the premier retail chains in the country is a fascinating page-turner.

Ed Stack is the son of Richard “Dick” Stack, who founded Dick’s Sporting Goods in Binghamton, New York in 1948. By the time Ed hit teenage years, Dick forced him to work part-time at the store because it was the family business and what put food on the table. Ed hated the work because it stripped him of valuable time to play baseball. Ed’s misery stopped when he went to college with the dream of becoming a lawyer. A few jobs here and there happened. One thing led to the next and suddenly Ed found himself back working at his father’s business. Ed applied what he learned while away from his father and improved the business. As Dick’s health declined, Ed gradually took over the company and ran the show. Father and son had vastly different opinions on how the company should operate. Eventually, Ed and his sister Kim bought out his father to gain total control.

The gripping account of Dick’s Sporting Goods’ transformation over the years includes valuable lessons to entrepreneurs, business leaders and students.

  • The business twice came close to bankruptcy, all because of the ambition to grow too big too fast. Through the near-death experience of Dick’s, readers can see that hyper growth is usually the rope that business leaders use to hang themselves. Grow too fast without supporting systems, especially cash flow management, and you may find yourself insolvent
  • To Ed, it’s very important 1/ walk the store and talk to the customer; 2/ pay attention to competitors and market trends; 3/ grow quietly under the radar as much as possible to avoid competition; and 4/ constantly change to stay competitive

I particularly like the chapters in which he walked the audience through the decision to stop selling guns at Dick’s. The ban on firearms sale hurt the company’s bottom line, but it was a brave decision. Not every CEO prioritizes doing the right thing over pleasing investors and their personal interests. Ed did that and as someone who advocates for gun control, I am thankful to him for doing that. I hope that the example that Dick’s Sporting Goods shows can inspire other leaders to take a stand and do the right thing.

If you look for a nice business read, I’ll recommend “It’s how we play the game“. And here are a few highlights:

On the danger of growing too fast

“We did. Our available cash dwindled. Store sales couldn’t come in big or fast enough to keep up with our needs. Another indication that our operations were out of whack: our shrink numbers rose to 2 percent of sales, double what’s usually regarded in the industry as acceptable. All of these issues were directly tied to our expanding too fast. This wasn’t measured growth. In 1996, all of these factors converged simultaneously: We had no money and no prospect of getting more—we were up against our credit limit. We had too much cash tied up in too much inventory and no way to relieve that situation besides slashing costs and taking losses on our merchandise. We were crushed by high operating and capital costs that we’d brought on ourselves. We used primitive systems incapable of helping us run so large a company. And we were spread across too wide an area, without the logistics in place to keep merchandise moving smoothly.”

“Not only did we open too many stores too quickly, we opened bigger stores—we introduced a new Dick’s prototype that measured a whopping sixty thousand square feet. The architecture we put into these cathedrals cost more to build—fancy floors, which were just plain stupid, because nobody noticed. Expensive fixtures. Design details that added up fast. The changes probably boosted our overhead with no return on our investment and did nothing to drive additional sales.

We located them in markets where we really didn’t know what we were doing; in one year we opened three stores in Cincinnati, three in Philadelphia, and three in Baltimore, all cities in which we had little on-the-ground history or insight. We didn’t take time to understand the hunting and fishing business there. What did we know about the catfish culture in Cincinnati, or fishing for rockfish and blue crab in the Chesapeake Bay? Not much. That showed in low sales volumes. At the same time, we made other mistakes. These stores were overinventoried and cost more to run, market, and supply.”

Business lessons for retailers

“He considered it a disservice to that shopper to have him leave the store without everything he needed to get the best possible results from his purchase. He roamed the floor through the day, visiting with customers, making sure that each one felt, every minute he was in the store, that he was looked after. The moment the front door opened, we were to be on hand to greet the guy walking in and be ready to answer his questions or show him around. Treat him as you would a guest at your house, I remember him telling me: “If you had a visitor there, you wouldn’t keep doing what you’re doing. You’d drop it to say hello and make him feel at home.”

That was a lesson that stayed with me. You can have the greatest merchandise in town, but if you don’t throw your energy into customer service, you won’t keep people coming back. To this day, nothing annoys me more than to walk into a store unacknowledged. I hate having to roam the aisles looking for help. At 345 Court Street, that never happened.”

“And it reinforced a truth that has been demonstrated to me time and again, which is that the moment a business stops evolving, the moment its leaders sit back and think, Everything’s good, that’s when it starts to fail. Maybe that’s especially true for retail. Change has to be a constant. Improvement can never end. You have to stay fresh to your customers, and to do that you have to be perpetually rethinking everything you do, questioning your every assumption. You have to be willing to sometimes blow up everything in the name of staying focused, and exciting, and better—and ahead of your competition.”

“One of the principles that guided Walton was to grow his business quietly, unobtrusively, to stay below the radar so that his competition didn’t notice him. He did it by expanding his geographic reach in concentric circles, radiating out from his launching point in tiny Bentonville. We replicated Sam Walton’s strategy. From Binghamton, our expansion had come in small, outward steps—to Syracuse, then Rochester, then Buffalo. From there we moved in the early nineties to Albany, New York, about 130 miles northeast of Binghamton; put a second store in Buffalo; then opened another ninety miles to the southwest in Erie, Pennsylvania. After that we slid eastward to Springfield, Massachusetts, eighty miles from Albany, and Hartford, Connecticut, twenty-five miles south of Springfield. These were small or medium-sized markets, which gave us a shot at customers without having to worry too much about a bigger, better-capitalized competitor moving in on us.”

“The key to everything I’ve talked about—the way the stores looked, the products we sold, the booming sales—was that our leadership team kept visiting our stores. I’d spend two days a week, three weeks a month, out in the field. I’d fly into a city such as Charlotte, where we had several stores, and all the store managers would meet me and our team from Pittsburgh at one store. We’d walk the aisles and talk to them. More important, we’d listen. I wasn’t there to critique their operations.

I wanted them to tell me what their customers were saying—about the store, about particular products they liked or didn’t like, about what they wanted but we didn’t have. I wanted these managers to tell me what we were doing right and, more urgently, what we were screwing up. The longer these visits went on, the more enthusiastic the managers and their staffs were about talking, because it became clear that we sincerely wanted to know what they thought. The insight they offered was the difference for Dick’s. It kept us relevant to our customers, and it kept us alert to shifting trends in popular taste.

“I’ll give you an example of how one of these visits changed our business. In 1997, a group of us went to Baltimore to walk through our stores there. Our manager in Columbia was a guy named John Jones. I asked him how things were going, and he told me that kids were coming into the store all the time, asking for this new product, a compression base layer that football players had started wearing under their pads. ”

Life lessons

“When you dig down into the roots of success, it has little to do with brilliance. I’ve known plenty of geniuses who didn’t amount to much, and quite a few numbskulls who’ve done well. We all have. Life teaches that success also has little to do with talent—we’ve all met really talented, creative people who can’t translate that talent into a successful career. No, success is all about what’s inside you, and the most important element of success is simple perseverance—often tedious, sometimes soul crushing, but the great differentiator in whether smarts, talent, and education add up to something bigger. Great musicians practice to perfection. Engineers refine and test, refine and test again. Athletes never stop training. And my dad, knocked on his ass, got up, dusted himself off, and got back in the fight”

“And a thought came to me, in my father’s voice—a memory decades old, from an exchange otherwise forgotten—delivered in his signature tough-guy style: “If you start something, you finish it. End of conversation.” I might have just as easily conjured another voice, my gramp’s: “If you tee off on number one, you putt out on eighteen.”

“Once seated at a table, he and I exchanged pleasantries for a few minutes before he reiterated that Callaway wanted to open us up. But before we do, he said, I have to ask you a question. Who were you bootlegging the product from?

“Bruce,” I said, “I can’t tell you that.” “Well, if you don’t tell me,” he shot back, “we won’t open you up.”

“Bruce, I’m not going to tell you,” I said. “I don’t think it’s our job to police your brand, and I’m not going to tell you.”

I could see he was getting angry. “If you don’t tell me,” he said again, “we won’t open you up.” It was pretty clear to me by now that getting the names of the people selling us product was the real reason I was there. I doubted he ever planned to bring us aboard.

I looked him in the eye. “Bruce, my mother taught me two things, growing up. Number one, you go to church on Sunday. And number two, you don’t rat on your friends. I’m not going to tell you.”
Bruce said it was a shame that we wouldn’t be doing business.

“I said that I guessed the meeting was over.”

Book

Book Review: Twelve Years of Turbulence

by MQDuong1 Comment on Book Review: Twelve Years of Turbulence

Gary Kennedy worked at American Airlines for 30 years and served as the General Counsel during arguably the company’s most tumultuous period. He was the leading legal voice when American went through the bankruptcy more than a decade ago and the merger with US Airways. Gary reflected his experience in the book Twelve Years of Turbulence.

This book pulled back the curtain on the airline industry and the bankruptcy process. Chapter 11 is something that I read on the news once in a while, but it still remains a novelty. A foreign concept. Through the account of Gary and American’s own bankruptcy proceedings, I learned more about this unique process, including some key players and protections offered by the laws. Additionally, this book is a valuable resource on the airline industry. I became more familiar with how airline executives could struggle to deal with the unions. If I had been on the fence about investing in airlines, which I was not, I would have made up my mind after reading the book. I do have to call out the light touch that Gary applied to his book. A lawyer by trade, he could have made this book as boring as a legal brief. But I never felt that way going through all the pages.

I am pushing myself to read more and more books that can give me an edge in investing. That means reading what few others read. That also means the more a book is about a specific industry or offers insights into the inner workings of a company, the better. I think this book is a good start on that journey for me. Even if the book is not a mainstream work, it’s easy to read, yet it taught me a few unique things here and there. If what I have said so far and the snippets below interest you, give it a go.

“Carty reminded the union leaders that months earlier he had shared with them his concern that the continued deterioration of the company’s financial performance was driving officers to leave the company at alarming rates, and that he needed to take action to stem the tide. He had also told them that he had instituted a program to entice certain officers to remain with the company during the difficult times. Carty’s explanation fell on deaf ears.”

“As the details disclosed in the 10-K became widely known, matters grew more urgent as the unions cried foul and demanded that American reopen negotiations on the concessionary package. The unions wanted to rewrite the deal before the ink was dry on the first deal. The flight attendants went one step further. The Association of Professional Flight Attendants (APFA) announced a decision to rescind the earlier vote approving the concessionary agreements. They planned to have a revote on the concession package. It was total chaos. No one knew exactly what to expect or what could be done to get the concessions back on track and the company moving forward.”

“At another debate centered on the 2007 PUP payment, Arpey told the executive officers that he had decided to forgo 100 percent of the payment due him. He made this decision in spite of the fact that he didn’t receive a PUP payment in 2006 because he refused to accept the stock awards granted to him by the board in 2003. He reasoned that by refusing payment, he could provide “cover” for the rest of the management team and use his sacrifice to curry favor with labor. He desperately hoped to placate labor and build upon the trust he worked so hard to establish with employees.”

“I know. And the rest of the team should take the payment,” he said. “But as CEO I’m the one with my neck on the line and I just can’t do it. I made a promise to employees and I’ll lose all credibility if I accept the money.”

“In the end, we retained the program and it paid out as promised. Despite my admonition, Arpey waived his right to receive any payments. Labor’s reaction to the payments was awful even though Gerard’s sacrifice cost him millions of dollars”

“Over the last eight years, I have interviewed hundreds of senior executives for a major academic study on leadership, including six airline CEOs. Mr. Arpey stood out among the 550 people I talked with not because he believed that business had a moral dimension, but because of his firm conviction that the CEO must carefully attend to those considerations, even if doing so blunts financial success or negates organizational expediency. For him, it is an obligation that goes with the corner office.”

“Consequently, some labor leaders worked hard to discredit management and disrupt the airline. While the vast majority of employees were dedicated, hardworking individuals, the tactics used by certain union officials proved ruthless and unrelenting. At the 2007 Annual Meeting of Shareholders one employee referred to Arpey and other executives as “arrogant, greedy, selfish, and heartless individuals.” That statement was mild in comparison to what labor leaders, particularly the pilots, unleashed in the coming months and years.”

“Under the direction of new APA president Lloyd Hill, elected in 2007, the pilots initiated what is commonly referred to in labor union circles as a “corporate campaign.” The campaign was designed to embarrass and harass management at every turn. By the time the campaign was in full swing, we were in contract talks with all three company unions. The campaign lodged by union leadership against management was aggressive and mean-spirited. Even for veterans of previous corporate campaigns, the degree of vitriol and bullying was astonishing”

“The seat spacing is called “pitch,” and is measured in inches. At American, pitch ranges from a low of thirty-one inches in coach to sixty-four inches in the first-class cabin of large international aircraft. On some competitor airlines, like Spirit, pitch drops to a meager twenty-eight inches. For American, the pitch in first class of the Super 80 was only thirty-nine inches.

Pitch is something that receives a lot of attention from airline execs. It is consistently the subject of heated debate, particularly between the finance and marketing departments. Pitch greatly affects passenger comfort but also has a direct bearing on profitability. The near-impossible riddle to solve is the correct mix between comfort and revenue. On one hand, less pitch equals more seats, and more seats should equate to more revenue. But as pitch decreases, passengers complain and move business to competitors. The battle is even fiercer in the first-class cabin. A generous amount of pitch is essential to attract high-paying corporate customers. But as pitch increases, the total number of seats available for sale decreases. It is a constant tug of war.”

“The next important event in our bankruptcy case involved the appointment of the Official Committee of Unsecured Creditors, informally called the UCC. The UCC is comprised of several of the largest unsecured creditors and is appointed by the United States Trustee. The trustee is an arm of the Justice Department and is charged with the responsibility to monitor and oversee bankruptcy cases. The UCC plays a pivotal role in a large bankruptcy case. The committee meets with the debtor on a regular basis, reviews the debtor’s business plan and its plan of reorganization, has standing to participate in court hearings, and has the right to hire professionals, like lawyers and financial analysts. The UCC’s job is to maximize the payout for unsecured creditors. Often, the interests of the UCC do not align with the interests of the debtor.”

“One of the most powerful and fundamental tools available to a debtor is found in Section 1113 of the bankruptcy code. This provision was, in many respects, at the epicenter of our bankruptcy case. It allows an employer, under certain circumstances, to reject collective bargaining agreements (“CBAs”). If our unions would not accept new labor contracts voluntarily, we intended to use this provision to force them to accept the drastic changes outlined in our business plan.”

Book

Book Review: Deep: Freediving, Renegade Science, and What the Ocean Tells Us about Ourselves

by MQDuong1 Comment on Book Review: Deep: Freediving, Renegade Science, and What the Ocean Tells Us about Ourselves

What do we know about the ocean?

That’s the question the book “Deep: Freediving, Renegade Science, and What The Ocean Tells Us About Ourselves” tries to answer. As a journalist, James Nestor was assigned by Outside Magazine to cover the 2011 Individual Depth World Championship. It is arguably the biggest event for those that love freediving which was and still remains an unpopular sport. Fascinated and intrigued by what transpired at the event, the author started to learn more about freediving, the ocean and the fantastic world under the water that we, still to this day, know quite little about.

This book chronicles James’ journey from learning about the beauty as well as horror of freediving to how our body reacts to being hundreds of feet deep in the water, how dolphins & whales communicate and the theory that human life originated from water. James filled the pages with numerous scientific facts and theories, the results of hours of field research that did not lack of danger. Scientific books can be a bit dull, but I found myself glued to the author’s stories, from start to finish. James managed to find a sweet spot where he could be a teacher educating us on science and simultaneously a story teller with an exciting adventure to share.

James would be the first to admit that his book would cover “a sliver of the current research on the ocean”. Yet, I learned a lot from his work and writing. If you want to immerse yourself in the science of freediving and the ocean, have a read. I am sure you’ll learn a thing or two! Here are some of the things I took note

“The term Master Switch of Life was coined by physiologist Per Scholander in 1963. It refers to a variety of physiological reflexes in the brain, lungs, and heart, among other organs, that are triggered the second we put our faces in water. The deeper we dive, the more pronounced the reflexes become, eventually spurring a physical transformation that protects our organs from imploding under the immense underwater pressure and turns us into efficient deep-sea-diving animals. Freedivers can anticipate these switches and exploit them to dive deeper and longer.”

“As it turns out, the tradition of splashing cold water on your face to refresh yourself isn’t just an empty ritual; it provokes a physical change within us.”

“I discovered that we’re more closely connected to the ocean than most people would suspect. We’re born of the ocean. Each of us begins life floating in amniotic fluid that has almost the same makeup as ocean water. Our earliest characteristics are fishlike. The month-old embryo grows fins first, not feet; it is one misfiring gene away from developing fins instead of hands. At the fifth week of a fetus’s development, its heart has two chambers, a characteristic shared by fish. Human blood has a chemical composition startlingly similar to seawater. An infant will reflexively breaststroke when placed underwater and can comfortably hold his breath for about forty seconds, longer than many adults. We lose this ability only when we learn how to walk.”

“At sixty feet down, we are not quite ourselves. The heart beats at half its normal rate. Blood starts rushing from the extremities toward the more critical areas of the body’s core. The lungs shrink to a third of their usual size. The senses numb, and synapses slow. The brain enters a heavily meditative state. Most humans can make it to this depth and feel these changes within their bodies. Some choose to dive deeper.

At three hundred feet, we are profoundly changed. The pressure at these depths is ten times that of the surface. The organs collapse. The heart beats at a quarter of its normal rate, slower than the rate of a person in a coma. Senses disappear. The brain enters a dream state.

At six hundred feet down, the ocean’s pressure—some twenty times that of the surface—is too extreme for most human bodies to withstand. Few freedivers have ever attempted dives to this depth; fewer have survived.”

“If you could take your lungs out of your chest, they are completely flexible and you could blow them to whatever size,” she says, then she puffs up her chest and exhales. What stops the lungs from expanding is the musculature around the ribs, chest, and back. Through stretching and breathing exercises, freedivers develop up to 75 percent more lung capacity than the average person. Nobody actually needs this extra capacity to start freediving, but, like a larger tank of gas, it can help you go deeper and stay under longer.”

“In the water, the deeper we go, the more the pressure increases and the more the air contracts. Seawater is eight hundred times denser than air, so diving down just ten feet causes the same change in air pressure as descending from an altitude of ten thousand feet to sea level. Anything with a flexible surface and air inside it—a basketball, a plastic soda bottle, human lungs—will be at half its original volume 33 feet underwater, a third of its original volume at 66 feet, a quarter at 99 feet, and so on.”

“Three hundred feet is the halfway point to the photic zone. Even in the clearest oceans, with blazing sunlight overhead, visibility at this depth is about .5 percent of what it is at the surface, so the water is perpetually gray and hazy. Without artificial lighting, you can see maybe fifty feet in any direction. Because the light is so diffuse, all directions at –300 feet look the same”

“Getting down to this depth is arduous and often dangerous. Scuba divers can make it to three hundred feet breathing mixed gases, but it takes years of training and is a logistical nightmare. The danger isn’t going down—although that certainly is dangerous—it’s coming back up. For a scuba diver, a one-hour descent to two hundred feet breathing regular compressed air would require a ten-hour ascent to purge the deadly levels of nitrogen gas in the blood that accumulate on the way down. A three-hundred-foot ascent on compressed air would most likely kill you.”

“WHILE NOBODY KNOWS EXACTLY HOW hammerheads, feroxes, and other sharks can navigate in permanently black, deep waters, most marine researchers believe that tiny bumps on the sharks’ heads and the sixth sense of magnetoreception have something to do with it. Called ampullae of Lorenzini, after the Italian anatomist who described them in 1678, these little bumps, which look like tiny freckles along the shark’s nose, are actually pores filled with electrically conductive jelly. At the bottom of each of the roughly fifteen hundred pores is a hair cell that resembles one of the tiny hairs inside a human ear. These cells, called cilia, can pick up the slightest change in electrical fields in the water.”

“Sharks’ electroreceptive senses are remarkably acute. Tests on captive great white sharks have shown that they can sense electrical fields as small as 125 millionths of a volt. Smooth dogfish sharks can detect 2 billionths of a volt, while newborn bonnethead sharks can detect fields less than 1 billionth of a volt.

To put this in perspective, imagine dropping a 1.5-volt battery in the Hudson River in Manhattan and then running a wire from that battery to Portland, Maine, some three hundred and fifty miles away. The dogfish and bonnethead sharks could detect the faint electrical field coming off the wire. This sense is five million times stronger than anything humans can feel. It’s by far the most acute sense yet discovered on the planet.”

“Dolphins and other cetaceans use these clicking sounds as part of a sophisticated form of sonar called echolocation. They’re similar to the clicks sperm whales used to shake Schnöller’s body years ago, only weaker.”

“A simple sonar system, consisting of one speaker and one hydrophone (an underwater microphone), works by first sending out a pulse sound, or ping. That ping travels through water until it hits something, then echoes back. The hydrophone records the echo, and a processor calculates how long it took for the echo of the ping to return. This system can provide information on how far away an object is and the direction it is moving, but nothing more.”

“Dolphins and some whales have the equivalent of thousands, even tens of thousands, of echo-collecting hydrophones built into their heads. When a cetacean sends out a click (its version of a sonar ping), it receives the echo information with a fatty sac located beneath the lower jaw, called a melon. Unlike ears, which provide only two directional sources to gather information, the melon provides the cetacean with thousands of data points. The animal can process these to gauge the distance, shape, depth, interior, and exterior of the objects and creatures around it.”

“In 1958, during one of his first dolphin experiments, Lilly recorded a click-and-whistle conversation between dolphins and played it back at a slower rate. When he adjusted the frequency and speed of these dolphin sounds in water to match human speech in air, he found the ratio worked out to 4.5:1. This was a remarkable discovery. Sound travels 4.5 times faster in water than in air. The frequency of communication the dolphins were using, if modified to the density of water, Lilly wrote, matched the exact frequency of human speech in air. When he played the dolphin sounds at this slower speed, they sounded startlingly similar to human speech. Lilly concluded that dolphins were speaking a language similar to ours, but at a much faster speed, one far too rapid for us to comprehend”

“Sperm whale clicks, which are used for echolocation and communication, can be heard several hundred miles away, and possibly around the globe. Sperm whales are the loudest animals on Earth.

At their maximum level of 236 decibels, these clicks are louder than two thousand pounds of TNT exploding two hundred feet away from you, and much louder than the space shuttle taking off from two hundred and fifty feet away. They’re so loud that they cannot be heard in air, only in water, which is dense enough to propagate such powerful noises. The noise level in air maxes out at 194 decibels.

Any louder, and sound becomes distorted to the point that it turns from a sound wave into a pressure wave. The threshold of noise in water is 240 decibels; any louder, and the noise will almost literally boil the liquid into vapor in a process called cavitation. Sperm whale clicks could not only blow out human eardrums from hundreds of feet away, but, some scientists estimate, vibrate a human body to death.”

Book

Book Review: A.P. Giannini: The Man With The Midas Touch

by MQDuong1 Comment on Book Review: A.P. Giannini: The Man With The Midas Touch

My first completed book in 2023. “A.P. Giannini: The Man With The Midas Touch” offers a quick look into the life of A.P. Giannini, the legendary immigrant founder of Bank of America and an all-time great businessman. His work ethic, entrepreneurship and unyielding focus on customers are a great example of founders and companies alike. Below are some of my takeaways:

Short bio

Amadeo Pietro Giannini or A.P. Giannini was born in San Jose in 1870 to Italian immigrants. His father Luigi migrated from Italy to the US, wishing, as many, to find gold and change his life. He returned to Italy to marry Virginia DeMartini, whose brothers worked alongside Luigi in gold mines, and brought her over to the US. The Gianninis bought a farmland in California and started to grow vegetables and fruits for sale. Then, a life-altering tragedy struck. Luigi was killed by an employee over a pay dispute, leaving a 22-year-old Virginia as the lone caretaker of two boys while being pregnant of a third. Virginia married Lorenzo Scatena and relocated to San Francisco. Here, Lorenzo quit his job and launched his own product company named L. Scatena & Company, which would give young A.P. the first opportunity into the business world.

Business Acumen

A.P had an amazing business acumen, strong customer orientation and a nose for opportunity. Even at a young age of 16, he already prioritized strong relationships with farmers over short-term sales. He remembered their names individually, asked questions about their business, delivered timely payments in cash and helped the farmers out if they needed it. During the summer of 1887, believing that there would be a supply crunch for pears, A.P. made arrangements with farmers to buy their crops before everybody else. When the price of pears shot up due to supply shortage, L. Scatena & Company benefited handsomely from A.P’s hunch. A.P became so valuable to his step father’s company that he became a partner at the age of 19.

He promised farmers payment in cash and on time. Pop honored those promises, and the farmers learned that they could expect honesty and integrity from L. Scatena & Company. They also could expect accuracy and attentive customer service. A. P. always remembered the farmers’ names. In fact, he remembered the names of their wives and children. He also remembered dates and prices and quantities. This impressive memory won the confidence of potential customers and convinced many of them to do business with Pop’s firm.

After disagreements with other Board of Directors members at a bank, A.P quit, decided to launch a bank of his own and called it Bank of Italy. A.P wanted his bank to cater to poor immigrants, instead of just the rich, because he believed that if Bank of Italy helped them in difficult times, the good will would make them customers for life. Long-term wins over short-term gains, indeed. One of his first hires was a cashier named Armando Pedrini. Armando learned his cashier craft in Italy, South America and the US, spoke multiple languages and more importantly, treated poor immigrants as he would the people in suits.

Two years after A.P opened his bank, a devastating earthquake hit San Francisco and leveled the city. Knowing that his customers needed money for food, home and their future, he made his bank and money available for loans while other banks stayed closed. A.P. set up a temporary desk at the site of fire near the waterfront. He wanted the people to see him, his gold and the Bank of Italy sign when they came for food and supplies. Word of mouth traveled far and fast as people lined up to get loans from A.P’s bank.

A.P took his wife on vacation to New York. The trip was the first vacation the couple had, but it was also an opportunity for A.P. to learn about the banking world in New York. What he learned was alarming. Talking to people in the industry, A.P. learned that banks in New York had dangerously low levels of gold and would not have enough for mass withdrawals. Customer fear is often contagious. If customers on the East Coast fear that banks don’t have their gold ready to be withdrawn, such anxiety will soon spread to the West Coast. A.P. cut short his trip and promptly worked to boost his own gold reserves. His foresight paid off. In 1907, prices on the New York Stock Exchange dropped, causing worried consumers to lean on gold and try to withdraw it from their banks. Riot broke out when banks did not have enough gold to meet customer demand. Not Bank of Italy, though. A.P. spread the word that his bank had enough gold in hand and even publicly displayed it to assuage customers. Bank of Italy came out of the crisis intact and gained trust from customers.

The book is littered with other stories and anecdotes on A.P’s knack for business. Here are a few:

On November 18, 1909, A. P. opened the doors to his first bank outside of San Francisco. He gained the good will of local customers by rehiring the tellers from Commercial and Savings instead of bringing in outsiders. He appointed local business, community, and ethnic leaders to an advisory board to help guide the bank and bring in new customers. He charged lower interest rates than his competitors. He kept the bank open in the evenings and on Saturdays so it would be convenient for working people to use.

A. P. began by focusing on the banking needs of immigrants as he had done in San Francisco. He wanted working-class people to feel comfortable in his bank. Most banks had marble pillars and fancy ceilings to impress rich customers and scare off any poor ones. Tellers hid behind barred windows to prevent someone from reaching in and stealing the money, and the managers worked in private, locked offices. At Bank of Italy, employees worked in the open where it was easy for customers to see and approach them. The decoration and furnishings were designed to blend in with the neighborhood. Especially in poorer communities, A. P. believed a bank should be simple, sturdy, and orderly.

As usual, Bank of Italy conducted business outside the constraints of conventional wisdom. Times were changing, and A. P. knew it. He believed that women who could vote also would demand greater choice and independence in managing their own money. He saw a great untapped base of customers in this half of the population, and he wanted Bank of Italy to be the first to welcome them at the only bank in the nation run entirely by and for women.

A. P. envisioned attracting women customers on an entirely different scale. With his usual dramatic flair, he selected a prominent and symbolic place to begin. He dedicated an entire upper floor of the bank’s new headquarters in downtown San Francisco as a Women’s Bank. Its sole purpose was to promote the economic independence of women. A. P. set out to create an inviting atmosphere for the customers he wanted. The bank was attractively decorated and filled with flowers. More important, he made sure that the women customers in front of the counter were welcomed by women employees behind it. A. P. appointed a woman to manage the bank.

A. P. had no private office. He had no personal secretary and answered his own phone. He sat at a desk on the open floor, ready to meet with any customer who wanted to see him. With 200,000 depositors, A. P. had built the largest bank west of Chicago, but he did not want his success to alienate the fishermen and dock workers who were his long-time clients.

At a time when most bankers were desperately calling in loans, A. P. was determined to be patient. Many borrowers, both individuals and businesses, were slow to repay their loans during the Great Depression because they did not have the cash. A. P. chose to wait for eventual repayment rather than force borrowers into possible bankruptcy. He believed the economy would improve sooner if people were not forced into desperate actions. He knew, also, that they would feel loyalty to a bank that trusted them. As always, he cultivated long-term customers rather than short-term profits.

For instance, A. P. recognized the great potential of the automobile industry. Automobiles had existed since the 1906 earthquake, when the few available cars had been seized by troops to provide emergency services. After World War II, many people moved to the suburbs where cars were essential for transportation. As cars became more affordable, more people wanted to buy them. A. P. was a pioneer in helping people to pay for expensive purchases. Bank of America offered installment plans that allowed customers to buy cars and other goods—stoves, refrigerators, washing machines, vacuum cleaners—by paying a little each month over time. With low rates and efficient service, the bank attracted many customers. In just a few years, only General Motors would finance more car loans than A. P.’s bank.

As founder of the world’s largest bank, A. P. became one of the most powerful people in the world. However, he had no interest in becoming one of the richest. He studiously avoided personal wealth. “I don’t want to be rich,” he said. “No man actually owns a fortune; it owns him.” A. P. believed that “a lot of people working together can create a lot of wealth for a lot of people. But one man who works selfishly for his own wealth at the expense of others creates nothing worth having. He generates poverty. There’s poverty in his mind, in his heart, and in time it will show up in his pocket.”

Personal tragedy

Having legendary successes in his professional life, A.P. unfortunately endured overwhelming personal losses. As a young child, he saw his own father shot to death. As a man, only three of his eight children lived to adulthood. Both his two surviving sons, Virgil and Mario, had chronic health conditions and died at the age of 38 and 57 respectively. A.P. outlived his wife and all but two of his own children. His daughter Claire died childless, marking the end of the Giannini family.

After reading about A.P.’s success as a founder, many may tempt to envy him. However, would you still want his professional success, knowing what he suffered personally? Granted, in the case of A.P., his personal tragedies didn’t seem to be linked with professional conquers. But that’s not how it works. If you envy, envy the whole deal. That’s probably one of the more effective ways that I know can help quell the thirst of envy.

Book

Book Review: Soul In The Game: The Art Of A Meaningful Life

by MQDuong2 Comments on Book Review: Soul In The Game: The Art Of A Meaningful Life

This book came to me at the right time.

Soul In The Game was written by Vitaliy Katsenelson, who was born in a remote and cold city in Russia before migrating to the US in 1991. Tragedy came at a young age when his mother died from brain cancer. A few years after the death of his mother, he moved to the US with his father, settled down in Denver and despite knowing little English when he arrived, Vitaliy has gone on to become a successful businessman and investor. Currently the CEO of IMA, a Denver-based investment firm, he is also an author of multiple books and an award-winning writer.

Soul In The Game is a collection of essays and stories about life, Stoicism and a little bit of classical music. A big portion of this book is dedicated to the school of philosophy whose famous proponents include Seneca, Epictetus and Marcus Aurelius. Readers will get to know these historical characters a little bit and many chapters end with a quote from them. I find it very cool. Vitaliy did a great job making the topic interesting through his own experiences and interaction with folks around him, especially his children. Some of the points and lessons from this book are profound enough that they require that you drop the book for a day or two so that they can marinate on you.

I was in a rough patch recently. I dropped a few good habits that I worked hard to build. I let frustration at work negatively impact my emotions and personal life. My pandemic cat, which adds so much joy to my life, became distant to me because I spent most time in the office and didn’t spend enough time with him. This book is a much needed reminder of what I can and should do, to feel happier and find what is truly valuable to my life. If you are looking for a book on Stoicism or life lessons, I highly recommend this book. Both the content and the writing are great. It gains some additional points from me as several stories speak to what I am going through. Here are a few excerpts that I took note of

“Artisans constantly strive for improvement. Jiro has been making sushi for over 70 years and is still learning. He says, “Even at my age, in my work… I haven’t reached perfection… There’s always a yearning to achieve more. I’ll continue to climb, trying to reach the top, but no one knows where the top is.”

“Artisans have a very narrow, single focus. Jiro said, “I do the same thing over and over, improving bit by bit.” Stoic philosopher Epictetus said, “You become what you give your attention to.” Single focus combined with a drive for constant improvement, while being a student of life, adds up to an incredibly powerful force.”

“There are so many other things I could be doing. But a while back, I realized that there is a finality to everything in life and especially to kids being… well, kids. This changed my perspective on life. Instead of looking at driving my daughter to tournaments as an obligation and feeling victimized for being forced to do it, I choose to do it. And I really, honestly look forward to doing it. As we drive, Hannah and I listen to music and podcasts, and we talk. We go to lunch. We spend time together.”

Excerpt From: Vitaliy Katsenelson. “Soul in the Game: The Art of a Meaningful Life.”

“I know that in two hours they’ll wake up. We’ll have breakfast and I’ll drive them to school. Jonah (my 16-year-old) will be bargaining with me about what music we’ll listen to – classical will not be his first choice. Hannah will be on Jonah’s side. Mia Sarah (my almost-four-year-old) will offer her preference, which is always the same: “Wheels on the Bus Go Round and Round.” We’ll compromise. Jonah has a learner’s permit, and he’ll be driving us through a beautiful park. I’ll hug and kiss them, drop Jonah off at high school, Hannah at middle school, and Mia Sarah at preschool.

I am overwhelmed with emotions just writing this. This is all finite. One day they’ll all be grown up. The house will be empty and days like today will be distant happy memories. I never want days like this to end. I really don’t want my kids to grow up, and a bat mitzvah is another reminder that they are! Someday I will no longer be hugging and kissing them in the morning and driving them to school.

The stock market, economics, politics somehow seem so trivial next to this”

“Tim Urban estimated that by the time you finish high school, you have spent 93% of the total time you’ll ever spend with your parents. Today I spend at least six hours a day with my kids and another 20 hours on weekends. When kids live in your house they are completely dependent on you, especially younger ones.”

Excerpt From: Vitaliy Katsenelson. “Soul in the Game: The Art of a Meaningful Life.”

“When writing is a habit, I do not have to force myself to write. Writing is part of my identity. I am a person who gets up every morning and writes. After not writing for a month, I realize that without it my brain is complete chaos. Just like working out is exercise for my body (I feel mushy when I skip workouts), writing is exercise for my brain. It is not something I do in addition to investing. No, it’s a necessity for me; it’s how I keep my brain tuned and how I connect and organize my otherwise chaotic thoughts.”

“I write a few hours every single day. When I’m done writing I have a similar feeling to the one I have after I work out at the gym. When I’ve worked out hard, the micro-tears in my muscles leave me with a feeling of fullness and growth.”

Excerpt From: Vitaliy Katsenelson. “Soul in the Game: The Art of a Meaningful Life.”

“The problem with a normal budget is that though it captures well ongoing daily expenses like a mortgage, the cable bill, groceries, etc., it ignores future expenses. Let’s take your car, for example. It’s paid for, which is great. But in five years this car will need to be replaced and “suddenly” you’ll discover that you have a one-time $20,000 expense, which should not be sudden and is actually anything but one-time unless you are planning to drive this car for the rest of your life.”

“Sit down together and identify all of your expenses, current and future. Once you have identified your future major expenses, create a sinking fund for each one of them. Once you’ve identified your future expenses, create your budget; and I guarantee that you’ll discover that your true income is much lower than you thought. Just because these expenses are going to happen in the future doesn’t make them less real.”

“By bringing all current and eventual expenses into our monthly spending budget, we got rid of unwelcome surprises. Also, when unexpected things happened – a car accident, a significant repair to the house – since money had been saved in the “emergencies” sinking fund and it came out of a different savings (and mental) account, writing a check was a lot less painful.

I realized over the years what Mark saw then: That our wants are unlimited and will always exceed our income. No matter how much money you make, without a system your insatiable wants (if not controlled) will always outpace your income.”

Excerpt From: Vitaliy Katsenelson. “Soul in the Game: The Art of a Meaningful Life.”

“Stoicism seeks to minimize unnecessary negative emotions, which in turn amplifies positive emotions.”

“Nassim Nicholas Taleb put it so well: “A Stoic is someone who transforms fear into prudence, pain into transformation, mistakes into initiation, and desire into undertaking.”

“Stoicism was started in ancient Greece around 300 BC by Zeno, a wealthy merchant who lost all his wealth in a shipwreck and barely made it out alive himself. Throughout this book I constantly make this point: Pain often unlocks creativity. It must have been a devastatingly painful experience for Zeno to lose everything overnight. Nevertheless, he later wrote: “My most profitable journey began on the day I was shipwrecked and lost my entire fortune.”

For a while Zeno’s philosophy was called Zenoism – but maybe because Zeno did not want it to become a cult of Zeno, he named it after a place in Athens where he and his students gathered, the Stoa Poikile (“painted porch”).”

Excerpt From: Vitaliy Katsenelson. “Soul in the Game: The Art of a Meaningful Life.”

“Some things are up to us and some are not up to us.” This is how Epictetus introduced the dichotomy of control framework”

“He continues: “Within our power are opinion, aim, desire, aversion, and, in one word, whatever affairs are our own. Beyond our power are body, property, reputation, office, and, in one word, whatever are not properly our own affairs.”

“As Epictetus said, “Men are disturbed not by the things that happen, but by their opinion of the things that happen.” We just need to remember that opinion is completely up to us. We can reframe it in a way that minimizes our suffering.”

“Richard Feynman, Nobel laureate physicist, said, “You have no responsibility to live up to what other people think you ought to accomplish. I have no responsibility to be like they expect me to be. It’s their mistake, not my failing.”

Excerpt From: Vitaliy Katsenelson. “Soul in the Game: The Art of a Meaningful Life.”

 

Book

Books on Payments

by MQDuong1 Comment on Books on Payments

The payments industry is one of the most complex and interesting out there to me. A lot happen behind the scenes whenever we send out a rent payment through a checking account or buy a coffee with a swipe of our credit card. As consumers, we don’t know much about such complexities. Plenty of innovation over the years has gone into providing optionality as well as a smooth experience to consumers while helping out merchants and financial institutions achieve their business goals. It can be daunting and difficult to start learning about an industry as complex as payments, especially when there are numerous abstract concepts and jargon. But if you are really interested, I’d recommend these three books. They touch upon the general concepts, operational details of each payment method and more importantly, these books are written for laypeople like you and myself

The Anatomy of The Swipe

This book is focused more on credit and debit cards. You’ll learn about key concepts such as interchange, settlement, authorization, chargebacks, Know-Your-Customers (KYC), the parties involved in a card transaction and so on. You’ll learn about how money moves in a card transaction and how a merchant gets paid ultimately. The author did a great job explaining abstract concepts in an easy-to-understand manner. In fact, I gave this book to our intern who had had zero knowledge on payments as a crash course to our industry. He loved it. Hence, I think you too can learn a lot about card payments from this book. Check out my review here.

The Field Guide To The Global Payments

Launched earlier this month, The Field Guide to Global Payments covers more payment methods than just cards and it touches up on other countries than just the US. Because of the number of topics that it tries to cover, in my opinion, I don’t think it has the same depth as the other two books. Nonetheless, there are very interesting facts, stats and concepts covered that will trigger more research and investigation.

One of the earliest noted uses of the term “credit card” dates all the way back to 1887. In his utopian novel Looking Backward, Edward Bellamy described the concept of using a card for purchases; he used the term “credit card” eleven times in the novel. In 1946 the first bank card, Charg-It, was introduced by Brooklyn- based banker John Biggins. A user’s bill was forwarded to Flatbush National Bank, and the bank settled the amount with the merchant directly and collected the funds from the user’s bank account. Only a small number of merchants were supported by the program – those in a specific two-square-block radius – and the card could only be used by those who banked with FNB.

On the checkout page, the shopper fills in their payment details. Typically these are the PAN (payment account number, the sixteen digits on their card), the expiry of their card, the CVV (the three or four-digit security code), and their billing address. Pro tip: if you don’t send the AVS data (billing address information) in the authorization, you may get an interchange downgrade, which means, in short, that the transaction will cost you more as a merchant.

Taking on PCI compliance is a large decision – there are more than 1,800 pages of documentation and more than three hundred security controls, alongside yearly audits. There are four levels of PCI, which each have their own requirements that apply to different use cases. Partnering with a gateway, PSP, or standalone vendor to outsource PCI scope is the decision many merchants make because of this.

Merchants do, however, have a lot of agency in improving decline rates. Overall, in-store (POS) transactions tend to have very low decline rates, while ecommerce transactions can have 5 to 10 percent decline rates. Note that the prevalence of declines goes up for recurring transactions, like a subscription payment, or for cross-border transactions. High-risk merchants, like gambling or escort services (what many dating apps are considered by the card networks!), have even lower benchmark auth rates.

Visa’s excessive chargeback program is called the VDMP – Visa Dispute Monitoring Program. They divide the previous month’s chargebacks by that month’s total Visa transactions. If a merchant has 100 chargebacks and a chargeback ratio of at least 0.9 percent they are added to the program to be monitored. Mastercard has the ECP – Excessive Chargeback Program. The ECP divides the number of chargebacks in a single month by the total number of transactions in the previous month over Mastercard. Their threshold for entering the program is one hundred chargebacks and a ratio above 1.5 percent. In the event that a merchant hits these thresholds, they are notified by their acquirer who may also help them to get fraud levels below the threshold.

Signature debit cards get their name from the fact that a customer must sign the receipt during an in-store payment, and a merchant must subsequently authenticate that the signature on the receipt matches the signature on the back of the card. Signature debit transactions clear funds from the cardholder’s checking account same-day and are usually processed over Visa or MasterCard’s networks. PIN debit cards, however, are authenticated when the cardholder enters their PIN number on a point-of-sale device. Though the funds are also pulled from the cardholder’s checking account, they don’t always clear the same day. These transactions are also eligible for cashback. When you buy groceries and ask for $20 cash back, that transaction will be processed as a PIN debit transaction. There are many more PIN debit networks than the signature networks.

Payments Systems in The US

This book provides an overview of payments systems in the US with great details. First, it talks about payments and payments systems in the US in general. Then, it discusses each core system in details, ranging from the history of the system to what happens behind the curtain and what it is like today. The systems discussed in this book include checking, cards, ACH, wire transfer and cash. Then, it also provides the perspective of consumers as well as the banks before closing out with thoughts on payments innovation. It’s quite a long book, but if you are nerdy about payments, I’d recommend it.

In a net settlement system, the net obligations of participating intermediaries are calculated by the payment system on a periodic basis—most typically daily. At the end of the day, a participating intermediary is given a net settlement total and instructed either (a) to fund a settlement account with that amount, should it be in a net debit position, or (b) that there are funds available to draw on in its settlement account, should it be in a net credit position. Checking, card payments systems, and the ACH are all net settlement systems in the United States.

In a gross settlement system, each transaction settles as it is processed. With the Fedwire system, for example, a transaction is effected when the sending bank’s account at a Federal Reserve Bank is debited and the receiving bank’s account at a Federal Reserve Bank system is credited. No end-of-day settlement process is necessary in a gross settlement system.

Signature debit card interchange is lower than credit card interchange, and PIN debit interchange is even lower for unregulated debit card issuers. Larger debit card issuers (with over $10 billion in assets) receive regulated interchange rates that do not distinguish between signature or PIN debit usage.

Debit card authorization is more challenging than credit card authorization, as the bank must check against an ever-changing account balance. In the early days of debit, banks would authorize transactions (or have a processor authorize them) against a “shadow file” that could be hours or even days out of date. Now, however, most large banks handle authorizations dynamically against the “real” balance in the checking account.

Some payments networks are heavily resourced (i.e. have lots of money), enabling network-level investment in product definition, brand, risk management, and exception processing requirements. Visa, Mastercard, American Express and PayPal are all examples of what we call “thick model” networks. Other networks are thinly resourced, and manage only minimal interoperability issues, leaving functions such as product definition and brand to intermediaries. Check clearing houses, the ACH, and PIN debit networks are all examples of this “thin model.”

Closed loop networks, such as American Express, have card issuance policies similar to some provisions of the open-loop card network rules, so as to ensure interoperability for merchants and other users of the payments system. Merchant agreements, for similar reasons, are much like those of open-loop card networks. But a closed loop network is free to change such policies and agreements without the involved processes used by open-loop networks.

Closed loop systems have the advantage of simplicity. As one entity sets all of the rules and has a direct relationship with the end parties, it can act more quickly and more flexibly than the distributed open loop systems, which must propagate change throughout the system’s intermediary layers. The disadvantage of closed loop systems is that they are more difficult to grow than open loop systems; the payments system must sign up each end party individually.

Book

Book Review: Trillion Dollar Triage

by MQDuong2 Comments on Book Review: Trillion Dollar Triage

I got to know this book because it was recommended by Warren Buffett and Ted Weschler. Indeed, the read didn’t disappoint. Trillion Dollar Triage is a gripping account of how the Fed, led by Jerome Powell, reacted to the Covid-19 crisis under the intense pressure from Wall Street, an unpredictable and bullying President in Trump and Congress. Jerome Powell never has a PhD in economics, something that many people presume is a prerequisite of being the Fed Chairman. But his Emotional Intelligence, communication skill and willingness to take bold actions seemed to be exactly what the country and the Fed needed in the time of unprecedented challenges in 2020.

I am not going to lie. I thought the book would be dry and bore me after a few chapters. Instead, I was hooked. What happened behind the scenes was recounted with exceptional details; which shows that the author did his homework and conducted a thorough research. I learned a great deal about the Fed, how it generally works and the tools that it has at its disposal such as rate adjustments, quantitative easing (QE) – the purchase of assets that are riskier than the Treasury bills, international swap lines – which makes the US dollars available to foreign banks, lending to certain parties in the economy etc…Interestingly, the author and the book were kind to Steve Mnuchin. I didn’t like the former Treasury Secretary, but he was portrayed as someone who was a reasonable deal-maker and an intelligent and hard-working person. You don’t get that kind of impression whenever he went on TV back then, do you?

If you are interested in macro economics and politics, this book will be a good choice.

“The central bank announced the Treasury-Fed accord on March 4, 1951, in an unexceptional, two-paragraph bulletin. Its significance would grow over time because it marked the beginning of what many commentators refer to as Fed independence. Going forward, the Fed would set interest-rate policy to ensure the economy functioned well rather than to support cheaper financing for the government, as the Fed had done since 1942 to support the war effort. Those boundaries have largely remained to the present day. The Treasury manages all of the money the government receives and pays out, while the Fed manages the supply of money in circulation to keep the economy stable.”

Excerpt From: Nick Timiraos. “Trillion Dollar Triage.”

“Most economists, including Yellen and others at the Fed, were guided by basic beliefs: first, that there is a direct inverse relationship between inflation and unemployment—if one goes down, the other must go up—and second, that there is a “natural rate of unemployment,” a level that evenly balances the supply and demand for labor. When unemployment falls below it, companies must compete for workers by driving up wages at a rate that can feed into higher prices. In order to tamp down an overheating economy, the Fed had traditionally raised interest rates.”

Excerpt From: Nick Timiraos. “Trillion Dollar Triage.”

“Ever since Marriner Eccles’s reforms in 1935, Fed policy had officially been decided by the sometimes-unwieldy Federal Open Market Committee. But policy gets shaped before the FOMC meetings by just three people, informally known as the Fed Troika: the Fed chair, the vice chair, and the president of the New York Fed, who also serves as vice chair of the FOMC. The Troika sets the agenda for each FOMC meeting. They refine the policy options and decide which papers or briefing memos should go out to committee members before each meeting. They steer the FOMC toward consensus. This was the power center of the Fed, and Powell had a historic opportunity to influence the selection of the Troika’s other two members.”

Excerpt From: Nick Timiraos. “Trillion Dollar Triage.”

“Powell’s conversational style reflected his desire to reach an audience he felt the Fed at times overlooked—average citizens who didn’t work in markets and whose livelihood didn’t require hanging on every word of the Fed chair. They knew the Fed was important, but they might not know much more than that. At his briefings, Powell delivered short answers, used simple language, and spoke in a breezier manner than his academic predecessors—“a Jimmy Stewart of monetary policy,” as a former senior Fed economist put it.

An important part of communicating with the outside world focused on the 535 people who could make Powell’s life more difficult, or easier, if the going got tough: the lawmakers on Capitol Hill. And he wasn’t shy about letting people know that he thought this was one of the most important things the Fed chair could do. “I’m going to wear the carpets of Capitol Hill out by walking those halls and meeting with members,” he said in a July 12, 2018 radio interview.”

“Powell also urged humility. The Fed should “give serious consideration to the possibility that we might be getting something wrong,” he said at his formal swearing-in ceremony”

Excerpt From: Nick Timiraos. “Trillion Dollar Triage.”

“Mnuchin, who was reviewing and approving specific provisions on his own. Democrats mostly saw Mnuchin as a fair and candid broker, though he sometimes yelled at Senate aides when they dared to explain the finer points of capital-markets mechanics: “I’ve worked on Wall Street! I know this!” Mnuchin wasn’t fazed when a Democratic senator, Ohio’s Sherrod Brown, joined the negotiations by speakerphone and launched into a political diatribe about how terrible Trump was—the kind of speech usually reserved for the cameras.”

“Lawmakers were both impressed—Mnuchin showed up in person and rolled up his sleeves—and dismayed: his reluctance to delegate slowed progress. “This was $2.3 trillion, and I was working on behalf of the president, and I wanted to make sure I knew exactly what was in the deal,” said Mnuchin”

“Mnuchin’s zeal for delving into the most intricate lending details earned him the moniker “Secretary Minutiae” among some Fed and Treasury staffers. He was also reluctant to delegate, with the exception perhaps of Muzinich. White House staffers were routinely bemused at sending something to a Mnuchin deputy only to receive a call from the secretary himself, offering his input. Fed officials concluded they were able to pull Mnuchin their way more often simply because their teams of dozens of analysts could outwork him. “The guy was really smart, really hardworking, had a mind like a steel trap,” said a Fed official. “But he’s just one man.”

Excerpt From: Nick Timiraos. “Trillion Dollar Triage.”

Book

Book Review: After Steve: How Apple Became A Trillion-Dollar Company and Lost Its Soul

by MQDuong2 Comments on Book Review: After Steve: How Apple Became A Trillion-Dollar Company and Lost Its Soul

“After Steve” by Tripp Mickle is about Apple and how it transformed after the death of Steve Jobs. The book shed light on what went on behind the scenes at arguably the most valuable company in the world through two main characters: Tim Cook and Jony Ive. With Cook, we see a then-lieutenant become the ultimate force and voice at Apple. Early in his tenure, Cook had to face investor doubt on whether he could fill the giant void that Jobs’ death left behind. How could he avoid that when his former boss was larger than life? He also had to deal with the precarious political storms both at home in the US and in China. The contrast in how he handled delicate political engagements and how Steve did before showed the difference between two men. There is also a challenge of managing Ive and the growing workforce which meant that the previous culture was no longer a fit. The once-influential Design team which colleagues jokingly referred to as Gods had to see their influence wane and give way for the Finance and Ops teams. Such a transition could only happen under Tim Cook’s watch. The financial results and market valuation of Apple is testament to the excellent job that Cook and his teams have done in the past 12 years. His appointment to CEO was the right call for Apple.

Regarding Jony, the talented artist craves creativity. However, even though he wanted to retain control over all things creative at Apple while not fully mourning Steve’s death, he felt suffocated by the corporate responsibilities, a barrage of meetings and internal fights with other teams. After Apple Watch and Apple Campus, Jony felt burned out and needed to turn a new chapter. Hence, he left the company where he spent most of his adult life. The author reported that after the departure of Jony, the Design team became liberated by not relying on Jony, who wasn’t fully present and committed in the last months of his time there. I do think it worked out for both Apple and Jony that he left. Jony is immensely talented and has world-class taste, but his lack of focus and commitment was detrimental to his teams and colleagues.

If you don’t follow Apple closely but are interested in the company, I think “After Steve” will be a good read. In addition to the evolution of the two characters and Apple itself, there are business lessons that one can take away. First, attention to detail.

Tim Cook is maniacal on details. Becoming a CEO doesn’t mean that he cares only about strategy. At work, I often see executives talk high-level without drilling into details. For me, details matter. They require careful investigation which leads to deep understanding and better decision-making. Here are a few examples:

“The operations team, hollowed out by departures after Jobs’s return, detailed the headway they had made as Cook peppered them with questions: “Why is that? What do you mean?”

“I saw grown men cry,” said Joe O’Sullivan, who was the acting head of operations when Cook arrived. “He went into a level of detail that was phenomenal.”

“Joe, how many units did we produce today?” Cook would ask. “It was ten thousand,” O’Sullivan would answer.

“What was the yield?” he asked, referring to the percentage of units that passed quality assurance before shipment. “Ninety-eight percent.” Unimpressed by the efficiency, Cook would probe deeper. “So how did the two percent fail?”

Excerpt From: Tripp Mickle. “After Steve.”

“He continued waking up each morning before 4:00 A.M. and reviewing sales data. He drilled down into small details, discovering through questions that one model of iPhone was outselling another in a small city in Georgia because the AT&T stores there were running different promotions from those being run in the rest of the state. He held a Friday meeting with operations and finance staff, which team members called “date night with Tim” because it would stretch for hours into the evening, when Cook seemed to have nowhere else to be.”

Excerpt From: Tripp Mickle. “After Steve.”

Another lesson is that a different business life stage cultivates changes in culture and culture fit is important. Under Steve, secrecy and “need-to-know” basis were prevalent. Steve made decisions based on his instinct and was the final voice on many things. Tim Cook, on the other hand, encouraged collaboration and deferred to his reports in areas where he is not strong at, such as creativity. If you work for Cook, you are expected to be able to think strategically and be detail-oriented. Angela Ahrendts, the former CEO of Burberry, left Apple after 5 years because she was reportedly not a fit in Cook’s executive team. Others who are detail-oriented like Cook rose through the ranks like Deirdre O’Brien or Jeff Williams.

I was under impression that Apple’s leaders were excellent at thinking way ahead of time in terms of products or services. This book kinda changed my mind. There are several examples in which the company changed direction when they realized the initial strategy didn’t work. For example, Jony Ive insisted on positioning Apple Watch as a fashion accessory and making it exclusive to cultivate the luxury position. But it only took off when it was sold through normal sales channels and positioned as a fitness product. There was also the drama involving Apple Music and Taylor Swift. Taylor’s criticism forced Apple to change the compensation formula to artists. Otherwise, who knows what would have happened to the service? Last but definitely not least, nobody thought of Apple Watch or Airpods as significant sources of revenue for Apple. One look at the Wearables line item on Apple’s financial reports will tell you that they indeed are.

Overall, I enjoyed the book.

“Jobs had had a designer’s eye. He had once walked past a prototype of a forthcoming iPhone and barked, “What is this shit?” The curvature and polish of the prototype had been changed only slightly during manufacturing, but he had caught the differences with a glance and been repulsed. He had demanded that it be fixed. Without him, the team lost the feedback that fueled their work.”

“When the first prototype was finished, Ive exited his glass office and strolled to the table to review it. He twisted the shimmering silver camera in his hands and brushed his fingers across a toggle button on the rear of the unit that looked like a Nintendo controller. It was there to enable users to scroll through digital photographs on the camera’s display. But he didn’t like the buttons. They protruded too much. He told the team that he wanted the knobs to be as flush and smooth as the aluminum case itself.

It was a challenging ask. Keats spent days inserting 100-millimeter sheets of plastic film called Mylar on each side of the rear toggle, trying to raise the buttons the minimal amount necessary to make them discernible while keeping them practically flush with the exterior of the case.

The camera design took more than nine months and required 561 different models before Ive was satisfied. Apple estimated that fifty-five engineers had spent a combined 2,100 hours on it. The company reused some of the manufacturing techniques in future Apple products, including the laser-etching process for MacBook speakers. Keats did the final assembly by hand and traveled to Germany to have Leica’s engineers ensure that the camera worked”

“At various points over the years, the company’s leadership team had discussed the possibility of buying Disney, Netflix, or Time Warner, which owned HBO. But the rocky integration of Beats showed how difficult it could be to import companies into Apple’s rigid culture. Cook favored proceeding alone. His preference led to what became known inside Apple as Project North Star, a $1 billion bet that Apple could make its own Netflix.”

Book

Book Review: Just Keep Buying

by MQDuong3 Comments on Book Review: Just Keep Buying

If you are a normal Joe like me and want to learn about investing as well as personal finance, do yourself a favor and get “Just Keep Buying“. The lessons contained in the book are popular and well-covered by many other authors. So don’t expect any earth-shattering discoveries there. But great lessons remain great and it’s always delightful to regularly re-acquaint with them.

Just Keep Buying covers essential issues from rent vs buying a house, focusing on income instead of expense control to dollar-cost-averaging vs buying the dip, traditional IRA vs Roth IRA, individual stocks vs ETFs, REITS vs stocks vs bonds etc…The book doesn’t give a deep dive into each of these issues. Instead, it analyzes the pros and cons or when an investment option makes and when it doesn’t. The arguments are supported by recent data and written in a way that each a dummie like me could understand. If you are new to investing or personal finance, great. Take it as a great inspiring starting point. If you are relatively experienced in some investment areas, there may still be some valuable learnings to gain from the book.

What I also like about “Just Keep Buying” is that Nick offered some great personal perspectives with refreshing honesty. He talked about missing his saving goal by the time he was 30. He mentioned that he didn’t feel rich years ago because unlike his classmates, he never visited Europe. These admissions, if you will, make the book more relatable and credible. It’s a rare quality in books, I find.

All in all, I highly recommend this book, along with The Psychology of Money, to anyone who is interested in money, investing and personal finance. Below are a few highlights from the book

“The first tip is what I call The 2x Rule. The 2x Rule works like this: Anytime I want to splurge on something, I have to take the same amount of money and invest it as well.

So, if I wanted to buy a $400 pair of dress shoes, I would also have to buy $400 worth of stocks (or other income-producing assets).” This makes me re-evaluate how much I really want something because if I am not willing to save 2x for it, then I don’t buy it.

“When it comes to housing as an investment, unfortunately, the data isn’t that promising. Robert Shiller, the Nobel Prize-winning economist, calculated the inflation-adjusted return on U.S. housing was “only 0.6% a year” from 1915–2015. More importantly, most of that return came after the year 2000. Anytime you look at U.S. housing as an investment, you have to compare it to what an investment in another asset would have done over the same time period. This is known as the opportunity cost of the investment.”

“For example, my grandparents bought their $28,000 home and paid a $280 monthly mortgage from 1972 to 2001. Around 2001, their home was valued at around $230,000. If they had put $280 a month into the S&P 500 from 1972 to 2001, they would have had over $950,000 by 2001, after reinvested dividends. And this doesn’t even include their down payment! Had they invested their down payment as well, they would have had over $1 million by 2001.”

“Given that the transaction costs of buying a home are 2%–11% of the home’s value, you will want to ensure that you stay in the home long enough to make up for these costs. For practical purposes let’s choose the middle of this range and assume that the transaction cost of buying a home is 6%. Using Shiller’s estimate for real U.S. housing returns of 0.6% per year, this means it would take ten years for the typical U.S. home to appreciate enough to offset this 6% transaction cost.”

“Just 4% of stocks from 1926–2016 created all the excess return for stocks above U.S. Treasury bills. In fact, “just five firms (ExxonMobil, Apple, Microsoft, General Electric, and IBM) account for 10% of the total wealth creation.”

“As Geoffrey West calculated, “Of the 28,853 companies that traded on U.S. markets since 1950, 22,469 (78 percent) died by 2009.” In fact, “half of all companies in any given cohort of U.S. publicly traded companies disappear within 10 years.”

“The main purpose of this chapter is to reiterate that saving up cash to buy the dip is futile. You would be far better off if you Just Keep Buying.”

“For example, if you had picked a random month since 1926 to start buying a broad basket of U.S. stocks and kept buying them for the rest of the following decade, there is a 98% chance that you would have beaten sitting in cash and an 83% chance that you would have beaten 5-Year Treasury notes as well. More importantly, you would have typically earned about 10.5% on your money while doing so.”

“And if your net worth exceeds $93,170, which is similar to the median net worth in the U.S., that puts you in the top 10% globally. I don’t know about you, but I would consider someone in the top 10% to be rich”

“There is no right answer, because being rich is a relative concept. Always has been and always will be. And that relativity will be present throughout your life.”

“I would be willing to bet that not one of you, if you were offered every dollar of Warren Buffett’s fortune, would trade places with him right now… And I would also bet, by the way, that Buffett would be willing to be 20 years old again if he was broke.” Consider Attia’s trade for a moment. Imagine having Buffett’s wealth, fame, and status as the greatest investor on earth. You can go anywhere you please, meet anyone you want, and buy anything that can be sold. However, you’re now 87 years old (Buffett’s age at the time). Would you make the trade?”

Book

Book Review: A Shot To Save The World

by MQDuong2 Comments on Book Review: A Shot To Save The World

A Shot To Save The World is a riveting book on how different biotechnology companies raced against one another and time to produce the world-saving Covid-19 vaccines. The author did a good job telling the stories of not only what happened in the past two years, but also what transpired leading to the astonishing achievements that our modern scientists unlocked. The stories are broken into 19 chapters, each of which covers a period ranging from 1979 to 2021 and a character whose professional and personal struggles would eventually contribute to the birth of Covid-19 vaccines. Audience will get to know Katalin Kariko, Drew Weissman, Luigi Warren, Stephane Bancel (current CEO of Moderna), Ugur Sahin or Ozlem Tureci, just to name a few. Some of them are more famous than others, but each had a role in to play in the invention of the current vaccines we have today. It’s interesting to learn about their professional as well as personal journeys.

I usually review a book by sharing some of the content that I deem noteworthy, but for this book, I am going to share below some of the things I took away and leave the interesting read to you.

A career in biotechnology is not for everyone

Throughout the book, readers will come to see how difficult it is to work as a scientist in biotechnology. Long hours, countless experiments, constant pressure to deliver results and perennial lack of funding. For example, Kariko and Weissman started working together in 1998 on mRNA and were determined to find a way to sneak it past our immune system. Their breakthrough only came several years later, culminating in a published paper in 2005. In the meantime, Kariko had to take an undeserved demotion to keep her dream alive while battling health issues. Even after the paper was published, they still didn’t gain the recognition of their work at the time and still struggled to further their discovery because of the resource constraints.

In 2001, Uguer Sahin and Ozlem Tureci together started a company called Ganymed. Seven years later, with financial support from a couple of German billionaires, the couple founded BioNTech. As of 2011, neither Ganymed nor BioNTech had anything in even the early stage trial. By 2017, nine years and a lot of investor money after its founding, BioNTech only had one drug in the medium stage trial with no sight on any revenue stream.

If you are used to the corporate world where results are much quicker to come by, imagine how difficult it is to work relentlessly for years without any concrete results. You basically have to run on blind faith that the breakthrough will come some day. There is no guarantee. There is little short-term reward. Just faith and conviction. If that’s not challenging, I really don’t know what is.

Investing in biotech firms is extremely risky

Because it usually takes a long time for scientists to make a breakthrough, if they even make one in the first place, it’s risky to be an investor in biotechnology. The Struengmann brothers are German billionaires and early backers of BioNTech. A decade after pouring millions of euros into the startup and the Turkish couple, the brothers had nothing to show for their money. One of them even questioned why they believed in Sahin and Tureci in the first place.

Moderna was founded in 2010 with early backing from Noubar Afeyan and other investors. The company had the biggest IPO in biotech industry’s history in 2018 at $23 share. The stock traded at $18-19 in 2019 and early 2020, lower than its IPO price. One of its early investors, Viking Global Investors, dumped almost all of its stocks, about 5% of the company, at the end of 2019, signaling a lack of trust in the company’s outlook. The fate of Moderna took a major turn when the pandemic hit and the company bet everything on its ability to produce a vaccine. Had the pandemic not come or had Moderna failed at its effort, there is no telling where the company would be today.

“As 2020 began, Novavax was conducting late-stage trials for yet another vaccine from Smith and his research team, which was now down to fewer than twenty people. This time, they were tackling the flu. Early data was impressive, but existing flu shots were largely effective, and no one was willing to fund Novavax’s program.”

“We were down to not a lot of people, no facilities, no money, no confidence,” Glenn says

“The flu vaccine was the company’s last chance. Erck had managed to keep Novavax going for over a decade, pulling his team off the mat after each failure and frustration. Even he was getting gloomy, though.”

Novavax was trading at $3 – $4 a share in 2019 and early 2020 before skyrocketing during the pandemic

If you are an investor, ask yourself whether you have the stomach to go through what those investors went through. To me, difficult as a word is not enough and I, unfortunately, don’t have the vocabulary to do it justice.

Fate is a magical thing

Many scientists working on mRNA benefitted from the work that Kariko, a Hungarian immigrant, and Drew Weissman did. They, in turn, likely couldn’t have had their breakthrough in 2005, had it not been for the work that others did before them. For Kariko, she wouldn’t have been able to stay in the U.S, had a scientist at the Bethesda Naval Hospital not given her a job when she was on the verge of deportation and nobody else took a chance on her.

The Struengmann brothers, rich as they were, gambled on a young Turkish couple, even when there was scant evidence of what they could achieve. Without their backing, who’s to say whether BioNTech would even exist and whether we would even have a vaccine from them to save millions around the world?

During its early years, Moderna struggled to create a drug using mRNA. Everything they tried at the time failed and the company was on the brink of collapses. Then, a staff named Eric Huang came with the idea that instead of a drug, Moderna should start making a vaccine. The technical challenges that Moderna faced at the time were features of a vaccine. Why not pivoting? Fortunately for us, Stephan Bancel and the Board of Directors of Moderna agreed with Eric. Otherwise, who knows where Moderna or we would be today?

These are just a few examples of countless events that had to happen and in the right sequence so that we and the world could be saved from a deadly pandemic. The course of history would change dramatically if one of these events hadn’t happened. None of us could write this script. Only the magical fate could. And thankfully it did.

I hope by now I made you a tad more interested in the book. I think it’s great. The stories are persona, appealing and inspiring. I finished the book feeling inspired and grateful for all the work and sacrifices that so many scientists had to make for the good of science and our society. It’s easy now to just walk into a Walmart or Hy-vee to get a vaccine. But only by reading this book did I understand the work leading to the birth of that vaccine is full of blood, sweat, tears and sheer luck.