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No bad teams only bad leaders

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I agree with the above statement. It is the main principle in the book Extreme Ownership by Jocko Willink and Leif Babin, Navy Seals who served their country in Iraq, now also provide leadership advise to the businesses.

Bad leaders blame their staff, good leader own failure and do not blame, they turn staff and teams around by owning failure or seldom let them go (fire them), a difficult decision.

The Dichotomy of Leadership

A good leader must be:

• confident but not cocky;

• courageous but not foolhardy;

• competitive but a gracious loser;

• attentive to details but not obsessed by them;

• strong but have endurance;

• a leader and follower;

• humble not passive;

• aggressive not overbearing;

• quiet not silent;

• calm but not robotic, logical but not devoid of emotions;

• close with the troops but not so close that one becomes more important than another or more important than the good of the team; not so close that they forget who is in charge.

• able to execute Extreme Ownership, while exercising Decentralized Command.

Business case study

The chief financial officer (CFO) finally caught me alone, in between meetings, and made the point clear: the whole electrical division was losing money. The CFO could not believe that Andy, the company’s CEO, kept the division running. Perhaps at some future point, the division might turn things around and become profitable. But that future was likely more than five years away— five very long years in the construction industry, where market conditions, weather, competition, contracts, and costs of labor could radically change forecasts.”

“The only way we can make the electrical division profitable is if we pay them thirty to forty percent above the market rate for electrical work. And if we do that, sure, they might make money, but we will lose big.”

“Why do you think Andy is keeping it open and running?” I asked with curiosity. “He is a smart guy. He must see what’s happening.”

The CFO looked down to the ground and then over each shoulder. “It’s Mike,” he said solemnly.

“Mike, the CEO of the electrical division?” I asked.

“Yeah. He’s an old friend of Andy’s,” answered the CFO, “and a very good friend that has stuck with him through thick and thin.”

“OK,” I replied, understanding what was being implied. Andy was taking care of his friend.”

“What are the consequences of keeping the electrical division open?” I asked.

“If we keep it open, we will continue to bleed capital. That by itself won’t kill us,” answered the CFO. “But if we are that tight on cash and we encounter any unexpected cost, we would be extremely vulnerable. I don’t mind risk, but this simply does not make sense.”

The next day I sat down with Andy. While I had worked with this company for about a year, it was mostly with the middle managers. My latest two-day workshop had been with the C-level executives. Andy had brought me in to help with the other leaders but it turned out he too could use some guidance.

Waiting for an opportunity to open the discussion, I sat with Andy to review the strengths and weaknesses of his leadership team across divisions. Eventually, we got to Mike.”

“He’s a great guy,” said Andy. “Known him for years. He really knows the business, inside and out.”

“That’s great,” I replied. “His division must be making a lot of money for you.”

“Well you know, I saw some good opportunity on the electrical side, and wanted to get into it,” Andy said, with obvious unease. “With Mike’s experience, I knew he could run a good show.”

“So the division is profitable?” I asked.

“Not yet,” Andy answered, “but it will be.”

“How many months until it is?” I asked.

Andy paused. “Honestly,” he said, “it could be three to five years.”

“Ouch,” I said. “That sounds like a long time in this business.”

“And it could be too long. It is costing us money every month to keep him operating,” Andy admitted. “But they just aren’t getting any contracts outside of our company right now.”

“Have you thought about shutting it down?” I asked directly.”

“I have … but … you know, it will be profitable in a few years,” he replied slowly.

“Let me ask you this,” I said. “What if some other unforeseen event comes up? Costs you didn’t expect? A major incident or accident? A large contract that falls through? Could you afford this kind of drain on the company if things went sideways?”

“Probably not,” Andy replied.

“Is that the best strategy for the company?” I asked.

“You know, it’s not that simple. I’ve known Mike for a long time. Long time,” Andy said. “He has always done me right. I can’t just shut him down.”

There it was. Andy knew this loyalty was misguided. I just needed to get him to come to terms with it and see it for what it was.

Since Andy had just sat through my brief on the Dichotomy of Leadership, I stole one of my own lines right from it: “So one of your men is more important than the mission?” I asked bluntly.

“I didn’t say that,” Andy insisted.

“As a leader, you have to be close to your people,” I told him. “And just like I said in the brief, the balance is that you can’t be so close that one person becomes more important than the mission or the good of the team. Frankly, it sounds to me like Mike is more important than the financial stability and success of your company.”

It was evident that Andy knew he was leaning too far in one direction. As with many of the dichotomies of leadership, a person’s biggest strength can be his greatest weakness when he doesn’t know how to balance it. A leader’s best quality might be her aggressiveness, but if she goes too far she becomes reckless. A leader’s best quality might be his confidence, but when he becomes overconfident he doesn’t listen to others. In this case, Andy was a very loyal leader. He knew his people well and took care of his leaders and employees. But here, his loyalty to Mike was jeopardizing the financial stability of the entire company. His loyalty was out of equilibrium. But beyond the company’s balance sheet, Andy’s other leaders throughout the company saw what was happening, and it slowly undermined Andy’s leadership as their CEO.

Finally, Andy relented, “I know, I know. I should shut it down, cut my losses. But it’s hard in a situation like this.”

“Of course it is. Being a leader is never easy,” I said. “Imagine the U.S. Navy Sailors in World War II whose ships had been severely damaged. With their ship taking on water and in danger of sinking, those sailors sometimes had to secure the hatch to a flooded compartment when men who were their friends were still in those compartments, in order to save the ship. That’s an unbelievably hard decision. But they knew if they did not make that call, they risked everyone else. They needed discipline to make the toughest decision in order to save the ship and save all the other men aboard. There is a lesson in that for your situation here with Mike. You require discipline to shut this hatch, to shut down the electrical division, in order to ensure the safety of your company—and all the other employees here.”

“Andy got the message. Two days later, he called me and told me he had made a decision to cut the company’s losses and commenced the shutdown of Mike’s division. He knew it was the right move and was now confident in the decision. To Andy’s surprise, Mike had told him he fully understood and had expected this would come. It did not impact their friendship. Andy found another place in the company to incorporate Mike’s substantial experience and expertise, which allowed him to add value. The cost savings from the cut allowed them some freedom to invest in other, more-profitable divisions in the company.”

Reference::

Extreme Ownership: How U.S. Navy SEALs Lead and Win

Written by amitdipsite

August 12, 2018 at 9:20 pm

Posted in Uncategorized

ABDP UK – Dream investment

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What a dream type of investment this was for a buy and hold investor – ABDP UK Ltd.

I earlier wrote about it here: https://lifeandequities.wordpress.com/2018/04/13/abdp-uk-ltd/

https://www.abdynamics.com/

Since the IPO in 2013 the company has been a 13+ bagger since placing its share on AIM market at 86 cents per share.

i.e. 68% CAGR since the IPO.

They were always punching above weight and had blue chip clients to start with. I had bought it for the Fund and investors sometime in September-October 2017 at ~5 GBP at 22 times earnings and 5 times revenues and sold recently at ~10 GBP.

ABDP

What the company does ?

It makes driver-less testing cars and motorcycles software and hardware.

Who uses it?

All automotive companies in the world

Why I bought it?

Two reasons:

1/ Because I read a statement in its corporate presentation “Our products are routinely used by 20 out of 20 top automotive companies globally”.

One qualitative statement is all you need sometimes than a boat load of scuttlebutt! I knew that everybody’s uncle is investing in driverless car for R&D.

2/ Company was expanding factory to meet more demand

Other reasons:

3/ I love companies that are Global and not dependent on single geography

4/ Niche company with the primary sin of being a small cap. The best kind of sin. I don’t yet, have the problem of investing 100s of millions of dollars.

Why I sold?

I get uncomfortable when a company trades at 10 times revenues and 50 times earnings if the juice of efficiency and operating leverage has been extracted and the secular growth is not above 30%.

The company could still be a long run winner and have respectable growth of 20-25% in revenues ahead but I don’t think it will be easy to replicate the past performance in stock price now that it trades at 50 times earnings. Something very spectacular would have to happen to grow at even 30% CAGR in share price let alone 68% that it did in the past.

I think its time for individual and small institutions to quit and let the big Funds who are satisfied with 10% CAGR invest in it.

6 out 10 such investments is all one needs. Damn, I will be satisfied with 5 out of 10.

 

Disclosure: Vested interest in positions discussed. Views are personal notions and do not represent any organisation or company. Investment in stock market can (and many a times do) result in loss of principal capital.

http://www.elevendimension-funds.com

 

Written by amitdipsite

June 23, 2018 at 9:57 pm

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Reverse arthritis

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Written by amitdipsite

June 16, 2018 at 3:59 am

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My bluster on investment

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Written by amitdipsite

June 12, 2018 at 5:29 am

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Myanmar – New Frontier

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Though the new Myanmar Companies Law is less than three months away from being officially enforced, interest to list on the Yangon Stock Exchange (YSX) has not picked up as substantially as expected, said U Thet Tun Oo, senior executive manager of the YSX. 
The Myanmar Companies Law, which was enacted December 6, 2017, will come into force on August 1 2018. According to that law, foreign investors will be permitted to take stakes of up to 35 percent in Myanmar companies, including in firms listed on the YSX. 
More here: https://www.mmtimes.com/news/listing-interest-lackluster-despite-upcoming-law.html

Written by amitdipsite

June 12, 2018 at 12:16 am

Posted in Uncategorized

Moderately decent books

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https://www.goodreads.com/book/show/905.The_Inner_Game_of_Tennis

https://www.goodreads.com/book/show/18753256-the-art-of-mental-training—a-guide-to-performance-excellence

There are couple of useful lessons in the above books for people who are prone to lose temper, control mental climate, are fearful of losing, involved in competition, intense activities etc.

Written by amitdipsite

June 11, 2018 at 10:36 pm

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Where the opportunity is

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I do not give a $hit whether the management of the business that I am owning is publicity seeking, needing media attention, promoting their shares, brothel visiting, married 5 times, had sex change operations and are LGBT. Ditto for my friends and fellow colleagues. In management and business of microcaps where I invest the thing I care about is:

A/ Genuine and NOT fraud numbers reported to exchanges.

B/ Business momentum stronger than the competition.

C/ Disinterest in issuing more shares and dilution.

D/ Skin in the game.

E/ Hard work being put in by management to grow the business.

It would be nice if the management was readymade imported from heaven though but you don’t get to choose.

I have been researching all the nano caps in India and I have only found two companies that may fail on one of the above counts. That is where the opportunity is in India and a lot of NBFCs at this time imo.

https://lifeandequities.wordpress.com/2018/05/31/mid-cap-🧢-to-nano-cap/

Akme Star Housing and SecUR are two of my nano cap holdings that are not as strict about equity dilution as I would like them to be and they will, as per my guess be potentially willing to issue more shares in the medium term.

With MRSS I found that the employee expense did not grow linearly as per revenues as most of the work is outsourced.

Tejnaksh is fairly priced.

Written by amitdipsite

June 11, 2018 at 8:13 pm

Posted in Uncategorized