Yahoo! Gimmicks

Yahoo! paid $30 million for apps that a 17-year old developed. The news caught all media headline on the announced day. The young developer has since joined Yahoo!'s employee force. What message the new CEO is sending after banning work from home. The ban is certainly a PR fiasco for the new CEO, even though it is necessary to boost productivity.The most obvious one is Yahoo! values tech advancement at a high level and they can find new blood. Such gimmicks do not always work. Yahoo! daily operation isn't that satisfied and productivity is low.

See the following wide spread messages on Yahoo!

Yahoo! email DNS server can't recognize the Craigslist's email:
http://ph.answers.yahoo.com/question/index?qid=20130330192703AAL9tfi

This could be a widely reported failure in the coming days and pull people off Yahoo! mail. One may wonder how much the $30 million will help the company save these PR mistakes. But indeed Yahoo is changing in a way not always comfortable:

Yahoo! email's Personal Setting has become so sticky and annoying.

Yahoo! Finance has become half CNBC.

Yahoo! Home page has become half mile long.

And more changes may be coming.

Licensed to steal

The New York Times has a great article on HP's full board of directors was re-elected even company value is halved.

http://www.nytimes.com/2013/03/30/business/why-bad-directors-arent-thrown-out.html?ref=business

The very same board approved the infamous Autonomy deal that went sour. A $8.8 billion write off. Then CEO who approved said that this kind of deal won't get approved without the board. Stock price has halved, 29,000 workers have and will be cut, a bad series of acquisitions, Palm, PC, .... A long list of missteps.

Yet all 11 H.P. directors were re-elected on March 20. 

These directors each received a mix of cash and stock payments ranging from $292,000 to $380,000 in 2012, from the article. The company recommended shareholders to vote the entire slate, citing the risk of “destabilizing” the company by changing directors in an “abrupt and disorderly manner.”

Since the board decides the number of nominees, and most nominate only as many as there are open seats, they’ll all be elected, even with a single yes vote (which may be their own).

The vote? ...59 percent for Mr. Lane, 54 percent for Mr. Hammergren and 55 percent for Mr. Thompson... Whitman received 98 percent.

Two largest shareholders were reported vote for the board, although they declined to confirm:

H.P.’s two largest shareholders are Dodge & Cox, a large mutual fund company in San Francisco, and Vanguard, one of the largest asset managers. ... Vanguard wouldn’t say how it voted its H.P. shares, and Dodge & Cox didn’t respond to my inquiries. But a source with knowledge of the voting, who asked not to be identified because he isn’t authorized to disclose the results, said both Dodge & Cox and Vanguard voted in favor of the full H.P. slate of directors. (Both companies will eventually have to disclose their votes, but not until September.) 

The author expressed his anger in an unusual way in the concluding remark:

But the reality is that H.P. can do whatever it wants, regardless of what the shareholders say. Mr. McGurn said that Institutional Shareholders Services often follows up with letter-writing campaigns at companies where shareholders have voted their strong disapproval of directors.

Speechless from this story. Do we still trust this company, or its ability to correct itself, or its competence? One saying can't be more accurate: HP directors are licensed to steal. It is a huge humiliation to HP's vast work force. Whitman's turnaround won't work without removing the plagues. The largest mutual funds can vote by shares, other smaller ones can also vote, but by legs.

Networking, not social networking

Many professionals now have LinkedIn accounts. Sending invites and accepting invites seems as easy as a click. This is the purpose of the Website, right? One would think so but when sometime you sent an invite to someone you do know, then something interesting happened. For example, you may get questions like should you or I send the invite first? How many connections have you had? Can I not accept the invite? Or you get nothing.

You would never think this is so unexpected, right? People may think social networking a barrier to social. Then, we may ask, what is networking? what to network? how to network? particular rules in different professions?

Here are some thoughts and observations from others to these questions:

• Don't worry the tool or the medium. Focus on the relationship. Facial engagement has nothing comparable to setting the foundation right. Instead of sending/accepting cold invites, develop a reason for making contact and recursive conversations.
• Try to network different types of person more than the same type of person as you. For example, professionals are more introverted and technically focused while businessmen/entrepreneurs are more emotional. Skill sets connecting to these two groups like sky and earth. But do try to reach out the other side.
• Regardless what tool is used, the one really counts is identifying what is important to the ones you try to connect. If find something is helpful to them, send them timely. Same as finding a reason to connect.
• There may be status conscious for different professionals. Bring an edge and creativity to the table or instant message or whatever to differentiate you.
• If being rejected, keep trying. One veteran sales person put it in this way: people have become very sophisticated at rejecting your and testing you. Try another reason to network with them, on business level and personal level.
• Don't treat conversations, message exchanges pure information gathering or data distribution. Social networking tools have broken everything down except brought more authenticity to networking. Be sincere.

Finally, it is never an end to networking. Keep learning.

Buybacks that do look wasting money

Occasionally see stocks that hit 52-week high without particular news or fundamental improvement. Of course, when the Dow hit all-time high non-stopping like what is happening now, people may overlook the fundamentals and focus on prices.

Here is an example. One defense company announced buyback in 2013. Then the stock broke multiple-year highs. Considering that the industry's uncertainty (indeed short interest on this company has spiked around the time of the buyback announcement) and limited growth perspectives in the coming years (usually defense companies have stable ROI), the buyback might be a tool to fight back the bears. There is nothing wrong if so. Another possibility is the company doesn't know how to use cash on hand except paying dividend and buyback.

The question is, we may ask the question had been asked many times, is the buyback worth?

CNBC reported that someone might have answered this question:

In what may be the best report ever on stock buybacks, accounting and tax analyst David Zion had this sobering comment: After reviewing the $2.7 trillion in buybacks by the S&P 500 from 2004 through 2011, “it looks like most of the buybacks by the S&P 500 over the past eight years have not yet added much value for remaining shareholders.”... The two biggest spenders are IBM ($90 billion) and Hewlett Packard ($61 billion.) Over the eight years of the study IBM post an annualized return of 15.3 percent while Hewlett Packard produced an annualized loss of 11.3 percent.

Counting the crisis in 2008/09 seems biased to conclude that buybacks are wasting investors' money since many are still way below their highs. However, these are the companies that know their financial conditions better than anyone else. They always have the right to say "not to buy" or "buy at what price". There is a need to show capital efficiency. This is their call but investors' judgment. In general, if companies buy back stocks at 52-week high, we may be careful what the companies are trying to do. In the end, staying away the game they are trying to pay with our money is always right in personal opinion. If the company is the only bull, be cautious. We need some consensus to verify our investment.

Then how do we know if the company is in buyback? Not easily answered in general. But the particular company at the beginning is easier to spot: the volume spiked up when 52-week high was reached and is considerably higher then average volume in spotty manner. This may well mean there is additional buying force participated from the company itself.

Don't fight the Fed, Train her

The Fed currently puts unemployment reduction as its foremost important task instead of curbing inflation. This priority fuels the March Madness and sent the Dow to continuous record high. The unemployment goal that would affect the Fed's monetary policy is 6.5%. February unemployment rate was 7.7%, dropped from 7.9% from January with nonfarm payroll increase 236,000. While market participants are debating if the record high is sustainable, it is hard to fight the Fed who wide open check book to boost employment.

Even so, there are ways to game the system. Here is a wild thought:

In order to drop unemployment from 7.7% to 6.5% in a month, nonfarm payroll needs to increase by six times February gain. That is 236,000*6 = 1.416 million employment in a month. Consider 3-month data processing gap, if the 1.416 million workforce remain 4 months, the variation will be stable at 6.5%.

How much cost to hire 1.416 million? Not much in fact: paying one person at minimum wage of $8/hr, every day income is $64/day or $320/wk. For 4 months 18 weeks, total income is $5760. For all 1.416 million, that is $8156M or $8 billion.

Eight billion dollars is a big number. But look at this way: Aucker shorted $1B dollar Herbal Life; Incan countered his short by almost half billion dollars; it is 2% of Apple's current market cap that has dropped 30%. It is really not much.

Given this, someone can change the Fed's mind.

A small tweak, a giant leap

A casual reading led to The Tinkering School (http://www.tinkeringschool.com/), founded by Gever Tulley. Tulley is a popular presenter in TED Conference. TED stands for technology, entertainment, design. Big names like Bill Clinton, Bill Gates, Al Gore, and Nobel Prize winners presented in TED conferences. Tulley was just a regular software programmer when he reached the symposium.

Tulley attracted notice when he proposed "5 dangerous things kids need to do" at the conference. In addition to that, Tulley founded the Tinkering School. Students enrolled in the first class were teens and their parents had to sign a clause that their kids might get injured. Classes are emphasized to be practical usage. Students, sometimes with adults' help, build bridges and boats that must be able to hold their weight. Otherwise, students will fall from the bridges or sink. By the way, first class students were from close relationship like friends and relatives. Tinkering School incubates another Tulley's educational ambition: Brightworks (see the website). Brightworks added conventional education component such as issuing California accredited diploma.

Years later, kids who attended the school still remember their experience. One of Tulley's intention was to train future engineers. So it is an encouraging sign that students may explore engineering path in the future.

On the other hand, reports that, also in California, students who struggling in regular classes are allowed to go to online classes so that they can "graduate". Do we see connection between this report and reports that employers can't find qualified employees in the current job market? These are non-qualified teachers. Eliminating such online schools is a necessary fix.

The next big thing

Once listened to a story by a high level marketing executive: when he was 6 years old, his grandpa brought him to the race track. The grandpa asked him, relaxingly "George, pick a horse". So he picked a number and won. Next the grandpa asked again, casually, "George, we won, now pick another number". Then they won again. The grandpa showed some interests, "George, we won again, pick another number." They won again. The grandpa became very serious and thought the grandson be a golden boy, "Listen George, we won 3 in a row. Now give me a number." They lost.

Not sure if the story is true or not but that brought a good deal of laughter to the crowd. He is a good story teller that can grasp audience attention. Story telling is a special skill that communicates with people and makes conversations interesting. Stories really can be anything from real life, from reading, from movies/TV, from people's mouths. But to make stories genuine is more difficult and needs to be mindful. People often come to a gridlock that it is hard to find new story contents. One way is find another culture dramatically contrast to a familiar one.

For example, the Academy Award winning director Lee picked an Indian story, which is far away from the movies he had made before. But India is a country full of all sorts of stories. The movie is a hit in Asia, especially India and China. The making of the movie itself can be an interesting story.

Cartoon is already a big business in Asian countries like Japan. In a wider sense, story telling can be a "next big thing".

When news in sync'ed, be careful

Just two weeks ago, before the sequester negotiation entered the last two weeks, media was vigorously looking for bad news. Warnings that a volatile market was about to come appeared everywhere, every time. Traders were looking for chances that they would pound the market. Debates how the sequester would impact the economy were hot. Now that the sequester is behind us and the Dow is just razor shy from the record high, the media became overwhelming promising on another record Dow.

This is a dangerous time, when everyone is talking about the same thing. Traders entered early are recruiting followers, under the name of "the Great Rotation" before the bond bubble bursts. In fact, there are other opportunities than the equity market: housing related (not real estate) industries, depressed European market, etc.

Contranian is a sense that accumulated from experience. It is true and very likely new funds would push up the market more. But watch out closely what drives it up, particular what would smash it down.

Asymmetric risk

In Richard Brandson's "Screw It, Let's Do It", Brandson described a little story. A winner of Brandson's sponsored contest came to his mason for the one million pound prize. Instead of handing the check to the winner directly, Brandson had a twist for the winner: he provided an option that if the winner could flip a coin and won he could get two million pound prize. If he lost, then the one million pound would be lost too. This seems an easy decision but Brandson spent 2 pages to illustrate his point: don't take non-calculated risk. Coin flipping is one of those risks should be taking as you don't have a way to measure it. His recommendation, unspoken to the winner, was not to take it. In the end, the winner didn't take the option but the one million pound prize. It appears to be a respectful decision to Brandson.

Playing this game to people, my returns are overwhelming No to taking the option. If playing this game with an additional twist: instead of one million, say $100, however, answers start diverging: 7 out of 10 people said they would risk it. Reasons are the same: $100 is nothing. But one million pound is significant. The only 3 said they won't do that is because, surprisingly and unsurprisingly, discipline. The reason it is surprising is that there are indeed people stick to their guns. Unsurprising is that this is the rule to the same kind people.

Thinking back, understood Brandson's point of not taking inculcated risk, one may reverse the thought process: then why would Brandson offer the risky option to the winner? I think the reason is the risk people are facing is asymmetric. It appears that is the same one or two million pound to both sides. It is not: the winner needed the money to save his small company. The money probably wouldn't make a dent to Brandson's wealth, even back then. People intuitively realize this on survival stand point. In fact, this is one of the systematic risk that needs to be considered.

Once realized the risk is asymmetric and we can't calculate the risk, we need to treat it as regular risk, by discipline.