Ethics

When thinking about ethics, two personal situations came to mind. One where I feel I did the right thing, and one where I feel I didn't. In once case I went skiing and the other, didn't pay what I should have for a gallon of milk. When a friend invited me skiing (a girl oh my) she offered her brother's season pass for me to use. Well I used it and we had a great time skiing. In the milk incident, I went to the store (with same said friend) and bought groceries. On the way out, the poorly place milk fell out of the cart and exploded in the Smith's parking lot. I went in and got a new one for free.

After thinking back on the day of skiing, I felt horrible. I decided that I couldn't forget about the day of skiing that was dishonest. I wanted to go skiing with my friend but didn't want to pay full price. Well now I just felt real bad about it. In this case, I ended up doing what I felt was the right thing. I bought a day pass online and never used it. In the case of the milk, I decided I would just go in and grab another and pay on the way out.. but my friend said I should just ask for another one. I listened to here and didn't pay what I felt was the fair price, since I had poorly place the milk on the top of the cart and was responsible for it falling. Well I feel like I learned my lesson, and if I had to go back, I would just pay for the milk.

And the Losses Continue

Today's entry is about misalignment and its costs. In an article from this morning's Wall Street Journal, the newspaper reports that the FDIC has shelled out nearly $9bn for failed U.S. banks since the financial crisis. This loss is shared among 165 banks so far, all of which were sold to stronger institutions during the crisis. In acquisition arrangements, the FDIC is still liable for nearly all future potential losses of the banks on $160bn in assets. It is estimated that the government agency will shell out another $21.5bn through 2014 even as some deals cover losses for the next ten years.

So how did get to paying out so much to failed banks? This is just another reminder of what went on in the years leading to the crash. The American homeowner was told to go out and get a house - anyone could afford it. Mortgage salesmen and their sponsors had no position in the mortgages they sold. Investment banks made money and were bailed out when the money machine stopped. Hedge funds asked for more all along the way in the form of mortgage-backed securities, collaterized debt obligations, and credit default swaps. Everyone benefited enormously. Citizens were put into houses they could not afford, even as they lied about income or credit worthiness and even when the banks turned their eyes away, and the bankers made money on every side. When things turned against them? Government stimulus and government guarantee result. The cost to the FDIC for this alignment? $9bn; I repeat, $9bn - and we're only just getting started.

To see the original article in WSJ, click here.

Microsoft and Nokia

It seems like in recent days, my thoughts have constantly been barraged by news of technology, phones, operating systems, and markets shares. Nokia shares have been down significantly, and everyone is wondering if its Symbian operating system will survive, as well as the executives running the company. Symbian, until recently has been the world's most popular mobile operation system, but things have changed very quickly, and now Nokia finds itself searching for answers in a market increasingly held by "A" game systems, Apple and Android.

Nokia has made an incredibly tough decision to largely abandon current R&D efforts and join up with Microsoft in developing Windows Mobile phones. The two have banned together in order to fight back for market share from their greatest competitors, Apple and Google (Android system). While options are slim, I don't see this panning out. Neither does most of the market. In fact, five-day returns, show a 20% loss on the share price. In short, they are very late to market, lack vision, and are trying to compete against the big guys who are far, far ahead in their efforts. Porter's 5 Forces say that this company will never be the same.

Becoming an Organizer

Late last week I was asked to organize an event in the Marriott School. I was asked to make sure there were 140 participants in the 2011 Marriott School Trading Simulation. I was a little disappointed that I would be given such late notice for an event that would take place in only two short weeks. I didn't want to disappoint anyone, so I got right to work and now we are well over-subscribed for the event. I learned some valuable lessons during the process.

I learned that it is very important to figure out who is on the bus with you. You've got to find out how much work they are willing to do, decide on a clear objective and give some encouragement. Feeling committed to the faculty, I loyally filled my part. Sharing that same sense of obligation to faculty as well as feeling an obligation to fulfill what was agreed upon, the others on the bus followed suit. I feel I got a faint taste of how best to organize and lead, and the way everything was carried out was a winning strategy.

Apple Inc., Man Overboard

This past Tuesday, Apple shares fell 2.3% even as its profit surged 78%. On Monday, Steve Jobs announced that he would "continue as CEO and be involved in major strategic decisions for the company." He also added, "I will be the first one to step up and tell our board of directors if I can no longer continue to fulfill my duties as Apple's CEO."

So what can we take from this? Perhaps Larry Ellison can help us better understand the current predicament of Apple Inc.

We were at a cocktail party, and [former Apple CEO] Gil Amelio was explaining Apple's predicament to us, and he said: “Apple is a boat. There's a hole in the boat, and it's taking on water. But there's also a treasure on board. And the problem is, everyone on board is rowing in different directions, so the boat is just standing still. My job is to get everyone rowing in the same direction so we can save the treasure.”After he turned away, I looked at the person next to me and asked, “But what about the hole?”

—Larry Ellison

Now the cocktail party referred to above occurred in 1997. We know Apple has come a long way under Steve Jobs. But I think we can learn a lot from this event. How would investors feel if they found out that as the ship was going down, Steve Jobs flew to the rescue, boarding ship. Upon landing aboard, he put his foot on the the leaking hole. Then he started shouting orders.

Since July 9, 1997, share price has experienced a near 9500% return. Moreover, Apple has combated more entrenched players and introduced some innovative products, becoming a mainstay in the marketplace and each one of our homes. It has found some incredible profit pools, turning into a 65 billion dollar company.

So now Apple comes out with numbers by the likes of a 78% jump in profit, and shares decline. Shares this week have in fact experienced a 5.48% decline. Now this is nothing some would say, just a little healthy volatility. So did he plug the hole in the ship on his way out? Is the treasure safe? This week, investors so far aren’t sure. Let’s hope Tim Cook and his crew know how to row.