Tempamatics

In college (1980), I was taking a marketing course that required forming groups of 4 and competing in a game called "Tempamatics". Essentially, the group was the company and the collective groups in the class were the industry--competitors.

It was a simulated game where you made routine decisions about your product to include production volume, sales price, stock buybacks, debt assumed etc. Based on your decisions, (entered on key punch cards I might add--ancient technology), and in relation to the decisions of all others, your group was ranked against all others--in your class in and in all classes. The ranking was based on your score earned on about 5 factors. I don't recall them all but debt to equity, return on assets, return on equity were three of the 5. Not all of them had the same weighting.

The marketing professor was not too keen on accounting students. In fact he warned that the worst group that he ever had was composed of all accounting majors. Our group had 2 accounting majors (including me) and a marketing major and a personnel major. He did allow us to keep our weighting of 50% accounting majors, and we did not feel intimidated.

The very first exercise elicited a lecture from the professor about what variable costs were. Apparently more than one group had elected to sell their product for less than it cost them to produce. Naturally, those of us who had a facile grasp (read: accounting majors) of this concept were left with no sales, lots of inventory and red on the income statement.

After the first blow up, our team determined that we would systematically exploit the ranking system by making decisions that would cause a better outcome for more heavily weighted factors. Return on equity was one such factor. Accordingly, among other things, we bought back stock--including borrowing money to do so as debt factors were not weighted so heavily. We consistently climbed higher and higher in the rankings by maintaining a ruthless commitment to maximizing our scores and testing our decisions that would get us there.

To give you an idea how successful our team was, we finished with a score 97. The second place team had a negative number of like -25. (This was among all classes, not just our class, and I don't recall how these numbers were generated). Our lament, though, was that we were NOT making good long-term decisions, but rather short-term, highly rewarded decisions. This M. O. stood in stark contrast to the Japanese style of business decision making (much discussed at the time).

Businesses have to survive for the long term, and they cannot do it with short term thinking--such as unsustainable debt, declining sales or margins, runaway administrative expenses. So as you look at your investment candidates, make sure that they have a management team and product line that positions them for long term success. It's also a good perspective to apply to your personal finances.