I listened to the conference call. FAST is a fantastic company. But I think that paying a 30+ p/e for 15% earnings growth is a bit much. I'd look for that stock price to drift down, but it will do what it wants to be sure.
The GE surprise was an unpleasant one.
WLP did the same thing. The CEO affirmed guidance and then delivered an Easter egg filled with dog doo.
As a CFO, part of my job was delivering promises to all sorts of people. The numbers I planned (along with team members) and had to execute (with team members) generally determined the bonuses for a great many people. Failure to deliver. . . writing it makes me shudder. I never failed to deliver. Though there are pressures--emanating from within ourselves and from others--to have numbers 'look' a certain way, it is best to have a very simple mantra: never create an expectation for a number that you cannot deliver. And it does sound simple, but in reality it is not. The nice thing about being a CFO is that you see all the moving parts (so help you somebody if you FAIL to see something), and you know what you can and cannot control. And it is always a good idea to have some "if A, then B" plans tucked away to be pulled out when the IF occurs.
I remember having to create a pro forma to show the banker. The owner said, "You cannot show him that number." I said, "I do not plan to be involved with or show him a number that we cannot deliver." [That's when you shut up and look directly at the person with an impassive expression and let them figure out the "what's next" comment]. When it doesn't come (because there really is NO retort to that) you go on to say, "He's our business partner, and we don't want to surprise him. But let's also talk about the upside opportunities." Well, that was probably one of the most important conversations I ever had in that position. The bankers and the creditors trusted everything that I said--and with good reason. Even when the news was bad, really bad.
As investors, we look at a GE and a WLP and immediately see the impact on the stock price when someone overpromises and underdelivers. What about our personal stock? What happens to our stock price when we overpromise or underdeliver to a friend, SO, spouse, child, colleague, employer? We cannot readily view the depreciation of the currency of our word so easily?
One of the things that I like about David Allen's system of organization is creating a place for promises. In my resolutions list, I've done that; and it has helped alot. No one wants to commit to something that they cannot deliver, but we pressure ourselves or allow others to pressure us into committing. We then feel stressed when we cannot fulfill the commitment or perform it to the standard it deserves.
At the risk of sounding preachy (but you know that the preachy gun is really aimed at me!), today would be a good day to review the commitments that you've made and
- ensure that you've written them down in order to
- construct a plan of fulfillment (time/tasks) so that you can
- relax.
I've a mental model to share. First, think about your capacity to make commitments as a warehouse. You are the warehouse manager, and you are responsible for everything that comes in. Every item that comes in has to be inventoried in terms of date, time. As all of the inventory is pre-paid--meaning that it was bought with your word that you would deliver it--you have to assign a ship date that does not interfere with the ship dates of the other goods. Periodically you have to take inventory--particularly if your customers who are expecting a shipment (your performing your commitment) start to yell at you. And if your forklift is broken, or the warehouse is so full you don't know what belongs to whom, you, my friend, are in over-committed hell.
Now think of your commitments inventory as a gold brick. This gold brick has 'special' properties in that the longer it sits the warehouse of unfulfilled commitments it loses value. Some gold bricks have more volatile properties in that they lose value sooner, while others are more stable, but still subject to dissipating value. The amount of dissipated gold is YOUR currency devaluation in the eyes of those to whom you have unfilled commitments.
The keys to successful inventory management are these
- know your warehouse capacity--refuse new shipments if you cannot adequately manage them;
- keep good inventory records: when was the item received, who does it belong to, when does it need to be shipped;
- keep the warehouse clean and verify your inventory;
- If shipment dates are threatened; call your customers and tell them;
- Do not accept items into inventory that threaten the value of your inventory--accepting a drum of gold-dissolving solvent (a commitment that will way lay the fulfillment of all other commitments).
5 comments:
I have another word for it Leisa it's called morals. You were raised well and through that had a good sense of what you should and should not do. Nowadays a larger and larger portion of the people who become the CFO's of these companies are hired specificaly because of their low moral apptitude. I suspect that these type of people fit better with CEO's who wish to have that 100 million bonus come end year regardless of how the company did. 1 in (approx) every 100 people are borderline sociopath/physcopath (varying degree's) is it so hard to believe these types float to the top due to their inability to associate any of the human qualities within others. A boss who uses people as pawns, the need for control etc.. If you think about it I'm sure you can come up with names of people who fit the bill. I have to wonder if this group of people are responsible for many of the major problems that occur in the world.
William B
William--The label of morality is a tricky thing. I'm not saying that I took that position because I was more moral, but rather I valued my credibility over any other outcome. To me, I was choosing a wise path.
IMV, one has to be careful with one's principles. And, blindly held, rigidly wielded principles are not always rooted in wisdom but rather are used as sticks to beat others. A principle absent wisdom is merely a weapon. One must guard against becoming too self righteous and too rigid. Such inflexibility breeds short sightedness and failure to consider other alternatives because those alternatives are occulted by one's "principles." I've seen it, been a victim of it, and I've practiced it (when I was young and did not know
To my mind wisdom is always the final arbiter--I think that wisdom is inextricably linked to values and ethics. But morality to you might be different than morality for me. Issues of of sex, the role of women, the dress of women, dancing, drinking, reading material, thoughts (political, religious, etc), and such fall under the umbrella of somebody's morality. History is replete with the chaos that sort of morality dissonance brings about.
I think that the problems of the world are the same now as they've always been--a product of human DNA. All the things that make us "bad" are also the things that ensure that "we" survive. It's the tenacity of life--and tenacity is not pretty at times. And all the things that make us "good" are the things that give us comfort after we've ensure that we've vanquished those who would do us harm.
I just try to be cognizant that I've enough comforts, so I don't need to vanquish any, but there are many who need comfort and help.
Yes morals can be a hazard. What I am saying is that the ethos inside of you tells you when you are at a invisible line which you will not cross. There are a certain percentage of people who do not have that. They rise to the top of companies because they will drive themselves/those beneath them past those limits. Their goal is of a better lifestye only. Which is a in itself is a trap as the grass is always greener somewhere else. This is not to drag down all of those of whom work hard and long at the top jobs. I have great respect for most of them. I was simply stating there has been a slow shift towards looser morals and lower ethos which has allowed a certain type of individual more access to those top jobs.
On a different note I still believe the markets have two more good drops left. Any thoughts on that?
William B
Leisa
You are taking a very balanced approach with your blog.
You acknowledge there are financial problems – and you take actions as you see fit.
I also enjoy how your writings and posts tend to link many ‘seemingly’ disparate areas together – with great depth and intelligence… showing how things are ultimately all connected..
Many of the other blogs and financial commentators seem to be either bordering on ‘radicalism’ or still stuck in ‘Kudlow’ mode.
I find it disconcerting to see so many comments and ideas elsewhere talking about 1929, financial collapse, civil war, abolish the Fed, banker conspiracies - and continually posting tinyurl after tinyurl of the latest business, firm or person that is in trouble.
None of the above seems constructive.
Acknowledging the current problems is one thing,
But I don’t see many offering practical solutions.
Also Leisa, I find your previous discussions on morality very interesting – and can’t help but think this has played a role into getting us to ‘where we are now’.
IMO the moral compass seems to have become ‘demagnetized’ since the 1980’s – with everyone having adopted the mantra “Get as much as you can – As fast as you can – I’m entitled to it”
This has manifested itself financially as ‘leverage’
Ultimately one may be forced to acknowledge that there are underlying economic realities that are a 'slap in the face' to this mantra (ie: there are limited physical resources, and an ever growing number of humans being born)
What are the solutions?
I certainly don’t have the ‘answer’ – and I don’t think any one single person does either.
The solutions will no doubt be complex.
But that does not mean there is not a solution.
Running to one’s cave hoarding gold, guns, butter (and futures contracts on oil and wheat) – certainly doesn’t seem like a solution to me.
Neither does abolishing Central Banking or calling for financial Armageddon.
I’m not sure hammering out another ‘monetary’ framework is the solution either – as it just replaces one failed system with another system - without addressing the underlying causes of why these frameworks keep failing.
May I proffer that:
The solution to these problems lies with each person (on an individual basis) coming to terms with this idea of “Get as much as you can – As fast as you can – I’m entitled to it”
For until change occurs within the indiviaul – how can society or the systems society create change?
As 2nd ave said a while back –- it’s hard for people to change.
So unless we really do change – it is unlikely any new financial ‘system’ can really be created that would produce a different end result from what we currently have. (ie: a greed based system)
Turning our attention to the current ‘crisis’:
Probably what will be needed IMHO is a good old fashioned case of ‘Capital Destruction’
The leveraged capital could be destroyed in one of 3 ways I guess:
Case 1.
The first way is the way the doomandgloom blogs suggest: A la 1929.
Mass Deleveraging – causes economic collapse.
Bankers lose control of the system.
What is odd is that those calling for a repeat of 1929 - don’t even believe their own rhetoric.
I mean what kind of a forecaster calls for a repeat of 1929 but says that the Dow will only fall to 10000?
This is ludicrous.
If we are going the way of 1929 – this means the system has failed.
Stocks would collapse – back to where they were prior to the credit expansion (1980).
i.e.: Dow Jones 1000
Bonds would also collapse.
None of us in our lifetimes have experienced a collapse of the bond market.
All we know and focus on is the relation between bonds and interest rates.
In a 1929 scenario – it doesn’t matter what the interest rate is – the bonds crash or default because the underlying businesses or countries are broke.
Now, assuming the bankers don’t lose control of the system – then there are probably 2 options:
Case 2.
The leveraged capital will be destroyed like 1965-1982:
– S L O W L Y.
Stagnation – dilution.
By pushing the burden of the overleveraged onto every single man woman and child.
Currency devaluations.
Etc…
IMO this seems the most likely scenario.
Case 3.
There is another interesting scenario.
All the affected ‘highly leveraged’ parties come to an agreement (granted this is a pretty big assumption)…
Since most of the leverage is OTC derivatives....
And it is not traded publicly...
…But is either illiquid or traded on black boxes etc…
And since it is off balance...
Then these trillions of dollars of losses (and gains for some) are for the moment not ‘real’
So keep them that way!
Who says they have to become real?
They aren’t traded on the market. Keep them off the market.
The major owners of these derivatives could come to an agreement to keep it all off book.
Those on the losing end (the Bear Stearns of the world) would have no choice but to go along - and be eaten up.
In essence - the ‘Big’ keep eating the small - until there is 'only the big'.
And so with the big having ‘recollected’ up all the toxic paper – it is then internally ‘flushed’
So in the end the destruction of all the leveraged derivative capital is merely an ‘arrangement’ worked out among the bankers.
None of it ever coming ‘on the market’
The ‘real’ economy, the ‘real’ stock market and the ‘real’ bond market – keeps going its merry way.
I mean, would the bankers really risk collapsing the entire world economy just to clean up a monopoly paper pyramid which really amounted to trillions of dollars of ‘sports bets’
Unlikely.
William--
Regarding the markets: I was thinking earlier that this is the first bear market where individual investors have had the greatest access to vehicles to short the markets. I wonderful if that had created a "floor" under the indices. Though to be sure the financials short ETF did not lend much support to that sector.
I think that a lot of shorts have covered. I was surprised that the VIX was as tame as it was last week. I think that spells vulnerability. The upside catalysts will have to be some combination of (1) commodity prices easing; (2) the consumer strengthening; (3) global decoupling from the US. Funny how the latter is not being called a myth by the very proponents of it just a short while ago. For the record, I always said it was a myth.
I'm inclined to think that the market is still having some incredulity that all is lost. Now it is not a question as to a recession or not, but how long/deep? It might take a couple of quarters of bad news to stomp the optimism out--and we drift slowly but unrelentingly downward!
That's alot of words to say that I agree.
NG: thanks for your nice comment and your offering your perspectives. I've much to say regarding some of your comments, and will make a post. I don't think I'll finish it tonight though.
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