August 12, 2016
I believe my lack of business education was an asset because it encouraged me to ask a lot of questions and to think from first principles. I recall going to an equity research morning call and hearing the utility industry analyst suggest the slow-growing companies under his coverage deserved price-earnings (P/E) multiples in the high teens and the tobacco industry analyst imply that his fast-growing companies should trade at P/E’s in the mid-teens. How does that make sense? I was dropped into a world of rules-of-thumb, old wives’ tales, and intuitions. ... My first breakthrough occurred when a classmate in my training program handed me a copy of Creating Shareholder Value by Alfred Rappaport.3 Reading that book was a professional epiphany. Rappaport made three points that immediately comprised the centerpiece of my thinking. The first is that the ability of accounting numbers to represent economic value is severely limited. Next, he emphasized that competitive strategy analysis and valuation should be joined at the hip. The litmus test of a successful strategy is that it creates value, and you can’t properly value a company without a thoughtful assessment of its competitive position. ... The final point is that stock prices reflect a set of expectations for future financial performance. A company’s stock doesn’t generate excess returns solely by the company creating value. The company’s results have to exceed the expectations embedded in the stock market.
1. Be numerate (and understand accounting).
2. Understand value (the present value of free cash flow).
3. Properly assess strategy (or how a business makes money).
4. Compare effectively (expectations versus fundamentals).
5. Think probabilistically (there are few sure things).
6. Update your views effectively (beliefs are hypotheses to be tested, not treasures to be protected).
7. Beware of behavioral biases (minimizing constraints to good thinking).
8. Know the difference between information and influence.
9. Position sizing (maximizing the payoff from edge).
10. Read (and keep an open mind).
It starts with a single gene, out of some 20 to 25,000, coding for the more than 30 trillion cells in a human body. Take the length of the DNA in those cells, unravel it, and you have a distance of more than 400 lengths from the sun to the Earth. The human genome has 6 billion data points of information. Six billion ways for something to go incredibly right — or incredibly wrong. ... Sorting through these possibilities is the job of Stanford University scientist Euan Ashley. The 45-year-old Scotsman is a cardiologist, a systems biologist, and one of the leaders of a new, integrated approach to the science of genetics. He led the first team to clinically interpret a full human genome; he’s involved in attempts to sequence cancer genomes for personalized treatment and to analyze the genomes of individuals who have rare and unknown diseases. But for the last several years, his work has focused on a specific mystery. He is looking for superhero genes ... “We’re interested in truly the fittest people on the planet,” he explained. Though there are many factors that may make someone elite, his team made the decision to select athletes on the basis of a single, objective physiological variable: the maximum amount of oxygen a body can use, or VO2max. VO2max is considered one of the most important markers not only for athletic success, but for overall health: It’s such a crucial indicator of cardiovascular function that it is used to determine whether someone requires a heart transplant. VO2max has also been measured in the same way for half a century, which means it can be a useful comparative point. ... To be a part of the study, men need to test at a VO2max that exceeds 75 milliliters of oxygen per minute; for women, the cutoff is 63. Fewer than .00172 percent of the population qualify.
Once you leave the giant department stores of New York City and head to the malls of suburbia, Ralph Lauren becomes a few racks of Oxfords, polos, and pleated pants. Reliably found in your local Dillard's, and just as reliably found on sale. ... She likens the brand to Michael Kors — oversaturated and devalued. "I would never buy Polo at full price." ... Most shoppers haven't encountered the totality of Ralph Lauren's world. How could they? Since the early 2000s, Ralph Lauren Corporation has owned and operated at least 25 different brands. ... Lauren has stepped aside to make way for a new CEO, Stefan Larsson — the first person besides Lauren to ever hold that title in the company's 50-year history. The company has been in the process of whittling down the brand list and there are plans to refocus on just three main lines: Ralph Lauren (the new umbrella label for Women's Collection and Purple Label), Polo Ralph Lauren, and Lauren Ralph Lauren. ... At the same time that Ralph Lauren is reevaluating its structure and bringing in fresh leadership, it also has to contend with the fact that the specific style of Americana that's so deeply embedded in every inch of the brand isn't something shoppers are clamoring to align themselves with now. If the privileged, preppy aesthetic that Lauren built his company around is no longer the height of aspiration, what will the future of Ralph Lauren look like? ... Lauren got his first shot at professional tie design at Rivetz & Co., a high-end neckwear company. It didn't go over well. "Rivetz was a traditional firm," David Price, whose father used to own the Rivetz & Co. business, explains. "They were doing all sorts of crazy pinks and oranges and all the Ralph colors, and the industry and the customer base at Rivetz thought it was just atrocious."
The problem stretches well beyond one tainted probiotic. Dietary supplements—vitamins, minerals, herbs, botanicals, and a growing list of other “natural” substances—have migrated from the vitamin aisle into the mainstream medical establishment. Hospitals are not only including supplements in their formularies (their lists of approved medication), they’re also opening their own specialty supplement shops on-site and online. Some doctors are doing the same. According to a Gallup survey of 200 physicians, 94 percent now recommend vitamins or minerals to some of their patients; 45 percent have recommended herbal supplements as well. And 7 percent are not only recommending supplements but actually selling them in their offices. ... Consumers are buying those products in droves. According to the Nutrition Business Journal, supplement sales have increased by 81 percent in the past decade. The uptick is easy to understand: Supplements are easier to get than prescription drugs, and they carry the aura of being more natural and thus safer. Their labels often promise to address health issues for which there are few easy solutions. ... It’s tough to say what portion of those products pose a risk to consumers. A 2013 report from the Government Accountability Office (GAO) found that from 2008 through 2011, the FDA received 6,307 reports of health problems from dietary supplements, including 92 deaths, hundreds of life-threatening conditions, and more than 1,000 serious injuries or illnesses. The GAO suggests that due to underreporting, the real number of incidents may be far greater.
Since its July launch Pokémon GO, a free “augmented reality” game by Niantic Labs in which players capture virtual characters mapped to real-world locations, has piled up superlatives. Apple said the game had more downloads in its first week than any other app in history. One in ten Americans plays Pokémon GO daily, according to App Annie, and SurveyMonkey estimates that the game is hauling in as much as $6 million a day from in-app purchases in the U.S. alone (the game is available in 37 countries). ... Just 12 months ago Hanke was an increasingly restless Google employee (he launched Google Earth, among other things) and his company, Niantic, was an overlooked gaming skunkworks lost in the search giant. As Google reorganized itself into Alphabet, Niantic looked likely to be rolled back into the company’s Android division or simply shut down. But Google had the wisdom to let Hanke seek outside investors and spin the company out. That paved the way for Hanke to approach Nintendo and the Pokémon Co., which oversees the brand’s intellectual property, and make the smartest mobile-gaming deal of all time. ... As of May 2016 Pokémon products had grossed $45 billion in lifetime sales.