Listen When This Man Speaks (about his business)

Posted on by David Wright

I think he’s the greatest non-founder executive to have walked the earth, and Jim Lynch points us to an extended treatment of Hank Greenberg’s management style (the technical stuff, not the bombast), including an interview:

Greenberg said, “You don’t want to roll your company up with undefinable risk. You have to understand the risk. The insurance industry is the only industry where you never really know the results at the end of the year. You may think you know, but you don’t. The tail on a risk could be 10 years, so you don’t really know.”

So how do you mitigate that seeming lack of understanding? “Experience is very valuable to be able to predict those costs,” he said.

“I don’t want to wake up one morning and say ‘What happened?’ ” Greenberg said.

Felix Kloman, a former Towers Perrin partner and a well-known commenter on the subject of risk, said, “Organizations can easily become risk averse. You want them to take on risk in the future and too often risk management defines risk as a negative outcome.”

Kloman said that Greenberg is the exception. “Hank is much more of a risk-taker. The CEO coordinates and encourages intelligent risk-taking.”

Here’s how insurance works: clients hand insurers money and time-bombs, which they toss into a warehouse. Luckily, most time-bombs are duds and, when they do go off, the walls of the warehouse are strong enough to withstand the bang.

Obviously you want as many time-bombs as you can get because you want the money, too. You can use that money to build thicker walls on your warehouse, allowing you to stuff more bombs in there. The problem is that, all too often, insurers don’t find out they’ve overbought time-bombs until it’s too late.

All you can do then is sit there and watch them go off.

Striking that balance between growth and risk management absolutely boggles the mind and, frankly, gets the best of many, many executives.

Hank Greenberg was/is better at that balance than anyone else on earth.

David Haye Retires

Posted on by David Wright

Let’s put aside the question of whether this is a real retirement or not. Let’s take him at his word.

Professional athletes have a strange fate. The most successful are the most tough mentally: they train harder, smarter and longer than their equally (or more highly) talented peers.

I actually believe success in any walk of life depends on experience and sustained mental strength. Sports, business, science, family life, friendship: it all takes work and intelligence and effort.

I say this because in all things except sports, you get to use your experience and knowledge and constantly improve for as long as you choose. If success grants you one thing it’s the ability to control your fate. The most successful keep at it right up until and beyond where social norms tell you you should stop.

In sports, though, you work at something from childhood and, just as you’re beginning to reach true mental and intellectual maturity, your physical abilities begin their decline. As an athlete, you have dedicated your LIFE to this activity and just as start to get it, you have to stop it.

They probably feel the same as they did when they were 20. How could those feelings be wrong?! This must be unimaginably frustrating.

Maybe you become a coach. Maybe you go get an MBA. Who knows. But the allure of un-retirement is immense. In contact sports like boxing there is a powerful disincentive, though. Here’s David Haye:

I didn’t want my speech to become any more slurred than it was when I first entered the ring, and was keen not to one day look like an extra from Michael Jackson’s ‘Thriller’ video.

This happens to a lot of boxers. This happens to even more football and hockey players, because those sports employ more people. Concussions destroy lives.

I think that boxers should retire before 30. I think that guys like Floyd Mayweather Jr. got into their 30s with relatively little physical punishment because of technique built on talent. Talent fades, though, and Floyd’s going to start getting hit.

These people train their minds to push their bodies beyond where the limits ‘should be’. This is a skill that begets extraordinary success and wealth.

A more valuable skill, for the sake of their lives, is turning it off.

Steve Jobs = Keith Richards

Posted on by David Wright

This Gladwell article got me thinking.

The making of the classic Rolling Stones album “Exile on Main Street” was an ordeal, Keith Richards writes in his new memoir, because the band had too many ideas. It had to fight from under an avalanche of mediocrity

Richards goes on to marvel, “It’s unbelievable how prolific he was.” Then he writes, “Sometimes you’d wonder how to turn the fucking tap off. The odd times he would come out with so many lyrics, you’re crowding the airwaves, boy.”

[Richards] came to understand that one of the hardest and most crucial parts of his job was to “turn the fucking tap off,” to rein in Mick Jagger’s incredible creative energy.

The typical and terribly wrong view of innovation is that education and intelligence and creativity are scarce resources and our education systems need to address this.

My view of innovation is that all ideas start out stupid. The scarce resources are filters that eliminate the most egregious wheel-spinners and execution that elevates the remainder.

We focus on guys like Jagger, ablaze in a creative frenzy, and think: “wow, if only I could write that much music, I’d definitely have a hit eventually”. But the real genius here is probably Richards. How do you figure out what to hammer into a song? What if you choose wrong?

The wrong insight you might take away is that the best music ever written is probably languishing in a trashbin somewhere because nobody was able to polish it up. The real answer is that there is no such thing as the best music in a trashbin, because EVERY SINGLE Keith Richards is successful, but the VAST MAJORITY of Mick Jaggers aren’t.

Execution is hardest. Execution is what happens when you realize your original idea is stupid. Execution is identifying the redeeming quality and figuring out how to exploit it.

Let’s take technology companies, who control an enormous share of execution talent for innovative ideas: they have all the best engineers. What makes the difference between Amazon and, say, Pets.com? Execution.

But are Amazon’s engineers THAT much smarter than Pets.com’s? Probably not.*

What probably happens at Pets.com is that the filter doesn’t wipe out the bad ideas and whoever is in the Keith Richards role isn’t seeing the diamond in the rough.

And read the title to find out who sits atop the technology execution pantheon.

*By the way, I have no idea about any of this, obviously. I’m just picking companies out of thin air.

How To Be Awesome

Posted on by David Wright

Here is a fascinating article on coaching and it’s written by a surgeon.

I’ve noticed two common themes on the resumes of CEOs of Reinsurance companies: many of them were actuaries at AIG in the 80s and another group were drawn from the ranks of the this famous old defunct firm called F&G Re.

What was in the water? Who set the culture that produced so much success? There had to be someone that kicked it all off, someone whose contribution to the industry has probably gone under-appreciated. Under-appreciated as a coach and a leader, anyway.

Most managers do a very poor job of coaching their employees. Who can blame them? It’s really hard. Once your’e out of school, learning is a strange, solitary process that, bizarrely focuses on all of the wrong things.

Take a typical insurance exam series. You spend a LOT of time learning about insurance law, a bit about definitions of various jargon and the rest is financial theory about capital allocation and pricing.

I would bet that the knowledge differential in these areas explains something close to zero of the variation in career success. If that hypothesis is true why would we teach it and test it and what should we teach and test instead?

I touch on this issue in my little rant against the DB course. We teach these things because they’re easy to test. We can grade people’s ability to memorize lists and perform calculations and delude ourselves (and them) into thinking that this is making them better at whatever it is that they do.

We’re wasting people’s time and, more tragically, we’re wasting their impulse to learn. These are people who have decided to spend extra time, and perhaps extra money, to better themselves. Worse, when they realize it does not work we have taught them that to better oneself is futile.

That IS a tragedy.

So what to do? Well, you do just what the good doctor in the article did: pick a task that you want to improve your performance on and find the best person you know at it and ask them what to do.

For instance, my company is led by a spectacularly good salesman. I don’t think I have EVER gotten a piece of advice on how to become a better salesman from him. Sure I’ve learned things by just being around him and working with him and that’s a powerful way to learn, too, but I don’t fully grasp the thought process that goes on behind his actions. This is an incredibly lucrative thought process, by the way, and our company should find a way of sharing it internally.

Instead I’ve taken lots of courses and spent lots of time doing things like blogging and listening to podcasts and reading articles online. I try to only do things where I will learn something that I think is of value but they’re not things that are making me better at the ONE THING that the boss of my company wants me to become better at. Ironically, this is the ONE THING that he can teach me better than anyone else I know.

Back to the joke about the economist searching under a light. The police officer comes up inquiring about what he’s doing. “Looking for my keys”, says the economist. Well where did you lose them? “Oh, way over there on the other side of the park”. But why are you looking here?

“Because this is where the light is.”

Why Did Steve Jobs Follow His Own Advice?

Posted on by David Wright

EVERYBODY is linking to the Steve Jobs Stanford speech, and I am, too.

It boils down to this: hardship teaches you to savor things. Don’t waste your life.

Robin Hanson isn’t impressed with the practicality of this advice:

Now try to imagine a world where everyone actually tried to follow this advice. And notice that we have an awful lot of things that need doing which are unlikely to be anyone’s dream job. So a few folks would be really happy, but most everyone else wouldn’t stay long on any job, and most stuff would get done pretty badly. Not a pretty scenario.

I commented on his blog with this:

This makes me think of supply-side economics.
Maybe following his advice leads to a gigantic increase in welfare as people compete harder and so innovate more. .
Think of it this way: today Jobsian success has p = 1% and N = 10m. After Jobs’ speech N -> 1b and p -> 0.5%. We’re better off, non?
Or are you saying there’s a fixed supply of Jobsian success stories in our future?
Fewer garbage collectors? Maybe. Maybe we’d have machines doing it much sooner, too.

This makes me wonder a bit more actually.

Steve Jobs takes over (again) as CEO in 2000, gets diagnosed with cancer in 2004 and THEN proceeds to go on a innovation rampage. But he never had an innovative period of his life like that before.

Here’s Cringely from earlier this year:

Steve Jobs is clearly the most important media mogul on the planet right now, and maybe the most fragile.  This latter point is important, because Steve sees himself as having both a unique mission and a frail constitution.  He can’t wait to get things done, which is why the next couple years will be probably the most important in Apple’s history.

He was MOTIVATED.

Is there a way to possibly replicate this motivation without a direct and serious threat to your life? Can people in ‘normal’ circumstances possibly follow this advice?

David Pogue argues today that we won’t see another Steve Jobs because we won’t find someone as TALENTED as Steve.

I completely disagree.

We won’t see another Steve Jobs because we won’t see someone running a company they passionately care about with the motivated sense of urgency Steve had following his cancer diagnosis.

What If Steve Jobs Didn’t Grow Up in Silicon Valley?

Posted on by David Wright

From time to time I need an inspirational boost and I turn to this book, which I’m slowly cranking through on the kindle. I recently finished the chapter on Steve Wozniak (the real Thomas Edison of the pair of Steves IMO), which I’m thinking back to a fair bit today.

I think that the most powerful determinant of each man’s future was not himself, but actually Hewlett-Packard, where each worked at one point and which basically sparked culture we know today as Silicon Valley.

Apple, Inc. does not exist if these two kids didn’t meet and, I’d say, also doesn’t exist if they grew up in ANY other city in the world.

Here’s Paul Graham:

The problem is not that most towns kill startups. It’s that death is the default for startups, and most towns don’t save them. Instead of thinking of most places as being sprayed with startupicide, it’s more accurate to think of startups as all being poisoned, and a few places being sprayed with the antidote.

Startups in other places are just doing what startups naturally do: fail. The real question is, what’s saving startups in places like Silicon Valley? [2]

On the mark.

Culture mattes more than anything.

Biting Off More Than You Can Chew

Posted on by David Wright

Here are two related posts on entrepreneurship.

The second discusses why startups fail. The biggest cause is one that plagues companies everwhere: too much scale too fast. Too much investment before you’re ready.

The first article discusses the reason why this happens:

We’re all plagued by this defect of human nature — thinking we know more than we do — which then causes us to miss opportunities to actually learn something.

And causes us to take opportunities to fail. Learning is boring and hard and embarrassing. You feel stupid, you procrastinate. You probably feel guilty about procrastinating. The smallest things are impossible to figure out.

Then you give up learning and building stuff and just lash out in activity. Bang, you’re dead.

Warning, personal rant directly ahead:

I’m still working on the weekend project and it seems that every time I turn around there’s some other super basic, super simple new thing I don’t understand that takes me forever to figure out.

For example, I’ve been completely hung up for two weeks trying to get a web server going. I have to learn how to configure Apache with Windows. Then php with Windows and Apache. None of it friggen works properly.

TWO WEEKS! And basically nothing to show for it.  Meanwhile, tweaks and improvements on the basic engine of my project languish incomplete.

But the rest works, if barely. This is the bottleneck. This where I need to spend my time.

It is an indescribably frustrating process to not even be able to SET UP my tools, much less learn to use them. I’m looking forward to learning another programming language, actually. It should go much faster this time because I’ve got the basics down fairly well.

But working in the old comfort zone isn’t going to help me, is it.

Holy Cow, Lots Going On

Posted on by David Wright

Some links:

Here’s a scathing review of S&P’s conduct, generally:

To say that S&P analysts aren’t the sharpest tools in the drawer is a massive understatement.

Naturally, before meeting with a rating agency, we would plan out our arguments — you want to make sure you’re making your strongest arguments, that everyone is on the same page about the deal’s positive attributes, etc. With S&P, it got to the point where we were constantly saying, “that’s a good point, but is S&P smart enough to understand that argument?” I kid you not, that was a hard-constraint in our game-plan. With Moody’s and Fitch, we at least were able to assume that the analysts on our deals would have a minimum level of financial competence.

Yikes. And imagine what the real regulators are like.

As for S&P’s downgrade, here’s Sumner’s take, under the title of 1.07% on the 5-year and falling fast.

The markets this morning gave a massive vote of no confidence to S&P ratings service, as yields plunged on Treasuries.

The real after-tax rate of return on the 30 year Treasury is now negative, assuming a 30% MTR.  That means the tax rate on capital now exceeds 100% in real terms over the next thirty years, which doesn’t seem particularly conducive to capital formation.

Yikes.

But what’s the ultimate signal that things are bad? Berkshire’s getting the itch.

Here’s Ajit swooping in and demolishing the incumbent bidders’ stock/cash offers with an all-cash, thank-you-very-much email.

Mr. Robert Orlich
President & CEO
Transatlantic Holdings, Inc.
80 Pine Street
New York, NY 10005

Dear Bob:

As you can imagine, subsequent to our telephone conversation yesterday, I have been watching the screen all morning. With your stock trading at $45.83, I have to believe that you will find our offer to buy all of Transatlantic shares outstanding at $52.00 per share to be an attractive offer. As such, I am now writing to formally inform you of National Indemnity’s commitment to do so at $52.00 per share under customary terms for a stock purchase agreement of a publicly traded company to be agreed (but not subject to any due diligence review or financing condition of any nature [emphasis DW’s]). This commitment is subject to:

  • A formal response from you no later than the close of business, Monday, August 8, 2011.
  • Should you decide to accept this offer, your agreement that should the deal not close for any reasons that are under your control by December 31, 2011, a break-up fee of $75.0 million would be paid to us.
  • Your commitment that until the deal closes, you will continue to manage the affairs of the company in a manner that is consistent with how you have managed it historically.

I have deliberately tried to be brief and to the point. I will be happy to discuss any details that you would like at your convenience. I can be reached at [number withheld] (work), [number withheld] (cell) or [number withheld] (home).

Regards,

Ajit Jain

TRC probably figured there wasn’t any point in summarizing the offer and just published it in whole online. Also gives us our “parenthetical statement of the day”.

Note that this values TRC’s stock at something close to the incumbents’ bids BUT the value of the stock portions of the bids have diminished substantially since they were made.

Timing is everything, n’est-ce pas?

update:

Here’s a neat post speculating on who got the margin call today:

You see the desperate selling of the biggest liquid names is a sign of margin calls.

The market is not puking. Some prime broker is puking the stocks held by one or more very large hedge funds.

So lets play the game: guess who got the margin call!

Soros Is Out

Posted on by David Wright

CNBC harped for a few minutes this morning about how Soros no longer manages money for other people. A few angles were pointed out:

  1. How does a DEMOCRAT bemoan regulation?!
  2. Why do we care what Soros does?
  3. Wait, 24.5b? I thought he only had 15b?

They also made a strange point, which I haven’t been able to find backup for online, so beware. They said that Soros parks some of his money in other hedge funds and that he isn’t likely to pull that cash back to himself.

Strange, isn’t it? He hates the regulation as a manager but is happy to live with it as an investor.

Is there a ‘there’ here? I’m not sure.

In Which I Light A Fire

Posted on by David Wright

After my first year of university, I lived in a run-down student house alone for four months. It kinda sucked generally but one experience in particular from sticks in my head.

I started the summer with a trip to Ikea (what student doesn’t?) and bought a bunch of stuff, including a little bedside table with three drawers in it. I started assembling it as soon as I got home, but didn’t finish. Didn’t finish the next day either.

Or the next day. Or the next week.

Or all summer, actually. It was at a very specific point of semi-construction, too. I managed to put together the frame and, on my second attempt, the top drawer. I then got the second drawer done in the first try. After that, though, I completely lost interest.

I sometimes think I lost interest because the challenge of finishing it was minimal: I’d figured out HOW to do it and mastered the process with the second drawer. There wasn’t anything of interest to me any more.

And it wasn’t like I didn’t have any spare time. My god, I feel like I did nothing that summer except sit around on my ass and eat and stare at my three-quarters-finished bedside table.

How ridiculous, right? Just finish the stupid table! It would have taken all of 10 minutes and I’d have that great feeling of accomplishment afterwards.

But, then again, I didn’t give a crap about the table. I didn’t really need it for anything and at that point only the direst of needs (like going to work or the bathroom) could possibly shake me from my idle stupor.

I think this hints at the difference between people who actually DO STUFF and people who don’t. And by STUFF I mean the important, interesting and remunerative activities of the world. The high status stuff.

In one of Dan Carlin’s excellent podcasts on the fall of the Roman Empire, he talks about how Julius Caesar was perceived by his contemporaries during his youth. Hard to excerpt from a recording, but (from memory) JC’s most consistently noted feature was his level of activity. He was always doing stuff, always getting stuff done, always up to something. As a kid.

Seeing some project (big or small) through to completion is not easy. Doing it all the time is harder.

I write all this to relight my fire for working on the weekend project. I’d say that my progress level is 1 drawer out of 3 at the moment. I refuse to stop until I’m done.