Category Archives: Investing

Kiva – Giving Entrepreneurs an Opportunity to Succeed

photo of a Kiva entrepreneur

Tony, a Kiva entrepreneur in Pennsylvania, USA looking to manufacturing specialty cars.

I really like Kiva. Kiva lets you lend small amounts of money to entrepreneurs around the world. My latest loan is to a manufacturing entrepreneur in the USA.

When Tony’s 6’0 6″ body could not fit in the traditional supercars, he built his own in 1990. Tony says, “If one door closes I just look for another opening; I don’t give up.” With much patience and hard work he continues to expand his business and hopes to make it a full-time job. With his ACCION USA microloan he has hired two designers to work with him part-time and has purchased a laptop.

I must admit I wouldn’t take this as an investment. It seems a very risky and doesn’t seem that likely to pan out, to me. But I see my loans through Kiva as a way to give people a chance to pursue their dreams. This loans is probably the one I find less compelling from a business point of view (to me), but I like to provide some loans in the USA so I decided to give Tony a chance.

I do try to select loans that look promising and seem to provide the entrepreneur an opportunity that will help them. By which I mean I love finding loans where, for example, they will buy equipment that will improve their productivity or take on new business. Very often loans are to buy raw materials or supplies, which is also fine but the potential gains are often less than something that improves the efficiency (it seems to me). Often this allows the entrepreneur to buy more and grow their business.

I have made nearly 200 loans now. The top country has been Togo (at 12%). I don’t target Togo but I do pay attention to the loan costs to the entrepreneurs (part of my assessment of the good business case for the loan) and some of the micro finance organizations offer good terms to entrepreneurs. Some of the microfinance organizations are more charitable (they may use donations to fund significant parts of the operating expenses, instead of profits from interest on the loans). Read more details on how Kiva works. It also used to be a bit difficult to find loans I really thought were great. It is getting easier to find more options so my guess is that the top few countries now will see declines in their percentages.

So far I have lent to 37 countries. Cambodia is 2nd at 7.7% of my loans, Viet Nam 3rd at 6.7%, Tanzania 4th at 5.1%, Nicaragua 6th at 5.1% along with Kenya, and Ghana and Boliva are 8th at 4.6%. The United States now makes up 2.6% and Mexico 1.5%. The sectors the loans are categorized in are: Services 25%, Food 18%, Manufacturing 17%, Retail 14%, Agriculture 12% and various others. Though the sector categorizations are pretty weak in my opinion (they seem to be fairly inaccurate – so it gives you an idea but it isn’t exact).

The default rate on my loan portfolio is 2.1% (3 defaults). One was in Kenya where $71.50 out of $75 was paid back and then huge civil unrest took place and it defaulted. The other 2 are from the same microfinance bank in Ecuador that was closed down due to mismanagement. In that instance I lost $87.50 out of $100 lent. 94 loans have been fully paid back and 94 are being paid back now.

I would love it if more Curious Cat readers joined Kiva and helped other entrepreneurs. If you do let me know your Kiva page and I will add you to the Curious Cat Kivans page. Also join the Curious Cats Kiva Lending Team.

Related: 100th Entrepreneur LoanThanksgiving: Micro-financing EntrepreneursUsing Capitalism to Make the World BetterKiva Opens to USA Entrepreneur LoansMicroFinance Currency Risk

Short Term Investing Focus

Buffett’s New CEO Shows Analysts, Hedge-Fund Managers to Door

Buffett’s Berkshire Hathaway Inc. completed the buyout yesterday after winning the approval of Burlington Northern investors. The deal, valued at $100 a share, allows Rose to hand out returns of nearly 300 percent, plus dividends, to investors who bought stock the day he was named CEO in 2000. The problem, he said, is that shareholders with that length of commitment are dwindling in number and influence.

“When I started as CEO 10 years ago, the typical investor had a time frame of three to five to seven years,” Rose said in an interview. “Year-by-year, that’s gotten shorter.”

The increased focus on short-term results, fueled by real- time media and quarterly analyst calls, can be a distraction for a railroad executive who needs to buy locomotives that run for 20 years and put down tracks that last for 40, Rose said. Burlington Northern said last month it would commit $2.4 billion this year to capital projects, including track, signal systems and locomotives, about $240 million less than in 2009.

“The money I spend this year really won’t pay off for three, four, five or seven years down the road,” said Rose, 50. “There’s the advent of the hedge fund which has changed the time horizon of what satisfies the institutional investor.”

“The speed of the news today I think has harmed, quite frankly, investors looking at long-term assets,” Rose told reporters in a news conference this week. A long-term perspective is “one thing that our country has kind of lost sight of, not just for the railroad equity investor but for a lot of investors.”

Decades ago Dr. Deming said short term focus was one of the seven deadly diseases of western management. Unfortunately we have made very little progress on the deadly diseases. The failed, health care system with it’s focus on a few special interests fighting to keep the broken system that does great harm to society but benefits the special interests is another a disease that has definitely gotten much worse.

Related: Think Long Term Act Dailyposts related to Warren BuffettGoodbye Quarterly TargetsA Great Day for Georgia-Pacific

Zappos and Amazon Sitting in a Tree…

Amazon is acquiring the unique company – Zappos: we have written about Zappos previously: Paying New Employees to Quit. Jeff Bezos uses the webcast above to talk to the employees of Zappos. Excellent job. The letter from Tony Hsieh, the Zappo’s CEO, to employees is fantastic. This is a CEO that respects employees. These are leaders I would follow and invest in (and in fact I am glad I do own Amazon stock).

First, I want to apologize for the suddenness of this announcement. As you know, one of our core values is to Build Open and Honest Relationships With Communication, and if I could have it my way, I would have shared much earlier that we were in discussions with Amazon so that all employees could be involved in the decision process that we went through along the way. Unfortunately, because Amazon is a public company, there are securities laws that prevented us from talking about this to most of our employees until today.

Several months ago, they reached out to us and said they wanted to join forces with us so that we could accelerate the growth of our business, our brand, and our culture. When they said they wanted us to continue to build the Zappos brand (as opposed to folding us into Amazon), we decided it was worth exploring what a partnership would look like.

We learned that they truly wanted us to continue to build the Zappos brand and continue to build the Zappos culture in our own unique way. I think “unique” was their way of saying “fun and a little weird.” 🙂

Over the past several months, as we got to know each other better, both sides became more and more excited about the possibilities for leveraging each other’s strengths. We realized that we are both very customer-focused companies — we just focus on different ways of making our customers happy.

Amazon focuses on low prices, vast selection and convenience to make their customers happy, while Zappos does it through developing relationships, creating personal emotional connections, and delivering high touch (“WOW”) customer service.

Continue reading

Toyota Posts Loss of $6.9 Billion in Last Quarter

Toyota Posts Loss of $6.9 Billion in Last Quarter

For January-March, Toyota booked a $6.9 billion loss, in line with consensus estimates, and cut its annual dividend nearly 30 percent — the first cut since at least 1994, when it changed its reporting period.

Toyota President Katsuaki Watanabe was more downbeat, stopping short of predicting when sales would pick up in major markets, or when the company would return to profitability as it remains saddled with excess capacity. “Of course the external environment doesn’t help, but we were lacking in the scope and speed of dealing with various problems and issues, and for that I am sorry,” he told a news conference.

For the year to next March, the maker of the Prius hybrid forecast an operating loss of 850 billion yen, more than double the average forecast in a survey of 20 analysts by Thomson Reuters. It sees an annual net loss of 550 billion yen based on the dollar and euro averaging 95 yen and 125 yen.

The bleak forecasts prompted ratings agency Standard & Poor’s to downgrade Toyota’s long-term debt ratings to AA from AA+, with a negative outlook.

To return to profit, Toyota must sell more cars or cut costs further, Watanabe said. But he predicted the U.S. market would be around 10 million vehicles industrywide at best this year, down from more than 13 million in 2008.

Toyota is bleeding overhead costs, with about a third of its global assembly lines working on single shifts. It will slash capital spending by more than a third this year to 830 billion yen as it puts expansion projects on hold, but it said it was not thinking of closing any production lines for good.

In my opinion these negative results are a sign of Toyota’s strength not weakness. The credit crisis and economic downturn has resulted in a poor economic environment. Toyota has managed to sustain the blow and hold firm to their principles and likely will come out of this downturn stronger as a company (mainly re-enforcing the importance of planning for bad economic conditions and not getting too excited about growth potential versus risks of growing too fast) and in a better position compared to their competitors. I continue to be an owner of Toyota stock and happily so.

Related: Idle Workers Busy at ToyotaFinancial Market Meltdown (Oct 2008)“2007 has been a difficult year for Toyota”New Toyota CEO’s Views (2005)Jim Press, Toyota N. American President, Moves to Chrysler

Build Your Business Slowly and Without Huge Cash Requirements

Get Rich Slow by Josh Quittner

At no other time in recent history has it been easier or cheaper to start a new kind of company… These are Web-based businesses that cost almost nothing to get off the ground

The term ramen profitable was coined by Paul Graham, a Silicon Valley start-up investor, essayist and muse to LILO entrepreneurs. It means that your start-up is self-sustaining and can eke out enough profit to keep you alive on instant noodles while your business gains traction.

“At this point, it would be hard for companies to get any cheaper,” Graham said. Since everyone already has an Internet-connected computer, “it’s gotten to the point that you can’t detect the cost of a company when added to a person’s living expenses. A company is no more expensive than a hobby these days.”

I see a great deal of truth to this and it provides interesting opportunities. Including being able to build a business slowly while still working full time. I have written about Y-combinator previously they have helped make this model popular. And the services these companies make seem to me to often be much more refreshing than ideas so watered down they lose much passion (so common from so many companies). Though some large companies provide great web sites.

Related: Some Good IT Business IdeasFind Joy and Success in BusinessOur Policy is to Stick Our Heads in the SandSmall Business Profit and Cash Flow

Warren Buffett’s Letter to Shareholders 2009

Warren Buffett published his letter to shareholders yesterday. As usual, it is of great interest to anyone interested in the economic, investing and management ideas.

In 1995, MidAmerican became the major provider of electricity in Iowa. By judicious planning and a zeal for efficiency, the company has kept electric prices unchanged since our purchase and has promised to hold them steady through 2013. MidAmerican has maintained this extraordinary price stability while making Iowa number one among all states in the percentage of its generation capacity that comes from wind. Since our purchase, MidAmerican’s Wind-based facilities have grown from zero to almost 20% of total capacity.

Our long-avowed goal is to be the “buyer of choice” for businesses – particularly those built and owned by families. The way to achieve this goal is to deserve it. That means we must keep our promises; avoid leveraging up acquired businesses; grant unusual autonomy to our managers; and hold the purchased companies through thick and thin (though we prefer thick and thicker).

Our record matches our rhetoric. Most buyers competing against us, however, follow a different path. For them, acquisitions are “merchandise.” Before the ink dries on their purchase contracts, these operators are contemplating “exit strategies.” We have a decided advantage, therefore, when we encounter sellers who truly care about the future of their businesses.

Some years back our competitors were known as “leveraged-buyout operators.” But LBO became a
bad name. So in Orwellian fashion, the buyout firms decided to change their moniker. What they did not change, though, were the essential ingredients of their previous operations, including their cherished fee structures and love of leverage. Their new label became “private equity,”

Berkshire Hathaway is a very well run company. Warren Buffett is a great investor. He is also a great executive. He hires honest and able people and lets them do their job. He ensures managers retain constancy of purpose by focusing on the long term and not getting overly focused on quarterly results. And have you ever read an annual report that talks of so many employees with such respect (granted it is a rare situation – something similar in an annual report could well seem disingenuous if it were not Warren Buffett writing)?

Related: 2005 Annual Report from BuffettWarren Buffett’s 2006 Shareholder LetterWarren Buffett Webcast on the Credit CrisisBerkshire Hathaway Annual Meeting 2008
Continue reading

Printer Product Development Using Design of Experiments

MEMS development in less than half the time by Christopher N. Delametter, Eastman Kodak Company

The traditional approach to optimizing a product or process using computer simulation is to evaluate the effects of one design parameter at a time. The problem with this approach is that interactions between design factors and second-order effects are likely to result in a locally optimized design that will provide far less performance than the global optimum. Kodak researchers use DOE to develop tests that examine first-order, second-order, and multiple factor effects simultaneously with relatively few simulation runs. The result is that the analyst can iterate to a globally optimized design with a far higher level of certainty and in much less time than the traditional approach.

By using DOE to drive CFD, Kodak researchers were able to optimize the design of the printhead in considerably less time than competitors. The advantages of simulation were especially apparent late in the project when researchers discovered a more optimal ink formulation for one of the colors.

Related: Design of Experiments articlesUsing Design of ExperimentsStatistics for ExperimentersWhy Use Designed Factorial Experiments?Kodak Debuts Printers With Inexpensive Cartridges

Losses Covered Up to Protect Bonuses

Does it surprise you to learn traders would cover up losses to protect bonuses? It shouldn’t, it happens over and over. Would it surprise you that almost any bonus (or quota) scheme increases the odds that the data will be doctored to meet the goals? It shouldn’t. Intelligent measures to make such doctoring difficult can help reduce the practice. But it is a likely risk of any such goal. As we have quoted Brian Joiner as saying: there are: “3 ways to improve the figures: distort the data, distort the system and improve the system. Improving the system is the most difficult.” So it is no shock that distorting the data is often the tacit people use (especially when the rewards are great or the punishment for missing is severe).

Of course the people that take unethical or illegal action are responsible for their actions. But managers that set up poor systems and then get poor results should not be surprised. You mainly read about the exciting distortion of data – but there is much more such distortion that doesn’t seem interesting enough for the press.

Traders at top investment bank ‘covered up losses to protect their bonuses in £1.4 bn scam’

A top investment bank said yesterday that some of its traders had tried to protect their massive bonuses with a £1.4billion scam. Credit Suisse was forced to admit it will pay the price for the traders’ ruthless scheming by sinking into the red. All the traders involved – some of them based in London – have been fired or suspended.

Shares in the bank, which is based in Zurich, tumbled 7.5 per cent yesterday. Credit Suisse admitted it had discovered intentional “pricing errors” by a small number of traders involved in complex investments linked to the mortgage market.

Related: Problems with BonusesBe Careful What You MeasureMeasuring and Managing Performance in OrganizationsAnother Quota Failure Example

Management Advice from Warren Buffet

As usual, Warren Buffett’s letter to shareholders is packed with wisdom. He is best know for his investing genius but his writing provides great thoughts for managers also: Berkshire Hathaway 2007 Letter to Shareholders:

We will soon purchase 60% of Marmon and will acquire virtually all of the balance within six years. Our initial outlay will be $4.5 billion, and the price of our later purchases will be based on a formula tied to earnings.

This deal was done in the way Jay would have liked. We arrived at a price using only Marmon’s financial statements, employing no advisors and engaging in no nit-picking. I knew that the business would be exactly as the Pritzkers represented, and they knew that we would close on the dot, however chaotic financial markets might be. During the past year, many large deals have been renegotiated or killed entirely. With the Pritzkers, as with Berkshire, a deal is a deal.

Charlie and I look for companies that have a) a business we understand; b) favorable long-term economics; c) able and trustworthy management; and d) a sensible price tag. We like to buy the whole business or, if management is our partner, at least 80%

A truly great business must have an enduring “moat” that protects excellent returns on invested capital. The dynamics of capitalism guarantee that competitors will repeatedly assault any business “castle” that is earning high returns.

Susan came to Borsheims 25 years ago as a $4-an-hour saleswoman. Though she lacked a managerial background, I did not hesitate to make her CEO in 1994. She’s smart, she loves the business, and she loves her associates. That beats having an MBA degree any time. (An aside: Charlie and I are not big fans of resumes. Instead, we focus on brains, passion and integrity.

I should emphasize that we do not measure the progress of our investments by what their market prices do during any given year. Rather, we evaluate their performance by the two methods we apply to the businesses we own. The first test is improvement in earnings’ with our making due allowance for industry conditions. The second test, more subjective, is whether their “moats” – a metaphor for the superiorities they possess that make life difficult for their competitors – have widened during the year.

You will recall that in our catastrophe insurance business, we are always ready to trade increased volatility in reported earnings in the short run for greater gains in net worth in the long run.

What is no puzzle, however, is why CEOs opt for a high investment assumption: It lets them report higher earnings. And if they are wrong, as I believe they are, the chickens won’t come home to roost until long after they retire.

Related: Buffett’s Letter to Shareholders (from last year)Buffett’s Shareholder Letter (2006)Overview of Warren BuffettAnnual Report by Warren Buffett (2005)Hiring the Right People
Continue reading

12 Stocks for 10 Years – Adding Danaher

With Microsoft’s offer for Yahoo I am replacing Yahoo with Danaher in the 12 Stocks for 10 Years portfolio. Other stocks in the portfolio include Google up 137% since purchased, PetroChina up 132%, Amazon up 106% and Toyota up 44%. I have considered Danaher since creating the portfolio and now looks like an attractive time to make the change. Other stocks I like now are Google, PetroChina, Toyota and Tesco. The bias toward companies that practice what I discuss in this blog is very intentional – I believe this stuff works and believe companies that manage using the ideas discussed here will prosper.

Curious Cat Management Improvement Blog previous posts on: DanaherToyota, Tesco and Google.

Related: Curious Cat Investing SearchCurious Cat Investing Blog10 stocks for 10 years