Don’t find fault, find a remedy.”- Henry Ford
In the financial markets, it is commonly accepted the best management teams create enormous amounts of value. Conversely, it is too often the case mediocre or poor leadership results in destruction of capital, often in large amounts (see Enron, WorldCom, Sears). OK, great, tell us something we don’t know?
Well, from my perspective, it is easier to describe what you experience when you have benefited from great corporate executives. You will see an average asset made good, or a good company become exceptional. You will see revenues go from X to 10X or 20X over a time frame which might seem way too short. You will see a company purchase or merge with an entity 3 or 5 times its size to create a massive entity and dominant competitor in a critically important industry. You will experience an enterprise thought to go bankrupt become viable in one years time with potentially much more improvement.
Of course, the other side of the coin is also part of the experience, where a company fails to use a large cash balance, experiences the proverbial melting ice cube, and changes CEO’s the same way a normal person rotates underwear. Investing is a combination of both encounters, but clearly the former is far more enjoyable than the latter. Choosing wisely is critical, as is the case in nearly every significant activity.
In the financial markets this week, Blackrock announced they will move a small percentage of their investment capital from humans to data driven strategies, formerly known as algorithmic trading or ‘Quants’. The move is part of the tidal wave of using the cloud, data analysis, and iterative processes to enhance the efficiency of a business. It is believed to ultimately transform the corporate world, so much so that Elon Musk now wants to plant chips in people’s brains, in addition to getting much needed capital from a foreign investor.
Internationally, South Africa and Venezuela made news with more political drama. President Zuma dismissed the finance cabinet and the rand subsequently dropped 8 percent in a week. In the continuing mess that is Venezuela, President Modero wanted to cut a deal with Rosneft regarding the national oil company PVSA. The only problem is it needed approval from the Congress, which turned the hated president down (20% approval ratings). The Supreme Court, stacked by Modero, ruled to strip power from Congress, and then Modero backtracked today. Why does this matter? PVSA owns CITGO, and Rosneft is a 50 percent creditor to PVSA of the entity. CITGO owns a large refinery and has a big network of gas stations on the East Coast. I guess oil is kind of important?
