Monday, February 28, 2011

Buffett brilliance in 2011

“…..those entrusted with handling the funds of others should establish performance goals at the onset of their stewardship. Lacking such standards, managements are tempted to shoot the arrow of performance and then paint the bull’s-eye around wherever it lands.” Shareholders’ letter 2011


Saturday, February 26, 2011

One reason US economic recovery is trailing….

"The U.S. effective corporate tax rate on new investment was 34.6 percent in 2010, which was the highest rate in the OECD and the fifth-highest rate among 83 countries. The average OECD rate was 18.6 percent, and the average rate for 83 countries was 17.7 percent." (Courtesy Greg Mankiw)



Tuesday, February 22, 2011

Why not to bother with a MBA – Highlights

THINK TWICE by Philip Delves Broughton

  • If a MBA signals to companies that you were good enough to be accepted by a decent business school (so must be good enough for them) Why not just pay the bill, sign here and reap the rewards?
  • The return on investment on an MBA has gone the way of Greek public debt.
  • If you are getting good business experience already, the best strategy is to keep on getting it, thereby making yourself ever more useful rather than groping for the evanescent brass rings of business school.
  • There are business academics right now panting for your cheque. They need it to pad their sinecures and fund their threadbare research.
  • When you look at today’s most evolved business organisms, it is obvious that an MBA is not required for business success.
  • Successful entrepreneurs are as rare among MBAs as they are in the general population.

Are employees purely using qualifications as signals of productivity and work ethic and not concerned as to what has been taught? Or does education increase human capital and therefore mean  the investment in education does give ‘real’ returns?


Monday, February 21, 2011

Smart thinking and distribution costs–supply chains are not cheap

It is common in N.Z. to quote Fonterra and others supply chains as major assets – how can this be? The following from Tech Republic explains the difference distribution costs mat=y be making to Apple’s iPad profits……

More specifically, the combination of Apple’s 300+ retail stores and its online Apple Store means that the company sells a huge chunk of its iPads directly to its customers. While Apple has cut distribution deals with Best Buy, Target, Wal-Mart, Amazon, and a few others, those are mostly market-share grabs and ways to help spread the iPad’s marketing message.

Apple appears to carefully control the inventory it sends to these retail partners. Even during the holidays, there weren’t typically huge stacks of iPads on a pallet in the aisle at Best Buy or Wal-Mart like other popular consumer electronics such as the Nintendo Wii or the Xbox 360. The iPads seemed to be sprinkled among the various retailers throughout the holidays. Meanwhile, the Apple retail stores were loaded with an almost unlimited supply of iPads, so if you wanted to make sure you got one your best bet was to go there (or order one from Apple’s Web store). One estimate was that Apple sold 8.8 iPads per hour per retail store on Black Friday.

While Apple hasn’t released statistics on the percentage of iPads that it sells directly to customers versus the number it sells through its retail partners, I wouldn’t be surprised if the number of direct sales was as high as 50%.

That means that Apple can set the retail price of the iPad at a precipitously low number. The company can swallow the bitter pill of hardly making any money from iPad sales through its retail partners because it can feast off the fat profits it makes when customers buy directly through its retail outlets and the Web store. However, companies like Motorola, HP, and Samsung have to make all of their profit by selling their tablets wholesale to retailer partners.

For example, iSuppli estimates that the total production cost of the 16GB iPad Wi-Fi is $229.35, so when Apple sells it directly to customers for the retail price of $499 the company makes a whopping $270 of “profit” on each unit. This isn’t pure profit, obviously, since the company has additional overhead, but we’ll use the term profit for the purpose of this discussion.

However, when Apple company sells the iPad wholesale to retailers, it’s a different story. The wholesale price is traditionally half of the retail price (although this sometimes varies in high volume consumer electronics and PCs where manufacturers and/or retailers take less profit in order to get the price down and ultimately make more money by selling in larger volumes).

We don’t know the wholesale price of the iPad, but since the iPad launched as an untried experiment in computing, it’s likely that Apple and its retail partners have a more traditional arrangement. In other words, Apple probably sells the iPad to retailers for around $250, which means it makes about $20 profit on each unit — respectable, but certainly not a number Apple would live with if it didn’t have the big profits of its direct sales to balance it out.

Conversely, iSuppli estimates that the Samsung Galaxy Tab has a total product cost of $214.57. Verizon Wireless was selling the Galaxy Tab for $600 with no contract (and thus, no subsidy) when the product was first launched last fall, which means Samsung was likely wholesaling it for around $300. So, Samsung was making about $85 per unit on the Galaxy Tab — much better than the 20 bucks Apple makes from retailers on its lowest priced iPad, but a far cry from the more healthy $270 Apple makes when it sells the iPad itself.

So, when pundits like me were saying that the Samsung Galaxy Tab would have been a much more popular product if it cost $300 (and I stand by that), you can see where that price was utterly impossible for Samsung to hit — unless it was selling the tablet directly to consumers.

The math here is estimated and imperfect, but it gives us a general picture of the situation. From this perspective, it’s easy to see why the tablet economics are not adding up for everyone else outside of Cupertino, California. This is a massive advantage that Apple has over its tablet competitors, and the fact is, none of them are going to be able to change the reality of the situation any time soon.

UPDATE, Feb. 20, 2011, 5:59PM EST: Since first publishing this article, I’ve received multiple reports from people in the retail sector saying that the wholesale price Apple sells the iPad to its retail partners is significantly higher than the traditional 50%-of-retail that I suggested (remember when I stated that some OEMs and retailers occasionally take lower margins?).

In fact, one individual who didn’t want to be identified because of being under NDA stated unequivocally that Apple sells the iPad to retailers at a meager 3% discount off of the retail price (in other words, $485 for the $500 iPad). I’m attempting to get confirmation on this from Apple and its retailers, but have not received a response. If true, this raises a number of additional questions and issues. Are retailers willing to sell the iPad for virtually no profit just to bring customers into the store? Would they be willing to take the same low profit margin in order to carry the Motorola Xoom or the BlackBerry PlayBook or HP TouchPad? (TechRepublic member donb says they might) If not, then this gives Apple even more room to wiggle on price than its tablet rivals.


Tuesday, February 15, 2011

Economic Drivel entry for the day….

“There remains a non negligible risk of another negative quarter for GDP (in December), though the unchanged levels of core volumes suggests this is far from a fait accompli.”

Cameron Bagrie, Chief Economist ANZ wins the prize again for utter tripe which demeans the profession.


Wednesday, February 9, 2011

Against Public Libraries

This debate – as outlined here by Eamonn Butler, Saturday, 05 February 2011 on the Adam Smith Institute  website – is relevant in New Zealand…. especially for local authorities. Identical issues surround Concert FM (rough N.Z. equivalent of the “Radio 4” classes).

The Radio Four classes are up in arms about library closures. The authors among them naturally worry about a loss to their trade. As for the others – well, I wonder how much of it is nostalgia for how libraries used to be. But none of that justifies taking money from already-stretched taxpayers to pay for middle-class entertainment. Most books borrowed – look at the authors' lending right figures – are popular fiction. It costs the library service about £3 to lend a book. Hey, for 50p you can buy second-hand books at a charity store, and help a good cause in the process.

Public libraries are a recent phenomenon. They grew fast in the 1920s and 1930s when an expanding state thought it should get involved. Before that, though, the public had plenty of access to books - either through philanthropic foundations like the Carnegie Libraries, or through subscription libraries (of which the London Library in St James's Square, London, was an early pioneer. Indeed, until well after the Second World War, private shops like Boots would lend books out to the public for a few pence.

As for that other staple of public libraries, reference, the technology is making their job redundant. 30m Britons access the internet every day. Some 73% of households have internet access - most of those who don't say it's not because they can't afford it but because they don't need it. And many more of us can access the internet at work. Who needs to go to the library to look something up any more?

Public libraries could be taken over by community and voluntary groups, who might actually run them more appropriately for local needs. And they might bring in some fresh ideas. See how bookshops have changed over the years, with their coffee bars and easy chairs? But public libraries look positively antique. Most of them belong in a museum. Their huge footprint simply crowds out private and voluntary alternatives. Private shops rent out CDs and DVDs - why do we need a state-funded body to do their job? And if public libraries weren't in the way, how many agencies might spring up to lend out books too?

Those who criticize the public library service are of course branded as mean-spirited philistines. But it's easy to be generous if you do it on someone else's money. I don't see why poor taxpayers should be forced, by threat of imprisonment, to pay for the entertainment of the middle classes. Let's get some balance into the morality of this debate.


Monday, February 7, 2011

Following on from “Better Blogging” here is “How Not to Use Twitter”

Learn from Kenneth Cole

By Katherine Noyes, PCWorld

For all those who needed an illustration of how a business shouldn't use Twitter, Kenneth Cole kindly provided it this week by using the current unrest in Egypt as a promotional tool.

"Millions are in uproar in #Cairo," read the original tweet from Thursday morning. "Rumor is they heard our new spring collection is now available online at"

Widespread uproar was the result, all right, but not as a result of any spring collection. Such was the magnitude of the outcry at Cole's insensitivity, in fact, that the company hastily removed the tweet that same day and issued two retractions instead.

"Re Egypt tweet: we weren't intending to make light of a serious situation," read the first. "We understand the sensitivity of this historic moment -KC"

A second, posted on Facebook soon afterward, read as follows:

"I apologize to everyone who was offended by my insensitive tweet about the situation in Egypt. I've dedicated my life to raising awareness about serious social issues, and in hindsight my attempt at humor regarding a nation liberating themselves against oppression was poorly timed and absolutely inappropriate."

Cole's apology didn't prevent the creation of a satirical Twitter account inspired by the gaffe, however, and it's now filled with mock tweets such as, "South Africans won't be able to tear APARTheid my new knits -- they're just that strong!"

‘It Goes in the Trash'

Sensitivity, of course, is a key requirement of any business trying to use Twitter as a promotional tool, and Cole's original tweet failed miserably on that front. Cole, however, is by no means alone. We couldn't resist putting together a small roundup of other notable gaffes from other businesses and public-facing officials.

  • Back in 2007, Steve Rubel, a senior vice president at publicity agency Edelman, used Twitter to post a negative comment about PC Magazine. "PC Mag is another. I have a free sub[scription] but it goes in the trash," he tweeted, prompting the magazine's editor-in-chief to publicly suggest a media boycott. Rubel later apologized.
  • In 2009, Dallas Mavericks owner Mark Cuban criticized referees via Twitter during a game. He was fined $25,000.
  • An employee of Vodafone UK used an unattended keyboard to send a homophobic tweet from the company's @VodafoneUK account, which then had more than 8,500 followers. In response, the company had to issue multiple apologies.

‘Pls Refudiate'

  • Late last year, a profane tweet was made on Sen. Chris Dodd's (D-Conn.) Twitter account. ""U love torturing me w this s---," the tweet read, causing Dodd's office to have to scramble with an explanation and an apology.
  • Speaking of unfortunate word choices, former Alaska governor Sarah Palin used a nonexistent word in a tweet last year and then excused it by likening herself to Shakespeare. The word in question was refudiate: "Ground Zero Mosque supporters: doesn't it stab you in the heart, as it does ours throughout the heartland? Peaceful Muslims, pls refudiate" Later, she sent a tweet of justification: "Shakespeare liked to coin new words, too. Got to celebrate it!"
  • Another bizarre turn of phrase was tweeted last year by the U.S. embassy in Beijing, which in a Twitter pollution report referred to Beijing's air as "crazy bad." Of course, at least it used real words...
  • Earlier this year a U.K. councillor admitted on Twitter that her party had not effectively tackled inequality, despite the party's proclamations to the contrary. "Inequalities deepened despite our 13 years in power," wrote Isobel Bowler.

6 Twitter Rules of Thumb

What can businesses learn from these well-publicized missteps? There are plenty guides out there for using Twitter effectively. Based on the above examples, however, I'd hasten to add the following rules of thumb.

1. Be Sensitive. Never, ever use a political, environmental or civic crisis to promote your company or your products. It reeks of opportunism.

2. Be Positive. As a business entity, you should never post negative comments about others on Twitter. You're the only one that will end up looking bad.

3. Be Clear. Make sure you have a policy regarding who in your company may post using the company's official Twitter account, and make sure you offer them training on what is and isn't appropriate. Make clear the ramifications for misuse.

4. Be Clean. Never use profanities or other vulgar terms in a tweet. Once again, it will only make you look bad, and you'll likely offend customers, too.

5. Be Literate. Don't follow in the footsteps of Sarah Palin or George W. Bush: Make sure it's a word before you make it public.

6. Be Careful. Last but definitely not least, remember that using social media is a little bit like driving. Don't do it while intoxicated, and always think twice before you tweet.

Follow Katherine Noyes on Twitter: @Noyesk.


Bullies go beyond the school playground

Nocera on the Crisis and All the Devils Are Here

In this EconTalk podcast they talk about the devils involved in the economics crisis. They discuss how Fannie and Freddie were 'bullies, they used the mantra of home ownership to get anything they wanted and steam roll who ever got in their way'. They then go on to talk about some smart devils in Wall St who used synthetic CDO's which Joe Nocera believes made what was a disaster into a crisis. This made me think back to the school playground where kids went through phases of trading and playing for collectors cards or marbles. The older kids would take advantage of the younger ones and sell their card as 'the best' or the perfect compliment to the younger trader's other cards. Through many and many of these unfair trades there would eventually be an abundance of unhappy ripped off little kids and therefore the principal would step in and ban the cards or marbles from school grounds.

This was a funny little similarity that came to mind. Bullies obviously do not limit their nasty trading to the school playground.


Saturday, February 5, 2011

Write blogs that score not bore

Possibly a spot American in flavour but worth a read for those who are always looking for ways to improve…

Reformed Broker’s tips on sharper blog writing.