P&G spent more than $100 million rebuffing one of capitalism’s most aggressive activist shareholders, and it appears the company won. Maybe. The vote is still in dispute, but that’s an extraordinary amount of money to spend keeping someone off a board. Will it be worth it? The stakes are now far higher. Money quote: “P&G has plowed tens of millions of dollars into this proxy fight. Now it must show this was the right call. And it must take care that this showdown doesn’t end up simply proving out one of Peltz’s main criticisms — that its leadership is an insular group, hobbled by reticence to embrace new thinking.”
Amazon’s 20-year story of innovation and customer-oriented growth has had its ups (like a focus on long-term planning over short-term results that has paid off for investors) and downs (like reports of a brutal culture that chews employees up). Jeff Bezos offers a fascinating glimpse of the thinking and mindset behind the company’s ascent in his annual letter to shareholders, which Recodereprinted last week.
Bezos’s mantra: Hold onto “day 1” as long as possible. Fight the idea that “day 2” has arrived. “Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.”
Or will at least be reduced to a ghost of its former self.
Snapchat’s parent company, Snap Inc, is preparing for its initial public offering (IPO) this week. This will be the largest IPO since Alibaba went public in 2014. Speaking of which, Alibaba, the Chinese tech giant, saw a 10% drop in stock prices after its IPO. Twitter and Facebook, Snapchat’s closest related IPO predecessors, both suffered even steeper declines in stock prices in their early months after going public. Twitter prices sunk 25% in the first 6 months after IPO. Facebook prices dropped 50% in their first 5 months.
In comparison to Facebook and Twitter, Snap Inc is limping to the starting line. Snapchat is witnessing seriously concerning drops in user acquisitions, and their price-to-sales ratio will far exceed historical marks when the stock opens at $14–$16. Putting all that aside, Snapchat has much more deep-seated troubles. The nature of their platform itself puts them in serious risk to follow the paths of Vine and Yik Yak on a much larger and more devastating scale.
Mid-2014 was a time of transformational change for Charles Schwab, the brokerage giant. The financial services industry was changing under their feet, and a batch of robo-advisor startups like Betterment and Wealthfront were starting to crop up. They set out to disrupt established firms by using technology to automate investment decisions, and provide a user experience that was as frictionlesss as ordering an Uber.
The writing was on the wall. According to Neesha Hathi, who at the time was COO of Performance Technologies, Schwab needed “a modern approach to financial planning and wealth management that mirrors what today’s consumers have come to expect in other aspects of their lives. How they invest should be no exception.”
Every maker of change in the business and technology world today fancies him or herself a disrupter. But Jack Bogle, the Vanguard founder who made index funds the dominant feature of today’s investment landscape, was disrupting things long before that word came into fashion. In an interview with Bloomberg, Bogle recalls how hard it was to round up support for the first-ever index fund in 1976.
Indexing is bad for the brokerage business and the mutual fund managers, but retail investors love it. Today the low-cost passive-investing approach Bogle pioneered has won nearly $3.5 trillion in assets at Vanguard and lots more elsewhere. He says the transformation unleashed by index funds is still gathering momentum, steadily “shifting the allocation of stock market returns away from Wall Street and toward Main Street.”
“If you aren’t genuinely pained by the risk involved in your strategic choices, it’s not much of a strategy.” — Reed Hastings
Enterprise software companies are facing unprecedented market pressure. With the emergence of cloud, digital, machine learning, and analytics (to name a few), the traditional business models, cash flows, and unit economics are under pressure. The results can be seen in some public stock prices (HDP, TDC, IMPV, etc.), and nearly everyone’s financials (flat to declining revenues in traditional spaces).
Startup formula: Big data + lawsuits = profit. Legalist, a startup founded by two Harvard undergrads that launched at Y Combinator’s summer Demo Day this week, tries to figure out who’s going to win business lawsuits — then bankrolls the winning side to collect a share of the award or settlement (Business Insider). Yes, this is similar to what Peter Thiel did to Gawker, except he was out for revenge, not returns. Maybe it’s just a total coincidence that one of Legalist’s founders is a Thiel Fellow. But the company’s concept shares the financier’s traits: It’s appealingly radical in its thinking, and disturbingly casual in its disregard for collateral damage. Once upon a time, Legalist’s business model was known as “champerty,” and was against the law. Today it’s called “litigation finance” and has become a growth sector. Hedge funds are already investing in lawsuits, so why not apply some big-data-fueled, deep-learning-powered smarts to win such bets? Maybe because that’s just begging for a backlash. A sustained public outcry might could get federal, state and local governments to reform their legal systems to make them less easily influenced by infusions of cash. That’s an outcome we could get behind.
Is Vanguard un-American? A lot of investors like index funds because they charge low fees and therefore deliver higher returns in the long run. The folks at brokerage Sanford C. Bernstein & Co. want you to know that such “passive” investing, however attractive it may look, is actually anti-capitalist and probably un-American, too (Bloomberg). They’ve written an article — titled “The Silent Road to Serfdom: Why Passive Investing is Worse Than Marxism” (but curiously unavailable on their website) — that attempts to make a moral and social case for the value-add that active investment managers provide. “A supposedly capitalist economy where the only investment is passive is worse than either a centrally planned economy or an economy with active market led capital management,” they write. Of course, this is one big hypothetical; nobody has advocated outlawing stock-picking fund managers, and there will always be people who think they can beat the market. Mostly, it sounds like Bernstein & Co. are frustrated that so many investors have finally started taking the market’s common-sense cues and abandoning the active funds along with the high fees they charge.
Sometimes great works get plucked out of obscurity just because someone famous likes ’em. Usually, the celebrity recommendation turns out to be the most interesting thing about what’s been uncovered. But every now and then, the well-known person does us all a favor. This is one of those times. Bill Gates is responsible for the return of John Brooks’s long-out-of-print Business Adventures: Twelve Classic Tales from the World of Wall Streetand making this available again almost makes up for Windows 8.
Business Adventures is a collection of articles Brooks wrote for The New Yorker from 1959 to 1969. It’s a book about businessmen of the time, avowed squares. Little of the sixties counterculture shows up in these pages except as something far in the distance, but reading these articles roughly half a century later gives you a sense of how exciting working on breakthrough projects has always been, even when they go wrong. Business Adventures reveals again and again how to tell stories about companies: find them at pivotal moments in their existence, talk to the people making the changes there, and look under rocks other people aren’t considering. Many of the companies Brooks reports on are now either long gone or far from their peaks. And the speed of the stock market in the early 1960s that he describes seems quaint. Yet some things never change. The quote that ends his stock market piece — “It is foolish to think that you can withdraw from the Exchange after you have tasted the sweetness of the honey” — captures the eternal excitement traders feel.