Business Adventures

Book Summary  

This is Bill Gates’ favorite book of all time, which he received from Warren Buffett as a present. It describes 12 exciting and surprising case studies of american businesses in the past century. Find out what the launch of the world’s ugliest car, a wink from a General Motors executive, and the fall of the Piggly Wiggly supermarket chain have in common. These are just some of the events described in this book, among others, from the US business history, the effects of which can still be felt today. Discover the reasons for the end of insider trading, or employee’s right to vote for whomever he or she pleases.

If you enjoy my business book summaries, please follow me because there are lots more to come, and you can get notified as I publish new ones.

1. Starting on May 28, 1962, and for the next three days, the stock markets experienced a bizzarre “Flash Crash”. The markets lost $20 billion, and then recovered completely. It started, when the trading office which was updating the stock prices manually, was running late in updating the prices. When investors realized that there was a 45 minute delay in the update of the stock price, then they assumed that the price must have fallen, so they all sold their shares. This act of selling off shares, caused a chain-reaction: a bigger sell-off spiral by other investors.
2. Because it was common knowledge that the value of the stock market itself (Dow Jones Index), could not fall below 500 points, and it was actually approaching that point, investors started buying like crazy. They went into a “buying panic”, and within three days, the market has fully recovered.
3. Everyone has been searching for rational explanations of that bizarre event. But unfortunately the only thing they were able to come up with is: “Markets will fluctuate”, and the fact that a catalyst event can cause a panic.
4. The Ford Edsel, in the 1950s, was supposed to be Ford’s flagship product. But instead it ended up to be one of the ugliest cars ever made, and one of the worst product failures in history. There were 3 main reasons for the Edsel’s failure: 1. In 1955, the American auto market was booming, and families’ disposable income was increasing. The public wanted medium priced cars, and that’s where Ford was targeting the Edsel. But when they launched it in 1958, the market has completely reversed, and the consumer suddenly wanted smaller, cheaper cars. 2. The expectations for the car were unrealistic. The marketing set the expectations too high, and the consumers were very disappointed with the finished product. 3. The quality of the actual car was bad, and severe issues such as bad breaks, and jumpy acceleration were big issues. Ford spent most of the money on market research and marketing, and not enough of making the actual product good enough.
5. The income tax system should get reverted to the same way it worked in 1913. Warren Buffet is one of the richest people in the world, but admits that his tax rate is currently lower than that of his secretary. This is because the US tax system is very unfair, and it developed to this point in a very twisted way.
6. In 1913, government expenses were increasing, and its’ income stream was running dry. So they began to levy an income tax. Initially these income taxes were applied to the rich, and were low rates. But as time passed, the rates rose, and the tax applied to bigger and bigger percentages of the population. Currently, the rich are able to use many powerful loopholes in the tax system, and the high income tax rates affect the middle class the most.
7. The current tax system incourages inefficiency in business. For example, freelancers, might stop taking work mid-way through the year, to avoid earning more, so they can stop paying as much taxes.
8. Also, the complicated system of loopholes has turned taxation enforcement into a complicated battle. There is an army of tax advisers and lawyers, whose whole job is circumventing tax code. Every year, the covernment has to battle with them to collect taxes, and it’s a huge waste of human resource.
9. It’s currently politically not feasible to reform the tax system. There are too many rich people with much influence, who will not willingly relinquish the advantages of the current tax system. One such advantage is “capital gains”, which are taxed less than salaried income. Every attempt by a president, since 1913 to reform the tax code into something simpler has failed. We need to reset the tax code back to what it was in 1913, and try again.
10. Insider trading laws before 1959 were never enforced. It was certainly considered unethical and shady, but the court case that formalized a law against it was: the Texas Gulf case of 1959, involving the Texas Gulf Sulphur company. They hit a jackpot in Ontario, Canada, when their preliminary test drilling indicated hundreds of millions of dollars of valuable metals and minerals in the ground. They decided to keep quiet about it, and the employees and executives bought up shares of the company quietly. When rumours started to get out, they downplayed the good news, and instead spread information, while continuing to buy shares.
11. When the company finally announced the news about their find, their shares skyrocketed and all shareholders got rich. But this time the Securities and Exchange Commission took action, and charged them with deception and insider trading, angering many investors. The court found them guilty of these offences, and of being deliberately misleading in their press releases. Since then companies are required to make clear statements to the public about financial news, and allow the public “reasonable opportunity to react”, before insiders are allowed to trade shares.
12. In the early 60’s, Xerox developed the automatic copy machine, and it was a huge success. They were considered the market leader, but only in a few years, they experienced a huge downfall, which occurred in three stages.
13. Xerox launched their first plain paper copier in 1959, and even the founders of the company were pessimistic, and told their friends not to invest. No one expected success, because it was an expensive process that ran only on special paper, and people felt they were stealing original content. However, they became very successful in the early 60s.
14. They were so successful that they started investing in philantropy and improvement to society. They were donors to the University of Rochester, which originally helped research photocopying technology. By 1965, however, their competition has caught up to them, making cheaper, knock-off products, and they didn’t have enough innovation to compete. Their R&D efforts were ineffective, and they were in hard times. They did survive in the long term, and are still a successful company today. This is an example of how a large company can go through such radical large phases.
15. In 1963, there was national panic, after president Kennedy was shot, and the market was declining. At this same time, a company called Ira Haupt & Co. got into trouble, when they purchased futures contracts for cottonseed and soybean oil for a large sum of money. They used the warehouse receipts from the sale to borrow money from the bank. These warehouse receipts turned out to be fake, and the oil did not exist, making them a victim of huge financial fraud. They no longer had capital to trade, became insolvent, and their NYSE membership got revoked.
16. At this point, the NYSE did something huge and unprecedented. Instead of letting Ira Haupt & Co. go under, they bailed them out with $22 million to make them solvent again. NYSE, itself, fronted $7.5 (1/3 of it’s total reserves), and worked with other creditors to work out plans for Ira to pay back it’s creditors. They did this to prevent a financial panic and crisis, in an already declining market. The NYSE is unlikely to repeat a move of this magnitude again, but in a situation of extreme crisis, unprecedented measures could be taken.
17. Executives can get away with immoral or criminal actions by blaming them on “communication failures”. One example was, when GE at the end of the 50s was involved in large scale price fixing, along with 29 other electronics companies at the time. They marked up the cost of machinery sold by 25%. When this came to light, and went into the courts, and the senate subcommittee, some managers got prison terms and fines, but the higher level executives were not charged.
18. GE policies at the time were divided into “official” policies, where an explicit order was given by an executive, and had to be executed directly, and “implied” ones. In “implied” policies, an executive would wink at the manager, when giving information, and the manager was supposed to figure out what the executive wanted, without hearing it explicitly. If the manager did not figure out the executive’s intention, it would be the manager’s fault.
19. Discussing prices with competitors was already against the rules at GE, but the managers started assuming it was not a real requirement. So when the case went to court, they could not blame the executives, because the execs played their cards safely and didn’t leave any provable trace of offences. That’s how executives can fend off responsibility for illegal actions, onto their managers.
20. Piggly Wiggly was a southern and mid-western US supermarket, which actually patented the self-service supermarket concept in 1917. They were the first to offer shopping cards, price tags on all the items, and check-out stands. In the 1920s Piggly Wiggly was rapidly growing across the US, however just a couple of franchieses in New York failed in 1923. Some investors on wall street decided to take advantage of this failure, by creating a “Bear Raid”.
21. A “Bear Raid” is when investors invest in the fall of the stock price, and try their best to bring that stock price down, to make profits. They claimed that the whole company was failing, just because of the few New York franchise failures. This was not the case. The owner of Piggly Wiggly, Clarence Saunders, was furious. He decided to teach them a lesson by buying up all the shares to his company himself, and he bought up 98% of the shares. This resulted in the stock price going up from $39 to $124 per share. This resulted in a catastrophy for the Bear Raiders, who now faced huge losses. But the raiders were able to convince the NYSE to give them an extension on their payments, and Saunders was left in a large amount of debt himself. Saunders faced huge losses, and declared bakruptcy. As a result Piggly Wiggly, is an unknown franchise today, which still exists. But if he had more influence over the stock exchange, Piggly Wiggly could’ve been the size of Walmart today.
22. David Lilienthal is an example of when solid business performance, and a clean conscience can co-exist. Often times, when a government bureaaucrat jumps over into the business world, and leverages his previous political connections for money making, he could be accused of being a sell-out. David, however, did not commit such an offense.
23. He was first a civil servant in the 1930s, then appointed Chairman of the Tennessee Valley Authority in 1941, responsible for developing and distributing cheap hydro-electric power. Then in 1947, he was chairman of the Atomic Energy Commission, which stood for peaceful use of nuclear power. He left public office in 1950, because he wanted to make more money for his family and to help with his retirement. He became a committed businessman.
24. He went into the mineral industry, due to his background in energy. He took over the Minerals and Chemical Corporation of America, which was in trouble at the time. He brought it back and earned a small fortune. Then he wrote a controversial book about big business and their improtance for the security of the US. He was then accused by his former government colleagues for being a sell-out. He then founded the Development and Resources Corporation in 1955, which helped developing countries with their public works programs. So this is a story about how a person with a good core can be continuously committed to both shareholders, and the overall benefit of humanity.
25. Many political scientists have said before that the US is more like an oligarchic feudal system, as opposed to a democracy, because giant corporations have big power to control the American society. So you would think that the major shareholders of these companies have real power? These corporations are led by a board of directors that have annual meetings to set the board, vote on policies and question the executives. However, in reality these meetings are just a farce, and don’t have much real effect.
26. The company’s management prevents the shareholders from really participating meaningfully, or have any impact. They hold the shareholder meetings far from their headquarters, making it hard for shareholders to attend. When the meetings occur, they make it more of a 1-way conversation, by just stating how great the performance has been. This works with most shareholders, however professional investors will often challenge the board management into a debate.
27. In 1965, at the AT&T shareholder meeting, investor Wilma Soss was very hard on chairman Frederick Kappel, and suggested that he see a psychiatrist. Soss was fighting to get more women on the board of directors. However a lot of investors don’t show much concern for the company, and it’s useless to get them on the board. They just get fed dividends as means of pacification, to make them compliant. Investors could potentially exercise more of their power if they wanted, to hold company management more accountable for their actions.
28. Donald Wohlgemuth was a research scientist who managed the space suit engineering department of B.F. Goodrich Company. Goodrich was the market leader in space suits at the time, during the race to the moon. However, Goodrich’s competitor: International Latex won the contract for the Apollo project. Donald received an offer from Latex to work there instead, which he accepted promptly, and it involved a larger salary and more responsibility.
29. Shortly after, Goodrich sued Donald, because they feared he would give away trade secrets to their competitor, and all his knowledge about space suit production that he had learned at Goodrich. Donald had signed a confidentiality agreement with Goodrich, upon starting there. This resulted in two philosophical questions in court. “If someone hasn’t ever broken an agreement or shown the intention of doing so, can you assume that they will and take pre-emptive action against them?”. And “Should someone be forbidden from going into a position which would tempt them to commit a crime?”. The judge ruled in favor of Donald, even though he was in a position to harm Goodrich if he wanted. But since Donald did not do anything wrong, he could not be accused pre-emptively. This was a very important ruling for employee rights, making it so that anyone can work freely for a competitor of their current employer, despite current confidentiality agreements.
30. The Bretton Woods system was established in 1944, and included 44 countries, after the end of WWII. It locked the conversion rate of all currencies to a fixed rate, and ultimately pegged them to gold. Governments would regulate these rates by buying or selling currencies to make adjustments. In 1964, however, Britain found itself in a large deficit. They had troublue keeping up the currency exchange rate. Currency speculators then started to attack the Pound Sterling by betting against it in the market — trying to bring its value down. The Federal reserve reacted in protecting the currency from falling, by buying it up. This economic battle continued for a few years, and eventually, in 1967, the Fed could not afford to keep buying the pound, and Britain devalued the pound by 14%. This was the beginning of the unraveling of the Bretton Woods system, which finally came to a close in 1971.
31. Summary: Financial market and business ethics can be traced back to specific events in history. For example: one man’s fight to change employers, set a powerful precedent for employee rights in the future
32. Happy to see you here love you lots
33. Business adventure:- https://amzn.to/2Tiw6tk
34. New book shit happen By Kulveer singh at amazon:- https://amzn.to/2WAfP3W