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positive or negative ROIC is a huge deal when you look at the entire capitalistic ecosystem. Misallocation is bad for the company because we have less profits to reinvest.
Capital allocation done well is good for everyone at different levels. We don’t celebrate it enough.”
good business decisions can positively impact us more than nearly anything else.”
There are some other big takeaways for ROIC. Especially when it comes to growing. Not all growth is good.”
would simply be “more.” If you’re doing something right, more is good. But if you’re doing something wrong, more is definitely not what you want.
Return on invested capital can serve as the gauge that tells you if you’re doing something right or wrong.”
if you attempt growth without showing adequate returns on capital, you wind up destroying value and risking business injury, even death,”
Growth can destroy value if it isn’t earning a return on investment,”
Remember, it’s a fool’s errand to believe that you can be good at everything,”
“The definition of a franchise is the right to use a firm’s business model or brand.
you need to control the entire process from beginning to end to practice good science.”
All financial assets can be made economic equals: “It applies to outlays for farms, oil royalties, bonds, stocks, lottery tickets, and manufacturing plants. And neither the advent of the steam engine, the harnessing of electricity nor the creation of the automobile changed the formula one iota--nor will the Internet. Just insert the correct numbers, and you can rank the attractiveness of all possible uses of capital throughout the universe.”
“In the real world, you uncover an opportunity, and then you compare other opportunities with that. And you only invest in the most attractive opportunities. That’s your opportunity cost. That’s how we make all of our decisions.”
you get the lemons you need now, but don’t have to pay for them for thirty days. Vendor financing is usually short-lived, but it can be an important source of cash for some companies,”
Think about an insurance company. They take your money as premiums up front. Then if you later file a claim, they pay you out to cover whatever was insured. But in the meantime, they get to keep that money and invest it. It’s called float.
“The incentives in academia are set up to find your little niche and drill deeply, almost to the point of absurdity. The pressure to publish is extreme. It’s no wonder you hear stories about data being twisted to support a hypothesis and a crisis of reproducibility.”
“Businesses in industries with both substantial over-capacity and a ‘commodity’ product are prime candidates for profit troubles. Over-capacity may eventually self-correct, either as capacity shrinks or demand expands. Unfortunately for the participants, such corrections often are long delayed. When they finally occur, the rebound to prosperity frequently produces a pervasive enthusiasm for expansion that, within a few years, again creates over-capacity and a new profitless environment. In other words, nothing fails like success.”
“We do have a few advantages, perhaps the greatest being that we don't have a strategic plan. Thus we feel no need to proceed in an ordained direction (a course leading almost invariably to silly purchase prices) but can instead simply decide what makes sense for our owners. In doing that, we always mentally compare any move we are contemplating with dozens of other opportunities open to us, including the purchase of small pieces of the best businesses in the world via the stock market. Our practice of making this comparison--acquisitions against passive investments--is a discipline that
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“Here’s the hard part of the strategy,” he said. “We have to wait. And wait. And wait. In some cases, it’s taken over ten years of just sitting on the property doing nothing but paying property taxes.
When most CEOs are measured by the quarter, it’s very difficult to be that patient.
when there’s a lot of easy money sloshing around, the returns on capital start to suffer.
Do something that didn’t make sense, just to be like everyone else? That would be patently foolish.”
economies are cyclical, much like nature. Trees don’t grow to the sky in nature or business. There are feedback mechanisms which create cycles, limits, and reversions to the mean. And just like nature, these cycles take years to play out. It’s very difficult to watch from the sidelines for years--to wait patiently while your pine cones just sit on the forest floor.”
any time you have too much supply, prices start dropping. All the projections on how they were going to pay back that debt went sour because they couldn’t get the prices they needed due to overcapacity.
Boom is followed by bust, surely as night follows day.
There’s really no such thing as a bad asset. Just paying the wrong price for that asset.”
Just like there’s no right number of trees in the forest. Humans wouldn’t be able to figure out what that is either.
People who forget cyclicality are bound to be hurt by the bust,
Every bubble forces you to make a choice: do you want to look like a fool during the build up as you’re missing out? Or would you rather look like a fool after it bursts? There’s no getting around looking foolish. But you do get to decide the time frame. I call it ‘The Bubble Ultimatum.’”
Capital allocation is hard.” “Perhaps, but it’s not so bad once you have the menu laid out in front of you. All you have to do is evaluate each idea and decide on the most logical choice. This is the secret to good capital allocation.
“At every juncture, he’s looking at his various investment options and trying to pick the smartest one. Even if the answer is to wait for a better menu. How can you make too many plans if you don’t know what opportunities the future holds? You’re limiting yourself by pre-deciding today what the best option is ten years from now.”
have research done on every member of an audience I’m going to speak to. It helps me choose where to steer the conversation to make the biggest impact.”
“If I’m going to do something, I’m going to do it to the best of my damned abilities,”
“There’s no excuse for poor preparation.”
Everyone has their own brand of crazy that they can mostly hide from the rest of the world. But when you live with someone, eventually the armor cracks.
Cohabitation is a whole different ball of wax from dating. It’s hard not to lose a little of the magic when you peek behind the curtain. There are so many small opportunities to pick at the edges of the relationship, loosening the threads.
Start with the customer and work backwards.”
if we can anchor our mindsets upward to an eleven-star experience, it really opens up what might be feasible and innovative at a lower level to make the customer feel fantastic. Every business will be different. It’s about cracking our minds open to find the obvious improvements that are hiding in plain sight.”
“If you go ridiculously far in one direction, other ideas don’t seem so crazy. You change the reference point.”
humans aren’t always logical. Our brains evolved for survival, not necessarily logic.
As you give people more choices, it gets harder for them to make a decision. They start to feel overwhelmed.”
“People end up less happy with their final choice because it seems like they gave up too many other great options to choose just one.”
the average adult makes thirty thousand decisions per day. We end up making bad choices on the big stuff because we’ve drained all our decision-making energy on the inconsequential.”
There are some good business reasons to have a simplified menu. It makes managing inventory much easier. You don’t have to throw away spoiling food because people didn’t want chicken sandwiches that week for some reason. Throwing away food in the restaurant business is akin to throwing away money.”
“There’s a glitch in the human mind: if you offer only one or two things, people assume you do those few things very well. Maybe even the best. If you took your car in for an oil change and the auto shop also did hair cuts, would you expect them to be very good at either service?”
people can only remember so many things about your business. They’re busy living their lives. You want to make it easy and unambiguous for them to form associations about what you’re good at.”
One of the most important expenses any business has is the cost to find customers and get them in the door.
fifty percent of ads are massively successful and fifty percent of ads are a total waste.”
if a customer refers us to a friend, they’re basically making a public proclamation that they like eating at our restaurant. People have a strong internal desire to appear consistent with what they say to their friends. So by making the referral, they reinforce their own good feelings and commitment to liking Cootie.”
a flower is nothing more than a weed with an advertising budget.”
