Spotlight

Andrew Carnegie and Henry Ford are considered among the handful of capitalists who played a defining role in building America. The early 20th century skyscrapers in the US stood on Carnegie’s steel and Ford revolutionized the automobile industry with his low-cost cars.

Carnegie became the richest man in America when he retired and sold his company to JP Morgan for a sum that was equivalent to $400 billion in today’s money. Sadly, Andrew’s billions were amassed at the cost of factory workers’ sweat and blood. Literally.

The working conditions in steel mills in the late 19th century and early 20th century were inhumane and unsafe. Some estimate that the rate of serious accidents (often leading to death) was as high as 10 percent. Twelve to fourteen hours a day and six to seven days a week was standard at that time. There was no extra pay for overtime. Not only that, the hourly wages were squeezed so the hilt to drive profitability. And any resistance from labour unions was often crushed ruthlessly with the help of private armies like Pinkertons. (Trivia: at one time Pinkertons had more armed personnel in their squad than the entire US national army.)

This changed when Ford entered the scene. He offered his workers the luxury of 40-hour work week, great hourly wages, and safe working conditions. With his assembly line, he was able to achieve better productivity and lower costs without compromising on labour wages and working hours. The life of a factory worker was no more exhausting and unsafe. Other industries (including steel and railroad) had to follow suit and offer the same deal as Ford did to the labour force.

However, there was still one thing common between a Carnegie’s factory worker and Ford’s assembly line foreman. Their output was directly tied to the number of hours they spent on the shop floor. It mattered how fast they moved their hands. When a steel mill worker left early on a day, it was a loss of business for the bosses. Similarly, when a Ford employee on the assembly line took an extended lunch break, it wasn’t acceptable to his supervisor.
[Read more…] about Wasted Hours and Saved Years

Richard Branson is a British business magnate, investor, author, and philanthropist. He’s the founder of the Virgin Group, which controls more than 400 companies.

When someone asked Branson how to be a millionaire, he replied, “Start with a billion dollars and invest in an Airline.”

Vijay Mallya would probably be questioning Branson, “Aisa tha to pehle kyun nahi bataya?” (translation: why didn’t you tell me this earlier?)

So that’s the first way to go from riches to rags — buy an airline. Now, I don’t know of a way to verify if Branson actually said that. So let me tell you another story which is true, verifiable, and recent.
[Read more…] about How to Go from Riches to Rags

In 2014, JPMorgan Asset Management did a study and discovered that the 40 best days accounted for more than the entire S&P 500 return from 1993–2013. In other words, if someone traded only on these specific 40 days, i.e., invested his money in S&P 500 in the morning and sold in the evening then he would have the same returns as someone who stayed invested for 20 years.
[Read more…] about The Risk of Being Out of the Game

Archimedes — a Greek mathematician — was born in 287 BC in the seaport city of Syracuse, Sicily. Some consider him as the greatest mathematician of all time. Although he’s known for the discovery of Archimedes Principle, his often quoted for his famous saying —

Give me a lever long enough and a fulcrum on which to place it, and I shall move the world.

While Archimedes did not invent the lever, his did extensive work on the usage of levers. Archimedes designed block-and-tackle pulley systems, allowing sailors to use the principle of leverage to lift objects that would otherwise have been too heavy to move.

A lever is a simple machine that amplifies an input force to provide a greater output force, which is said to provide leverage. There isn’t a single mechanical device in the world which doesn’t use the laws of the lever.

When people realized that leverage could magnify the effect of non-physical things too the first thing they tried it on was money. In the last few decades, the world of finance has taken Archimedes’ words literally.
[Read more…] about The Dagger of Debt

In his 2010 letter to shareholders, Warren Buffett tells a joke —

Customer: Thanks for putting me in XYZ stock at 5. I hear it’s up to 18.
Broker: Yes, and that’s just the beginning. In fact, the company is doing so well now, that it’s an even better buy at 18 than it was when you made your purchase.
Customer: Damn, I knew I should have waited.

Reading this joke the first time, I laughed at broker’s convoluted argument and the stupidity of the customer. How can a stock be better buy at 18 than it was at 5?
[Read more…] about Exploration Vs Exploitation