"Good to Great" - Jim Rogers

Key points from the Jim Rogers’ “Good to Great” book:


Chapters 1 & 2 – Good is the Enemy of Great & Leadership

Great companies have the following traits:

• Their leaders had Personal Humility & Professional Will
• Their leaders attribute success to their managers and staff & take full responsibility for failures. They also attribute their personal success to a lot of luck.
• The Executives who ignited transformation from good to great did not first figure out strategy/vision (i.e. "where to drive the bus". They first got the right people on the bus (and the wrong people off) and then figured a way to drive it.
• Their CEOs were bred from within the company & succession planning was a key focus to ensure the company could persist.
• Executive compensation, strategy, technology, M&As were NOT key drivers to their success
• They established a culture of discipline. When you have disciplined people, you dont need hierarchy, when you have disciplined though you dont need bureaucracy, when you have disciplined action you don't need excessive controls.

Chapter 3 – First Who…Then What.

• Don’t hire for the sake of hiring – wait for the right people/person
• The moment you feel the need to tightly manage someone, you’ve made a hiring mistake. The best people don’t need to be managed. Guided, taught, led-yes. But not tightly managed.
• Put your best people on your biggest opportunities, not your biggest problems
• For no matter what we achieve, if we don’t spend the vast majority of our time with people we love and respect, we cannot possibly have a great life. But if we spend the vast majority of our time with people we love and respect, then we will almost certainly have a great life, no matter where the bus goes.

Chapter 4 – Confront the Truth

• Expending energy trying to motivate people is largely a waste of time. If you have the right people on the bus, they will be “self-motivated”.
• Ask them a lot of questions rather than pretending to have the answers to everything.
• Engage & Encourage heated dialogue & debate, not through coercion
• Take responsibility for bad decisions, never assign blame

TO BE CONTINUED...

The Intelligent Investor's Checklist

Benjamin Graham developed criteria that can be used to identify potential Common Stocks that are undervalued. Here is a superficial summary of some of his criteria:

Benjamin Graham's book

1. Size. Annual revenue > 2billion
2. P/E. Price less than 15x average earnings (per share) of last 3 years (calculate this yourself)
3. P/Book. Price < 1.5 last reported book value.
4. Current Ratio. Current assets should be at least 2x current liabilities. This gives a cushion of working capital to sustain the company through hard times. Also, long term debt (including pref shares) should not exceed net current assets (working capital)
5. Earnings Stability. Must have some earnings in each of the last 10 years. (Negative operating expenses, but positive financing expenses is a concern)
6. Dividend Record. Must be uninterrupted for 20 years. Increasing dividends is best.
7. Earnings Growth. Minimum increase of 33% in per-share earnings over the past 10 years. To calculate, use the EPS avg of 3 years at beginning vs 3 years at end (or use that website / excel spreadsheet)
8. Exchange Rate - Buy US stocks when CAD strong
9. Intangibles - strong management, owned by top investors, insiders buying

Other Definitions:

Diluted EPS = EP(S + Warrants,Options,Convertible Pref Shares). Always less than EPS, a more conservative metric.

Ratios. Can be broken up into four types. Should always be applied across an industry.

• Valuation Ratios. The price-to-earnings ratio (P/E ratio) is calculated as a stock’s current share price divided by its earnings per share (EPS) for a twelve-month period (usually the last 12 months, or trailing twelve months (TTM)). High PE may indicate that you are overpaying, or it may indicate that the company has greater future growth&earning potential than others with lower PE. PE in stable, mature industries tend to be lower than PEs in industries that are young & have upside.
• Profitability Ratios. Profit Margin = Net Income / Revenue (decreasing year after year is a red flag).  Operating Margin = Operating Income / Net Sales.
• Liquidity Ratios. How quickly can a company raise cash to purchase additional assets or repay creditors quickly. Account Receivables Turnover = Net Credit Sales / Avg Accounts Receivable. High ratio means the company can collect accounts receivable frequently (good liquidity), whereas a lower ratio may mean clients aren’t paying up in time.
• Solvency Ratios. a picture of how well a company can deal with its long-term financial obligations and develop future assets.Total Debt to Total Assets = Short&Long term debt / Total Assets. The total debt to total assets ratio is used to determine how many of a company’s assets were paid for with debt.