Goldman Sachs

A very smart attorney with whom I spoke yesterday told me she read the Goldman Sachs complaint and that it's very narrow. With all of the digging that the SEC must have done, it's amazing that they came up with something so small (on a relative basis to what people expected or might have expected). So, does that make Goldman Sachs a buy? The biggest downside is potentially a class action law suit filed by wronged investors, or is it? I will be curious to know what you think.

An Economics Joke Serves as a Cautionary Tale

Recently, I was speaking with a fabulous Chief Investment Officer for a large pool of capital (in excess of $10B). He and I discussed the financial crisis and what might be coming down the pike next: inflation, deflation, Goldilocks (everything comes out just right), strong dollar, weak dollar... and the strategies for investing should any of these scenarios come to pass.

When discussing the crisis itself, he commented that no one had modeled what would happen if housing prices fell. It all seems so obvious now, but the biggest issue with any financial model is (are) the key assumption(s). You can model anything, of course. Just tell me what the assumptions are! It reminds me of a joke I learned when I was an economics student at the University of Chicago. It's the only economics joke I know. Here goes:

A physicist, a chemist and an economist are trapped on a deserted island, and they have a large crate of canned food without an obvious way to open the cans. The physicist suggests, "Let's tie vines together, throw them over the branch of the coconut tree and use coconuts to force open the cans by bouncing the coconuts off the cans at the correct angle."

The chemist responded, "That's absurd. Let's use the sea water, some sea weed and the sun to corrode the tops of the cans off."

The economist averred, "You're both wrong. Assume you have a can opener."

Friends and Family, Angels and VCs

Today I met with a friend who is starting an e-commerce company, and he needs $100,000 to get his site launched, attain some users and demonstrate metrics and traction. From there, he plans to seek angel or venture capital funding. Well, at the beginning of our conversation, he thought about speaking with some "super angels" now and has in fact done so. His observation was that the "super angels" (Jeff Clavier, Mike Maples, Ron Conway) have moved "up market" just as venture capitalists have of late. Translation: they are doing (relatively) later stage deals and putting more money to work in those deals.

My advice to my friend is the same as it would be for anyone similarly situated. Seeking friends and family for a company in need of $100,000 is the only way to start. To my friend's credit, he has done that and is half way to his goal. For the last $50K, he and I brainstormed about angels who don't necessarily have funds per se but are active and who have an interest in/passion for e-commerce deals. Finding such people can be akin to looking for a needle in a haystack. Frankly, that's where your lawyers, other service providers and friends who are plugged into the angel/venture capital ecosystem can be incredibly helpful. I also suggested that my friend use LinkedIn to find alumni of some successful companies in the e-commerce space i.e., Junglee, Amazon, et al. If you're an active LinkedIn user, it can be an incredibly powerful way to find people whom you want to meet.

Once my friend has some data and has confirmed that his idea has merit i.e., users, a model that is starting to show some color, going to super angels or venture capital firms with a penchant for early-stage e-commerce deals will be the right path forward. Just be sure to conduct diligence on everyone you take money from because you can bet your investors will be doing that on you.

Denial

"Denial: Why Business Leaders Fail to Look Facts in the Face -- and What to Do About It" is the title of Richard Tedlow's new book. Last, night I had the pleasure of hearing Professor Tedlow speak about his book. He divided his book into to parts: those who got it wrong (e.g., Henry Ford continuing to make one model car and only in black) and those who got it right (e.g., James Burke, then CEO of J&J during the Tylenol poisonings - remember that?). He discussed the man who tried to point out the error in Henry Ford's thinking (after 8 pages of groveling). That man was fired. He also discussed how Andy Grove, then #2 at Intel, suggested to Gordon Moore, then CEO and Chairman of Intel, that Intel exit its MAIN business, memory, in the late 1980's. It's no surprise that organizations full of "yes-men" don't thrive, and it's also a rarity to have such organizations.

I had the pleasure of hearing Jamie Dimon speak about the advice he received from a CEO shortly before Jamie assumed the CEO role at BankOne. The other CEO said, "If you have ten guys reporting to you, make sure that one of them will always tell you the truth, no matter what." Jamie's response was, "If I only have one guy who will tell me the truth, I am going to fire the nine other guys and find nine others who will tell me the truth."

This all seems like common sense, but it is so... uncommon.

I am looking forward to devouring "Denial" even though I am sure that parts of it will be disturbing.

Job losses

If you have never visited www.calculatedriskblog.com , you should check it out. The folks who write this are smart and always provide great data. The graph above is on their site and shows unemployment in percentage terms (vs. number of jobs lost). As you can see, this recession is worse than any other since the Great Depression in percentage terms (that is, percentage of jobs lost). The only good news is that it looks like we have bottomed out in job losses. The speed at which we recover is best left to the professionals. Personally, I think it's a slow recovery for jobs.