Gathering and Using Intelligence
Information has to be organized to test a company’s assumptions about its theory of its business.
Information has to be organized to challenge a company’s strategy. It has to test the company’s assumptions about its theory of its business. This includes testing the company’s assumptions about its environment—society and its structure, the market, the customer, and technology. And information on the environment, where the major threats and opportunities are likely to arise, has become increasingly urgent. Then there are assumptions about the specific mission of the company. Third, there are assumptions about an organization’s core competencies needed to accomplish its mission. Software may be designed to provide this information tailored to a specific group such as hospitals, universities, or casualty insurance companies. Companies can produce some of the information they need themselves, such as information about customers and noncustomers. But even big companies will have to hire outside experts to help them acquire and organize the information they need. The sources are simply too diverse. Most of what the enterprise needs to know about the environment is available only from outside sources —from all kinds of data banks and data services, from journals in many languages, from trade associations, from government publications, from World Bank reports, from scientific papers, or from specialized studies.
ACTION POINT: Do you have the information you need to challenge your company’s strategy and assumptions?
The Test of Intelligence Information
The ultimate test of an information system is that there are no surprises.
The ultimate test of an information system is that there are no surprises. Before events become significant, executives have already adjusted to them, analyzed them, understood them, and taken appropriate action. One example is the very few American financial institutions that, in the late 1990s, were not surprised by the collapse of mainland Asia. They had thought through what “information” means in respect to Asian economies and Asian currencies. They had gradually eliminated all the information they got from within their own subsidiaries and affiliates in these countries—these, they had begun to realize, were just “data.” Instead, they had begun to organize their information about such things as the ratio between short-term borrowing and the country’s balance of payments and information about funds available to service foreign short-term debt. Long before these ratios turned so unfavorable as to make a panic in mainland Asia inevitable, these executives had realized that it was coming. They realized that they had to decide whether to pull out of these countries, or to stay for the very long term. They had, in other words, realized what economic data are meaningful in respect to emerging countries, had organized them, had analyzed them, and had interpreted them. They had turned the data into information —and had decided what action to take long before that action became necessary.
ACTION POINT: Identify key variables in your environment. Make sure you have intelligence information about each of these variables to minimize surprises.
“When money realizes that it is in good hands, it wants to stay and multiply in those hands.”
“Money is always eager and ready to work for anyone who is ready to employ it.”
“Games are won by players who focus on the playing field –- not by those whose eyes are glued to the scoreboard.”
“October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.”
“Investors should be skeptical of history-based models. Constructed by a nerdy-sounding priesthood using esoteric terms such as beta, gamma, sigma and the like, these models tend to look impressive. Too often, though, investors forget to examine the assumptions behind the models. Beware of geeks bearing formulas. ”
“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble”
“It amazes me how people are often more willing to act based on little or no data than to use data that is a challenge to assemble.”
Robert J. Shiller
“If you aren’t thinking about owning a stock for ten years, don’t even think about owning it for ten minutes.”
“If you invest nothing, the reward is worth little.”
Richelle E. Goodrich
“Acknowledge the complexity of the world and resist the impression that you easily understand it. People are too quick to accept conventional wisdom, because it sounds basically true and it tends to be reinforced by both their peers and opinion leaders, many of whom have never looked at whether the facts support the received wisdom. It’s a basic fact of life that many things “everybody knows” turn out to be wrong.”
“The broker said the stock was “poised to move.” Silly me, I thought he meant up.”
“Buffett’s methodology was straightforward, and in that sense ‘simple.’ It was not simple in the sense of being easy to execute. Valuing companies such as Coca-Cola took a wisdom forged by years of experience; even then, there was a highly subjective element. A Berkshire stockholder once complained that there were no more franchises like Coca-Cola left. Munger tartly rebuked him. ‘Why should it be easy to do something that, if done well two or three times, will make your family rich for life?”
“Speculation is an effort, probably unsuccessful, to turn a little money into a lot. Investment is an effort, which should be successful, to prevent a lot of money from becoming a little.”
Fred Schwed Jr.
“You can get in way more trouble with a good idea than a bad idea, because you forget that the good idea has limits.”
“Investing money is the process of committing resources in a strategic way to accomplish a specific objective.”
“Then it is your opinion…that a man should never-”
-Invest in portable property in a friend?”… “Certainly he should not. Unless he wants to get rid of the friend- and then it becomes a question how much portable property it may be worth to get rid of him.”
“Saving is a great habit but without investing and tracking, it just sleeps”
“At the end of the day, if you’re wasting your time by not investing in yourself, you’re going to waste away—and that would be the greatest waste of all.”
“Nearly every time I strayed from the herd, I’ve made a lot of money. Wandering away from the action is the way to find the new action.”