Tag Archives: Investing


Can You Beat the Box? Getting Hired by Machine

This morning’s Wall Street Journal covers a growing trend in which companies are using software and algorithms to make hiring decisions, cutting out the traditional job application and in person interview processes.

It is a fascinating read.  It also reinforces the notion that there really are no limits to what software can disrupt, where software can make an impact.  It was also interesting to me, because, little known fact about me, based on a multiple choice test, I was once declared not qualified to become a junior stock broker trainee.  More on that below… :)

I will be interested in watching this trend evolve.  In particular, I’m interested to watch and learn how  prospective applicants react to this.  Potentially in a bad job market, people are more willing to take a test and try to ‘beat the box,’ relative to what they might have done in the past.  I’d love to see whether sites pop up where applicants try to share information on how they answered questions during the test, and what worked.  Gaming of a system always happens, and in this realm, I’d assume that’ll happen too.  I’m going to figure as well that job placement firms and job coaches / counselors etc. will in time evolve to help job seekers how to “Look Your Best, When Taking the Test.”  This all sounds a little silly when I think about it, but in a very real and serious sense, as you shift this behavior to software, you start to realize that all sorts of second order behavior will change along with it.

For my own part, though I was always really good at test taking, I’m really glad that (hopefully) I won’t have to do this to get a job.  Very early in my 20s, some good friends of mine got me a job interview at one of the big stock brokerage firms in Boston.  The opportunity was to join the training program for stock brokers, basically to start cold calling.  I knew next to nothing about the stock market, but that didn’t really seem to matter.  What mattered to those I interviewed with was that I could connect with them, was a good communicator, clearly worked hard, etc.

On the basis of the first day of human interviews, the feedback was that I’d done great, and they were hoping to make me an offer.  I was waiting tables at the time, so I felt like I was getting a lead on working on Wall Street.  I envisioned Michael J. Foxx in the movie The Secret of My Success, Charlie Sheen in Wall Street.  That was me, baby.  I’d arrived!

The one step between that first day of in person interviews and getting an offer was a basic test that they wanted me to take.  Reflecting back on it, I think this test was something like a Myers-Briggs profile.  It asked questions like, “if you have a free evening would you rather read a book or spend it with friends?”  Things like that: no wrong answers.  As someone who’d made a lifetime of crushing standardized, fill in the bubble type tests, this was a breeze.  I was in and out in about 30 minutes.  Didn’t think a thing of it, shook hands with everyone on my way out as I envisioned weekends on Nantucket and lying in a solid gold bathtub filled with dollar bills.   We were all fired up–they were excited for me to start, and I thrilled to have a real job and not have to wait the breakfast shift at the Hyatt Regency in Cambridge (where I was working at the time).

A few days later, I got a phone call.  That phone call said, Jay, we’er really sorry but based on the results of this test, we don’t think you’re really someone who’s a great long-term fit as a stock broker.  Bummer, nho gold-plated bathtub for me!

I’d forgotten all about this until my brother in law reminded me of it a few months ago.  We had a huge laugh about it–and I can barely contain laughter as I think about it now.  Though I’d been deemed unfit to be a stock broker, in all honesty, not beating the box that day was probably the best thing that ever happened to me.

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Day 2 : Berkshire Hathaway Letter, 1978

The second Berkshire Hataway letter, authored by Chairman Warren Buffett, is a treat to read.  Starting with a bunch of clarifications on accounting owing to a merger, he then dives in to his discussion on performance during the year.

A few key observations from the 1978 letter.

Value focus means low prices.  

Buffett has been remarkably consistent and long-term in his view on investment approach.  He says the same thing here in 1978 that he says today, which is :

We get excited enough to commit [investment] to equities only when we find (1) businesses we can understand, (2) with favorable long-term prospects, (3) operated by honest and competent people, and (4) priced very attractively.

In his 1978 letter though, he specifically calls out the difficulty in finding opportunities that fit gate #4–an attractive price.

We usually can identify a small number of potential investments meeting requirements (1), (2) and (3), but (4) often prevents action.

This is a useful lesson for investors everywhere.  Whether growth or value focused–price matters.

A quick side note.  This has some interesting and at times difficult implications for venture.  For super hot companies, valuations and prices can get very hot very fast.  For example, Facebook’s Series A price was rumored to be near $100m on a post-money valuation.  This was way back 6 years ago.  At the time, it would have seemed to many to have been unreasonably high.  Now, it looks like it was an extreme bargain.


Minority/non-controlling common stock purhcases versus outright acquisition

Buffett again talked about bucking the fashion of M&A activities in favor of buying non-controlling blocks of common stock on the open market.  His rationale here is simple:

[Our] program of acquisition of small fractions of businesses (common stocks) at bargain prices, for which little enthusiasm exists, contrasts sharply with general corporate acquisition activity, for which much enthusiasm exists.  It seems quite clear to us that either corporations are making very significant mistakes in purchasing entire businesses at prices prevailing in negotiated transactions and takeover bids, or that we eventually are going to make considerable sums of money buying small portions of such businesses at the greatly discounted valuations prevailing in the stock market.

He tweaks pension fund managers who are move their money in and out of stocks with prevailing sentiment, as opposed to pushing to drive to find something to buy cheap and sell dera.

Work with great teams

Buffett closes his letter with an explanation of a recent acquisition of therAssociated Retail Stores, a Chicago-based women’s clothing store.

His description of the founders of the business, still involved at later ages is terrific:

 Ben is now 75 and, like Gene Abegg, 81, at Illinois National and Louie Vincenti, 73, at Wesco, continues daily to bring an almost passionately proprietary attitude to the business.  This group of top managers must appear to an outsider to be an overreaction on our part to an OEO bulletin on age discrimination.  While unorthodox, these relationships have been exceptionally rewarding, both financially and personally.  It is a real pleasure to work with managers who enjoy coming to work each morning and, once there, instinctively and unerringly think like owners.  We are associated with some of the very best.

An inspiring statement to be able to make as an investor about the leaders of a company you’re involved in.

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Day 1 : Berkshire Hathaway Annual Letter 1977

This post starts off the Berkshire Hathaway Project, a series where I’ll read all the annual shareholder letters that Berkshire Hathaway Chairman Warren Buffett has written.

The first letter that I found on the web site  is from 1977.  Disco was big. The Steelers were awesome.  And the economy was moribund.   As I read the letter, a few elements jumped out, useful for anyone in business–tech or otherwise.

Have an approach.  Buffett talks about in the letter the decision the Berkshire Hathaway has taken towards buying up less than controlling shares of companies it believes in.

We select our marketable equity securities in much the same way we would evaluate a business for acquisition in its entirety.   We want the business to be (1) one that we can understand, (2)  with favorable long-term prospects, (3) operated by honest and  competent people, and (4) available at a very attractive price.   We ordinarily make no attempt to buy equities for anticipated  favorable stock price behavior in the short term.  In fact, if  their business experience continues to satisfy us, we  welcome lower market prices of stocks we own as an opportunity to acquire even more of a good thing at a better price.

Our experience has been that pro-rata portions of truly outstanding businesses sometimes sell in the securities markets at very large discounts from the prices they would command in negotiated transactions involving entire companies. 

Consequently, bargains in business ownership, which simply are not available directly through corporate acquisition, can be obtained indirectly through stock ownership.  When prices are appropriate, we are willing to take very large positions in selected companies, not with any intention of taking control and not foreseeing sell-out or merger, but with the expectation that excellent business results by corporations will translate over  the long term into correspondingly excellent market value and dividend results for owners, minority as well as majority….

This is an unorthodox view, but one we believe to be sound.

Clearly, Berkshire Hathaway had an approach.  And if you read Buffett’s statements over time, the 4 key elements they look for when investing have remained unchanged over the many, many years he’s been investing.

What is interesting in this snippet is the clear willingness to focus on buying non-controlling shares of companies and common stock, if he were convinced that the propsect was a good one.  He basically justifies this view on two fronts.  First, he can buy in more cheaply–makes sense. And, he clearly signals that when he buys in and doesn’t control, he’s making a direct bet on management.

It’s an approach.  Clearly one that’s worked.  The lesson: an approach, have one.

Market dynamics matter. 

I’ve written before about the importance of big market opportunities in being critically important for a startup.  That a great team in a crumby market will get trumped by the crumbiness of the market.  Interestingly, Buffett makes this exact same case in this letter, from 1977.

In his note, he compares and contrasts the performance of two portfolio businesses within Berkshire Hathaway: its textile business and its insurance business.  Both textiles and insurance had great management teams, according to Buffett.  But the market dymaics were totally different, leading to different results.

It is comforting to be in [the insurance] business where some mistakes can be made and yet a quite satisfactory overall performance can be achieved.  In a sense, this is the opposite case from our textile business where even very good management probably can average only modest results.

One of the lessons your management has learned – and, unfortunately, sometimes re-learned – is the importance of being in businesses where tailwinds prevail rather than headwinds.

Again, sage advice that I agree with–aiming for a  big market opportunity makes a tremendous difference.

Recognizing the role of shareholders.

Buffett’s tone in the letter is one that strikes me as doing a great job dileneating the different stakeholders’ roles in the venture.  He discusses the accomplishments and diligence of the different management teams building the different businesses.  He also uses a lot of ‘you’s and ‘your’s’ to reinforce that the shareholders are indeed the owners of the business. See quote above as example.

Deft touch.



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