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Dead Companies Walking: How A Hedge Fund Manager Finds Opportunity in Unexpected Places
Unlike most investors, who live in fear of failure, Scott Fearon actively seeks it out. He has earned millions of dollars for his hedge fund over the last thirty years shorting the stocks of businesses he believed were on their way to bankruptcy. In Dead Companies Walking , Fearon describes his methods for spotting these doomed businesses, and how they can be extremely profitable investments. In his experience, corporate managers routinely commit six common mistakes that can derail even the most promising they learn from only the recent past; they rely too heavily on a formula for success; they misunderstand their target customers; they fall victim to the magical storytelling of a mania; they fail to adapt to tectonic shifts in their industry; and they are physically or emotionally removed from their companies' operations.
Fearon has interviewed thousands of executives across America, many of whom, unknowingly, were headed toward bankruptcy – from the Texas oil barons of the 80s to the tech wunderkinds of the late 90s to the flush real estate developers of the mid-2000s. Here, he explores recent examples like JC Penney, Herbalife and Blockbuster Entertainment to help investors better predict the next booms and busts―and come out on top.
Fearon has interviewed thousands of executives across America, many of whom, unknowingly, were headed toward bankruptcy – from the Texas oil barons of the 80s to the tech wunderkinds of the late 90s to the flush real estate developers of the mid-2000s. Here, he explores recent examples like JC Penney, Herbalife and Blockbuster Entertainment to help investors better predict the next booms and busts―and come out on top.
256 pages, Hardcover
First published January 6, 2015
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Displaying 1 - 30 of 107 reviews
June 21, 2016
The two last chapters are worth the price of the book alone
December 8, 2016
I am recommending this for two basic reasons: One, it can help you think about why the marijuana company you see has no possible chance of success or why it may succeed. Two, if you invest in bankrupt companies it is a good resource.
Good discussion on what Fearon believes leads many companies to fail & create shorting opportunities for his hedge fund.
Good examples talked about that apply to trading in bankruptcies. Also makes it clear that letting mutual fund managers & other wall street types handle your investments is a plan for disaster. Their interests are not your interests.
Very easy to read and understand (important for slow folks like myself).
He has a blog at http://www.scottfearon.com.
And no I don’t get any money for this review (but if you want to send me $114.92 for my liquor/girl/porn fund, I’d appreciate it!)
Good discussion on what Fearon believes leads many companies to fail & create shorting opportunities for his hedge fund.
Good examples talked about that apply to trading in bankruptcies. Also makes it clear that letting mutual fund managers & other wall street types handle your investments is a plan for disaster. Their interests are not your interests.
Very easy to read and understand (important for slow folks like myself).
He has a blog at http://www.scottfearon.com.
And no I don’t get any money for this review (but if you want to send me $114.92 for my liquor/girl/porn fund, I’d appreciate it!)
May 15, 2021
I think this guy could be standing to make a ton in the near future, considering all the darn irrational exuberance abounding today.
Q:
While most of my fund’s investments are in the stocks of companies I believe are undervalued, I also look for stocks that are overvalued by the markets. My specialty is identifying what I call “dead companies walking”—businesses on their way to bankruptcy and a zeroed-out share price. To the noninvestor, earning money on losing stocks might sound counterintuitive. But short selling is a routine, if widely misunderstood, investment strategy. And while it may seem macabre to profit on the misfortunes of others, investors like me make our markets stronger and more efficient. (c)
Q:
Failure terrifies people. They’ll do whatever they have to do to downplay it, wish it away, and just plain pretend it doesn’t exist. Most of the time, they’ll go on living in denial long after the truth of their predicament becomes obvious. Americans are especially prone to this kind of mental contortionism. We have a pathological “can do” faith in our abilities. “Failure is not an option” is one of our favorite sayings. The idea of quitting or giving up is almost unpatriotic. This attitude benefits us in many ways as a nation. But when it comes to business, and also investing, this kind of excessive optimism can do more harm than good. (c)
Q:
In retrospect, it’s obvious that the only thing the board of Enron managed to audit in all that time were the buffet tables at their meetings. (c)
Q:
Self-delusion is a powerfully democratic force. It cuts across all social classes. (c)
Q:
fixating on a formula can be disastrous. All real-life rules have exceptions to them. (c)
Q:
A GARP investor looks for companies that are growing. Starbucks and Costco certainly were doing that in big ways. But the acronym contains a caveat: at a reasonable price. If a company’s earnings are growing fast but its share price is growing faster, the GARP school says to stay away. The way you figure out whether this is the case is by calculating something called the multiple—the ratio of a company’s share price to its earnings per share—and comparing it to its rate of growth. When a company’s multiple is larger than its rate of growth, the stock is overpriced and thus not a good investment.
...
One of the main reasons I favor the GARP investing approach is that it helps prevent me from falling prey to manias and groupthink.
...
But here’s the catch: sometimes the herd is right. (c)
Q:
... integrating a separate business into your own is, by its nature, an outside-in process. For that reason, it’s bound to be a crapshoot. No matter how many lawyers and auditors an acquiring company hires, no matter how much due diligence it performs beforehand, the seller almost always gets a better deal than the buyer. Sellers know where the bodies are buried in their businesses, and there’s usually a good reason why they’re willing to give up ownership. (c)
Q:
While most of my fund’s investments are in the stocks of companies I believe are undervalued, I also look for stocks that are overvalued by the markets. My specialty is identifying what I call “dead companies walking”—businesses on their way to bankruptcy and a zeroed-out share price. To the noninvestor, earning money on losing stocks might sound counterintuitive. But short selling is a routine, if widely misunderstood, investment strategy. And while it may seem macabre to profit on the misfortunes of others, investors like me make our markets stronger and more efficient. (c)
Q:
Failure terrifies people. They’ll do whatever they have to do to downplay it, wish it away, and just plain pretend it doesn’t exist. Most of the time, they’ll go on living in denial long after the truth of their predicament becomes obvious. Americans are especially prone to this kind of mental contortionism. We have a pathological “can do” faith in our abilities. “Failure is not an option” is one of our favorite sayings. The idea of quitting or giving up is almost unpatriotic. This attitude benefits us in many ways as a nation. But when it comes to business, and also investing, this kind of excessive optimism can do more harm than good. (c)
Q:
In retrospect, it’s obvious that the only thing the board of Enron managed to audit in all that time were the buffet tables at their meetings. (c)
Q:
Self-delusion is a powerfully democratic force. It cuts across all social classes. (c)
Q:
fixating on a formula can be disastrous. All real-life rules have exceptions to them. (c)
Q:
A GARP investor looks for companies that are growing. Starbucks and Costco certainly were doing that in big ways. But the acronym contains a caveat: at a reasonable price. If a company’s earnings are growing fast but its share price is growing faster, the GARP school says to stay away. The way you figure out whether this is the case is by calculating something called the multiple—the ratio of a company’s share price to its earnings per share—and comparing it to its rate of growth. When a company’s multiple is larger than its rate of growth, the stock is overpriced and thus not a good investment.
...
One of the main reasons I favor the GARP investing approach is that it helps prevent me from falling prey to manias and groupthink.
...
But here’s the catch: sometimes the herd is right. (c)
Q:
... integrating a separate business into your own is, by its nature, an outside-in process. For that reason, it’s bound to be a crapshoot. No matter how many lawyers and auditors an acquiring company hires, no matter how much due diligence it performs beforehand, the seller almost always gets a better deal than the buyer. Sellers know where the bodies are buried in their businesses, and there’s usually a good reason why they’re willing to give up ownership. (c)
January 12, 2015
This book is wonderful. Fabulous. One of the best investing memoirs I've read. And he'd be one of the few money managers I'd let manage my own funds. You can tell from Reading that he really gets the markets and has truckloads of hilarious stories. He also shows a human element, with the occasional recounting of his own investing failures, such as in an ill-fated restaurant.
A favorite quote:
"The financial world suffers from an inherent flaw: the people who work in it, by and large, are terrible investors."
A favorite quote:
"The financial world suffers from an inherent flaw: the people who work in it, by and large, are terrible investors."
June 6, 2017
I really liked this book...until the last chapter and conclusion, but I'm still giving it a 5-star rating. First the bad - the last chapter and conclusion are Fearon's tirade/soapbox on institutional investment firms (chapter 8) and the 2009 bailout (conclusion). While those are fine topics for other books, it is out of place in this book, and really distracts the reader from what was otherwise a very good and informative book. I believe if the book ended after chapter 7, I would have rated it as one of my favorite top 5 business/investing books. In addition, while Fearon begins the book by trying to get the reader to embrace failure, there was little discussion at all about his own investing failures (except for his botched attempt at a Cajun restaurant and the underperformance of his hedge fund in 2009...which he blames on the bailout). Now the good - I really loved Fearon's discussion of quitting and how the best investors are typically the best quitters. That hits home with me because I'm a terrible quitter. I HATE quitting. Sometimes this comes through in my investing as well. I also think that his 6 indicators of a failing business make a lot of sense, and he does a really good job supporting those indicators.
My favorite quotes:
p. 17 - "Cheap can be very expensive."
p. 25 - "There's an old saying in the investment game: 'It's okay to be wrong; it's not okay to stay wrong.'"
p. 77 - "You can know everything there is to know about your industry - market trends, leading indicators, the latest technology - but if you don't know your own customers, you might as well be trying to sell gumbo to gray-haired flower children."
p. 101 - "The best money managers are also the best quitters. They quit early and often. As soon as they see things turning for the worse, they don't wait around."
p. 160 - "One of the main ways corporate leaders can harm their business is by worrying about its stock too much, either by blaiming external factors like short-sellers for its underperformance or by basing strategic decisions on how Wall Street will react to them."
My favorite quotes:
p. 17 - "Cheap can be very expensive."
p. 25 - "There's an old saying in the investment game: 'It's okay to be wrong; it's not okay to stay wrong.'"
p. 77 - "You can know everything there is to know about your industry - market trends, leading indicators, the latest technology - but if you don't know your own customers, you might as well be trying to sell gumbo to gray-haired flower children."
p. 101 - "The best money managers are also the best quitters. They quit early and often. As soon as they see things turning for the worse, they don't wait around."
p. 160 - "One of the main ways corporate leaders can harm their business is by worrying about its stock too much, either by blaiming external factors like short-sellers for its underperformance or by basing strategic decisions on how Wall Street will react to them."
April 4, 2018
I loved this book. For years I've been writing about companies that are crashing and burning, and begging people to avoid their stocks -- Valeant Pharmaceuticals (VRX), JCPenney (JCP), et. al. -- and here's a book that takes that theme and runs with it. (Yes, you need to be somewhat of an investment market wonk to enjoy the topic.)
Scott Fearon inspired me take information that I had stored in my brain and use it to make money.
Scott Fearon inspired me take information that I had stored in my brain and use it to make money.
August 21, 2018
Dead Companies Walking is something of a biography of an investment career stretching more than 30 years, primarily in the U.S. small/mid cap market and over 20 years of running a hedge fund. During his career, Scott Fearon has had particular success with finding businesses that will deteriorate and often ultimately enter bankruptcy and the book is an excellent and thoughtful guide to what common attributes these businesses have and how, as an investor, one spots them. His research methodology is fundamental analysis with great importance put on company meetings. Mr. Fearon puts a lot of emphasis on management quality in his analysis and it is also the lens through which he studies failing businesses.
The book starts with some typical mistakes management make which lead down the path of failure for their business. The six mistakes are:
• Only learning from the recent past (and not looking for longer super cycles)
• Relying too heavily on a single formula for success
• Misreading or alienating your customer
• Being a victim of a mania
• Failing to adapt to tectonic shift
• Being physically and/or emotionally detached from the business operations.
The author also proposes that most of these typical mistakes often grow from excessive optimism by management.
The text goes through a number of case studies on each point above from Fearon’s career that are very good, although even more detail on each case could potentially have made it better. Especially good are his cases relating to manias such as the dotcom boom in the 1990s and from within the retail industry where some companies he studied altered their offering which lead to problems down the road, such as Zale or JC Penney.
After discussing common failures, the book has a chapter on what makes struggling businesses successfully turn around which is interesting and helps clarify the mistakes described in earlier chapters as the author sees the contrast between management owning up to problems and taking actions versus not doing so.
The last part of the book is mostly a tirade against Wall Street as well as the author’s own industry to the extent that it focuses on asset gathering rather than performance. He also discusses the risk of moral hazard post the gigantic bailout after the 2007/08 financial crisis. This part is of less interest and does not really pertain to the title of the book.
The primary objective of the book is to educate investors in how to spot problematic businesses and how to profit from it by shorting. Fearon’s thesis is that management is key and its actions or inaction lead to problems for the business. As a main part of his methodology is to analyze and categorize what mistakes management do to set the business on the wrong course the book is also suitable for management to read to avoid pitfalls.
By and large he achieves his objective although the book could have been an even better read by concentrating solely on the topic of its title and removing some of the text around investments in general such as the current climate or his view on Wall Street. I think that author’s thesis is very valid and this is an area not well covered by existing literature so the book contributes to building understanding. Also, it’s an easy read. The book’s main strength is the author’s long hands-on experience and case studies from his career.
Overall for a bottom-up investor looking to short I think this a very good read. I would have liked even more detailed case studies and a clearer focus on specifically failing companies to make the book even better.
The book starts with some typical mistakes management make which lead down the path of failure for their business. The six mistakes are:
• Only learning from the recent past (and not looking for longer super cycles)
• Relying too heavily on a single formula for success
• Misreading or alienating your customer
• Being a victim of a mania
• Failing to adapt to tectonic shift
• Being physically and/or emotionally detached from the business operations.
The author also proposes that most of these typical mistakes often grow from excessive optimism by management.
The text goes through a number of case studies on each point above from Fearon’s career that are very good, although even more detail on each case could potentially have made it better. Especially good are his cases relating to manias such as the dotcom boom in the 1990s and from within the retail industry where some companies he studied altered their offering which lead to problems down the road, such as Zale or JC Penney.
After discussing common failures, the book has a chapter on what makes struggling businesses successfully turn around which is interesting and helps clarify the mistakes described in earlier chapters as the author sees the contrast between management owning up to problems and taking actions versus not doing so.
The last part of the book is mostly a tirade against Wall Street as well as the author’s own industry to the extent that it focuses on asset gathering rather than performance. He also discusses the risk of moral hazard post the gigantic bailout after the 2007/08 financial crisis. This part is of less interest and does not really pertain to the title of the book.
The primary objective of the book is to educate investors in how to spot problematic businesses and how to profit from it by shorting. Fearon’s thesis is that management is key and its actions or inaction lead to problems for the business. As a main part of his methodology is to analyze and categorize what mistakes management do to set the business on the wrong course the book is also suitable for management to read to avoid pitfalls.
By and large he achieves his objective although the book could have been an even better read by concentrating solely on the topic of its title and removing some of the text around investments in general such as the current climate or his view on Wall Street. I think that author’s thesis is very valid and this is an area not well covered by existing literature so the book contributes to building understanding. Also, it’s an easy read. The book’s main strength is the author’s long hands-on experience and case studies from his career.
Overall for a bottom-up investor looking to short I think this a very good read. I would have liked even more detailed case studies and a clearer focus on specifically failing companies to make the book even better.
March 11, 2019
A nice read on how to use failure for profit. My biggest takeaway from the book is that for a personal investor, shorting stocks might not be a good idea as the amount of research into figuring out if a stock is worth shorting (or buying for that matter) is too much to manage as a hobby/side-gig and the most sensible alternative is to simply invest in an Index fund.
September 13, 2016
Not super profound. First half is somewhat interesting and useful. Talks about the many ways companies mess themselves up. Rest of the book is a drag. Probably a pass.
August 14, 2019
It’s okay to be wrong, it’s not okay to stay wrong.
Scott Fearon is a hedge fund manager, making money through both short and long investment. The author has earned lots of money identifying Dead Companies Walking i.e. business on their way to bankruptcy by shorting such stocks. This insightful book changes our perspective towards failure by motivating us to embrace & celebrate it in society.
It’s important to take away the stigma of failure. It’s nothing to be ashamed or afraid of. If anything, we should celebrate the people who are brave enough to risk everything, even if they fall short. If they are successful, they contribute significantly to the march of society towards prosperity.
Role of Failure in a growing & dynamic economy
Economic Independence of the market is crucial for a healthy economy, it will unleash unprecedented amount of freedom, not only freedom to grow and make large profits, but also the freedom to fall flat. Economies that try to manage failure by supporting business, it actually stifles business environment over the longer duration as businesses don’t grow or innovate.
In a healthy economy, capital markets fuel growth by allocating resources to smart ideas and well-run companies while starving out less deserving companies. The efficient market elevates good ideas and eliminates bad ideas. The ideas which are good for the larger economy survives, and the bad ideas get wiped out. Even smartest people can get caught up in bad ideas or bad way of doing business. The sooner they are disabused of these flawed practices, the better for everyone.
For a growing and dynamic economy, it’s important to have a culture that embraces failure and considers it’s a normal thing. Failure is a natural, even crucial element of a healthy market economy. The people who are willing to acknowledge that fact can create tremendous value as they are not afraid of failure in their endeavor.
Culture of Creative Destruction in Silicon Valley
Silicon Valley is the epicenter of free market economy transforming the world with high-tech innovations there. Companies like Apple, Alphabet, Facebook, Adobe, Intel, HP, eBay etc are headquartered in the area. But the reason Silicon Valley is the center of high tech innovation and economy is because it is a fertile ground for failure. New ideas and companies are put to the test rapidly and ruthlessly. The good ones survive, and the bad ones fad away. This creative destruction is vital for entrepreneurial success of Silicon Valley.
Failure is not always incompetence or dishonesty
The reason for failure is not always incompetence, dishonesty. Sometimes people get caught up in very bad situations. They try their best to honestly tackle the situation, but they did not succeed. There is no shame in that.
It’s also extremely important to understand the fundamentals of the economics of a business or an industry. As Warren Buffet said, “When as management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact.”
Airline it’s a very tough highly competitive business as the cost of running is significant, and cutthroat competition constantly puts downward pressure on prices and profits. With the high cost and poor margin, it’s tough to make profit.
Ability to Adapt and Innovate
If leaders fail to recognize that their industry has fundamentally and permanently changed, it becomes extremely difficult to survive with the passage of time. It happened with Blockbuster, Nokia, Kodak, PAGE, Yellow Pages. Major shifts like the switch to mobile phones and online delivery are not the only ways business get left behind. Far more subtle changes in consumer behavior or industry practices can be just as deadly if a company’s leaders cling to old strategies and fail to adapt.
Blockbuster could have saved itself by taking radical and painful decision by restructuring the organization. They could have closed thousands of their stores and lay off thousands of their employees to keep the business going and keep it up with the changing times. With benefit of hindsight it’s easy to say that this is the only way to keep company alive, but it’s not easy for executives to take such radical steps. Management of Blockbuster just hoped that things will improve with their half measures. But half measures almost always hasten rather than delay the end.
The story of Apple is also amazing. Apple survived and thrived many times. The most amazing turnaround of the company happened after Steve Jobs took the company away from what had been its core business for decades, the personal computer. The company disrupted and engulfed its own products before anyone can disrupt products of the company. It was always way ahead of the market. The company redefined the way people listened music with iPod, redefined mobile phones with iPhone, music industry with iTunes, and transformed the company into one of the biggest tech company in the world. The rate of innovation is crucial in this time of disruption to stay valuable.
The grounding of Jet Airways
In light of the recent grounding of Jet Airways after been in operation for close to 26 years due to heavy debt of Rs. 8,000 crore, the article by Vivek Kaul is refreshing and it's very much in line with the basic principles of the book. The demand for government intervention to rescue the airlines may not be appropriate for the health of India’s economy. If the market itself i.e. lenders, airline companies come up with solution without intervention of the government and can save the airline, it will be best for the market efficiency. Otherwise, the market dynamics & competition of the airline industry in India will itself take care of the solution by creating maximum value possible.
As running Airline with high cost and less pricing power, it’s not easy to make money. The margins of error are very less. Even if Jet Airways after making all efforts fails to revive the business, the contribution of Jet Airways to the aviation sector should be applauded rather than stigmatizing its failure. The employees, aircrafts and other resources of the company in case the company shuts down after all efforts its very likely to be absorbed by other airlines as the aviation industry is growing significantly in India with improvement in aviation infrastructure and India’s economy.
Scott Fearon is a hedge fund manager, making money through both short and long investment. The author has earned lots of money identifying Dead Companies Walking i.e. business on their way to bankruptcy by shorting such stocks. This insightful book changes our perspective towards failure by motivating us to embrace & celebrate it in society.
It’s important to take away the stigma of failure. It’s nothing to be ashamed or afraid of. If anything, we should celebrate the people who are brave enough to risk everything, even if they fall short. If they are successful, they contribute significantly to the march of society towards prosperity.
Role of Failure in a growing & dynamic economy
Economic Independence of the market is crucial for a healthy economy, it will unleash unprecedented amount of freedom, not only freedom to grow and make large profits, but also the freedom to fall flat. Economies that try to manage failure by supporting business, it actually stifles business environment over the longer duration as businesses don’t grow or innovate.
In a healthy economy, capital markets fuel growth by allocating resources to smart ideas and well-run companies while starving out less deserving companies. The efficient market elevates good ideas and eliminates bad ideas. The ideas which are good for the larger economy survives, and the bad ideas get wiped out. Even smartest people can get caught up in bad ideas or bad way of doing business. The sooner they are disabused of these flawed practices, the better for everyone.
For a growing and dynamic economy, it’s important to have a culture that embraces failure and considers it’s a normal thing. Failure is a natural, even crucial element of a healthy market economy. The people who are willing to acknowledge that fact can create tremendous value as they are not afraid of failure in their endeavor.
Culture of Creative Destruction in Silicon Valley
Silicon Valley is the epicenter of free market economy transforming the world with high-tech innovations there. Companies like Apple, Alphabet, Facebook, Adobe, Intel, HP, eBay etc are headquartered in the area. But the reason Silicon Valley is the center of high tech innovation and economy is because it is a fertile ground for failure. New ideas and companies are put to the test rapidly and ruthlessly. The good ones survive, and the bad ones fad away. This creative destruction is vital for entrepreneurial success of Silicon Valley.
Failure is not always incompetence or dishonesty
The reason for failure is not always incompetence, dishonesty. Sometimes people get caught up in very bad situations. They try their best to honestly tackle the situation, but they did not succeed. There is no shame in that.
It’s also extremely important to understand the fundamentals of the economics of a business or an industry. As Warren Buffet said, “When as management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact.”
Airline it’s a very tough highly competitive business as the cost of running is significant, and cutthroat competition constantly puts downward pressure on prices and profits. With the high cost and poor margin, it’s tough to make profit.
Ability to Adapt and Innovate
If leaders fail to recognize that their industry has fundamentally and permanently changed, it becomes extremely difficult to survive with the passage of time. It happened with Blockbuster, Nokia, Kodak, PAGE, Yellow Pages. Major shifts like the switch to mobile phones and online delivery are not the only ways business get left behind. Far more subtle changes in consumer behavior or industry practices can be just as deadly if a company’s leaders cling to old strategies and fail to adapt.
Blockbuster could have saved itself by taking radical and painful decision by restructuring the organization. They could have closed thousands of their stores and lay off thousands of their employees to keep the business going and keep it up with the changing times. With benefit of hindsight it’s easy to say that this is the only way to keep company alive, but it’s not easy for executives to take such radical steps. Management of Blockbuster just hoped that things will improve with their half measures. But half measures almost always hasten rather than delay the end.
The story of Apple is also amazing. Apple survived and thrived many times. The most amazing turnaround of the company happened after Steve Jobs took the company away from what had been its core business for decades, the personal computer. The company disrupted and engulfed its own products before anyone can disrupt products of the company. It was always way ahead of the market. The company redefined the way people listened music with iPod, redefined mobile phones with iPhone, music industry with iTunes, and transformed the company into one of the biggest tech company in the world. The rate of innovation is crucial in this time of disruption to stay valuable.
The grounding of Jet Airways
In light of the recent grounding of Jet Airways after been in operation for close to 26 years due to heavy debt of Rs. 8,000 crore, the article by Vivek Kaul is refreshing and it's very much in line with the basic principles of the book. The demand for government intervention to rescue the airlines may not be appropriate for the health of India’s economy. If the market itself i.e. lenders, airline companies come up with solution without intervention of the government and can save the airline, it will be best for the market efficiency. Otherwise, the market dynamics & competition of the airline industry in India will itself take care of the solution by creating maximum value possible.
As running Airline with high cost and less pricing power, it’s not easy to make money. The margins of error are very less. Even if Jet Airways after making all efforts fails to revive the business, the contribution of Jet Airways to the aviation sector should be applauded rather than stigmatizing its failure. The employees, aircrafts and other resources of the company in case the company shuts down after all efforts its very likely to be absorbed by other airlines as the aviation industry is growing significantly in India with improvement in aviation infrastructure and India’s economy.
June 30, 2016
Easy read, practical advice, like it
INTRODUCTION
The money manager David Rocker identified three types of businesses that falter and go under: “frauds, fads, and failures.” wherein failures are the result of bad ideas, bad management, or a combination of the two. Failures exist because their leaders make one or more of six common mistakes that he looks for:
a. They learned from only the recent past.
b. They relied too heavily on a formula for success.
c. They misread or alienated their customers.
d. They fell victim to a mania.
e. They failed to adapt to tectonic shifts in their industries.
f. They were physically or emotionally removed from their companies’ operations.
HISTORICAL MYOPIA … or not looking far back enough
Myopia & delusion
Managers fail to look back beyond recent history e.g. cyclicals, they don't look at supercycles, just the mini-cycles, to call the bottom. Yet they believe in momentum e.g. in the energy sector extrapolating decent current performance indefinitely
Failure terrifies people -- they'll do whatever they can to downplay it, wish it away, pretend it doesn’t exist -- what's worse, is then they will start believing themselves… be skeptical
FALLACY OF FORMULAS … great to have a framework, but revisit and be willing to deviate
Managers hang on to decisions way longer than they ought to
Be wary of business managers (& money managers) who have hard and fast formulas e.g. growth for growth's sake (we will 2x the number of stores)
Example: He stayed away from SBUX & Costco because he had a rule -- be wary of IPOs , cost him the opportunity to make money long
IGNORING CUSTOMERS
Treat your customers like they own you, because they do. —Mark Cuban
Don't ignore what they want and don't think they want what you want
Execs buy into the data and ignore how people behave in the real world
Examples
JCP did away from coupons and deal bins which why customers came there in the first place
Cadillac came up with a cheaper version, ignoring people bought it to show they could afford a Cadillac
He shorted a company that would deliver pills ordered online in 1-3 days while his customers were old people who didn’t use the internet and were happy going to the pharmacy by car and getting them 15 minutes later (PlanetRx)
MADNESS & MANIAS
Don't buy into fads
Manias are about storytelling -- people become enchanted with the story and convince themselves, and others, that it just has to happen no matter what
Believing they can't fail is a guaranteed way to make sure that happens
Effective money managers by and large do not go with the flow -- they are loners Ref: Marks!
Examples: one company he shorted wanted to sell subscription online to live streams aboard competitive yachts
REARRANGING THE DECK CHAIRS ON THE TITANIC … in other words, they don't see their world coming to an end
Examples include a page company, Blockbuster and other cos that either refused to adapt or just didn't see change coming
NOT THEIR FAULT … the blame game for out-of-touch-managers
Managers can be out of touch with their customers e.g. JCP CEO who did away with bargains was put in place by Ackman & other hedgies who clearly were our of touch with the customer base.
In other instances, C-level execs blame other factors, anything else, for their poor performance e.g. once CFO of a co with $15m in sales blamed the Fed & M1 supply
FROM SHORT TO LONG … be flexible, don’t have a rigid view on things, be like water (!)
Going long on successful businesses will always be the best way to earn outsized returns. Money managers tend to go excel wild & forget that management matters -- poor management can ruin a well conceived profitable idea
Smart, adaptable management teams make good decisions.
Examples of turnarounds
Cost Plus lost its way -- hypergrowth formula + moved away from what customers wanted (cheap quirky stuff vs. catalogue'y expensive stuff) + CFO playing blame game (Walmart to blame < > not the same target audience so moot point) --> new CFO internal promotion + refocusing on core consumer + cost cutting and taking tough decisions
International Gaming Tech that made slot machines -- were nearly bankrupt but then turned around: invested heavily in R&D for differentiated product even though times were tough, didn't cut back +
BE WARY OF EXPERTS
Brokers aren't your friends, 'experts' can be right occasionally but consistently?
The financial world suffers from an inherent flaw: the people who work in it, by and large, are terrible investors. They’ve spent their whole lives going along to get along, are hyper competitive
OTHER NOTES
Frauds more often than not are committed by a handful of people in the company. But in the end, that doesn't matter
Success is a lousy teacher. It seduces smart people into thinking they can’t lose. —Bill Gates
Quitting is very important when you’re buying and selling stocks / the best money managers are also the best quitters. They quit early and they quit often -- Fearon, Scott
"It's ok to be wrong, it's not okay to stay wrong"
Stocks tend to go up slowly but down very quickly
"It’s a fixed, if seldom discussed, rule of money management: Asset size is the enemy of return. The bigger you get, the lower your returns; it’s really a simple matter of liquidity and price efficiency." e.g. Julian's worst years were toward the end when he was the biggest, Paulson reached $20b 2009 and slid since
Financial metrics
Falling revenues + high debt load will lead to bankruptcy
Usually waits to short after a stock has fallen to 50% of its 52 week high to get momentum on his side
INTRODUCTION
The money manager David Rocker identified three types of businesses that falter and go under: “frauds, fads, and failures.” wherein failures are the result of bad ideas, bad management, or a combination of the two. Failures exist because their leaders make one or more of six common mistakes that he looks for:
a. They learned from only the recent past.
b. They relied too heavily on a formula for success.
c. They misread or alienated their customers.
d. They fell victim to a mania.
e. They failed to adapt to tectonic shifts in their industries.
f. They were physically or emotionally removed from their companies’ operations.
HISTORICAL MYOPIA … or not looking far back enough
Myopia & delusion
Managers fail to look back beyond recent history e.g. cyclicals, they don't look at supercycles, just the mini-cycles, to call the bottom. Yet they believe in momentum e.g. in the energy sector extrapolating decent current performance indefinitely
Failure terrifies people -- they'll do whatever they can to downplay it, wish it away, pretend it doesn’t exist -- what's worse, is then they will start believing themselves… be skeptical
FALLACY OF FORMULAS … great to have a framework, but revisit and be willing to deviate
Managers hang on to decisions way longer than they ought to
Be wary of business managers (& money managers) who have hard and fast formulas e.g. growth for growth's sake (we will 2x the number of stores)
Example: He stayed away from SBUX & Costco because he had a rule -- be wary of IPOs , cost him the opportunity to make money long
IGNORING CUSTOMERS
Treat your customers like they own you, because they do. —Mark Cuban
Don't ignore what they want and don't think they want what you want
Execs buy into the data and ignore how people behave in the real world
Examples
JCP did away from coupons and deal bins which why customers came there in the first place
Cadillac came up with a cheaper version, ignoring people bought it to show they could afford a Cadillac
He shorted a company that would deliver pills ordered online in 1-3 days while his customers were old people who didn’t use the internet and were happy going to the pharmacy by car and getting them 15 minutes later (PlanetRx)
MADNESS & MANIAS
Don't buy into fads
Manias are about storytelling -- people become enchanted with the story and convince themselves, and others, that it just has to happen no matter what
Believing they can't fail is a guaranteed way to make sure that happens
Effective money managers by and large do not go with the flow -- they are loners Ref: Marks!
Examples: one company he shorted wanted to sell subscription online to live streams aboard competitive yachts
REARRANGING THE DECK CHAIRS ON THE TITANIC … in other words, they don't see their world coming to an end
Examples include a page company, Blockbuster and other cos that either refused to adapt or just didn't see change coming
NOT THEIR FAULT … the blame game for out-of-touch-managers
Managers can be out of touch with their customers e.g. JCP CEO who did away with bargains was put in place by Ackman & other hedgies who clearly were our of touch with the customer base.
In other instances, C-level execs blame other factors, anything else, for their poor performance e.g. once CFO of a co with $15m in sales blamed the Fed & M1 supply
FROM SHORT TO LONG … be flexible, don’t have a rigid view on things, be like water (!)
Going long on successful businesses will always be the best way to earn outsized returns. Money managers tend to go excel wild & forget that management matters -- poor management can ruin a well conceived profitable idea
Smart, adaptable management teams make good decisions.
Examples of turnarounds
Cost Plus lost its way -- hypergrowth formula + moved away from what customers wanted (cheap quirky stuff vs. catalogue'y expensive stuff) + CFO playing blame game (Walmart to blame < > not the same target audience so moot point) --> new CFO internal promotion + refocusing on core consumer + cost cutting and taking tough decisions
International Gaming Tech that made slot machines -- were nearly bankrupt but then turned around: invested heavily in R&D for differentiated product even though times were tough, didn't cut back +
BE WARY OF EXPERTS
Brokers aren't your friends, 'experts' can be right occasionally but consistently?
The financial world suffers from an inherent flaw: the people who work in it, by and large, are terrible investors. They’ve spent their whole lives going along to get along, are hyper competitive
OTHER NOTES
Frauds more often than not are committed by a handful of people in the company. But in the end, that doesn't matter
Success is a lousy teacher. It seduces smart people into thinking they can’t lose. —Bill Gates
Quitting is very important when you’re buying and selling stocks / the best money managers are also the best quitters. They quit early and they quit often -- Fearon, Scott
"It's ok to be wrong, it's not okay to stay wrong"
Stocks tend to go up slowly but down very quickly
"It’s a fixed, if seldom discussed, rule of money management: Asset size is the enemy of return. The bigger you get, the lower your returns; it’s really a simple matter of liquidity and price efficiency." e.g. Julian's worst years were toward the end when he was the biggest, Paulson reached $20b 2009 and slid since
Financial metrics
Falling revenues + high debt load will lead to bankruptcy
Usually waits to short after a stock has fallen to 50% of its 52 week high to get momentum on his side
January 16, 2019
I got this book as a gift from my portfolio manager at my past job at a long-short equity hedge fund. My PM read the book and liked it so much he bought it for everyone at the firm. There are a lot of books about general investing that focus on value investing on the long side. This is one of the few books I've come across that focuses on short selling and different strategies around it. The books does a great job explaining the basics of what short selling is (essentially investing with expectation that price of stock would go down) and is split into chapters by different strategies or themes of short selling. For example there is a chapter on momentum and fomo stocks (fear of missing out), another chapter on bankruptcy plays, another on fraudulent companies, etc. The entire book is written from Scott's perspective and history as a portfolio manager and is very anectodal. He has many past examples from his own investing that exemplify the different short strategies and provides tips and patterns on how to uncover these types of companies. The book is not academic, scientific or mathametical (don't expect magic formula valuation ratios, or crazy forensic accounting techniques for screening or uncovering shorts). However, this book is a great and easy read and highly recommend it for anyone who wants to break into a hedge fund career or is already working at one. This book is also great for any retail (individual) investor who might never short a stock in their life, because it will help them avoid mistakes on long-side investments.
December 6, 2016
I really enjoyed it. I couldn't put it down once I started. It's full of candid stories about companies that were failing. There is a lot to learn, even if I just want to stay on the long side of the game, as it shows me more of what type of companies/situations that I should avoid.
I really enjoyed it. I couldn't put it down once I started. It's full of candid stories about companies that were failing. There is a lot to learn for experience investors, even for whose who just want to stay on the long side of the game, as it shows what type of companies/situations that should be avoided.
It's not a book for beginners. It's not a book to teach how to invest. There is no formal process of how to identifying those situation (Is there ever one formal one, considering each situation is different). But there are common signs, and common management behaviors. This book is best for those who are already experienced in investing, who already have their own way/method/philosophy of investing. They will find this book a gem, something they can use to sharpen their saw, to add/improve on their own investment checklists.
I really enjoyed it. I couldn't put it down once I started. It's full of candid stories about companies that were failing. There is a lot to learn for experience investors, even for whose who just want to stay on the long side of the game, as it shows what type of companies/situations that should be avoided.
It's not a book for beginners. It's not a book to teach how to invest. There is no formal process of how to identifying those situation (Is there ever one formal one, considering each situation is different). But there are common signs, and common management behaviors. This book is best for those who are already experienced in investing, who already have their own way/method/philosophy of investing. They will find this book a gem, something they can use to sharpen their saw, to add/improve on their own investment checklists.
October 18, 2017
The book was a great summary of common reasons why smart people as inputs might lead to negative outputs. It was simple and took a high level approach will allow anybody who picks up this book to follow along.
Under each of the reasons of why a company might be a dead company walking (of course the common theme being Management), Scott outlines decent examples. Like any such breakdowns, they’re easy to read and understand in retrospect, but a real skill to know when it’s happening in the moment. However, the book doesn’t try to be prescriptive and Scott’s ego seems very much in check which makes it a great read.
Overall, there are good stories and lessons here, in particular in the last two chapters, and worth revisiting this book every few years because history repeats itself.
Under each of the reasons of why a company might be a dead company walking (of course the common theme being Management), Scott outlines decent examples. Like any such breakdowns, they’re easy to read and understand in retrospect, but a real skill to know when it’s happening in the moment. However, the book doesn’t try to be prescriptive and Scott’s ego seems very much in check which makes it a great read.
Overall, there are good stories and lessons here, in particular in the last two chapters, and worth revisiting this book every few years because history repeats itself.
January 18, 2019
Interesting perspective of money management and investing from a hedge fund manager who, through many examples of investments that have worked out and failed personally for him (on companies that went bust and are still doing well today), reveal his insight to his “6 reasons” why companies fail. It’s a refreshing read because the humble tone of the book (rare for a hot blooded hedge fund manager). There is repeated emphasis that experiencing failures and knowing when to admit you’re wrong (”it’s okay to be wrong but not okay to stay wrong”) is key to be a successful investor. It touches also on the psychology of investing - and the common pitfalls that managers/investors make. Overall a concise book and highly captivating.
April 8, 2019
It was a very enjoyable read even as a layman in the field of investing.
Every main point of Scott was delivered via detailed personal stories that involve very little jargon. The points he makes are somewhat common sense but one of the author's main takeaway is that almost everybody gets emotional and biased if money is involved.
The ending is a small summary of the unethical actions of the latest crisis of 2008 which delivers a punch to the stomach. Reading it as a condensed story on couple of pages makes you realize why some hippies hate capitalism. Jokes aside, the explanation is much deeper than "Wall Street and money is bad because blah blah".
I also learned what 'front running' is :)
Every main point of Scott was delivered via detailed personal stories that involve very little jargon. The points he makes are somewhat common sense but one of the author's main takeaway is that almost everybody gets emotional and biased if money is involved.
The ending is a small summary of the unethical actions of the latest crisis of 2008 which delivers a punch to the stomach. Reading it as a condensed story on couple of pages makes you realize why some hippies hate capitalism. Jokes aside, the explanation is much deeper than "Wall Street and money is bad because blah blah".
I also learned what 'front running' is :)
May 10, 2019
So yeah. This books will not teach you how do short. It’s more a memoir of Scott.
But I will still recommend it!!! Highly
U wanna know why ? Well, here is why.
After reading well over 100 pages. I felt I good the idea of the book. Some companies fail cuz of debt some cuz of management. I was at chapter 6 or 7 wondering why I had not chosen a different book. The books does not directly plug his business but you might get a hint that someone might contact the writer to take his money and invest for him.
Then, the two parts. He sums it up amazingly. Market is rigged, he lost money and his touching story about his twins. That was worth it. You got my respect Scott
But I will still recommend it!!! Highly
U wanna know why ? Well, here is why.
After reading well over 100 pages. I felt I good the idea of the book. Some companies fail cuz of debt some cuz of management. I was at chapter 6 or 7 wondering why I had not chosen a different book. The books does not directly plug his business but you might get a hint that someone might contact the writer to take his money and invest for him.
Then, the two parts. He sums it up amazingly. Market is rigged, he lost money and his touching story about his twins. That was worth it. You got my respect Scott
July 17, 2017
For anyone who has seen the movie, The Big Short, where a small group of investors short 'bet against' the housing market, Fearon's book strikes a keen parallel. For many years, Fearon has made millions by shorting companies that are on their way to bankruptcy. From the days of the hula hoop, roller blades, .com bubble, and Yellow pages Fearon has successfully predicted many a companies demise. His one guiding principle is not to just look at the numbers; one needs to meet the management face to face and see the culture at work.
June 28, 2019
Great book! Truly love the take Fearon takes and the common sense of it all. It takes a lot to write about and celebrate what failure means. Even more so to call yourself out and put the reader in your shoes for some of these key decisions that did not go your way is harder and gives these stories some strength. This is a great book for those who have been studying finance and economics because it takes the concepts we have all been learning and very simply exposes the other side of the equation that we just aren’t taught enough.
November 5, 2017
Easy to understand and reveals a lot of finer details in investing that are often ignored. The book is must read for anyone who is interested in stocks, crony capitalism, and hedge funds. An Eye-opener for all who think the markets are efficient and transparent.
Also, reveals some good investment strategies that author has used himself and learned in his lifetime definitely a guide to all who invest in stock markets.
Also, reveals some good investment strategies that author has used himself and learned in his lifetime definitely a guide to all who invest in stock markets.
May 13, 2018
Decent book, some good ideas but seemed to go on about them for too long. Could have been summarised in about 2 pages (alienated customers, dodgy financials). His stories were good but pretty much said the same stuff about every company.
June 6, 2021
Maybe I have been reading too many good financial books back to back but this one left me quite unimpressed. It focusses too much on stories about companies screwing up and too less on actual finance. I do not mind finance books which focus on stories. In fact a lot of the best ones do just that - this one focusses too much on the stories. It is still pretty readable mainly because it is not very challenging. Maybe I am not the target demographic for the book because it is pretty highly rated. Overall pretty meh.
May 5, 2021
Didn't know what to expect when I started the book as it came thru in Amazon reco. But once I picked it up it was difficult to let go. Written in a very honest and transparent fashion this Investing memoir definitely has some great takeaways - Failure is more prevalent in business world and you can gain from it. I have been more of a steady long investor but this interesting approach may just push me to look at investing choices differently. Author does make a great observation on state of the financial industry and how it has comingled with politics.
September 29, 2021
This book is all about hedge fund manager meeting and interacting with companys CEO to gain first hand perspective about business growth,revenue generation and idea forward.
The author is more of a growth investor than value investor.
The author is expert in short selling- the moment he sense that company has zero prospect of growth or there is declining revenue and rising debt obligation- he short sells brutally.
There are many interesting conversations mentioned in book - where CEO was overly optimistic about company prospect-but the reality is telling different picture.Author has good knack of finding those CEO and short sell their company.
The stories pertaining to dotcom mania and how plethora of companies surfaced out with huge projecting but no reality check was very well covered.
He was particularly pessimistic of many rising biotech and biofuel company and their outlandish claim.But I think in present scenario,author would have changed his stance seeing lots of progressive development in bioscience
He also confessed of missing out on net flix ,costco and starbucks share when they were at nascent stage.He was apprehensive because stock was trading at many time high multiples of earning and he failed to assess the huge disruptive potential.
The book was more on anecdote side more and some basic framework of what kind of stock to buy and what not to buy was told through it.
But I was searching for concrete framework of analysing stocks along with dos and donts.It was lacking in that.
The author is more of a growth investor than value investor.
The author is expert in short selling- the moment he sense that company has zero prospect of growth or there is declining revenue and rising debt obligation- he short sells brutally.
There are many interesting conversations mentioned in book - where CEO was overly optimistic about company prospect-but the reality is telling different picture.Author has good knack of finding those CEO and short sell their company.
The stories pertaining to dotcom mania and how plethora of companies surfaced out with huge projecting but no reality check was very well covered.
He was particularly pessimistic of many rising biotech and biofuel company and their outlandish claim.But I think in present scenario,author would have changed his stance seeing lots of progressive development in bioscience
He also confessed of missing out on net flix ,costco and starbucks share when they were at nascent stage.He was apprehensive because stock was trading at many time high multiples of earning and he failed to assess the huge disruptive potential.
The book was more on anecdote side more and some basic framework of what kind of stock to buy and what not to buy was told through it.
But I was searching for concrete framework of analysing stocks along with dos and donts.It was lacking in that.
January 27, 2021
Read this book a couple of years ago and recently re-read my notes and made a quick summary of what I thought was the most interesting "lessons" from the book.
Scott Fearon runs the hedge fund Crown Capital and the book is about the part of his strategy to short “dead companies” that still look healthy. He is mainly looking for “growth companies” that have declining revenues in combination with increasing indebtedness. As a rule, he is quite “late on the ball” and initiates a short position only after the market has begun to doubt the previous growth story. Since 1991, Crown Capital has had an annual return of 11.4%, compared to the S&P 500’s 9.6%. Although this is a book about shorting, Crown Capital is mainly invested in long positions.
LOOKS FOR EASY PREY. Crown Capital manages $ 100m and has shorted over 200 companies that eventually went bankrupt. Fearon does not short companies because they are highly valued. He does not feel confident in deciding whether a fantastic company should be trading at 10x or 2x sales. He is looking for companies that are heading for bankruptcy. Then the valuation does not matter – they are still on their way to zero.
THREE TYPES OF COMPANIES GO BANKRUPT. Fearon has three categories of companies that go bankrupt – frauds, fads and failures. He believes that most companies that go bankrupt are of the third variant – ordinary companies that fail. That is where he is looking. Frauds and fads lie outside his circle of competence.
MANAGEMENT´S SIX MISTAKES. According to Fearon, managements often make the same mistake over and over again. It is to (1) only learn from recent years, (2) rely too much on a single recipe for success, (3) misunderstand the customer, (4) become a victim of manic behaviour, (5) fail to adapt to a new technical shift or (6) be physically or emotionally isolated from the business. When management makes too many of these mistakes, it is very difficult for a company to develop positively.
HISTORICAL MYOPIA. Fearon believes that businesspeople often have an understanding of shorter cycles of 5-10 years and are good at adapting their business accordingly. They do however have very limited understanding of longer cycles of 30-50 years. Examples of this are major commodity crashes or when the housing market collapsed and prices are down 50%. Such things happen – but very rarely.
IT IS OKAY TO BE LATE. When going short a stock, Fearon believes that it is not only okay, but also preferable, to be late. To avoid a short squeeze, he wants the share price to be at least half of the previous top level before entering a short position.
WALL STREET IS MADE UP OF BAD INVESTORS. Fearon believes that there are very few good investors on Wall Street. Success on Wall Street requires qualities that go against what is required to succeed as an investor. He believes that those who have reached the top of Wall Street are those who are “climbers, strivers, joiners and cheerleaders”. That is how they got top marks and top jobs. This makes them naturally prone to group thinking and susceptible to mannerisms and bubbles. They are also extremely competitive, which means that they do not want to admit mistakes and adjust their strategies when something goes wrong for them. By that they are also not built for short-term underperformance, which is often needed to go against the crowd and beat the market over time.
“The financial world suffers from an inherent flaw: the people who work in it, by and large, are terrible investors”
25% WRONG AND GONE. When a position has gone 25% against him, Fearon closes the trade and takes the loss. This is because the downside is infinite in a short position. Fearon believes that the best managers are quick to give up when a situation changes. They are not emotionally attached and simply just sell when their analysis says they are wrong. When it comes to investments, you want to play defensively, not offensively.
FAILURE IS GOOD. According to Fearon, bankruptcy is a healthy part of a successful capitalist society. It is unhealthy if society supports companies that should really go under. It makes life a little more comfortable for shareholders and employees of companies that are saved but it is counterproductive for society at large. This is something that has happened in Japan and is partly the explanation for the country’s protracted recovery from the 1990s crisis – even now, 30 years later.
“Long ago, I learned to appreciate one of the most enduring and important American business traditions: failure”
Scott Fearon runs the hedge fund Crown Capital and the book is about the part of his strategy to short “dead companies” that still look healthy. He is mainly looking for “growth companies” that have declining revenues in combination with increasing indebtedness. As a rule, he is quite “late on the ball” and initiates a short position only after the market has begun to doubt the previous growth story. Since 1991, Crown Capital has had an annual return of 11.4%, compared to the S&P 500’s 9.6%. Although this is a book about shorting, Crown Capital is mainly invested in long positions.
LOOKS FOR EASY PREY. Crown Capital manages $ 100m and has shorted over 200 companies that eventually went bankrupt. Fearon does not short companies because they are highly valued. He does not feel confident in deciding whether a fantastic company should be trading at 10x or 2x sales. He is looking for companies that are heading for bankruptcy. Then the valuation does not matter – they are still on their way to zero.
THREE TYPES OF COMPANIES GO BANKRUPT. Fearon has three categories of companies that go bankrupt – frauds, fads and failures. He believes that most companies that go bankrupt are of the third variant – ordinary companies that fail. That is where he is looking. Frauds and fads lie outside his circle of competence.
MANAGEMENT´S SIX MISTAKES. According to Fearon, managements often make the same mistake over and over again. It is to (1) only learn from recent years, (2) rely too much on a single recipe for success, (3) misunderstand the customer, (4) become a victim of manic behaviour, (5) fail to adapt to a new technical shift or (6) be physically or emotionally isolated from the business. When management makes too many of these mistakes, it is very difficult for a company to develop positively.
HISTORICAL MYOPIA. Fearon believes that businesspeople often have an understanding of shorter cycles of 5-10 years and are good at adapting their business accordingly. They do however have very limited understanding of longer cycles of 30-50 years. Examples of this are major commodity crashes or when the housing market collapsed and prices are down 50%. Such things happen – but very rarely.
IT IS OKAY TO BE LATE. When going short a stock, Fearon believes that it is not only okay, but also preferable, to be late. To avoid a short squeeze, he wants the share price to be at least half of the previous top level before entering a short position.
WALL STREET IS MADE UP OF BAD INVESTORS. Fearon believes that there are very few good investors on Wall Street. Success on Wall Street requires qualities that go against what is required to succeed as an investor. He believes that those who have reached the top of Wall Street are those who are “climbers, strivers, joiners and cheerleaders”. That is how they got top marks and top jobs. This makes them naturally prone to group thinking and susceptible to mannerisms and bubbles. They are also extremely competitive, which means that they do not want to admit mistakes and adjust their strategies when something goes wrong for them. By that they are also not built for short-term underperformance, which is often needed to go against the crowd and beat the market over time.
“The financial world suffers from an inherent flaw: the people who work in it, by and large, are terrible investors”
25% WRONG AND GONE. When a position has gone 25% against him, Fearon closes the trade and takes the loss. This is because the downside is infinite in a short position. Fearon believes that the best managers are quick to give up when a situation changes. They are not emotionally attached and simply just sell when their analysis says they are wrong. When it comes to investments, you want to play defensively, not offensively.
FAILURE IS GOOD. According to Fearon, bankruptcy is a healthy part of a successful capitalist society. It is unhealthy if society supports companies that should really go under. It makes life a little more comfortable for shareholders and employees of companies that are saved but it is counterproductive for society at large. This is something that has happened in Japan and is partly the explanation for the country’s protracted recovery from the 1990s crisis – even now, 30 years later.
“Long ago, I learned to appreciate one of the most enduring and important American business traditions: failure”
October 29, 2020
A wonderful read, I loved it. This is one of the good books I have read recently and definitely deserves a 4+ rating for both the content and the way it is presented.
The author, a hedge fund manager, shares his experience about his investment decisions and briefs about the meetings he had with the company management. Book advices about stock investing without the numbers or charts analysis. There are classic examples of how the companies blew up investors' money because they couldn't understand the business, issues with the company, or rather busy blaming the other factors for the loss. There are also examples where one is bound to jump in because the business model is so damn good.
Book also talks about how investors lose money in investment by averaging out the laggards expecting it to rebound and cover up their losses; Put up in a beautiful quote:
Lynch called these two mistakes, which often go together, “watering the weeds and cutting out the flowers."
The author, a hedge fund manager, shares his experience about his investment decisions and briefs about the meetings he had with the company management. Book advices about stock investing without the numbers or charts analysis. There are classic examples of how the companies blew up investors' money because they couldn't understand the business, issues with the company, or rather busy blaming the other factors for the loss. There are also examples where one is bound to jump in because the business model is so damn good.
Book also talks about how investors lose money in investment by averaging out the laggards expecting it to rebound and cover up their losses; Put up in a beautiful quote:
Lynch called these two mistakes, which often go together, “watering the weeds and cutting out the flowers."
May 21, 2020
A brutally honest (and humorous) take on investing and business building.
This is the type of business book we all should be be reading, assembled by a master storyteller. Instead of the business inspiration"pop" we're used to, Fearon takes the reader on a journey to learn about poor decision making and why businesses fail.
I'd argue that as business leader, you have a great deal to learn from observing losers and mistakes than the other junk we tend to snack on so much.
This is the type of business book we all should be be reading, assembled by a master storyteller. Instead of the business inspiration"pop" we're used to, Fearon takes the reader on a journey to learn about poor decision making and why businesses fail.
I'd argue that as business leader, you have a great deal to learn from observing losers and mistakes than the other junk we tend to snack on so much.
March 11, 2021
Delightful reading on tales of a short-seller investor.
Take-aways:
- Wait for a stock falling to gain momentum before shorting it, irrationality can go on for a long time;
- If management recognizes the company's problems, they may find solutions for them your short-selling turn into a bad investment
- If management is in denial, then you got a "dead company walking", odds are that the stock will go all the way to zero
Take-aways:
- Wait for a stock falling to gain momentum before shorting it, irrationality can go on for a long time;
- If management recognizes the company's problems, they may find solutions for them your short-selling turn into a bad investment
- If management is in denial, then you got a "dead company walking", odds are that the stock will go all the way to zero
January 16, 2023
Dead Companies Walking is a good book to read with many interesting cases to learn. There are 6 common sins of failed companies:
They learned from only the recent past.
They relied too heavily on a formula for success.
They misread or alienated their customers.
They fell victim to a mania.
They failed to adapt to tectonic shifts in their industries.
They were physically or emotionally removed from their companies’ operations.
Here are some selected cases I found from the book for sharing purposes:
Global Marine case: 1) don’t easily predict the bottom - catching the falling knife is dangerous. You never know where the bottom is until you can actually confirm it. 2) unconscious bias - when you are 100% financially dependent on something, you will be unconsciously biased coz you don’t want to see the negative news or you just choose not to believe the “worst scenario” will happen
California Coastal case: rapidly shrinking revenues with a quickly rising debt load is a good sign to lead to the death of the company
Hypergrowth formula faults: Scott shorted Value Merchants because the management forgot the most important thing in retail - finding things that people actually want to purchase. It just looks like the story of Haidilao in 2021. It’s so hard to manage a hypergrowth sizeable Company. But people choose to believe in Zhang Yong (don’t take me wrong, I respect the man and I read 《海底捞你学不会》). But just a quote from Scott people in the investment and business worlds mistakenly overvalue competitiveness
Treat your customers like they own you, because they do: consumers didn’t know what they wanted until he showed it to them This self-entered approach worked out for Jobs and a few other uniquely gifted innovators. But for every Steve Jobs, there are countless corporate leaders who have lost everything trying to remake their customers’ habits. The classic example was Ron Johnson as CEO at JCPenny - a successful ex-retail VP at Apple. Sometimes managements get so emotionally attached to their creations, or so convinced that they’ve discovered a unique market need, that they wind up being the last people on Earth to realise that nobody else shares their opinion. It’s called confirmation bias—believing what you want to believe and discounting contrary information—and it has destroyed countless portfolios and businesses alike
First Team Sports: the inline skates producer remind me of the story when I was studying in Southampton. My professor once in a financial market lesson said how much he loves GoPro and everyone he knows bought GoPro products. He personally invested in the Company stakes (it was 2015) and urges us to buy GoPro
It’s ok to be wrong but it’s not ok to stay wrong: competitive people have a hard-time accepting this reality and that’s the real danger. Quit is a good quality for an investment professional. Self-assurance blind even the sharpest, most capable managers to a fatal problem and make the mistake of thinking they can will their ventures to success as well.
Webvan - failed grocery delivery company: the failed grocery delivery business reminds me of the wave of community group buying (社区团购) from 2020 to 2021. The advantage is price but once everyone is competing for the low-margin business, the price advantage is fading away. It proves one thing, again - its just damn hard to change customer behavior. Once everything is back to normal post covid (like just now), can the online grocery business still be profitable?
Blockbuster case - misguided attempts: It is hard to believe that a $6bn revenue company can come up with such an unconvincing strategy - in the face of Netflix's web-based video rental strategy, Blockbuster choose to not only stick to an offline business model but also mobilize candy sales as the thing that would keep the company from the ash heap. It reminds me the long-standing debate for online shopping v.s. offline retail (13年前，有人说电商不能改变购物方式。马云：20年后再看！). But what Scott didn’t say is - change is never easy. Companies like Suning (苏宁) did everything they can (transfer from offline to online, heavily invest in logistics and etc) but cannot remain their leadership position. Those companies might all fail but we should still have a lot of respect for their efforts and even admiration for their passion. One takeaway for me is to think about a long-term investment/ business model is will you feel amused if you looking it back after 10 years
Continental airline case: the most interesting case in the book, worth reading for fun. How a Company led by Frank “smooth-talk” Lorenzo's turnaround via Chapter11 - dead meat in the sandwich came back alive
Building Materials Holding Corporation case: view a company executive leadership style via its dressing, decoration of headquarter and etc. In the market downturn, if the managements still live a luxury lifestyle, it means they don’t seriously care about cost control. It reminds me of the 2022 credit storm - Vanke (slogan for annual dinner - 活下去) v.s. Evergrande (Chairman travels around via Private Jet)
Cost Plus Case: Short to Long - when the facts change, I change. There are interesting investment thesis inside the chaos - try to figure out who really suffer purely/mainly from Covid while who just plays a blame game
They learned from only the recent past.
They relied too heavily on a formula for success.
They misread or alienated their customers.
They fell victim to a mania.
They failed to adapt to tectonic shifts in their industries.
They were physically or emotionally removed from their companies’ operations.
Here are some selected cases I found from the book for sharing purposes:
Global Marine case: 1) don’t easily predict the bottom - catching the falling knife is dangerous. You never know where the bottom is until you can actually confirm it. 2) unconscious bias - when you are 100% financially dependent on something, you will be unconsciously biased coz you don’t want to see the negative news or you just choose not to believe the “worst scenario” will happen
California Coastal case: rapidly shrinking revenues with a quickly rising debt load is a good sign to lead to the death of the company
Hypergrowth formula faults: Scott shorted Value Merchants because the management forgot the most important thing in retail - finding things that people actually want to purchase. It just looks like the story of Haidilao in 2021. It’s so hard to manage a hypergrowth sizeable Company. But people choose to believe in Zhang Yong (don’t take me wrong, I respect the man and I read 《海底捞你学不会》). But just a quote from Scott people in the investment and business worlds mistakenly overvalue competitiveness
Treat your customers like they own you, because they do: consumers didn’t know what they wanted until he showed it to them This self-entered approach worked out for Jobs and a few other uniquely gifted innovators. But for every Steve Jobs, there are countless corporate leaders who have lost everything trying to remake their customers’ habits. The classic example was Ron Johnson as CEO at JCPenny - a successful ex-retail VP at Apple. Sometimes managements get so emotionally attached to their creations, or so convinced that they’ve discovered a unique market need, that they wind up being the last people on Earth to realise that nobody else shares their opinion. It’s called confirmation bias—believing what you want to believe and discounting contrary information—and it has destroyed countless portfolios and businesses alike
First Team Sports: the inline skates producer remind me of the story when I was studying in Southampton. My professor once in a financial market lesson said how much he loves GoPro and everyone he knows bought GoPro products. He personally invested in the Company stakes (it was 2015) and urges us to buy GoPro
It’s ok to be wrong but it’s not ok to stay wrong: competitive people have a hard-time accepting this reality and that’s the real danger. Quit is a good quality for an investment professional. Self-assurance blind even the sharpest, most capable managers to a fatal problem and make the mistake of thinking they can will their ventures to success as well.
Webvan - failed grocery delivery company: the failed grocery delivery business reminds me of the wave of community group buying (社区团购) from 2020 to 2021. The advantage is price but once everyone is competing for the low-margin business, the price advantage is fading away. It proves one thing, again - its just damn hard to change customer behavior. Once everything is back to normal post covid (like just now), can the online grocery business still be profitable?
Blockbuster case - misguided attempts: It is hard to believe that a $6bn revenue company can come up with such an unconvincing strategy - in the face of Netflix's web-based video rental strategy, Blockbuster choose to not only stick to an offline business model but also mobilize candy sales as the thing that would keep the company from the ash heap. It reminds me the long-standing debate for online shopping v.s. offline retail (13年前，有人说电商不能改变购物方式。马云：20年后再看！). But what Scott didn’t say is - change is never easy. Companies like Suning (苏宁) did everything they can (transfer from offline to online, heavily invest in logistics and etc) but cannot remain their leadership position. Those companies might all fail but we should still have a lot of respect for their efforts and even admiration for their passion. One takeaway for me is to think about a long-term investment/ business model is will you feel amused if you looking it back after 10 years
Continental airline case: the most interesting case in the book, worth reading for fun. How a Company led by Frank “smooth-talk” Lorenzo's turnaround via Chapter11 - dead meat in the sandwich came back alive
Building Materials Holding Corporation case: view a company executive leadership style via its dressing, decoration of headquarter and etc. In the market downturn, if the managements still live a luxury lifestyle, it means they don’t seriously care about cost control. It reminds me of the 2022 credit storm - Vanke (slogan for annual dinner - 活下去) v.s. Evergrande (Chairman travels around via Private Jet)
Cost Plus Case: Short to Long - when the facts change, I change. There are interesting investment thesis inside the chaos - try to figure out who really suffer purely/mainly from Covid while who just plays a blame game
July 10, 2018
Great book, couldn’t put it down. The stories were great. I have similar job to the author so it was fun to think of some of the stories that I have encountered that rhymed with the stories he shared.
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