Why I’m Done with the Stock Market for Good

Oh so close! I was holding a stock, waiting for a positive earnings release, with the full intent of exiting stock ownership for good once I saw a nice bump to reward me for my time and risk. Instead, I watched a combination of a bear market, overly optimistic analysts and a heavy short position drop my stock 50% in 2 days.

This was so typical of my experiences on the market: years of careful effort and minor gains, more than erased in seconds on the stock market.

Now before you start to think this is purely emotion, remember that I was already planning on exiting before my recent calamity, and here are some reasons why:

1) Given Enough Time, the Market Used to be a ‘Sure Thing’… NOT Anymore!

When I entered investing ca. 1998, this is what the trend on the Dow Jones Industrial average looked back to approximately the time of my birth:

Plot of the DJ Industrial Average from 1972-1998

Sure thing right? Little burp back in ’87, but if you look at any 10 year period you are still in the money.

Now look at plot of the market over my ~12 year trading career:

Plot of DJIA from 1998 to Present

Hmmm… not such a sure thing. Lets assume I made all my purchases back at 8000, and not at 11,000 and 14,000 like I actually did, and I actually had an index fund (and not a bunch of crappy tech stocks). My potential gain was about 10,000-8,000 = 2,000 or about 20%.

Guaranteed funds provide a compounded annual growth rate (CAGR), but relatively low rates (low single digit), so it is worthwhile understanding what kind of CAGR this gain translates into. To get a 20% gain over ~12 years, you would only need a CAGR of 1.88%. You can EASILY have found a GUARANTEED fund that would have returned more than this! Keep in mind I am already using a best-case scenario, not including this notable stock that I did invest in:

NT Stock Plot fot the Last 10 Years

2) So if you were a lot smarter than me, and stuck with index funds, you at least saw some gains right?

Again, not so fast!

The Dow Jones is based on the US dollar value of stocks. What has happened to the value of the US dollar since 1998? At the start of 1998 $1 US would purchase about $1.44 Canadian.  Today, they are trading close to parity, meaning that the USD has actually depreciated about 40%.

Lets see what happened to the $8000 USD we invested in the DJIA index fund: we used about $11,500 Canadian to purchase that $8000 USD, rode it up to $10,000 USD which is now worth $10,000 CDN! We have actually lost $1,500! That isn’t even counting the opportunity cost of that money.

3) Give it your full attention, or not at all.

I only worked one or two stocks where I could play close attention to the nuances of the particular business, and the market that they were in (think Apple). I found that even with this detailed focus, I still couldn’t keep track of all the important metrics that could have a significant impact on the stock (like exchange rate trends, short position, the macro market trend).  I could never put in a sufficient amount of money in to create the gains that would justify my time. For example, even though I kept buying AAPL from $120, all the way down to $80, and all the way back up to sale at $185, I still didn’t make any money due to interest charges, trading charges, and exchange rate fluctuation! I was so surprised come tax time that I had to perform the calculations 5 times to convince myself the net was $0!

4) Analysts are a flaming pile of crap.

I think only meteorologists are paid for being so consistently wrong, and compared to stock analysts, they are oracles.

That is why I was planning on getting out of the market for good, and focussing on low risk money market funds, guaranteed funds, or bricks of cash under the mattress. Now I have to wait and see if the stock can dig itself back out of its hole.

*^#&^#)

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Success at NORTEL

Now there is two words you probably haven’t heard in a the same sentence for a while!

During a presentation to a large consulting firm on Chip & Dan Heath’s ‘Made to Stick’, things got rather casual/direct and I ended up presenting some of my challenges at moving forward with my next career (which we’ll call ‘management consulting’ for lack of a better term):

  1. How do I package the ‘Made to Stick’ principles for my purposes?
  2. How do I translate this information session into a consulting opportunity for me?
  3. And the biggie… How do I address the fact that the last 12 years of my career has been with a company the public associates more with management ineptitude, than an environment that could foster an effective ‘management consultant’?

One of the attendees said something which took the whole room aback: “Why don’t you use this ‘Sticky’ method to convince people that there was ‘Success at Nortel’?” After a pause, and about a minute of laughter from the room at what was clearly a joke, he says: “No, I’m serious, wouldn’t that prove your point?”

While others in the room suggested that the employee in question may be off some important medicine, I told him I really liked the idea, didn’t see a path to get there, but I would certainly give it more thought!

That challenge stuck in my mind until I had a lunch meeting with one of my previous Nortel managers (ironically).  I was discussing how my new venture was going to be focussed on a systematic process to increasing customer and employee engagement in organizations to boost productivity, boost profit and –in Seth Godin’s words– increase the level of humanity. He matter-of-factly said: “Wasn’t our network planning team exactly that [success via customer and employee engagement]?”

WHOA!

Some background: Network Planning is a function that exists in all companies that build telecom networks, but was rather unique at Nortel because we were a company that sold equipment to build telecom networks, and we offered this service for free. As a simple analogy, imagine an architect who works with you to help design your home for free, before you have have even committed to buy it.  Sounds like a bad business model doesn’t it?  Not so fast!

Vendor-provided network planning services started at Nortel (AFAIK) and became an industry table-stake over the years as clients clearly decided to do more and more business with companies that would help them design their networks, evaluate new technology and specify the equipment required. This was widely replicated by our competitors with all companies in our product segment –even the smallest startups– having this function in some way, shape or form.  Some will charge for it (a bad idea, but that is worthy of another post), others offer it as a free service.  I joined Nortel to become part of the planning team, stayed in it for 7 years, unable to find a more appealing job in the whole company.  Anyone who had experience in Nortel Network Planning will tell you how great a team it was, and most of its alumni have moved on to great success in roles such as PLM, market development, sales and planning leadership roles at other companies.

Gallup Research, in their fabulous book Human Sigma (little to do with Six Sigma by the way) identifies two hierarchical pyramids that characterizes what is required for customer and employee engagement to exist.  Gallup asserts, and I certainly concur, that companies that strive to engage customers and employees significantly improve business results. I am going to apply the elements of one of these two pyramids to Network Planning at Nortel to highlight why it was so successful:

Elements of the Customer Engagement Pyramid

  1. CONFIDENCE : Can I trust the company, and do they always deliver on their promises? The kind of business Nortel is in has long product lead-times and product cycles. It is often very hard to develop a rapport with key decision makers purely through standard interaction on products, especially since these decision makers are far removed from the products themselves (they may never actually see them). The planning function allowed for regular and deep discussions about what the customers problems were, allowing us to help them do their job.  By doing this with great competence, and to schedule, we could build trust and deliver on our promises in a parallel stream to our products. To perform this function needed great trust between the carrier and vendor, because we often had as much –or more– information on their network than they did to do our job well.
  2. INTEGRITY: Does this company treat me fairly? Again, planning was in a position to develop a rapport with decision makers that sales or operations could not.  Sometimes this was even taken to extremes: I can remember one case where the customer was under time pressure, and asked us to rework a network design over the Christmas break, which we did (it showed we had engaged employees!).  Reactions like this clearly showed the customer that we were committed to their business and –more importantly– to the individuals that were decision-makers.
  3. PRIDE: Am I proud to be their customer, do they treat me with respect? I think another company providing you with extremely bright and energetic people to help you do your work is a great sign of respect! The planning teams were often providing these clients with detailed network designs and studies which would in-turn be presented with great pride as their own work. In other cases, the planners themselves became an integral part of the customer’s team, even assigned their own office space in some cases.
  4. PASSION: This company is perfect for a person like me, I can’t imagine a world without this company. What more proof do you need of this than the customers hiring the planners to be their own employees? This happened in several occasions. Because the roles of the people we were interacting with were typically cost-centres (not revenue generating) they were often under-staffed and under-appreciated.  They were asked to evaluate many complex options of how their networks were to evolve, and had many potential vendors & products to consider.  Nortel would come in with great talented people and give them a helping hand, and make our customer contacts look like miracle workers with their own executives. If you had someone make you look like a star to your boss, could you imagine a world without them?

So according to Gallup, we had created a function that created a very high level of customer engagement!

Were the results of having the planning function directly measurable? Unfortunately not*, but here is a few data points:

  • The function still exists to this day. It would seem obvious that functions that do not directly contribute to revenue were great opportunities for trimming in a company with severe financial trouble, especially after >80-90% of the workforce has been cut! The function had such a reputation in the industry, and was so leveraged by other teams like market development, sales, R&D and PLM, that I don’t think it was ever considered for the chopping block, even while many other valuable functions were thrown over the side.
  • Alumni of this function were heavily recruited by established industry players and start-ups because of the relationships these people had made with customers, and their broad network & business perspective.
  • As already mentioned, planners were regularly imbedded as key members of the customer’s own organizations or even hired by our customers.
  • Many of the networks in existence today were designed by planners from Nortel with Nortel equipment (the latter was the big payoff).

If I need to make a case for ‘Success in Nortel’, I would have no trouble positioning the network planning function as a great success story that was about engaging people and not technology.  It built stronger relationships with our customers, allowed a deeper understanding of the customer’s challenges and requirements, and helped Nortel build better products while creating a large pool of Nortel employees who could speak the customer’s language.

So now I have the content of the presentation, now I just have to go put it together.

*I have since figured out a way to do this, but you will have to drop me a line for that advice.

Finding a Unifying Theme: Step 1 – Eliminate Superstition

On or around March 1st will mark my last day with Nortel after over 12 years. How is that for a push to find what you really want to be doing?

So, time again to answer the question, what will be my Unifying Theme?

For the attentive reader, you will recall that the title of this blog came from the book Freakonomicsby Levitt & Dubner. When in discussions with their publisher, they were confronted by the apparent fact that their manuscript didn’t contain a ‘Unifying Theme’, which –in their publisher’s estimation– was essential to a successful book. Because Levitt & Dubner could not immediately articulate what their theme was, they capitulated to the publishers and addressed the lack of a unifying theme right at the start of Freakonomics.

Around the same time I read Freakonomics, I was trying to figure out a title for my blog. What was I about? What was I going to write about? Would my blogging lead me on a path to discover where my true motivations and passions lie? Or would I –as I suspected– continue to find a diverse range of topics interesting –and blog-worthy– but never find any one area compelling enough to focus a large percentage of my time? At least as a consolation: if a book as successful as Freakonomics can succeed without a Unifying Theme, it must not be all that important!

You can imagine how crushed I was to learn, in Levitt & Dubnert’s sequel Super Freakonomics, that they had discovered that their first book actually did have a unifying theme. They decided it was: ‘people respond to incentives (although not necessarity in ways that are predictable of manifest)‘. In hind sight, I am really glad they didn’t lead with that!  The ‘no unifying theme’ preamble was much more mysterious and compelling!

Rats!!  Now they have gone and found their ‘Unifying Theme’, what about me?! Should I become an (micro-)economist?? And do micro-economists feel inferior to macro-economists?  But I digress…

Back to the topic at hand: what do Unifying Themes have to do with superstition?

Superstition has several definitions, but I am concentrating on actions based on “a belief or notion, not based on reason or knowledge, in or of the ominous significance of a particular thing, circumstance, occurrence, proceeding, or the like.” (dictionary.com)

While you may think of things like ghosts, Friday the 13th, etc. I am thinking of more every-day examples:

  • Belief that if you just had more money, you would be happier.
  • The behaviours that got you where you are, will get you where you want to go.
  • Your income says something about how valuable a person you are.
  • You can work for the same company your whole career.*
  • Other people can give you the affirmation you need to make you life worthwhile.
  • People are only motivated by money.
  • Retirement will make it all worth it.

Its pretty easy to understand where superstitions come from: when you discover two things that often correlate, but don’t spend the time or energy to discover if they are causal. Just imagine the successful executive who has many good attributes, but also regularly yells or belittles her employees.  It would be fair for her to assume that her personality is what got her success, but is all of it really contributing to her success? If she stopped yelling at employees would the success go away? Might her performance actually improve?*** You don’t want to be like the pigeon that keeps dancing in a circle expecting food, just because the researcher once trained it that food would appear.

To find the ‘Unifying Theme(s)’ for your life, I think the first place to start is by removing your superstitions and gaining a better understanding of what really makes you happy. Test those assumptions in life that have kept you from doing the things that you want to do. Get your friends, family, co-workers to reflect back to you what they see as your motivations and passions. Better yet, invest some time and money in a good mental health practitioner** who can illustrate your superstitions and motivations. Various tools can help you find out your preferences, one of my favourites is from Gallup Research: StrengthsFinder 2.0: A New and Upgraded Edition of the Online Test from Gallup’s Now, Discover Your Strengths

Enough from me. Any advice from my audience on your approach to finding your ‘Unifying Theme’? Success stories are particularly welcome!

* Not one I ever had. I can’t believe how long I lasted at Nortel. There is probably a whole other blog post on that one.

** Finding one of these is hard, but very valuable.

*** There is a good book specifically addressing this topic: What Got You Here Won’t Get You There: How Successful People Become Even More Successful

Nortel’s Downfall – The Mini-Series

2010-6-5 – Note that Constantin film has blocked all of these videos based on protecting their copyright. This only goes to show that Constantin film execs. have their heads firmly up their asses. While this is certainly within their right, they don’t seem to appreciate the role that social media and ‘mashups’ like these have in promoting their artist’s great work. I had never heard of the movie ‘Der Untergang’ until I saw the first video below, and it was only when I saw Bruno Ganz’s passionate performance that I had any interest in seeing their movie. Unfortunately their loss is ours as well. – Adrian

My previous post “Who Killed Nortel?“, featured columnist James Bagnall presenting a very balanced view of the contributing factors to Nortel’s demise.  Time now for the corresponding ‘unbalanced’ view:

I think many people saw the original ‘Downfall’ youtube video, but many apparently didn’t know there was actually 12 of them! While these videos don’t express my personal views (do I have to say that again?), they are really funny, and the production values are pretty slick. They are based on the 2004 movie “Der Untergang” (German for ‘The Fall’), which provided a great canvas for this topic because it contains many profound Hitler rants (adeptly ranted by Bruno Ganz).

For those of you not familiar with the names referenced, Mr. Bagnall’s articles linked above are good background.  You will also be confused by both Hackney and Mike Z. both looking a lot like the Führer.

Part 1 – The Original: “There Will Be No New 3-5 Year Plan”

Part 2 – “Those Lousy Stinking Peasants!”

Part 3 – “Synergy My Ass”

Part 4 – “The ‘Free Press’ Won’t Let Us Do Our Jobs in Secret!”

Part 5 – “I Say: To Win You Must Quit!”

Part 6 – “Get In Line Behind the Other Creditors”

Part 7 – “Business Made Simple”

Part 8 – “Unfortunately, You Are Not a GE Man.”

Part 9 – “Who Are They to Tell Us What to Do With Their Money?”

Part 10 – “The Price You Ask For is Way Too High!”

Part 11 – “I believe… in Executive Bonuses.”

Part 12 – “Don’t You Understand? Nortel is Bankrupt! It’s Over!”

Who Killed Nortel?

James Bagnall of the Ottawa Citizen has been covering Nortel for a long time, much longer than my time with the company.  It was with great interest that I heard from a co-worker that James was doing an 8-part series called “Who Killed Nortel?”.

Would it tell me things I didn’t know?  Would it point the finger at people I respected?  Would it conclude the collapse was due to bad luck, incompetence, or something more sinister?

Even knowing the series was on the Ottawa Citizen, I found it horribly hard to find the articles and then to navigate them (its improved a bit now that the series is complete).  To save you the same frustration, I collected them here:

I found the series very enlightening.  It points to leadership apathy, a board that lacked knowledge of the telecom industry, bad luck, incompetence, and -of course- the well known financial scandals as contributing causes.

Now that you have seen the ‘balanced view’, you may want to check out the ‘unbalanced’ view for a laugh: Nortel’s Downfall – The Mini-Series

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