Driving the start-ups and the disruptors that established ones fear

”Most of us go through life with our emergency brakes on, because we want a reason not to test ourselves.” – Dan Pena

I remember that I used to drive during weekends before the pandemic erupted. I love driving around the countryside. Cruising by the road gives me a sense of freedom…. at least a day in a week. I enjoyed this because I work on weekdays in the healthcare industry saving lives. Its stressful in a way and being “toxic” is a jargon we call which literally means stressful in every way. So every weekend, I love what I do…. not only to feel free but also to save myself every week.

A couple of weeks ago, I was given a chance to drive my car after 3 months of lockdown. I savored every minute of it. The countryside, the greeneries, the bright sun on the background of a blue sky and the air around me has never been that good. It was an amazing.

I made a right turn towards another highway, and after a few seconds I heard a knocking sound coming from the rear passenger side. Initially I had not idea what it was but I felt it sounded ominous. The knocking sound became louder and louder up to the point that my car started to wobble.

“This is not good”, I though to myself. I pulled over slowly by the roadside, shut the engine off and examined the rear. Just as I feared, it was a flat tire. The tire was lacerated from the sidewalls which meant that it did not ran over a nail along the road. It just literally blew up out of nowhere.

A second after, I felt a sense of relief being alive and well at least despite experiencing a flat tire. I was thankful that I was driving slow as in this V8 monster and things could have been an unwritten story if I had driven way faster.

A sigh relief was felt as I opened the trunk. “Thank goodness, there is a spare tire”, I pondered. 

While, I was working on replace this tire, a sudden  “amazement of thought” caught me. I imagined “What if this car is a company I am driving and suddenly this pandemic just appeared out of nowhere causing my company to lose a wheel”.  

No matter how good the car manufacturer is, be it the best automaker, it makes sense that I cant drive a car with only 3 wheels.  Companies are shutting down nowadays and layoffs are rampant just because a wheel has blown up. The wheel can be anything and it can be a  a factory, people who got sick, the logistics, the management team, a business partner, the product and worse, its mission. 

  I just realized that a spare wheel and a sensible driving attitude can spare a company and all the lives that it employs and team up with.  In these era, much has been made and accomplished by big companies. Its founders, most of which I highly respect, have toiled hard to bring it up with good reputation,  changed trends, earned profits and gave back to the society. 

At this present time (which I call the pandemic time), I see only two different types of institutions. These are the old and the new ….or let me say the very well established and the start ups. The well established ones are wise but fearful of the start-ups as they might be their disruptors while the start-ups fear the well established by virtue of size and accolades.

Yes, they are courageous, and possess the energy to fuel their endeavor. However, most start-ups are not aware of another threat which they should face.  But most can’t see it nor feel it. It’s simply because they didn’t have had the mirror to face this threat. It is simply the assassin by the mirror which is none other than itself. 

“Just imagine you drove your car through life with the emergency brake on, its bad for the transmission, its bad for the engine. Then you release the brakes…..zooom!!!! You surge ahead.

– Dan Pena

Let me expound these by telling you a story between two vehicles on a highway. On a clear sunny day, there were two vehicles. One vehicle is an 18-wheeler truck, a trailer truck. It runs on diesel with its engine capable of delivering over a thousand horsepower and yes it is powerful. Daily, it drives from point A to point B with a single mission in mind. It is to deliver tons of goods produced in a huge manufacturing facility. The truck is old but its very well maintained. It has its very own mishaps in the past but it delivered well. Profits are envisioned on the road ahead towards the distribution areas.

Meanwhile, there is that other car.  Its a supercar and has half a thousand horse power in it. Just push the pedal to the metal and the transmission would kick in and jolt the driver back as the supercar lunges forward like a tiger about to leap at its prey. It growls ferociously almost eating up the road and even the most deaf ears feel it as the sound of a roaring V8 pounds towards their chest. Its fast, agile, aggressive.  

While of its mission is to go from point A to point B just like the trailer truck, however, it is greatly offset by the E-motion rather than the mission.  The beastly sound, the speed, the excitement, the thrill and the amazement are all part of the package. Its aerodynamic feature which engineers called coefficient of drag is so low that it literally cuts through air while the air behind it creates a force to propel it forwards. What an amazing feat of engineering, isn’t it!!

Running on a nearly empty highway, the driver of the supercar spots its prey, the trailer truck. The driver is aware that the trailer has more power but he knows that there is a thing called power-to-weight ratio. He may have less power but is light as a feather compared to the trailer. He knows he has the advantage.

He feels it. Adrenalin picks up like multiple shots of expresso coffee on- the-go. Neurotransmission jolts the driver up. Sympathetic overload overclocks mind and body. The mind suddenly goes into a mode where time, space and existence are so tightly held up and that the prediction of the future is so certain that nothing is uncertain.

He is a bit sweaty and takes a deep breath. The emotion…. now becomes the mission. In his mind and heart, he wants to overtake the trailer truck.

He doesn’t question why as rationale defeats the purpose of the new emotion of the mission, the thrill and the amazement. The seconds seem everlasting. The imagination of overtaking the prey induces emotional irrationality. But he doesn’t care because the moment is there.

This is it..ITS GOT BE…NOW!!!!!

A sudden push from the right foot pushes that accelerator to its end and in a split second, all the 500 horses came alive producing a unique grunt that thrusts the supercar from 60mph to a 100 in no time.

The speed keeps going and going until it passes the trailer truck. Seconds later the truck is so far away it cant be clearly seen. At last the driver of the supercar breathes out. Emotions accomplished rather than a mission accomplished.

If these who vehicles were companies, where would you like to be?  Should you follow your emotions or should you ride with the great ones? There is no middle ground as there were only two vehicles on the road.  Should you insist on the middle ground, then you’re off the road walking. 

The trailer truck albeit slow, is on a mission. A credible one. It has loads to carry, not only profits, but a lot of responsibilities. The usefulness of the thousand horsepower has been more meaningful. 

Its driver is well experienced and with him bestowed greater responsibility of directing the trailer truck towards its destination. He is also unemotional on most times. He doesn’t care about being overdriven. All he cares about is the long haul and the mission. 

However, he is aware that the supercar might be a threat in the future. So, he and the company he owns… hire a set of insurers to help maintain the trailer truck should it breakdown along the highway. Though costly, it is one logical means to stay afloat.

His ultimate fear is that what if the trailer suddenly loses direction along the way or sudden tragedy occurs that insurers cannot help maintain. This would halt operations resulting from a stalled truck in the middle of nowhere.  Though the company is huge enough to be called an empire, it is not able to keep up with its maintenance if supply lines are cut.  The trailer truck cannot run with a wheel missing,  just because its wheel supplier suddenly ceased production. 

The bigger the truck and the heavier its load will translate to a more difficulty changing directions. It might be more difficult to maneuver should it spot a big pothole ahead.  

These are the apprehensions going through his mind seeing the supercar zoomed past him. 

Meanwhile, the supercar has its own story.  Its a startup. Like every businesses, all begins with a startup. And it success hugely depends on its leader.  Everyone has ideas but it all depends on the way the leader drives those ideas. 

“Focus on the signal over noise”

– Ellon Musk

I remember a motivational speaker, Dan Pena. He said “Just imagine you drove your car through life with the emergency brake on, its bad for the transmission, its bad for the engine. Then you release the brakes…..zooom!!!! You surge ahead.  

In order to overtake the a huge trailer truck in a two way highway, the driver has to plan ahead. Emotions are high. Imaginations are pushed to become reality.  Emotions drives the will which, in turn, forces the driver to spin the wheels. 

On a caveat, the will has to be connected with other faculties. The time,  situation and condition of the road ahead has to be imagined with a clear vision with no noise in between. 

An event has to be imagine with all dimensions considered. Lose one aspect of the dimension and you lose track of reality. 

Ellon Musk once said “Focus on the signal over noise”.  There are many distractions over the road ahead.  In fact, the driver himself can be noise over the signal. 

There are two kinds of drivers of start ups that I am aware of. 

One driver is of a hungry type. He is driven by passion and emotion. That is his main force. He has the ideas and executes it by heart. For every success entails the emotional rewards. The more accolades the more contented he is. However, his mind is young.

Emotions drive him but too much of it can destroy his company.  Being too emotional at things or events has an effect on ones complacency that can put one off guard at any given time. Rationality is lost over time and the mission blurred. Being too contented will lessen the grip on one’s toes and risks slipping opportunities and warnings.  

The driver can become too overconfident that he might lose connection with reality and affirms his fixed false beliefs about no one can alleviate.  He may rev way too much causing his super car to lose control and flip over.  And that’s…game over.  

The other driver is unlike the former. He is unlike any other. He also drives a super car. The main difference is that he has his mind focused on the mission and the mission is driven by passion. Unlike any driver, he built his super car from ideas which he composed day by day.

Furthermore, he was able to connect with other like minded persons with the same passion and ultimate goal. They collaborated and worked on a project through research and hard work until they built the prototype supercar.

The camaraderie and partnership he built among his friends enabled them to establish a company that they have now. And it was successful. 

There were not too emotional about success but they are on their toes ready to challenge,  compete and innovate.  They are not afraid about failures as they already have a blueprint beforehand how to get up as failures are expected. 

I remembered what Dan Pena again said, “Most of us go through life with our emergency brakes on, because we want a reason not to test ourselves.”  Most people are afraid not to fail but afraid of the psychological and emotion consequences it might bear them. Dampen this down and you will slowly release the brakes. 

Once his company grows bigger and bigger, this driver is aware that he cannot anymore drive on his own. Its time to give up the steering wheel. So he employed a driver with more or less his qualification so at the same time he could work on how to better his company while he is driven safely by his new driver. 

This driver is an example of one that the trailer driver fears the most, that he might be overtaken in terms of innovation, creativity, resilience, partnership and wisdom.

Going back to reality, I was almost done replacing the tire and it took me 30 minutes to replace it. I was sweating under the hot sun…It sure was a learning experience for me.  It was quite a relief that the spare tire fits exactly like the old one and that I can drive home safely now.  Just like what happened with my experience have a flat tire, it never is a bad to have a spare tire as I would never know when I would need it most.  

I hope that someday, I can find like-minded people committed to the same goal which we will build a company from scratch and go through it with the same character as the unique driver I mentioned a while ago. And this…my friend ….will be a long journey ahead  worthy of writing it into books. 

A small secret about success

“It’s not that I’m so smart, it’s just that I stay with problems longer.”

– Albert Einstein 

The above quote has recently been my favourite and today I would like to discuss about applying that particular statement in life.  First, I’d like to take your imaginations when you were a student at school.  Did you remember a scenario wherein you were taking your final exam or a term exam?  What was your goal then?  For me, during those times, my goal is to get as high a score as much as I could and be on top somehow. The exams were usually in a multiple choice format.

It feels good to get a high score right? But lets try to reverse the scenario and we didn’t do well.  We feel bad and a shade of mundaneness colour our world.  We felt bad because we felt our training or studying for a particular time has betrayed us through a game of pen and a paper exam. 

Alright, snap out of it right now and get back to the present.  Now I will tell you this folks…there is not a single significant problem in this world that was solved by a minute of solving a multiple choice question!! THATS TRUE.

Were the Wright brothers able to fly the first plane in just under minute solving MCQ exam?   Can the current pandemic be solved by a flick of a pen to write it out just once?  Was the famous app Facebook created by choosing whether the correct answer an A, B, C or a D?   Has malaria even been fully eradicated? Have we defeated poverty?   Obviously its a No to all.    

These world problems take significant amount time and so much more so than in a minute.  

On, the contrary, if one thinks of an idea of building a company in a minute that was considered correct by peers will only get you a feeling of approval. However, you will most likely fail.  

In order to find success you will take much more time off planning, at times failing to get to the desired destination.  It might be painful to fail but failure gives you more experience, more resiliency and motivation to be successful. How? Everytime you fail..look back… look back, stay with it for a time. Take your time. Ponder about it. If you stay with it for a longer time by taking efforts to solve it ..someday you will get there. 

 If you ignore to solve failure then success will fail to recognise you.  Ignore it more, the more you will succumb to failure. Success is not about eating midnight supper to get you back to sleep. The supper is to your energy to get back on your toes to move forward and not to retire. 

Success is served with hot packs of failures, tribulations, hardships with loads of effforts.  So what’s the connection with all these in the fundamentals of investing? Simple, do your effort in research. 

The more you research about a company, its management team, their product and the perception of the stakeholders, the more you get to know where it is going to be in the future.  It takes time, effort and skill.  Choosing the right company to invest in can be rewarded by time multiplied by the quality of your effort to do so and further multiplied by honing a set of skills necessary to complete a task.  

Skills can be honed in many ways. In order to invest successfully, you have to invest in yourself first. The good thing is that it does not have to be undergoing a term exam like most of us did during school years.  Start connecting with people in LinkedIN or in other social media apps, give a talk, have a mentor or write your ideas. If you can’t find any, go amd ask for advise. I learned a lot from my career in healthcare by asking. If I didn’t ask, I would be so limited to my own world falsely claiming that I know a lot. 

In order for one to stay with the problem longer, you have to be somehow emotionally connected with the problem.  Motion causes emotion and the passion from emotion enables one’s drive to stay with the problems longer exposing the mind to solve problems. 

I’ll cite a personal example.  I have an old car to which I think is emotionally valuable to me. I love to drive it than the newer cars for some particular reason. I seem to connected to it in a way. One day, it was not starting well. I went to some mechanic and they couldn’t help me at all. I felt bad.  That emotion gave me the driving force to solve the problem even though when everyone thinks its not a big deal. 

I researched persistently, day and night whenever Im not busy. I just didn’t care at all and searched, searched and searched. I searched Youtube, read tons of articles and the problem lingered in my head.  Within a few days, I learned so much about the a car’s fuel system that if people ask me about it they would mistake me for an expert mechanic. 

I tried searching online for the particular car part and ordered one only to find out that it didn’t fit.  I was disappointed but I didn’t simply gave up. 

“Everything around you that you call life was made up by people that were no smarter than you“- Steve Jobs

I tried asking several websites and online stores but they just couldn’t give an answer as to why it didn’t fit. 

At that point, I remembered Steve Jobs. His quote was “Everything around you that you call life was made up by people that were no smarter than you.” I lingered with those words for a time being and I seemed to agree with him. 

So I researched and cross-checked every part that I could find. I enthusiastically spent hours and hours of doing research. I was just  so…so into it finding the answer when no one couldn’t give one. 

“If you don’t like it, life’s too short. If you like what you’re doing, you think about it even when you’re not working. It’s something that your mind is drawn to, and if you don’t like it, you just can’t make it work.”

– Ellon Musk

Since I’m thinking about car parts, I remembered Ellon Musk in his quote “If you don’t like it, life’s too short. If you like what you’re doing, you think about it even when you’re not working. It’s something that your mind is drawn to, and if you don’t like it, you just can’t make it work.”

After searching endlessly, I found a car part and I think it matches. However, all the websites stated that the particular car part does not fit at all and buying it was at all being foolish. 

“Stay Hungry, Stay Foolish”

– Steve Jobs

I was so convinced I found the right car part even though the whole world disagreed with me.  I just didn’t care with what they say. Period.  I thought about the car part up to its very element that composed it like NO one else would!  And I believe that they are no smarter than me as I am no smarter to them. 

So I bought it, not to prove that others were wrong nor to state that I was better. I simply just wanted my car to run just like before. Plain and simple.  

And so I fitted it DIY, it worked! And it ran like a dream. 

So my simple example here shows how such day to day successes can be employed with a similar experience and effort  about investing or starting a new company. It takes great passion no matter how simple or complicated it may be.  Your future is never defined on how much score you made in your term exam, rating or approval unless you linger with such imaginary failure you were never destined to be. 

Success can be just within your reach only if you can stay with its problems long enough. 

Metrics to look for when evaluating companies during the pandemic.

This pandemic took a huge toll among us and globally. The times has been very challenging indeed. Every week we hear news that companies big and small file for bankruptcy and even worse that layoffs are among workforce is getting higher by the day.  

On the contrary, it is somehow a good timing to invest in the stock market since it was in its all time low and way much lower than the 2008-2009 global crisis. However, one has to be cautious in placing a position in the stock market. We are unsure how long such good companies can go and how long this pandemic will ensue. 

With this, I have learnt from my MBA a few metrics that can help us evaluate companies using a few fundamentals out of the box.  Before venturing further, I would advise that this is just a part of a metric and should be used with other indicators found in the financial report. 

We will be talking about ratios. My goal is to help you on how these ratios compare and what do they mean.  First ratio is the called the solvency ratio. This is defined by the company’s total networth divided by assets.  

Lets talk shortly about networth first. You can derive networth by assets minus liability (assets – liability).  Hence networth is how much a company or an individual is worth without the liability. Suppose that you have a car that you are paying monthly amortisation with and it costs 10,000 dollars. However you only paid 1000 dollars and you owe the bank 9000 dollars. With that, your assets (the car) is worth 10,000 however, your networth for that car is 1000 dollars while your liability is 9000 dollars. 

So going back to solvency ratio. Lets say that a company is worth a million bucks and has a networth of half million bucks. Therefore, using the formula networth/assets is (1,000,000/500,000) is 0.5 or 50%. The solvency ratio for that company is 0.5. The ideal number for this is at least 50% or more. 

Next lets go to a ratio called liquidity ratio. You wanted to determine how “liquid” a company is. It is defined by monetary assets divided by monthly expenses. Take note of the word monetary assets and it means that it is a part of the company’s assets that is can be turned into cash easily. This is actually a part of the company’s net worth that can be converted to hard cash. It does not include those inventories that can’t be sold since you can’t turn that into cash as it is unsold in the first place. If we go back to the above case where a company’s asset is 1Million bucks and its  monetary assets is 50% of its networth of 500,000 buck. That is 50% of 500,000 buck which is 250,000 bucks.  And lets say that the company’s monthly expenditure is hmmm… 25,000 bucks per month. 

Using the data above, we can compute for the company’s liquidity ratio by dividing 250,000 bucks with 25,000 bucks/month. The answer now is 10 months.  

So what with 10 months? Well, it means that the company has 10 months of cash to survive without income. With the monthly expenses, it should cover for salaries of employees, logistics, electricity, utility, transportation and all sorts of expenses.  

This metric is very useful during this pandemic as income in general is much lower than the previous and many companies does not have any income at all!!!. An example is the airline industry. Just imagine that there are no flights in a lockdown situation and prolong it for several months. You might wonder now why many countries are eager to restart their economy.

The ideal number for liquidity ratio is 6 months, however, given the pandemic I prefer to look for companies with more than 12 months of liquidity ratio.  This will now depend on the leader and management styles of an institution. If the company is good on managing a business,  it is able to cut down effectively all expenses to brings costs down.  

In addition, in my opinion, companies with high amount of inventories in their assets are at a high risk of shutting down. This means that assets unsold will depreciate over time decreasing its value. This is further exaggerated by the decreasing value of money over time. 

Those companies possessing less inventories are able to cut costs and adapt quite well as compared to inventory intensive ones. Software companies are a good example of such where there are no or minimal inventories. Another one is the service sector. 

Another metric is the debt to asset ratio.  This is to determine the amount of debt a company has in relation to its assets. If a company has a debt or liability of half million bucks and its total assets is again 1million, then the debt to asset ratio is 0.5 or 50%. 

However, in this scenario, we wanted to be as low as possible. We want the company to be debt free or has minimal debt. The ideal number for this is at least LESS than 50%.  But dont be fooled, it doesn’t mean that the ratio of less than 50% is good enough, as you have to take note of a part of the assets that are inventories. Inventories unsold, for whatever reason, with a low debt/asset ratio is a warning sign to forgo investing with it for the meantime. 

So basically that it, the 3 metrics namely solvency ratio, liquidity ratio and debt/asset ratio, are some useful tools that you can use in helping you evaluate companies.  My tip is to put a list of companies and compare each within a similar sector and try to see which tops the list. Again, this is just a part of the metric to evaluate fundamentals, as there are a lot of variables out there that would determine your pick. Among such includes, the business leadership, the reputation of the brand, turnover rate, previous reports just to name a few. 

Welcome

Greetings dear reader,

This website blog is created to provide insights and opinions regarding the current status of the stock market. The market is a pretty daunting place and many, including me in the past, have struggled to get to know it better. There were many predicaments and hesitations back then. I understand that many wanted to go in the market and invest but don’t know how and how the process is going to like. In this site, I will be sharing my insights about the market situation, my opinions as well to provide some educational materials on how to evaluate and market. This shall include the fundamentals of the market and as well as the technical component. Yes, that correct..the Fundamentals and the Technicals. Those two terms are very important in gaining a profitable margin in the course of investing. At the very basics, fundamental analysis is like getting to know the company you are going to invest. It is like getting know a person or a group of individuals working for that particular company and how that company is being managed. Management is key as a good leadership in a company as it will lead it to its peak. As my MBA professor say before investing in one company, you should be asking yourself “Is that company now be more relevant in the future”. If your answer is simply yes and have done your research based on its metrics, then you are now ready for the technicals.

Technical analysis is a set of metrics chosen to help one when to enter the stock market at the most favorable time. As you see, the market is a heck of a crazy place to be. Today the price may be high and tomorrow you will be amazed that it has dropped. You should know too that the market is made up of people. Yes people, like you and me, investing by bargaining for a price. Everyone bargains for a reason. All of us have have standards and have different ways of viewing value. Furthermore, the market has its own emotions meaning that it has a mood. If a huge majority of investors or traders have a pessimistic overview of the market then the trend will go down as prices go down. If the market looks very optimistic, then it will rise up. That is how it really is! It is very moody at an unpredictable times. These factors are constantly being evaluated using technical analysis. Whilst it is not 100% correct, it can help decide when to buy or sell at stock. So, in short, it is a guide and its meaning is left to be interpreted by the trader.

I wont really keep this long and this is just my first blog. Again, welcome and I hope that you will find this blog entertaining at the same time gain valuable insights about investing towards a bright future.

Sincerely;

Technicharts team.