How to destroy your company – Part I: Managers

Have you ever wondered why a company goes bankrupt? Especially the ones that are “too big to fail”? There any many different factors, but today we're going to focus on feckless managers. If you want to destroy your company, you should hire managers who meet the following criteria:

Managers who do not understand metrics and KPI's. They'll never know which of their collaborators work well and which don't. So they'll shift work from the “slow” workers to the quick ones – they don't care about their workers' indivual performance, they just want to meet the objectives fixed by their superiors. Dont' worry: your good workers will soon start looking for a new job and leave the company asap.

If the desk clerk speaks English better than the 95% of the managers, you're on the right track: your company will go bankrupt soon because it won't undergo any innovation. English is today's Latin – if you want to know what's going on around the globe, you have to speak English (and other languages if possible).

If all the company's managers studied at the same university or business school, are about the same age and are from the same country (in the case of a multinational corporation), you can be pretty sure that most of the managers weren't hired for their professional skills... seeing that working hard makes no sense because you don't belong to their “caste” and one will never be promoted is the best way to motivate your company's workforce.

Managers who hold meetings all day long: Well this is what managing is all about, right? Managing is just telling somebody else what he's got to do. Your managers should hold several meetings a day, assign new tasks to their employees and leave at 5pm at the latest... and your employees will keep on working until 7pm or 8pm – they're lucky because they've got a job. So, no complaints please...

What else can you think of?

Bitcoin - Bit.... what?

You've probably already heard people talk about Bitcoins, especially during the Cypriot debt crisis last week. It seems that some Cypriots tried and are still trying to exchange their Euros (or at least part of them) for Bitcoins. So I guess it's about time that you learn about the basic facts of this new currency.

What is Bitcoin?

Bitcoin is an electronic currency which was invented by Satoshi Nakamoto in 2009. It's based on cryptographic keys and a P2P network which is formed by the users who run Bitcoin clients. Each transaction of money between users is recorded in a public database.

What can I buy with Bitcoin?

There are some small companies that accept bitcoins for all kinds of services: internet hosting, blogging, online gambling, etc. But even some big well-known entreprises like Wordpress accept payments in this new electronic currency.

How much is a Bitcoin worth?

A bitcoin cost about 20$ at the beginning of 2013, but it's risen to more than 120$ lately.

What's the difference between Bitcoin and “traditional” money?

Almost all national currencies are controlled by a central bank which manages the money supply by raising or reducing interest rates. The value of “traditional” money depends entirely on the capacity and possibility of exchanging this paper money for physical goods and services.

Unlike “traditional” money there is no central bank which controls the money supply of bitcoins. New bitcoins are generated with digital signatures (“bitcoin mining”) and the (future) supply of bitcoins is limited to 21 million units.

How and where do I get Bitcoins?

You can buy them on websites like MTGOX or can accept payments in Bitcoins. And you'll also need an application like BitcoinQT or Armory Bitcoin in order to use and manage your bitcoins.

What are the advantages of Bitcoin?

Bitcoin can have many advantages. For example:

• All payments are anonymous.
• You don't have to pay any comissions to any “middleman”.
• Nobody can rob you: your Bitcoins are clearly yours.
• It's technically very difficult (if not impossible) to counterfeit bitcoins.
• Any payment made in Bitcoin is irreversible. This means nobody can trick you when you try to sell something on the Internet.

Are there also some disadvantages and even risks?

The biggest disadvantage is that there are not that many stores that accept Bitcoins. And there is also one majoy risk: many analysts and prestigious economists (like Sala i Martín) are already talking about a “Bitcoin bubble” - you could lose a lot of money if you bought Bitcoins right now!

A newbie's guide: Stock market – what you really need to know and what is just “nice to have”

Investing in stocks seems to be really complicated if you've never done it before. Many of you may have friends who told you that they made a lot of money by buying and selling shares, others probably have heard stories about people who lost all their money due to a fatal investment. Actually investing in the stock market is not that difficult if you learn some basic concepts.

What you really need to know

News and Common Sense: Before buying some company's shares, make sure you scan the news for any information about that company. Is their business growing, are they having financial difficulties or have their competitors just launched a new product that is likely to have a negative impact on the company's turnover? Use your common sense and don't try to speculate – if you read in the newspaper that an entreprise is likely to go bankrupt soon, then don't buy their shares.

Rating Agencies: There's been a lot of Rating Agencies bashing lately. Ok, they didn't anticipate the bankkruptcy of Lehman Brothers and that they may play an “ambiguos” role in the European debt crisis, but it's also true that you shouldn't buy shares of companies that have bad ratings. The three major rating agencies are Moody's, Fitch and Standard & Poor's.

Balance Sheet and other stuff: Make sure you learn how to read a balance sheet so that you won't have to rely on someone else's opinion of a company. Learn how to calculate the most important balance sheet ratings and what a cash flow is.

Monetary system and policy: You really have to understand how the monetary system of your country works and the effects of your central bank's monetary policy, you need to know the basics. What's going to happen with your share prices if the interest rates rises or falls? Are you likely to lose or win money?

Risk Diversification: Try to diversify your risk by buying companies' stocks that operate in different business sectors. There is a lot of information on risk diversification on the internet.

Stop-Loss order: Make up your mind on how much money you're willing to lose and always set your stop-loss orders accordingly.

Nice to have, but not essential

Day trading and Day Trading Algorithms: Unless you are going to do this for a living and you really know what you're doing, don't try to take part in this (Russian) Roulette. If you want to be a day trader, you need (a lot of time) and mathematical, programming and economic skills.

Technical Analysis: Many of you may have read that Technical Analysis is a kind of “Stock Market Voodoo” rather than a trading technique one should take seriously. I guess that nobody knows if technical analysis is really useful or not (maybe you want to share your opinion on this), but learning some basic inidcators like RSI or MACD may still be worthwhile, even for a newbie (it can help you to decide when to buy and whether a share is expensive or not - I wouldn't rely on them though).

Machine Learning techniques: This quite advanced mathematical “stuff”. These techniques help you to discover hidden patterns and word of mouth has it that they're used by hedge funds. There are many books on Random Forests, SupportVector Machines and Neural Networks out there.

Futures and options: Again, you'll need a lot of time if you really want to start trading with futures and options. Don't do it, you can lose a lot of money.

What else do you think a newbie has to take into account before investing his money in stocks?

New bakery in my neighbourhood and their sales strategy

Yesterday evening I was a little hungry and my stomach was asking for something sweet. So I went to the new bakery that opened two weeks ago just across the street. They had tons of applie pie, banana bread and many other biscuits and cakes which looked really good, but I decided to have two donuts.

When I ordered them, the shopkeeper said to me: "Three donuts cost the same as two, 1.50€ - so I'll give you three, ok?". "Ok", I answered, although I wasn't that hungry. "One donut is 0.90€ and two or three donuts cost 1.50€", the shopkeeper repeated. When I went back home I couldn't stop wondering whether such a "three for two" strategy was really appropiate for that new bakery. Shouldn't they sell two donuts at, let's say, 1.30€ and three at 1.50€?

I suppose you all know "TheEconomist", a monthly business news magazine. Some time ago they used a very similiar sales strategy as the bakery from my neighbourhood. I don't remember the exact prices, but a subscription to the printed version of The Economist cost around 60€, while the suscription to the online version cost 120€. And there was also a third option: the subscription to the print and online version also cost 120€. So what was the sense of the second option (online version only)? Who would prefer it over the third option? Most probably... nobody. Most likely, the second one was a kind of a benchmark for the other two and it made the third option look less expensive.

I guess the new bakery from my neighbourhood tries to apply the same sales strategy: three donuts may seem less expensive if they cost the same as two. I'd say it's a good idea as many people will end up buying three donuts instead of one. Nevertheless there may be one hitch: some people may want to eat only two donuts and not three, especially if they're on a diet or if they just count their calories (with one of those fancy calorie counters). But this is something that the bakery will have to figure out – I'll let you know you if they stick to this sales policy or not.

Interesting Business Ideas: Human Vending Machine in Barcelona

Barcelona is famous for its architecture, its lifestyle its beaches its multicultural flair. But it's also famous for sports: FC Barcelona, Messi, Iniesta, Olympic Games, Pau Gasol... and a Human Vending Machine!!!

If you ever visit Barcelona, make sure you go to the MIBA Museum – Barcelona's Museum of Ideas and Inventions. It was founded in 2011 and hosts really strange stuff like a microphone cleaning mop or a flowerpot which automatically turns itself towards the sun. But its latest "attraction" is really interesting for all fitness lovers: a Human Vending Machine!

This machine was invented by Pep Torres and DigaliX in 2009. Basically it's an stationary bike that is attached to a vending machine. If you want some cookies, a coke or some potato chips, you won't need any money, but you'll have to sweat a lot.

Depending on the product you want to "buy, you'll have to bicycle more or less miles or kilometres. You can find some pictures of this vending machine on the museum'sFacebook page. One might wonder whether this invention is really useful bceause nobody would buy it for home use. But we always complain that our kids and our students are overweight – so why don't our schools buy some "Human Vending Machines" and have our children sweat a little bit? I don't that these "human" vending machines could be much more expensive than the ordinary ones, it could help to reduce obesity among children.

This crisis is over – this is our future

You probably have already wondered when the crisis will be over, but you probably also want to know what Europe is going to look like after this “GreatRecession”. Actually there are many different opinions and predictions, and nobody can possibly know what the future is going to be like. But it's still interesting to speculate...

This crisis is (almost) over! The debt crisis that started in 2009 will come to an end very soon, states and governments will have to reduce public expenditure and our social insurance systems will soon belong to the past. If you want a retirement or old age pension you'll have to start saving money when you're young. Take a look at the population pyramid and you'll understand why this is likely to happen: European birth-rates are just too low, and they won't probably change in the future; if you don't have a job or you don't know if you'll be dismissed next week, having children may not be the beast idea.

Actually Germany is the best example of what the (post-crisis) future in other European countries is going to be like (especially in the PIIGS): Germany solved its own crisis at the beginning of the 21^st century by reducing social security benefits and by creating state-subsidized jobs (a worker gets a base salary from his employer but also a couple of hundreds of Euros from the German social security system). Those who don't find a job (and will probably never find one again) get “Hartz 4”- basic welfare benefits which include 382€ per month, housing and health care. Some people have good jobs, some people have “bad” jobs with “bad” salaries and some people just wont' find a job again.

And other countries have recently started to copy the “German Model”: In Spain people who are unemployed receive approximately 400€ per month from the state and, in some cases, “adequate” housing. As the unemployment rate is going to peak at 27% in the near future, only those who are highly skilled will have the chance to find a decent job; many Spaniards will have to work more than 10 hours a day if they don't want to be dismissed. And many of them will have to live on 400€ a month.

You don't believe this? You believe in economic cycles? So do I, but I also think that European companies don't need so many European consumers anymore: they can easily find them in Asia or Latin America.

Cypriot Haircut – what are the consequences?

The Eurogroup says that Cyprus is the modelfor future bank rescues. Well, actually we should be grateful for so much sincerity and it proves that politicians don't always lie. But we should also be scared: the consequences of a “Cypriot haircut” are manifold and tragic. 

100.000€ might seem a lot of money, but actually it's not. Somebody who starts working at the age of 25 and saves 250€ a month will have amassed 100.000€ by the time he's 60. What the European Union is telling those Cypriot savers is that they're guilty... guilty of what? Of having worked hard and saved money? After this disastrous “solution” designed by the European Union nobody can blame the young Europeans if they don't see any sense in working hard and saving money. And this is a real problem. All those who have studied some basic macroeconomics know that saving equals investment. How is Europe going to compete with the US, China, Brazil or Mexico if no entrepreneur and no business can borrow money from a bank because there is just no money left?

All those people who have more than 100.000€ in their bank account may consider transferring an important part of their savings to another bank account. As the haircut was applied only to the Cypriot banks' clients who had more than 100.000€ in their accounts, risk diversification by appropiately allocating your assets (i.e. your savings) is just a logical consequence. This could have a really, really negative impact on banks which do not have any liquidity issues at all because they could lose many customers and their deposits.

Many people wouldn't even feel comfortable about putting their money into a bank account. Look at Argentina: even 12 years after the “corralito” many Argentinians keep their hard-earned Pesos (or US Dollars) at home. They don't trust banks anymore. Again: no efficient banking system, no investment, no growth. 

What about the small businesses that have 100.000€ in their bank account? Would they also be affected? Wouldn't they go bankrupt as well?

If you knew that the European Union would take away 40% of your savings, would you still be interested in buying a car, clothes or shoes? This is what's happening in Cyprus: the shops and streets in Nicosa are empty.

In the end it may even be better to leave the Eurozone – at least according to Paul Krugman.

And now you may ask: who's next? According to der Spiegel it could hit Malta or even Luxembourg...

What Merkel and Cameron don't want you to know about Romania

It seems that Germany, the United Kingdom and the Netherlands (among other European countries) don't want Romania to join the Schengen area. Romania's bid was rejected by the Council of Ministres in September 2011 because of a lack of anti-corruption measures and the influx of illegal immigrants from Ukraine or Moldova. The British even considered launching a campaign in order to dissuade any potential Romanian workers from immigrating to their island, and the Germans were concerned that thousands of Sinti and Roma could take advantage of the German social insurance system.

I'm sure you still remember the meat adulteration scandal: foods that were supposed to contain beef were found to contain horsemeat. And yes: the horsemeat came from Romania, which motivated Germany's state television to broadcast a couple of documentaries about poor Romania. “Who wouldn't want to leave such an underdevelopped country?” many German spectactors may have wondered.

So why was Romania allowed to join the European Union in the first place if it's such a horrible place? Well, first of all: it's not horrible at all. If you've ever been to Bucharest, Brasov or Constanta you'll find that it's a modern and civilized European country, which is why Romania's tourism industryis groing steadily.

And Romania has potential – if you don't believe me, you might trust Nouriel Roubini. As a matter of fact, you'll find lots of Zara, Mango and H&M stores in Bucharest. More and more people drive foreign cars (expensive ones like Mercedes or BMW, and less expensive ones like Opel or Renault) – 20 million people is quite a big market. And it's also cheap to produce your products in Romania and to export them other European countries (no customs, no tolls...).

Many American companies (like HP or Oracle) decided to open their European headquarters in Bucharest. Why? Well, because 95% of young Romanians speak English and many speak other languages, too (especially French, Spanish, Italian or even German) – you won't find that in any other European country. Ok, maybe in Sweden, Denmark or the Netherlands, but their salaries are also much higher.

Last but not least: Romania's educational system is really good. Did you know that Romania rankedfirst among all European countries at the 2012 Mathematical Olympiad? And that Romania has one of the highest computer scientists ratios of the world? I guess this is the real reason why the German and the British governments don't want Romania to join the Schengen area: more competitors. They're not afraid of an invasion of poor Romanians, but of an invasion of highly skilled workers (which could have a negative impact on the wage level). But let's face it: Romania has one of the lowest unemployment rates of Europe and wages increased by 22% since 1990– why would you leave your family and friends behind if you have a decent job and salary?

And by the way: I'm not Romanian and nor am I trying to promote Romania. I just don't like that “black/white mentality”

WhatsApp and Rational Thinking

WhatsApprecently announced they were going to charge (some of) their users0,99$ for their services. The users' reactions were really harsh: many of them immediatley started looking for alternative mobile phone messengers like LINE or KakaoTalk, critized WhatsApp on Facebook and felt “screwed” by the company (I'm not kidding; one of my contacts said that on Facebook).

Eventually it's not really clear what WhatsApp is going to do. It seems that that some users won't have to pay, others already had to pay and some just stopped using WhatsApp. But why would somebody consider 1$ to be a disproportionate fee for a service that you can use everyday (24/7) and that is really usueful? I can think of two contradictory explanations (maybe you can think of more):

First reason: People try to maximize their utility

If you study basic Microeconomicsyou'll learn that people always try to maximize their utility and that they're completely rational – we're all “homines economici”. Well, in this case users can save 0,99$ a year by switching to any other messenger. The users' utility would increase by 0,99$... but there's always a “but”... They also have to tell their friends that they stopped using WhatsApp. They could inform them by publishing a post on Facebook or by sending an e-mail, which can be time-consuming. Furthermore, it's probable that some of their friends won't see nor read these messages. So they'll have to call them and tell them that they started using a new messenger, which costs money. In the end these people might save a couple of cents by switching to Line or KakaoTalk. Do you really think those guys are completely rational? Well, they're as rational as those people who pay 500$ for a handbag which was made in China and cost 15$... which leads me to the second possible argument...

Second reason: There is no “homo economicus”

People are not rational. Actually the intelligence quotient of 50% of the global population is below average (if you assume that intelligence is normally distributed) – maybe “irrational” is not the most appropiate word to describe them...

More Business Schools, more growth, more everything...?

The positive impact of higher education on a country's economy is beyond all question: there are many studies and surveys that show that investing in higher education and economic development correlate.

(You may read Larry Gigerich's and Elisa Stephen's articles if you want more information).

But is this also true for business schools? Given that many MBA programs are really, really expensive and elitist, one would expect that the most developped and fastest growing countries also have the most business schools. Some people don't think so, like Thomas Sattelberger (T-System's former CEO) who said that MBA graduates behave like John Wayne when they become managers in a company.

I decided to analyze the data that is availabe on business schools and their impact on economic growth. It's really easy to find out the number of business schools per country: you just have to go to wikipedia and you'll find a detailed list of these instituions per country. In order to keep things simple I focused my analysis on European countries. 

It's pretty obvious that big countries like Germany, France or Italy have more business schools than Luxembourg or Cyprus. Therefore I divided the populationof each country by the number of business schools. 

On Eurostat's website I found the real GDPgrowth rate of each European country. Then I related the number of business schools per contry to their respective real GDP growth rates by fitting a linear regression model. In the below figure you'll see the regression line (in red), the different data points, the number of business schools per country (scaled) on the X-axis and the GDP growth rates (scaled) on the Y-axis.

 

The slope of the regression line is slightly negative (-6.775e-05), which would mean the less business schools a country has the lower its GDP growth rates will be. Nevertheless the analys also yields a P-Value of 0.46 for the slope – which means that it is statistaclly not significant.

So what does this mean? Well, nobody can say that business schools have any impact on economic growth. In any case it's marginal and less important than the impact of other higher education institutions (like real universities).

Last but not least: Spain, Portugal and Cyprus are among the countries with the highest business schools per inhabitants ratio, whereas Germany and Luxembourg have really low ratios. This is why Spain, Portugal and Cyprus will have to finance Germany's bail-out.... oh, wait...