Author Archives: Sabah al-Binali

Financial Gems found in Famous Quotes

March 12, 2015 By in Management Tags: , 1 Comment

I have noticed a trend whereby people will post or tweet a quote, with nothing else: no analysis, no interpretation, not even a link to a relevant real world situation.

But that is not what I find strange. What I find strange are the scores of ‘likes’ and dozens of responses along the lines of “Right on!”, “Exactly!”, “How insightful!”, etc. How vapid. There is, though, one redeeming quality of this social media blight. I get to use the word vapid in writing for the first time in my life. Also blight.

I am not saying that these quotes from great minds are not enlightening, just that if one wishes to post quotes, then they should use it as the foundation of a deeper meaning. Otherwise it is just spam.

Not being one to simply point out problems without providing solutions, allow me to lead the way in posting pearls of wisdom from the long dead as well as my insights on these quotes. Attempting to provide value, if you will.

The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt.
– Bertrand Russell

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Crisis Response Strategies

March 10, 2015 By in Strategy, 1feautred, Strategy Cornerstone Tags: , ,
This entry is part 3 of 3 in the series Strategy

In a world of uncertainty management is constantly evaluating potential risks as they unfold and deciding how to respond.

At one end of the response spectrum is what might be called the Anglo-Saxon Fast & Furious model: ignore all risks until they become an existential threat of such dire proportions that there is only one available response and it is blatantly clear to all involved.

At the other end of the spectrum is what might be called the Asian Ancient Wisdom model: treat everything as an existential threat at all times and avoid taking any proactive decisions whatsoever lest it lead to greater danger.

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Investing in, not Trading, the Price Cycle: an Overlay Strategy

March 4, 2015 By in Investments Tags: ,

Here’s the reason market timers lose money: They are traders instead of investors, and as discussed in a previous article traders are time sensitive as their main dependence is on price movement. Therefore they need to invest as close to the upturn in price as possible and they need to hold on and exit only when the price stops appreciating.

Investors, though, can trade the cycle to their profit as an overlay strategy. What is an overlay strategy? It is an extension of an existing strategy. An enhancement. It makes sense only if the underlying strategy makes sense.

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Equity Issuance: A Danger Signal

March 3, 2015 By in Management Tags: , ,

Companies issue equity all the time. It is considered a normal part of business. In fact, when equity markets are doing well, CEOs will often push for a rights issue, arguing that the market is over priced and therefore it makes sense to issue new shares and sell them into the market.

That might seem to make sense at first blush. But if a CEO thinks that this makes commercial sense then they are being naive. The only other explanation is that they are less than honest. Let us explore why.

As a first step, why is selling something at a higher than value price incorrect? In general, if it is a non-producing asset, then there is nothing wrong with this. Selling someone a pair of shoes should not cause any issues. The problem lies in what if it is a producing asset?

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Who Wins, the Trader or the Investor?

March 2, 2015 By in Trading, Investments Tags: , , , ,

The perennially favourite discussion topic is trading versus investing. What’s the difference? Is it short time horizon versus long time horizon? Is it growth versus value? Is it Soros versus Buffet?

This post is a continuation of my 2007 article in The National. Reading the previous article is not necessary to benefit from this post, but looking at the ideas across an eight year period might be helpful.

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The Challenges of Generational Change in a Family Business

March 1, 2015 By in Family Business Tags:

Andrew Carnegie, an incredibly successful American businessman, famously said “Three generations from shirtsleeves to shirtsleeves.” Here, shirtsleeves mean the clothing of a (poor) blue collar worker. This is probably the origin for the more modern day warning “The first generation builds it, the second generation enjoys it, the third generation loses it.”

In the GCC a quick and informal survey of family businesses would suggest that the second generation not only enjoys it, but often is the generation that loses it. This process seems to take years as often as it takes decades. Are there issues that we face that are different from those faced by the rest of the world, or are we just better at squandering family fortunes?

I will argue the former, and that blindly applying global best practice therefore harms regional family businesses. I will pick a number of the more salient issues that should reinvigorate the discussion.

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The Family Holding Company: More Than Just A Legal Structure

February 25, 2015 By in Family Business Tags: , , ,

عربي

With generational change increasing, the idea of institutionalising family businesses has gained wide spread acceptance. The magic formula seems to be create a holding company to hold the shares of the operating companies, a shareholder agreement, a terms of reference for the board and maybe add some independent directors to the board. Focussing on the holding company aspect, there quite often is no strategic plan let alone business plan. The holding company direction is set by the agenda of the constituent operating companies. Talk about the tail wagging the dog.

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The Characteristics of an Alternative Lender

February 24, 2015 By in Credit Tags: ,

عربي

In a recent article, this column laid out the case for the rise of the alternative lender as a natural consequence to the hole left by conventional banks withdrawing from the SME market. This article looks at what a successful alternative lender might look like.

The first step is to understand the relevant characteristics of a conventional SME lender. Conventional banks are, by and large, mature companies with an inflexible and conforming operating culture. This leads to risk rigidity, i.e. banks will usually get comfortable at one point of the risk curve and they will rarely leave it.

This in turn leads to product concentration and possibly myopia at the macro level with innovation only at the micro level. What this means is that the basic types of products do not change, so a salary loan will pretty much be the same at all the banks in terms of tenor and structure. One bank might add a lottery to the loan, another bank might allow deferral of one payment per year, but overall they are the same.

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Moral Arbitrage and the Inheritance Play

February 22, 2015 By in Investments Tags: , ,

The thing about the rational investor hypothesis is that it assumes that investors wish to maximise a financial risk/reward function. They don’t. Investors have a utility function that includes economic considerations, but also includes many other goals important to the investor.

Some investors may refuse to invest in defense companies, especially those that produce offensive weapons. Others may avoid investing in companies based in countries who have policies that they don’t approve of. Still others may reject gambling or alcohol related companies. The list goes on.

Whilst economists discuss such issues ad nauseam, traders make money off it. A non-financially motivated seller nearly always provides an opportunity for the astute, and differently motivated, investor to make money.

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