Category Archives: What we read

Book review: “Only the paranoid survive” – Andy Grove

Andy Grove was senior manager and CEO at Intel for a very long time and was one of the architects of the spectacular rise of Intel as microprocessor powerhouse. The book was written by Andy grove in 1997, one year before he stepped down as CEO of Intel.

He outlines how he dealt with what he called “inflection points” at Intel. An inflection point is in his definition a point where business changes so profoundly that either the business changes as well or the company will be killed by competitors. For Intel, this was the case when in the 1980ties, the Japanese suddenly were able to produce better and cheaper memory chips which were until then Intel’s main business.

Grove managed then to shut down the memory business and concentrate the efforts on the microprocessor business which was until then only a small part of the business. His first person (CEO) perspective is very interesting to read as change doesn’t come naturally to large and succesful companies.

I also found the book especially interesting because Intel is one of the famous cases for a “size moat” in Bruce Greenwald’s “Competition demystified”. Greenwald there argues that Intel’s success in microprocessors was more or less given because they had such a size advantage compared to AMD, their major competitor. Reading the book, I got the impression that Prof. Greenwald greatly simplified this. There seemed to have been several junctions on the way where Intel easily could have went “of course”, such as the rise of the RISC processors or the question at that time if multimedia will be won by PCs or TV sets. For me, one of the lessons o f the book is that Moats, at least in technology are always “weak moats” as the development is just too dynamic.

The most powerful concept of the book in my opinion is the following concept from Andy Grove: If you see someone coming up with a new idea or a competing product, then you should ask yourself the question: Is this a thread to the business if this gets 10 times bigger or better or faster ? His theory (and paranoia) was that if it is a thread at 10x bigger/better/faster than the probability of this actually happening is very big and you have to do something about it. And fast…

If I use this concept for instance for electrical cars, then as a traditional car manufacturer I should ask the question: What if electrical cars have 10 times better reach, 10 times more charging stations, charge 10 times quicker then now ?. Would I have a problem with this ? The answer would clearly be yes.

Grove also observes that you only have a chance to survive such inflection points if you start early, so when the old stuff is still selling well. Once the company is in real trouble, then change is much much more difficult.

The final chapter in the book deals with how Grove thought about the internet. One should remind that this book was written in 1997, but it is fascinating how Grove already identified industries which would be badly effected by the internet. He already was aware that for instance a lot of ad revenues would flow from print into the internet. One should not forget that this book was written a year before Google was even founded !!!

Another interesting aspect was that at that time Apple was considered by Grove a failed company as they did not change their vertical business model to a “Horizontal” one. Clearly , mobile was not on his radar screen at that time. As a final observation: Without the great run up in the stock price this year, Intel’s stock would have been more or less flat against the time when Grove stepped down as CEO in 1998. So even a great company as intel might not be a great investment at any price….

Anyway, in my opinion this is a truly great book. I think both, investors and managers can profit a lot from this book. I do like “first person perspective” books a lot, especially if you can compare them against articles and theories about the same company written by other people.

Some links

Jim Chanos on Charlie Rose with an update on his China bear case

Great story about the 32 year old CEO of Burger King

Detailed presentation on the (not so bad) future of television

Red Corner has two posts about in interesting China/Macau stock called Future Bright Holdings (part 2)

David Einhorn’s Q2 commentary with some colour on his short positions

Damodaran on why the Fed should not be your preferred investment advisor

Good 15 minute feature on Ben Graham, the “father of value investing”

Some links

GMO’s very interesting Q2 letter. Their speculation about a massive M&A boom is quite realistic

Wexboy’s 6 month performance review

A list of 5 unknown but interesting books about investing

A great profile of Hedge Fund honcho Leon Cooperman

An interesting but very exotic stock analysis from WertArt (UK listed Indian private equity…..)

Finally, in German, the second quarter report of ProfitlichSchmidlin Fonds. Especially the bond section is worth reading with a lot of interesting ideas.

Some links

Interesting “first hand” small cap activist experience by Ragnar the pirate.

Citron Research is short Zillow

Great write up on AGCO, an interesting US based agricultural equipment company from Wertart Capital

A very very good post on interest rates from the Slackwire blog. Also read the post on negativ rates.

Lots of investor letters from Bridgewater (Ray Dalio)

Frenzel & Herzing with a very good update on Hornbach Baumarkt. My last remaing German “Value stock”…..

Some links

Great WSJ interview with Ray Dalio (google headline to read article)

Interesting post on the upcoming Samsung restructuring and pitfalls of Korean “Chaebols” (via Beyondproxy).

Profitlich & Schmidlin with a (German language) case study on Hypo Alpe Adria Bonds.

“The red corner” looks at a Chinese company called “Texhong Textile Group”

Nothing really new there but still worth a read: Aleph blog about Value Traps. For a good example, look no further than Set-top boxes.

A very comprehensive paper on dividends and share buy backs from Credit Suisse

And finally a non-financial link: I had the chance to see a live concert of Charles Bradley, a great “Old school” soul singe. The guy was only “discovered” at the Age of 63, a great example that is never too late for anything:

Some links

Must read: 10 thoughts on becoming an indpendent fund manager from RV capital

Frenzel & Herzing have a 2 part mini series on 3U (part 1, part 2), a potential German (very) deep value situation plus a great study on soon-to-be-taken-over Kabel Deutschland.

A great review of the book “The art of short selling”

Another must read: The annual Credit Suisse Investment Returns yearbook 2014

Long story how Abercrombie & Fitch lost it (not every maniac CEO guarantees success…)

Finally, the new interesting blogs:

Contrarianville, a blog with some great, “deep thought” posts on Value investing in general
Otakuinvest, a relatively new value Stock picker blog with blog portfolio

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