After our bold foray into the realm of government policy in the last few postings, it’s time we get back to brass tacks. For this post, we tackle something related to the 8th Habit as mentioned in the article “The Eight Habits of Investment Literate People”. I feel I owe it to the readers to elaborate further on the last habit, i.e. they make their investment moves with ROR or rate of return in mind. I hope this little follow-up would make the concept a little clearer to the readers.
Numbers, unlike words, do not have meaning by themselves alone. They acquire meaning only when they accompany words or when comparisons are made between or among numbers. They are sterile and boring and I myself would rather do something else than dig up or crunch numbers. They are a drudgery – which simply means hard, disagreeable or dull work. Unless, of course, you belong to the few who love crunching numbers as ends in themselves.
But make no mistake about it. Such a drudgery is something to be embraced or at least, to live with, if one is to be serious about investment.
It is like exercise; one may not like it or would rather do something else. But doing exercise makes you healthy and strong, builds and conditions muscles and makes you feel good. Exercise also releases beneficial hormones that fight depression, and is an absolute “must” for OFWs away from their families – where getting homesick and getting depressed occur as frequently as sandstorms during winter time.
“The drudgery of the numbers will set you free to make intelligent decisions,” said Harold Geneen, the celebrated CEO of ITT (International Telephone and Telegraph) conglomerate which ruled the roost in the US corporate scene during the 60s and 70s. The abrasive Geneen made the famous quote in his autobiographical book blandly entitled Management (New York: Doubleday, 1984).
Geneen presided over a decade of relentless acquisition and continuous growth for the ITT conglomerate with hundreds of companies in such varied industries as telecommunications, manufacturing, hotels, insurance, travel, defense, books, cosmetics and food . During its heyday, ITT was the darling of the financial press and Geneen was considered one of the 20th century’s greatest managers.
Of course, ITT group is not as famous now as it was then, let alone Geneen, who passed away quietly in 1997 and whose sterling record seems to have been eclipsed by the sell-off of many ITT companies by his successor after he retired. And we certainly do not want to emulate this man who was famous as much by his performance as his being a slave-driver and difficult boss, with penchant for conducting meetings into the wee hours of dawn.
Geneen’s extraordinary performance as a manager appears to have been driven much by his seemingly fanatical devotion to numbers and how such numbers reveal the performance or lack of it by his managers and the companies they manage.
We need not be Geneen of sorts, but what I want to point out here is that numbers are something we can never escape from, if we are serious about investment.
What does this got to do with the eight habit or making our move with the ROR in mind?
The ROR is a number that has to be crunched whether we like it or not, come rain or shine. The numbers can be based on actual figures, as in the case of studying whether to invest in a stock or not, or to buy into a business offered for sale. But if there are no actual figures, as in the case of making a Business Plan or Feasibility Study, then this has to be projected or even imagined, with some reasonable assumptions, of course.
“Making our investment move with ROR or rate of return in mind” is our adaptation of Stephen Covey’s “Second Habit” in his celebrated run-away bestseller “The Seven Habits of Highly Effective People”. “Start with the End in Mind”, as the second of the seven habits goes. This is a seed idea whose relevance reverberates in the field of investment.
Mind you, this is not just coincidence or a concoction but a solid idea borne of a great deal of common sense and reason. An investment idea will simply not make sense unless one can see its endpoint, and the endpoint of investment is, was, and will always be RETURN. No return, no investment – as simple as that.
We can argue until we turn blue but this is the truth and nothing can change this.
On the other hand, after we run the numbers and find meaning thereof, the numbers cease to be a drudgery. The numbers acquire not just meaning, but rhythm and even beauty of their own. And then we feel a sense of satisfaction that we have done our work and are now poised to make an intelligent move. There is a sense of excitement.
That is when we finally realize that, indeed, Geneen was right – the drudgery of the numbers will set us free to make intelligent decisions.