A recent article in The Economist about the private equity (PE) industry brought to light the one unique outfit in this dismally uncreative field: Clayton, Dubilier & Rice.

The PE industry playbook calls for leveraged buy-outs, piling debt on companies’ balance sheets and ruthlessly cutting costs to ensure the piled-on debt is serviced first and foremost. Operations, the debt-paying machine, come next; then, just milk every cent of remaining value. It’s not a going concern; it’s a paying concern, and once the payments are done the concern should be sold off, hopefully at a profit.  The problem is that quite often milking the companies for quick payback results in their operations falling apart. As The Economist says, “Operational improvements in a portfolio company [of a private equity firm] has often meant little more than promising colossal bonuses to sitting chief executives if they meet ambitious growth targets.” The carcasses of companies brought to their knees by PE decay all over the globe.

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A 2013 survey conducted by the law firm Labaton Suchrow made a discovery that will surely astonish you: Wall Street ethics is in decline.

Of 250 financial professionals surveyed:

  • 52% felt their competitors (not them, of course) had engaged in unethical or illegal activity.
  • Nearly a quarter said they know firsthand of unethical behavior in their workplace.
  • A similar percentage reported they would likely engage in illegal activity (insider trading) for a $10 million profit if they could get away with it.
  • 28% felt Wall Street does not put clients’ interest first.
  • 29% felt unethical or illegal activity might be necessary for them to be successful.
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CNN reported on July 16, 2013, on “Russia in largest war games since Soviet era.” The BBC said “Putin inspects biggest post-Soviet war games.” Should the West be worried?

Take 1: Mark

No. War games have many objectives, including getting some use out of ammunition before it reaches its expiration date. The objective this time is, I believe, signaling.

It would be hard for Russian President Putin to hide 160,000 troops, 130 planes, 70 ships, and thousands of vehicles as they scamper over large areas for a few days. (“I think someone’s coming! Everyone hide!”) The futility of hiding isn’t an unfortunate fact of war-gaming life, though. It’s a feature, not a bug.

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Once upon a time, there was an experiment.

In this experiment rats could press either Bar X or Bar Y. If the rat pressed the correct bar, it would receive a pellet of food; if it pressed the incorrect bar, nothing. (Why do experimental rats get “pellets” of food? Why not morsels, nibbles, tidbits, noshes, or treats? Poor rats.) The bars were calibrated in a random sequence such that 60% of the time Bar X would dispense the delight and 40% of the time Bar Y would serve the snack.

A similar experiment, also with a 60/40 random sequence, was run with humans. It is unknown whether the humans received pellets of food or some other form of reinforcement.

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Do you know Pictet? No, you don’t. And they don’t care. You are not their client. That makes them strategy geniuses since 1805. Then again, the standard against which one would measure them – their peers in the banking community – is very low.

Pictet & Cie, in its full name, is a Swiss bank. It is the third largest Swiss bank that you never heard about. It manages more than 300 billion dollars in assets. You have heard a lot about the other, larger Swiss banks, UBS and Credit Suisse. UBS got close to collapse in the 2008 financial crisis and had to be bailed out by the Swiss government. Credit Suisse was not hurt as badly. In 2008 it merely lost 8.1 billion Swiss francs (about $8.5 billion).

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If you’re going to compete you might as well know what you’re competing for. “Success,” of course. And success is…?

Here are some ways that people define success:

Money. Fame. Beauty. Survival. Long life. Freedom. Free time. Children.
Marriage. Possessions. Piety. Serenity. High test scores. Being first. Being well-adjusted.
Being loved. Loving. Working. Achieving a goal. Setting a record. Overcoming fear.
Overcoming handicaps. Great effort. Great decisions. Great results. The journey. Applause. Inner satisfaction. Health. Time to relax. Parties!

Success involves tradeoffs. For instance, achieving great works and taking time to relax can be in conflict. For another instance, you probably will find it difficult to pursue everything. You’ve got to choose what you really want.

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I like Rupert Murdoch. The news that he is looking to buy the beleaguered Los Angeles Times and Chicago Tribune from the Tribune Company just made me like him even better.

You might or might not like Murdoch based on his politics. My admiration today, though, isn’t about politics. It’s because expanding your business in an industry everyone thinks is headed for the great recycling bin in the sky is sheer genius, strategy-wise.

Most pundits, industry observers, and Wall Street analysts drool over new hot markets (China! China! China, I tell you, China!) and new high-growth areas (tablets and mobile devices! healthy foods! e-cigarettes! digital readers! especially in China!). They dismiss the old industries threatened by the new.

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