The Power of Doubt

To make better decisions, embrace uncertainty

In the 1990s, I was running a trading team in New York. When staff and clients arrived at our annual Christmas party, we would ask them to name one stock that would beat the market in the next year.

This was important information. After all, we are talking about highly educated fund managers, savvy traders, the smartest people in the room.

We also had a dartboard. We would plaster it with the share price lists from the Wall Street Journal. Then we’d get everyone to throw a dart. We’d keep a record of that too.

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Buying into yourself

Invest in a business, not in a dream

How unfashionable is this statement? The sole mission of any business is to optimise value for shareholders.

Try dropping that into a politically correct dinner party, or, for the really brave, putting it on a placard and joining an anti-Wall St demo.

You don’t have to go that far. Shareholders are hardly flavor of the month anywhere.

Yet most of us are shareholders one way or another. Anyone who has a pension scheme probably holds shares in a bank, whether they chose to or not.

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Climbing the wall of worry

Time to get off?

Because I spent over 35 years in financial markets, people often ask me about stock markets. What can I tell you?

Here’s the truth: I have absolutely no idea where markets will end up this year.

I can give you some probabilities. I can name some stocks that might outperform. I could make some fairly reliable dividend forecasts. I can probably identify some stocks that are undervalued, relative to the market.

But I have no idea whether Greece will default. Or if it does, whether another half dozen will follow. I don’t even know what will happen if they do. Maybe stocks will go up on the resultant clarity. Nor do I know if property in China will collapse or land softly. Or if Iran will both produce and explode a nuclear bomb.

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What's the best opportunity?

Simple rules about creating value 

I addressed a group of CEOs in Asia last month. Several had a problem. Their business was cash flow positive. They had it coming in quicker than it was going out. Funds were piling up in the bank. 

So what’s the problem?

The fact is, money in the bank earns well below the return on capital they usually generate in their business. The excess cash wasn’t really creating value.

It’s the opposite of leverage, where, if you borrow money for less than the return you generate on that money, you create value. In theory, at least.

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Walking the talk

Had any courageous conversations lately?

Leadership is mostly about managing change. It is easy to lead from the front when you’ve got a following breeze. It’s when you run out of wind that it gets tough: your business slumps; office politics take a turn for the worse; there’s a problem with your best client; you top sales team is getting poached.

These are normal business issues but sorting them out can mean changing the way things are done. Unfortunately, that also often means changing behavior – either yours or someone else’s.

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