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    • The cautionary tale of Enron: greed and deceit in corporate culturePrioritizing own interests at the expense of shareholders and stakeholders rarely leads to long-term survival. Enron's downfall warns against unchecked greed and deceit in corporate culture.

      Enron, once the seventh largest company in America, is a cautionary tale of a financial trading company that became over leveraged, got tangled in a web of self-dealing to try and paper over their problems, and ultimately filed for bankruptcy to the tune of the largest bankruptcy in American history at the time. Much like FTX, which is currently making headlines, Enron's executives profited richly while shareholders were left in the lurch. In retrospect, the story of Enron is like a warning from history about the dangers of unchecked greed and deceit in corporate culture. Companies that prioritize their own interests at the expense of shareholders and other stakeholders rarely end up surviving in the long term.

    • The Enron scandal and lessons on greed and market behaviorRemain vigilant to prevent similar scandals by asking critical questions, being mindful of the risks associated with trends and chasing returns, and staying accountable amidst market environments.

      The Enron scandal is a reminder of the damage caused by greed and a lack of accountability. It took place during a period of economic and political tumult, marked by economic recessions and energy crises, that inspired the deregulation of energy markets in the US. The bull market of the time encouraged investors to take risky bets, contributing to the unsustainable rise of Enron. Regulatory authorities and investors should remain vigilant and ask critical questions to prevent similar scandals from happening in the future. It is also important to remember that market environments play a role in shaping investor behavior and to remain mindful of the risks associated with keeping up with trends and chasing higher returns.

    • The rise of free market competition in the US energy industry and the story of Kenneth Lay's role in it.Deregulation of the natural gas industry in 1978 allowed for more competition in the US energy market, but it also brought new challenges for companies like Transco, as demonstrated by Lay's experience.

      The US energy market was monopolized and regulated by the government after the government regulated energy producers and utilities, ensuring stability and low prices of power. However, in 1978, the National Energy Act started to open up parts of the energy industry in the US to free market competition, and the natural gas industry deregulated. Kenneth Lee Lay was one of the earliest to take advantage of this new market. A Ph.D. economist, a civil servant in the government, and an operator in the private sector, Lay moved to Houston to work as the number two executive at Transco right as deregulation took hold. However, despite the new market, Transco fell into a problem when energy prices suddenly fell after a decade of increases.

    • The Disruption of Energy Markets: Ken Lay's InnovationKen Lay's creation of a spot market for energy disrupted traditional long-term contracts and opened the door for trading and financialization of energy assets, leading to the eventual securitization of these assets.

      Ken Lay, a PhD economist and industry veteran, pioneered the creation of a spot market for energy between producers and consumers of oil and gas, disrupting the long-term contracting model that pipelines had previously relied on. Lay's innovation opened the floodgates for trading and financialization of energy assets, which had previously been regulated by the government. Although this was not yet securitization of energy assets, it was a small but significant step towards it. Lay's success at Transco led him to the CEO position at Houston Natural Gas and later, InterNorth. InterNorth bought HNG for a 40% premium, making Lay and the HNG team the new leaders of the combined company.

    • The Decision that Led to Enron's DownfallThe shift towards natural gas and the decision to locate the headquarters in Houston led to a corporate culture of greed and profit-seeking, ultimately resulting in Enron's downfall.

      The clash between InterNorth and HNG manifested in the decision of where to locate the headquarters of the new company. McKinsey was hired to study the issue and Jeffrey Skilling recommended Houston as the logical choice due to its position as the center of the natural gas industry. Natural gas had become a preferable alternative to oil due to its perceived cleanliness and ability to be deregulated and moved easily. It had many useful properties that made it an ideal energy source. However, Skilling's recommendation ultimately led to the downfall of Enron, as it was the beginning of a culture that placed greed and profit above all else, leading to the company's demise.

    • The Origins of Enron - A Controversial BeginningEnron's early origins were plagued by controversy, including a branding mishap and a tendency to turn a blind eye to unethical behavior. Leaders must prioritize transparency and accountability to avoid similar pitfalls.

      The story of Enron begins with the merger of two pipeline companies, HNG and InterNorth, and the subsequent leadership takeover by Ken Lay. Lay is a consummate politician who never says anything confrontational or offensive, making him very successful in public spheres. He hires expensive naming and branding consultants to create a new name for the company, which ends up being Enron. However, the consultants fail to check the dictionary and realize that 'Enteron' is a medical term for the intestinal digestive tract of embryos, causing the company to face ridicule in the press. Lay loses his cool and demands a new study, resulting in the name being shortened to Enron. Soon after, the company faces its first trading scandal with two traders embezzling money from the company, revealing Lay's tendency to look the other way.

    • Enron's Transformation and its Impact on Financial MarketsEnron's pioneering development of a derivatives market based on energy trading was innovative, but its focus on unethical practices in trading without proper oversight highlight the importance of ethical conduct and regulation in the financial industry.

      Enron evolved from a logistics energy transportation company to a financial organization with a trading desk and investment banking capabilities. Enron's innovation of creating a spot market for energy led to the development of a full-fledged financial derivatives market where buyers and sellers wrote contracts and bought contracts for any amount of the commodity in the future at a set price. Futures contracts were used by local utilities to hedge their exposure to the risk of the price skyrocketing due to any Black Swan event. However, Enron's focus on trading and securitization led to unethical practices and financial losses, showing the need for proper oversight and control in the financial industry.

    • Enron's Derivatives Investment and Ultimate DownfallFocus on the underlying asset and prioritize ethical decision-making, as losing sight of the asset and questionable priorities can lead to a company's downfall.

      Enron pioneered energy derivatives, but the company's downfall came when they lost sight of the underlying asset and only focused on trading the derivatives themselves. They funded producers to gain control over future production and to securitize it. This was not a malicious strategy in itself, but it ultimately led to Enron's downfall after they adopted mark-to-market accounting. Jeff Skilling, who insisted on this accounting method, joined Enron as the full-time CEO of the Enron finance division. Although he was effing smart, his priorities were questionable, as he negotiated his offer from the hospital while his wife was in labor. This highlights the importance of not losing sight of the underlying asset and prioritizing ethical decision-making.

    • The Power and Responsibility of Mark-to-Market AccountingMark-to-market accounting can be abused, as seen in the Enron scandal, making it important to consider incentives and behaviors when implementing it in a company or division.

      Mark-to-market accounting can be a powerful tool, but with great power comes great responsibility. It opens up the question of what the market price is and how to discover the true market price of something when someone is not paying you for it. Although it is probably okay if you can avoid the temptation to abuse mark-to-market accounting rules, the potential for a litany of abuse is very high, especially for an operating company. The Enron scandal is a prime example of the potential for abuse. It is important to consider incentives and the behavior that they drive when modeling a division or company, as seen in Skilling's hiring of trader-type folks and the infamous Lou Pai, who benefited the most economically and stayed out of jail despite his obsession with strippers.

    • How Enron exploited the financial system and led to stricter regulationsEnron's scandal serves as a warning against prioritizing short-term gains over ethical business practices, highlighting the need for stricter financial regulations like the Sarbanes-Oxley Act of 2002.

      Enron exploited loopholes in the financial system, using special-purpose entities to remove loss-making assets from their accounting books and inflate their revenue through mark-to-market accounting. Their primary focus was on locking up contracts for oil and gas production, regardless of the quality or profitability of the projects. This massive incentive misalignment was enabled by a system with no lids on the cookie jars, where all of these exploitable practices were waiting for someone without scruples to come in and take advantage. The Enron scandal highlighted the need for stricter financial regulations, leading to the passing of the Sarbanes-Oxley Act in 2002. It serves as a cautionary tale about the dangers of prioritizing short-term gains over long-term sustainability and ethical business practices.

    • The Flaws in Enron's Accounting PracticesMark-to-market accounting, coupled with conflict of interest at Enron's auditors, led to fraudulent practices and inflated stock prices. Regulations and transparency in financial reporting are crucial to prevent such practices.

      Mark-to-market accounting allowed Enron to recognize future cash flows as revenue today with no immediate expenses, which led to the company inflating its revenue and stock price. The SEC, despite initial rejection, eventually approved Enron's use of mark-to-market accounting. The conflict of interest at Arthur Andersen, Enron's auditors, and consultants, further highlights the flaws in the accounting industry's system at the time. While there may have been some justification for using mark-to-market accounting in the oil and gas industry, Enron exaggerated projected cash flows to manipulate the market and engage in unethical practices. This highlights the importance of regulations and the need for transparency in financial reporting to prevent fraudulent practices like those carried out by Enron.

    • Enron's fraudulent practices and the need for transparency in financial reportingCreating incentives aligned with ethical behavior and transparency in financial reporting can prevent companies from engaging in fraudulent practices like Enron, ultimately saving investors and the economy from collapse.

      Enron engaged in fraudulent practices through creating special-purpose entities to offload unwanted assets and inflate their revenue. This was done through mark-to-market accounting, which recognized all future income as revenue in the present, leading to a lack of recurring revenue. The company grew rapidly from 1996 to 2001, but the inflated numbers and lack of underlying reality led to the company's bankruptcy. Despite this, Enron was named America's most innovative and best-managed company by Fortune Magazine. The misalignment of incentives meant that everyone benefited from this fraud, including the ratings agencies. This highlights the need for proper incentives and transparency in financial reporting to prevent such fraudulent practices.

    • Enron's fraudulent practices and unsustainable business modelEnron's fraudulent practices involved offloading assets and booking billions of dollars in revenue, while relying on issuing new equity at inflated prices, taking cash from the American public, and using it to finance terrible development deals.

      Enron's fraudulent practices involved offloading assets and booking billions of dollars in revenue, while financing multibillion-dollar energy projects in developing countries, such as India, Brazil, and Argentina. This created a huge market opportunity, but Enron faced difficulties in finding investors to provide even 3% of the capital needed for offloading these assets due to the company's insidious political influence and unsustainable business model. Enron's operations did not generate a lot of cash flow, so they relied on issuing new equity at inflated prices, taking cash from the American public, and using it to finance their terrible development deals. The company was unable to execute on complex projects, and on the back end, there was actually no cash changing hands, making it all just a metastasizing cancer on the world.

    • Enron's Private Equity Fund LJM Capital: A Scheme to Benefit Fastow and Turbocharge EnronEnron's CFO and CEO set up a private equity fund for Enron's benefit, disguised as an arm's length arrangement. This scheme helped Enron put up capital and get bad stuff off balance sheets, benefitting Fastow and turbocharging Enron's profits.

      Enron's CFO, Andrew Fastow, and CEO, Jeff Skilling, set up a private equity fund called LJM Capital, with Fastow as the general partner who only did deals beneficial for Enron. Fastow convinced the board that it was arm's length, even though all the employees and office were from Enron, and the management fees flowed straight to him. The board was fully on board with this, and Skilling intentionally did not sign off on it, but let it continue. This scheme helped Enron put up the 3% capital needed for special-purpose entities, and banks like Merrill Lynch and JP Morgan invested capital in LJM. Fastow was eventually made head of corp dev, managing all sides of the transactions that ultimately benefited him. The whole scheme was particularly beneficial for Fastow, but turbocharged Enron's flywheel, booking revenues and getting bad stuff off the balance sheets.

    • The Start of Enron's Downfall.Enron's downfall began with the disclosure of related entity transactions and the discovery of illicit deals involving Fastow and Kopper, ultimately leading to the company's collapse.

      Enron's downfall began with the disclosure that a member of the management team had a related entity that did transactions with Enron. As investors and the media started investigating, Fastow was revealed to be the person running these deals and he was eventually thrown under the bus by the company. Fastow had plans to start his own billion dollar fund and had already started skimming money from Enron's deals with the help of a direct report named Michael Kopper. Together they created an entity called Chewco and used Kopper's partner as the outside investor to buy out assets from CalPERS, eventually enriching themselves. This was the beginning of their nefarious deals together, leading to checks being cut to Andy's wife and ultimately Enron's downfall.

    • The Downfall of Enron - Lessons Learned for Ethical and Sustainable GrowthPrioritize ethical and sustainable growth over short-term gains. Avoid spreading yourself too thin in multiple markets without proper expertise. Streamline compliance with Vanta's SOC 2 solution, allowing focus on core business without compromising security and compliance.

      Enron's aggressive expansion into various markets, including electricity, water, pulp and paper, weather derivatives, and metals trading, led to their downfall. Their obsession with showing growth and pumping up their stock price drove them to engage in unethical accounting and trading practices, ultimately resulting in the disastrous California blackouts. Companies should prioritize ethical and sustainable growth over short-term gains and avoid spreading themselves too thin in multiple markets without proper expertise. Vanta provides a comprehensive and streamlined solution for SOC 2 compliance, allowing companies to focus on their core business without compromising security and compliance.

    • Enron's Exploitative Trading Strategies and Insidious Culture Resulting in Harmful Impacts.Enron prioritized profit over the well-being of people and institutions, ultimately causing harm and even loss of life. Their belief in free markets as the only ethical approach allowed for unethical behaviors to occur.

      Enron used various trading strategies to exploit the safety measures in the California power market to profit from harmful activities, causing huge impacts. Enron developed Enron Energy Services division, which Skilling wanted to sell, by creating an insidious culture that portrayed the sophisticated booming business to visitors. Enron's actions were the major reason that Governor Gray Davis got recalled and Arnold Schwarzenegger took the reins. Enron's culture and actions resulted in harming hospitals, schools, and people's homes and caused deaths. The Enron traders' philosophy is that free markets are virtuous, and the only ethical thing is to have everything be a completely deregulated, open, free market where lay the rules of the game and then play the game however the rules say that you can play them.

    • Enron's Fraudulent Practices in the War Room, Overestimation and ManipulationEnron's fraudulent practices in the war room, overestimation of consumer demand, manipulation of market prices, and greed led to their downfall, ultimately harming their investors and employees.

      Enron created a sham war room to make analysts believe that their business was thriving. They even coached employees to look busy and appear as if they were working on important projects. Enron's broadband services and internet division was not successful as they overestimated consumer demand and booked over $100 million in revenue on day one. Enron also launched Enron Online, an electronic exchange that allowed all counterparties to trade with them electronically to generate a little bit of spread. This was a savvy data advantage, but unfortunately, they manipulated the markets and controlled commodity prices, which partly led to their downfall. Enron's executives were smart but also foolish, and their fraudulent practices harmed their investors and employees.

    • The Dangers of Overconfidence and Cognitive Dissonance.Intelligence is not a shield against ignorance. Stay grounded, be vigilant, and listen to warning signs to avoid catastrophic consequences.

      Being too smart and too confident can lead to cognitive dissonance and blind spots. It is important to have a realistic outlook even if you are intelligent. Enron's downfall was caused by the combination of brilliance and stupidity in Skilling and the team of people. Cognitive dissonance led them to believe that they were innovative and that there was nothing wrong with their actions. The company's black box approach to finances ultimately led to its downfall. It's important to pay attention to warning signs and not ignore them just because of arrogance and overconfidence.

    • The Danger of Ignoring Cash Burn in High Revenue and ProfitsAnalyzing both income statements and cash flow statements is crucial to spot potential accounting issues. Companies with high revenue and profits but negative cash flow should be approached with caution, as this may indicate fraud or mismanagement.

      Companies reporting high revenue growth and high profits on the income statement, but also burning cash, should raise a red flag. Short sellers, journalists, and analysts pay attention to terrible returns on invested capital, no free cash flow, and poor free cash flow dynamics as it is probably where there's a big accounting issue that's about to happen. Enron reported high profits on the income statement but had terrible free cash flow dynamics. The company's financial statements were impenetrable, which led to its high stock price being unexplainable. The reported profits versus the cash flow should raise cognitive dissonance. Andrew Marks pointed out that companies with terrible return on invested capital and poor free cash flow dynamics likely have fraud.

    • The Importance of Careful Risk Assessment and Diversification in Market VolatilityIn a frenzied bull market, it's easy to overlook risks and over-leverage. But as Enron's downfall showed, scrutiny rises in market downturns, highlighting the importance of diversification and focusing on intrinsic value over hype.

      In a bull market, investors often overlook poor accounting and take higher risks, but when the tide goes out and the market starts falling, everything gets scrutinized. Enron's downfall began when investors started asking tough questions about their balance sheet and earnings. Skilling, the architect of the house of cards, saw the tides changing and had a mental breakdown, resigning from the CEO position. In times of market volatility, it's important to assess risks carefully and diversify to avoid over-leveraging. Ken Lay, for instance, didn't diversify and had to sell Enron stock after it started falling, exacerbating the company's downfall. It's crucial for investors and executives alike to focus on intrinsic value and not get caught up in speculative hype.

    • The Enron Scandal: Fraudulent Activities and Deceptive Practices by the Top ExecutivesThe Enron scandal was a result of fraudulent activities by its executives who not only sold their shares secretly but also encouraged employees to invest in the company's stock, while concealing the truth about their own stock sales, leading to financial ruin for many.

      Enron scandal was created due to fraudulent activities of its executives who sold their Enron stock secretly while promoting it to employees and public, thus misleading them. Ken Lay, the chairman, doubled down on his Enron stock instead of diversifying, and took margin loans against it, which led to margin calls and forced him to sell Enron shares. However, he repaid those loans with cash loans from Enron, hiding the fact that he was actually selling his shares. Lay sold $300 million worth of Enron shares using this nefarious way. Enron executives communicated about the stock price rather than intrinsic characteristics of the business, and Lay encouraged employees to invest in Enron stock in their 401(k)s, even though he was secretly selling his own shares.

    • Enron's downfall due to fraudulent practices and lack of transparency.Enron's emphasis on stock prices and disregard for transparency ultimately contributed to its collapse, with systemic issues and lack of leadership playing roles too.

      Enron incentivized executives to pump up stock prices, leading to fraudulent activities. A lack of transparency regarding debt obligations and off-books entities, as well as the disregard for whistleblowers ultimately led to the company's downfall. Though September 11th temporarily shifted attention away from Enron's troubles, their commercial paper not turning over on September 12th could have been game over for the company had it not been for the distraction caused by the terrorist attack. Enron's downfall was a result of both systemic issues and the failure of leadership to take action and address the fraudulent practices going on within the company.

    • Lessons from Enron's downfallLack of ethical business practices, poor risk management, and accountability can lead to the downfall of even the biggest companies. Having a plan to service debt, track cash flows, and hedge investments is critical for sustainable growth.

      The massive document shredding at Arthur Andersen related to Enron and subsequent revocation of their CPA license led to their downfall and loss of 85,000 jobs. Enron's Raptors were intended to hedge investments but became toxic by doubling exposure to stock market hits. The lack of a plan to service debt and track cash and maturity schedules ultimately led to Enron's downfall. If the markets had always been good and the stock price had always gone up, they always could have just issued more equity to cover any cash needs that they had. This is a cautionary tale about the importance of ethical business practices, accountability, and risk management.

    • The danger of mark-to-market accounting and the importance of transparency in financial reporting.Enron's collapse demonstrated that relying on mark-to-market accounting and lacking transparency can lead to financial insolvency, emphasizing the importance of ethical financial practices.

      Enron's financial insolvency was exacerbated by the lack of trust and support from their banks, as well as their attempts to secure a bailout and broker a deal to save the company. The acquisition deal with Dynegy proved to be a temporary solution, as Enron was forced to restate earnings due to the Chewco and Jedi scandal, leading to a further liquidity crisis. The collapse of Enron highlights the danger of relying on mark-to-market accounting and the importance of transparency and accountability in financial reporting.

    • Enron's Bankruptcy and Reorganization ProcessIrresponsible banking practices, such as using up all liquidity and insider trading, can lead to dire consequences like Enron's bankruptcy. A well-planned reorganization process under chapter 11 can help pay out creditors and recover from financial debts.

      Enron's bankruptcy shows that irresponsible banking practices can lead to dire consequences. With an active trading portfolio, Enron had used up all its liquidity by cash guaranteeing trade settlements, and when its counterparties stopped trading, a run on the bank ensued. This was made worse by insider trading, with Ken Lay's wife selling 500,000 shares of Enron stock before the news of the company's bankruptcy broke. Enron ultimately filed for bankruptcy, choosing a Chapter 11 temporary reorganization option. John Ray became the chief administrator officer, who worked on a better reorganization plan to pay out to the creditors, which ended up being $13 billion (36 cents to the dollar) in comparison to the previous plan ($60 million), and cooperated during Chapter 11.

    • The Enron Scandal: Impact, Consequences, and LessonsThe Enron scandal serves as a reminder of the importance of corporate responsibility and transparency. Businesses must operate ethically to maintain the trust of shareholders and the public.

      The Enron scandal resulted in many top executives being implicated in illegal activities and being sentenced to prison time. The close ties between Enron executives and politicians, including the Bush family, were revealed. The scandal had a significant impact on the economy and led to the passing of the Sarbanes-Oxley Act, which made going public more difficult. The case also highlighted the importance of corporate responsibility and culture. Lessons can be learned from Enron’s fall and it’s important for businesses to be transparent and operate ethically to ensure the trust of shareholders and the public.

    • The Impact of Sarbanes-Oxley Act on Public Companies and FraudThe Sarbanes-Oxley Act aimed to prevent fraud and increase transparency in public companies. However, its impact may have led to more companies staying private longer. The Act also influenced the prosecution of the Capitol rioters and led to varying penalties for fraud and white-collar crimes.

      The Sarbanes-Oxley Act was enacted to prevent fraud and increase transparency in public companies. However, its impact may have led to more companies staying private longer, as the Act increased the required disclosures and personal responsibility of top management, making being a public company less desirable. It also may have shifted the occurrence of fraud from the public market to the private market. Sarbanes-Oxley's provisions even influenced the prosecution of the Capitol rioters, demonstrating its continued relevance. The penalties for fraud and white-collar crimes can vary drastically, as seen in the case of Enron's executives. Ken Lay's death before sentencing led to the vacating of his conviction and potentially saved his family from having his assets seized.

    • The Rise and Fall of Enron and Its CEO Jeff SkillingEven in a company plagued by greed and corruption, individual actions can still make a positive impact. However, accountability must be held for unethical practices and consequences may follow.

      Enron was an example of corporate greed and corruption. Despite this, one of the company's executives was remembered fondly for his charitable work, illustrating the complexity of human nature. Jeff Skilling, Enron's CEO, was sentenced to 24 years in prison in 2006 for his role in the company's collapse but ended up serving only 12 years and eventually founded a new energy trading company in 2020. The carcass of Enron continued to cause legal issues until September 2008, with lawsuits targeting the banks involved in Enron's shady dealings.

    • How Enron's Downfall Affected Equity Holders and the Rise of Successful IndividualsDespite Enron's bankruptcy exit and impact on equity holders, some individuals were able to turn their experiences into successful ventures, such as Pilot's financial infrastructure and the high-performing hedge fund led by former Enron trader John Arnold. Ethical and honest practices, like those demonstrated by executive Richard Kinder, also remain integral in achieving long-term success.

      Banks have a lot of money and Enron was able to receive billions of dollars from various banks despite being bankrupt. The bankruptcy exit was probably the reason why some of Enron's equity holders received money instead of all the funds going to creditors. If someone had bought Enron equity at the right time, they could have made over 10 times their investment after 7 years. Pilot is a startup that provides financial infrastructure to other startups. They offer CFO services like accounting, finance, and tax without the need for hiring an expensive accounting firm or building out your own finance team. John Arnold was one of the best traders from Enron and went on to start one of the highest performing hedge funds ever. Richard Kinder, an executive at Enron, was ethical and honest about what provided value to customers and was in line to be CEO.

    • Enron's Collapse and the Importance of Building a Real Business.Enron's failure showed the risks of prioritizing structure over substance, and the value of resources and information in creating long-term competitive advantage. Businesses should focus on creating real value for customers.

      Enron's downfall exemplifies the difference between a corporation and a business. The actual businesses inside the company that generated real value for customers and could capture some of that value by the company were not clear amidst all the terrible structure and self-dealing. While the trading business was profitable, Enron Online, their marketplace for energy trading, could have given them real market power. The pipeline business was also likely profitable as a pure monopoly. Enron's failure highlights the importance of focusing on building a real business rather than just creating a structure around a project. It also highlights the value of cornered resources and information in generating alpha and outperforming competitors in the long run.

    • Enron's fraudulent business model and high-risk leverageEnron's success was built on exploitation and fraud, caution should be exercised when tying everything to share prices and collateralizing with own stocks, optimal leverage for financial assets is zero. A company is not always a business, and limited pipeline markets can pose risks despite potential monopolies.

      Enron's success was due to their ability to exploit legal means and find ways to perpetrate fraud on a large scale. The company had charisma and money-raising ability, but the underlying business didn't have much going for it. Correlated risks are a major concern, and it's important to be aware of the risks involved when tying everything to share prices and collateralizing it with your own stock. The optimal amount of leverage for financial assets is zero. Mortgages may be viewed differently as they are secured by physical property. This episode highlights the difference between a company and a business and how limited pipeline markets can be despite potential monopolies. The Midwest's use of coal rather than natural gas is a notable example.

    • The risks of using leverage in venture capital illustrated through Enron's downfall and the complexity of assigning blame and intent.Be mindful of the risks of leverage and consider incentives and behavior in all business decision-making. Don't rely on borrowing from the future and create unrealistic assumptions like Enron did.

      Using leverage, like trading with leverage, can be very risky and can invert the magical property of venture capital. Enron's fatal flaw was borrowing from the future until there was no future left to borrow from, which created unrealistic assumptions and overvaluation in their business. This is a clear illustration of incentives and behavior, as shown by the Charlie Munger quote, 'Show me the incentives, I'll show you the behavior.' Assigning blame and intent in situations like this can be complex, as demonstrated by the portrayal of Fastow as the primary villain in the book, 'Conspiracy of Fools.' Overall, it's important to be mindful of the risks involved in using leverage and to consider incentives and behaviors in any business decision-making.

    • Enron Executives: The Real Culprits of the FraudLay and Skilling were the masterminds behind the Enron fraud, incentivized to deceive, while Fastow's role was minor. Enron's massive scale left a trillion dollars of claims to creditors, and no one was held accountable.

      Enron's executives Lay and Skilling were more culpable for the fraud than Fastow, who directly stole from the company. Lay and Skilling made more from the fraud, had board approval, and were more incentivized to perpetuate the deception. The Smartest Guys in the Room characterizes Lay as out to lunch and Skilling as the classic path of corporate villain. Enron left behind a trillion dollars of claims to 30,000 creditors and a million-and-a-half shareholders. FTX's scale is bad, but Enron's scale was massive. It took years for everything to come out in the Enron case. Every Enron employee that left, had a golden parachute or a sweetheart deal on an asset. The company never had a hard line with anyone.

    • Enron's downfall and the impact of Sarbanes-OxleySarbanes-Oxley achieved its goal of protecting shareholders from fraud, but companies staying private longer cited benefits and money. Enron's legitimate business activities included pipelines and derivatives trading, but their downfall began when derivatives became the sole focus.

      Enron captured more value than they created by a huge margin. Sarbanes-Oxley raised the cost of being a public company but not as much as stay private longer advocates claimed. Companies that stayed private longer weren't necessarily doing so because it was hard to be a public company, but because there was too much benefit and money to be made by staying private. Sarbanes-Oxley accomplished its goal of protecting the public and shareholders from fraud. Forward-looking narratives and grading Enron isn't possible, but it's interesting to note that Enron's legitimate business activities included pipelines and creating a market for derivatives trading as a means of hedging or stabilizing cash flow. However, once derivatives trading became the end goal, everything went downhill.

    • Recommendations for Entertainment and FootwearChoose Brooks Addiction for walking and Hoka slides for indoor comfort. Andor on Disney+ is a standout in the Star Wars franchise thanks to exceptional direction, writing, pacing, and character development that avoids relying heavily on fan service.

      Broadway's Enron the Musical and Disney+ show Andor are recommended watches. Brooks Addiction is a great walking shoe option that provides maximum support, while Hoka slides are a comfortable indoor shoe option for those with hardwood floors. The difference between walking and running shoes is that walking shoes have a sole that is one big slab of incredibly supportive material, while running shoes have a flexible and cushioned sole. Fan service can ruin a movie or show, but Andor avoids it and delivers exceptional direction, cinematography, writing, pacing, dialogue, and character development. Ultimately, the Star Wars franchise has taken a downhill turn, relying heavily on callbacks and fan service, but Andor stands out as a worthwhile watch.

    • Importance of Community in Investing and BeyondJoining a community with shared interests and goals can enhance learning and provide support. Don't underestimate the value of social connections in achieving personal and professional growth. Beware of complacency and strive for balance in all areas of life.

      Being a part of a community helps in gaining knowledge and insights. The Acquired Slack community has provided a platform for investors to discuss their queries and get responses from like-minded people. The community is a source of support and learning for individuals who are new to investing in corporate debt. Moreover, the acquisition of new skills and knowledge doesn't have to be a solo journey. It is always better to be a part of a community that shares your interests and goals. Additionally, investing in comfortable indoor shoes can also aid in easing into old age, but one should be cautious and not fall into the slippery slope of easy living.

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    Microsoft

    Microsoft. After nearly a decade of Acquired episodes, we are finally ready to tackle the most valuable company ever created. The company that put a computer on every desk and in every home. The company that invented the software business model. The company that so thoroughly and completely dominated every conceivable competitor that the United States government intervened and kneecapped it… yet it’s STILL the most valuable company in the world today.

    This episode tells the story of Microsoft in its heyday, the PC Era. We cover its rise from a teenage dream to the most powerful business and technology force in history — the 20-year period from 1975 to 1995 that took Bill and Paul from the Lakeside high school computer room to launching Windows 95 alongside Jay Leno and the Rolling Stones. From BASIC to DOS, Windows, Office, Intel, IBM, Xerox PARC, Apple, Steve Jobs, Steve Ballmer… it’s all here, and it’s all amazing. Tune in and enjoy… Microsoft.

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    ‍Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.

    Renaissance Technologies

    Renaissance Technologies

    Renaissance Technologies is the best performing investment firm of all time. And yet no one at RenTec would consider themselves an “investor”, at least in any traditional sense of the word. It’d rather be more accurate to call them scientists — scientists who’ve discovered a system of math, computers and artificial intelligence that has evolved into the greatest money making machine the world has ever seen. And boy does it work: RenTec’s alchemic colossus has posted annual returns in the firm’s flagship Medallion Fund of 68% gross and 40% net over the past 34 years, while never once losing money. (For those keeping track at home, $1,000 invested in Medallion in 1988 would have compounded to $46.5B today… if you’d been allowed to keep it in.) Tune in for an incredible story of the small group of rebel mathematicians who didn’t just beat the market, but in the words of author Greg Zuckerman “solved it.”

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    Note: references to Fortune in ServiceNow sponsor sections are from Fortune ©2023. Used under license.


    ‍Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.

    Hermès

    Hermès

    In luxury, there’s Hermès… and there’s everyone else. Stewarded by one French family over six generations, Hermès sells the absolute pinnacle of the French luxury dream. Loyal clients will wait years simply for the opportunity to buy one of the company’s flagship Birkin or Kelly bags. Unlike every other luxury brand, Hermès:

    • Doesn’t increase supply to meet demand (hence the waitlists)
    • Doesn’t loudly brand their products (IYKYK)
    • Doesn’t do celebrity endorsements (stars buy their bags just like everyone else)
    • Doesn’t even have a marketing department! (they barely advertise at all)

    And yet everyone knows who they are and what they represent. But, despite all their iconoclasm, this is not a company that’s stood still for six generations. Unbeknownst to most, Hermès has completely reinvented itself at least three times in its 187-year history. Including most recently (and most dramatically) by the family’s current leaders, who responded to LVMH and Bernard Arnault’s 2010 takeover attempt by pursuing a radical strategy — scaling hand craftsmanship. And in the process they turned the company from a sleepy, ~$10B family enterprise into a $200B market cap European giant. Tune in for one incredible story!

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    ‍Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.

    Novo Nordisk (Ozempic)

    Novo Nordisk (Ozempic)

    Last year Novo Nordisk, the Danish pharmaceutical company behind Ozempic and Wegovy, overtook LVMH to become Europe’s most valuable company. And the pull for Acquired to finally tackle healthcare (18% of US GDP!) became too strong for us to resist. While we didn’t know much about Novo Nordisk before diving in, our first thought was, “wow, seems like these new diabetes and obesity drugs mean serious trouble for big insulin companies.”

    And then… we realized that Novo Nordisk IS the big insulin company. And in a story befitting of Steve Jobs and Apple, they’d just disrupted themselves with the drug equivalent of an iPhone moment. Once we dug further, we quickly realized this company has it all: an incredible 100+ year history filled with Nobel Prizes, bitter personal rivalries, board room dramas, a generation-defining silicon valley innovation, lone voices persevering against all odds — and oh yeah, the world’s largest charitable foundation at its helm. Tune in for one incredible story!

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    ‍Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.

    Holiday Special 2023

    Holiday Special 2023

    Ben has some big news. Actually, double big news! On what has become a holiday tradition here at Acquired, we cozy up to the fire to do our annual review of the show “in public”. We reflect on what can only be described as an absolutely mind-blowing 2023 (LVMH! Jensen! Costco! Charlie! Half a million plus listeners!) and look ahead to some big things cooking for 2024. Plus as always, we wrap with extended carve outs (joined this year by some surprise guests) for anyone still shopping for those holiday perfect gifts.

    Huge thank you to everyone for making 2023 an amazing year again here in Acquired-land, and cheers to even greater things to come in 2023!

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    ‍Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.

    Visa

    Visa

    To paraphrase Visa founder Dee Hock, how many of you know Visa? Great, all of you. Now, how many of you know how it started? Or, for that matter, who started it? Who runs and governs it? Where is it headquartered? What’s its business model?

    For the 11th largest market cap company in the world, Visa’s history and strategy is almost shockingly unknown. A huge portion of the world’s population uses their products on a daily basis (you might say Visa is… everywhere people want to be), but very few know the amazing story behind how that came to be. Or why Visa continues to be one of the most incredible and incredibly durable business franchises of all-time. (50%+ net income margins!! On $30B of revenue!) Today we do our part to change that. Tune in for one heck of a journey.

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    ‍Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.

    Charlie Munger

    Charlie Munger

    We sit down with the legendary Charlie Munger in the only dedicated longform podcast interview that he has done in his 99 years on Earth. We’ve gotten to have some special conversations on Acquired over the years, but this one truly takes the cake. Over dinner at his Los Angeles home, Charlie reflected with us on his own career and his nearly 50-year partnership at Berkshire Hathaway with Warren Buffett. He offered lessons and advice for investors today, and of course he shared his speech on the virtues of Costco once again (among other favorite investments). We’re so glad that we got the opportunity to record and share this with you all — break out your notebooks, tune in, and enjoy the singular wit and wisdom of Charlie Munger.

    A transcript is available here.

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    ‍Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.

    NVIDIA CEO Jensen Huang

    NVIDIA CEO Jensen Huang

    We finally sit down with the man himself: Nvidia Cofounder & CEO Jensen Huang. After three parts and seven+ hours of covering the company, we thought we knew everything but — unsurprisingly — Jensen knows more. A couple teasers: we learned that the company’s initial motivation to enter the datacenter business came from perhaps not where you’d think, and the roots of Nvidia’s platform strategy stretch back beyond CUDA all the way to the origin of the company.

    We also got a peek into Jensen’s mindset and calculus behind “betting the company” multiple times, and his surprising feelings about whether he’d go on the founder journey again if he could rewind time. We can’t think of any better way to tie a bow on our Nvidia series (for now). Tune in!

    Editorial Note: We originally recorded this episode before the horrific terrorist attacks in Israel. It feels wrong to release this episode — where the nation of Israel and the Mellanox team are discussed — without sharing our profound sadness for all the families who had innocent loved ones or friends killed, injured, or taken hostage. Our hearts go out to everyone coping through this dark moment in history.

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    ‍Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.

    Nvidia Part III: The Dawn of the AI Era (2022-2023)

    Nvidia Part III: The Dawn of the AI Era (2022-2023)

    It’s a(nother) new era for Nvidia.

    We thought we’d closed the Acquired book on Nvidia back in April 2022. The story was all wrapped up: Jensen & crew had set out on an amazing journey to accelerate the world’s computing workloads. Along the way they’d discovered a wondrous opportunity (machine learning powered social media feed recommendations). They forged incredible Power in the CUDA platform, and used it to triumph over seemingly insurmountable adversity — the stock market penalty-box.

    But, it turned out that was only the precursor to an even wilder journey. Over the past 18 months Nvidia has weathered one of the steepest stock crashes in history ($500B+ market cap wiped away peak-to-trough!). And, it has of course also experienced an even more fantastical rise — becoming the platform that’s powering the emergence of perhaps a new form of intelligence itself… and in the process becoming a trillion-dollar company.

    Today we tell another chapter in the amazing Nvidia saga: the dawn of the AI era. Tune in!

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    Related Episodes

    Qualcomm

    Qualcomm

    Qualcomm, or “Quality Communications” — despite being one of the largest technology companies in the world, few people know the absolutely amazing technological and business history behind it. Seriously, this story is on par with Nvidia, TSMC and all the great semiconductor giants. Without this single fabless company based in San Diego, there’s almost no chance you’d be consuming this episode on whatever device you’re currently listening on — a fact that enables them to earn an incredible estimated $20 for every new phone sold in the world. We dive into this story live at the perfect venue: our first-ever European live show at Solana’s Breakpoint conference in beautiful Lisbon, Portugal! 

    If you want more Acquired, you can follow our public LP Show feed here in the podcast player of your choice (including Spotify!). 

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    ‍Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.

    Spotify CEO Daniel Ek

    Spotify CEO Daniel Ek

    We sit down with Spotify CEO Daniel Ek live in Stockholm at Spotify’s amazing HQ studio (check out the video version of this episode — which plays natively on Spotify!). This was an incredibly special and timely conversation: for those who haven’t been paying attention over the past few years, after revolutionizing music Spotify has now ALSO completely transformed our own industry in podcasting. Starting from way behind with ~zero market share in 2018, Spotify has now aggregated the listener market and amazingly surpassed Apple as the world’s largest podcast platform — including close to home with the Acquired audience, where it has 60%+ market share among you all!


    We discuss the origins of this “second act” strategy with Daniel, the vision to move from a music company to an audio company, and what’s coming next with Spotify’s entry into Audiobooks. And of course we relive some key moments from the Acquired canon that Daniel was involved in, including his pivotal conversations with Taylor Swift and her team convincing her to come back to streaming following the release of 1984. Tune in!

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    Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.

    Stratechery (with Ben Thompson)

    Stratechery (with Ben Thompson)

    Ben Thompson joins Acquired to discuss the business of Stratechery itself and celebrate 10 years (!) of the internet’s best strategy analysis destination. Even beyond Stratechery’s enormous impact itself on business and tech over the years, Ben’s work inspired a whole generation of business content creators — this show very much included — and it was super special for us to give the Acquired treatment to one of our own heroes. We cover the full history of Ben pioneering the subscription internet media business model (indeed SubStack’s seed round pitch was “Stratechery-in-a-box”), and how + why he’s evolved the business since and is now doubling down both on podcasting and a broader vision of the Stratechery Plus bundle… including for the first time content not made by Ben himself! Tune in and enjoy. 

    If you want more Acquired, you can follow our public LP Show feed here in the podcast player of your choice (including Spotify!). 

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    ‍Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.

    Nvidia Part I: The GPU Company (1993-2006)

    Nvidia Part I: The GPU Company (1993-2006)

    He wears signature leather jackets. He can bench press more than you. He makes cars that drive themselves. He’s cheated death — both corporate and personal — too many times to count, and he runs the 8th most valuable company in the world. Nope, he's not Elon Musk, he’s Jensen Huang — the most badass CEO in semiconductor history. Today we tell the first chapter of his and Nvidia’s incredible story. You’ll want to buckle up for this one! 

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    This episode has video! You can watch it on YouTube

    PSA: if you want more Acquired, you can follow our newly public LP Show feed here in the podcast player of your choice (including Spotify!).


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    ‍Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.

    Uber CEO Dara Khosrowshahi

    Uber CEO Dara Khosrowshahi

    Uber CEO Dara Khosrowshahi dropped by the Acquired studio for an Eats delivery, so we broke out the cameras and asked him to hang out for a wide-ranging conversation. :) We talk about his 20 years working with Barry Diller, starting his career at Allen & Company, how the Uber CEO search process ACTUALLY went down… and oh yeah, the massive transformation that’s happened at Uber over the past few years. When Dara took over the company it was bleeding huge sums of cash, losing share to competitors and embroiled in one of the biggest corporate controversies in recent memory. Fast forward to today and it’s turned cashflow positive while also having tripled revenue to over $30B (on $120B in GMV) and solidified its rideshare dominance in the US. And in perhaps the biggest change, it’s done it all while staying out of the headlines. Tune in!

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    Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.