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    TIP527: The Epic Collapse of GE w/ William Cohan

    No company is immune to failure. Consistent innovation and financial discipline are necessary for sustained success. Prioritize investing in core operations over risky investments and always remain vigilant.

    enFebruary 24, 2023

    About this Episode

    Trey talks to New York Times bestselling author William Cohan about GE's history, including founder Thomas Edison, Jack Welch's controversial career & successes, Warren Buffett's investment on GE, and much more! William Cohan's latest book, titled "Power Failure: The Rise and Fall of an American Icon," chronicles the incredible history of General Electric, which was often the largest and most esteemed company in the world over its 130-year existence. IN THIS EPISODE YOU’LL LEARN: 0:00 - Intro 07:31 - The origin story of GE, starting with founder Thomas Edison with backing from JP Morgan. 11:19 - Why Charlie Coffin might be the best CEO of all time. 23:54 - The dark side of Jack Welch and his career at GE, as well as the many successes. 56:37 - How Jeff could have saved the company by listening to Bill Gross and Jim Grant. 59:55 The debate on whether Jack handed his successor, Jeff Immelt, a “royal flush” or an open grenade.  63:49 - Warren Buffett’s bet on the company. 63:15 - Why the company has now been deconstructed into 3 separate entities. 67:18 - The many cycles that repeated over its 130 year history. Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences. BOOKS AND RESOURCES Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, and the other community members. Visit William Cohan website. Check out Power Failure book. Check out GE website. Trey Lockerbie's Twitter. William Cohan's Twitter. NEW TO THE SHOW? Check out our We Study Billionaires Starter Packs. Browse through all our episodes (complete with transcripts) here. Try our tool for picking stock winners and managing our portfolios: TIP Finance Tool. Enjoy exclusive perks from our favorite Apps and Services. Stay up-to-date on financial markets and investing strategies through our daily newsletter, We Study Markets. Learn how to better start, manage, and grow your business with the best business podcasts.   SPONSORS Support our free podcast by supporting our sponsors: River Toyota Linkedin Marketing Solutions Fidelity Efani Shopify NDTCO Fundrise Wise NetSuite TurboTax Vacasa NerdWallet Babbel HELP US OUT! Help us reach new listeners by leaving us a rating and review on Apple Podcasts! It takes less than 30 seconds, and really helps our show grow, which allows us to bring on even better guests for you all! Thank you – we really appreciate it! Learn more about your ad choices. Visit megaphone.fm/adchoices

    🔑 Key Takeaways

    • Succession planning and listening to advice from experts are crucial for the survival of an organization, even for highly successful companies like GE.
    • General Electric (GE) was not founded by Thomas Edison, but by a merger backed by Boston venture capitalists. JP Morgan's financial engineering saved the company from a financial crisis in 1893, highlighting the importance of understanding the true history of an organization.
    • Decentralization can lead to lack of accountability, but a command and control approach can stifle innovation. Finding the right balance is important in leadership and business success.
    • Business success can come from ethical leadership and wise financial decisions, not just M&A expertise. Transparency and integrity are crucial in preventing conspiracies and corruption.
    • Jack Welch's leadership style was polarizing, with a focus on increasing market value at the expense of employee well-being. Despite this, he maintained a strong connection with people and left a lasting impact in the industry.
    • Jack Welch, known for creating successful cable networks, was a decisive leader but also had flaws in his decision-making. Despite his denial, evidence suggests he may have manipulated earnings in certain deals.
    • As a CEO, there is immense pressure to meet earnings projections. Balancing industrial and financial aspects is vital, but questionable decisions may lead to eventual consequences. Managing investor expectations is crucial.
    • Even successful CEOs like Jack Welch make mistakes and have regrets. Abandoning potential acquisitions and firing key players can have long-term consequences. It's important to consider all factors before making decisions with far-reaching impact.
    • It's important for leaders to listen to expert advice, even if they believe they understand the risks themselves. Neglecting expert advice can lead to negative consequences for the company, as seen in the downfall of GE Capital.
    • Despite once being an industrial powerhouse, GE's unregulated financial operations ultimately led to its downfall. Listening to experts, like Jim Grant, on credit market risks is crucial.
    • Companies must prioritize protecting their credit ratings and understanding credit markets to avoid costly mistakes. Board members must hold CEOs accountable for the benefit of stakeholders, even if it means challenging them. Even major investments cannot save a company from failure if these steps are not taken.
    • No company is immune to failure. Consistent innovation and financial discipline are necessary for sustained success. Prioritize investing in core operations over risky investments and always remain vigilant.
    • Choosing a successor based on merit is vital for the success of a company. Leaders should be open-minded, listen to dissenting views, and value warnings from those who understand the business. Charm should not outweigh competence.

    📝 Podcast Summary

    The Rise and Fall of GE: Insights from an Insider

    GE was once the most valuable and admired company in the world, responsible for numerous innovations like electricity, diesel locomotives, jet engines, and more. However, its decline started with the CEO succession from Jack Welch to Jeff Immelt. Immelt could have saved the company by listening to advice from Bill Gross and Jim Grant, but he didn't. Now, GE is being spun off into three separate companies. Author William Cohan, who had worked at GE Capital, wrote this nearly 800-page book using his insights and research to uncover the company's history and the reasons for its fall.

    The Unknown Truth Behind the Origin of General Electric (GE)

    General Electric (GE) was not actually founded by Thomas Edison, despite what the company promoted, but by a merger between his company, Edison General Electric, and Thomson Houston Company, backed by Boston venture capitalists. Thomas Edison, who was just a shareholder and not a great businessman, was against this merger and quickly sold his small shares after the announcement. GE's origin story involves legends like JP Morgan, Charles Coffin, and others. In 1893, the company faced a financial crisis, and if it wasn't for some clever financial engineering by JP Morgan, GE would've gone down the tubes. Understanding the true history of GE is essential to cut through the myths created about Jack Welch and the company.

    The Rise and Fall of GE's Leadership Innovations

    Charles Coffin was a major innovator and CEO of GE who created a system of genius that did not depend on him. He recognized the potential of generating electricity and merged his company with Edison General Electric, which became GE. There was resistance to adopting the technology, but Coffin resolved to have a fortress balance sheet and became a great leader of men. Decentralization at GE led to executives breaking the law and using circuit breakers. While a command and control approach can stifle innovation, decentralization can lead to lack of accountability. GE's growth became stagnant, and Ralph Coner tried to push down responsibility into the organization and pull back on the command and control nature of the business.

    The Dark Side of GE's History: Collusion, Jail Time, and Dismantling

    The manufacturers of GE's electric equipment were caught colluding on the prices that they would charge customers- this elaborate signaling was done through codes and they met at industry offsites instead of learning industrial wisdom. This conspiracy went on for a decade until GE executives were put in jail. Ironically, Larry Culp was brought onto the GE board, who would later dismantle the company's big corporate apparatus spending billions a year. Jack Welch was heralded for buying back RCA, but he was just buying back a business that GE had started, and was forced to divest. Jack was a master at M&A, however, there were major issues with his leadership styles.

    The Mixed Legacy of Jack Welch: A Leader with Charisma and Controversy

    Though Jack Welch was a great leader who increased market value, influence and reputation of GE, he could be cruel to employees and make fun of them. He was once known as Neutron Jack for his tendency to fire employees. He could be a womanizer and treated his first two wives poorly. He is contrasted with Jeff who was more sensitive to social causes. Even then, people who were fired by Jack still admired him and attended his funeral. Though he could be harsh, he could also have a real connection with people and be incredibly charming and open. His management style would have been an asset very early on in his career and needed to change as time went on.

    The Successes and Failures of Jack Welch's Leadership Style

    Jack Welch, the former CEO of GE, was a legendary figure capable of seeing around corners. He started two important cable networks- CNBC and MSNBC, and had the ability to change his mind when presented with a clever and reasonable argument. However, his personal behavior wasn't always admirable, and he did make a few missteps like merging GE and GE Capital with Kidder Peabody, which was an unmitigated disaster. Despite this, his decision-making skills were usually on point, and he tended to make the right decision, unlike his successor Jeff Immelt. He vehemently denied managing earnings or manipulating earnings, but evidence suggests otherwise, particularly around the first Kidder Peabody deal.

    Balancing Industrial and Financial Aspects in Leadership - The Case of Jack Welch and GE

    As CEO, there is immense pressure to meet earnings projections to maintain credibility and create shareholder value. For Jack Welch, this meant sometimes manipulating earnings or monetizing assets to fill gaps. While this may be seen as negligence or manipulating earnings, Welch saw it as a responsible way to fulfill his obligations. GE was a complex company with both industrial and financial aspects, and Welch's leadership aimed to balance both. Despite questionable decisions, such as selling off the computer business and later trying to buy back Honeywell, Welch led GE to be a highly valued company. However, eventually, the market came back to reality, and GE faced breakup. Similar to Tesla today, the market rewarded GE with an absurd multiple of earnings, showing the importance of managing investor expectations.

    Jack Welch's Regrets as CEO of GE

    Despite being a successful CEO, Jack Welch regretted his decision to appoint his successor. He did not regret his move into insurance but regretted getting out of the computer industry. Jack's biggest mistake was abandoning the acquisition of Honeywell, which could have tilted the earnings power back to the industrial side. His decision to abandon the Honeywell deal was due to EU's demand for selling various assets that he didn't want to sell. He also regretted firing Dave Cody, the former CEO of Honeywell. GE Capital was once a golden goose that later became an albatross due to arbitraging price that GE had to pay to borrow money.

    Ignoring Expert Advice - The Downfall of GE Capital

    GE Capital was a profitable business that understood the risks it took, pricing them properly and getting paid for them, unlike other financial institutions that didn't understand risks. Despite warnings from experts, Jeff Immelt, who took over as CEO, ignored the risks and overestimated his own understanding of them. This eventually led to problems for GE Capital during the financial crisis, which Jeff had to beg the Treasury Secretary to solve. In retrospect, Jeff should have listened to his experts and sold GE's real estate business, which would have made a lot of money, instead of waving off their advice. Leaders should not ignore expert advice even if they think they know better, it could lead to negative consequences for the company.

    GE's downfall and the importance of credit market understanding

    GE, once considered an admired and respected industrial company, was one of the largest unregulated financial companies in the country. After the global financial crisis, they had to beg to be backstopped by the government as other financial institutions were and were subsequently declared a cfi and regulated by the Fed, which cost them over $2 billion a year. Jeff Immelt decided to get out of GE Capital, which he thought was brilliant but resulted in his being fired from the company. Jim Grant saw the risks that GE and GE Capital were taking, which would ultimately lead to their downfall, but Jeff Immelt failed to listen to his warnings. Understanding credit markets is important, and Jim Grant was insightful in picking up on issues going on in those markets.

    The Importance of Protecting and Understanding Credit Ratings for Companies

    Credit ratings are crucial for a company's credibility and must be protected at all costs. However, understanding credit markets is still a challenge for many despite borrowing money and having interactions with banks. Jeff Immelt's failure to understand this cost GE its AAA credit rating. Additionally, GE's board failed to hold Immelt accountable despite their job being to challenge CEOs for the sake of shareholders, creditors, and stakeholders. Buffet's quote that CEOs go shopping for pit bulls but end up with cocker spaniels speaks volumes about the board's lack of action. Finally, getting a huge investment from Buffet did not save GE from becoming part of the death knell.

    GE's Fall: Lessons for All Businesses

    Key lesson from GE's fall from grace is that no company is invincible, and the seeds of a company's downfall can be sewn early on. It's important for businesses to not take their success for granted and to consistently innovate and adapt to changing market conditions. Jeff Immelt's mistake of using the proceeds from selling GE Capital to buy back stock instead of paying down debt proved to be a wrong investment of capital. Companies should always prioritize investing in their core operations and maintaining financial discipline instead of making risky investments. In the end, even the most dominant companies can fall from grace if they don't stay vigilant.

    The Importance of Choosing the Right Successor and Understanding the Business

    Choosing the right successor and understanding the businesses you are inheriting are crucial for the success of any CEO. It's important to consider dissenting points of view and not surround yourself with yes men. Don't ignore warnings from people who understand the business you are in charge of running better than you do. Open-mindedness and willingness to listen to others can prevent failures like the one at General Electric, which could have been prevented. Succession should be based on merit and not just charm. Company leaders need to choose the best person to take the company forward, rather than the one who is politically adapt or charms their way to the top.

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    TIP626: Intelligent & Rational Long-Term Investing w/ François Rochon

    TIP626: Intelligent & Rational Long-Term Investing w/ François Rochon
    On today’s episode, Clay is joined by François Rochon to discuss how he’s managed to vastly outperform the market over the past 30 years. Since he started the Rochon Global Portfolio in 1993, his annual returns net of fees have been 13.6%, versus 9.2% for the benchmark. François’s investment approach is firmly rooted in three principles — patience, humility, and rationality — which are discussed in depth during this conversation. IN THIS EPISODE YOU’LL LEARN: 00:00 - Intro 02:17 - What led François to hiring Jean-Philippe Bouchard. 06:19 - The foundational investment principles of Giverny’s approach. 10:23 - How François realized so early in his career that you can’t predict the stock market. 19:53 - The tribal gene that sets 5% of investors apart from the rest. 29:29 - How we can be prepared for declines in the stock market. 35:37 - Why his biggest investment mistakes are mistakes of omission. 40:54 - How François views Berkshire Hathaway’s role in his portfolio. 45:27 - How François assesses the strength of a brand. 56:02 - His view on the valuation of today’s market. 68:15 - Why François is so passionate about investing. Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences. BOOKS AND RESOURCES Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, Kyle, and the other community members. Giverny Capital’s Letters. Learn more about the Giverny Capital. Books Mentioned: How to be Rich, Money Masters of our Time, The Craft of Investing. Related Episode: RWH016: The Best of the Best w/ François Rochon | YouTube Video. Follow François on LinkedIn.  Follow Clay on Twitter.  Check out all the books mentioned and discussed in our podcast episodes here. Enjoy ad-free episodes when you subscribe to our Premium Feed. NEW TO THE SHOW? Follow our official social media accounts: X (Twitter) | LinkedIn | Instagram | Facebook | TikTok. Check out our We Study Billionaires Starter Packs. Browse through all our episodes (complete with transcripts) here. Try our tool for picking stock winners and managing our portfolios: TIP Finance Tool. Enjoy exclusive perks from our favorite Apps and Services. Stay up-to-date on financial markets and investing strategies through our daily newsletter, We Study Markets. Learn how to better start, manage, and grow your business with the best business podcasts. SPONSORS Support our free podcast by supporting our sponsors: River Toyota Meyka AT&T Vacasa Fidelity Monarch Money Yahoo! Finance Long Angle Public USPS American Express Shopify HELP US OUT! Help us reach new listeners by leaving us a rating and review on Apple Podcasts! It takes less than 30 seconds, and really helps our show grow, which allows us to bring on even better guests for you all! Thank you – we really appreciate it! Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Learn more about your ad choices. Visit megaphone.fm/adchoices Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

    BTC179: The Business of Football and Bitcoin w/ Peter McCormack (Bitcoin Podcast)

    BTC179: The Business of Football and Bitcoin w/ Peter McCormack (Bitcoin Podcast)
    Join us as Peter McCormack shares insights on blending Bitcoin with football business. We delve into his club's dual promotions, strategic investor impacts from the Winklevoss twins, and the broader influence on Bedford, including a new Universal Studios park. Learn how Bitcoin plays a role in these developments and discover actionable strategies for integrating innovative concepts into local enterprises. IN THIS EPISODE YOU’LL LEARN: 00:00 - Intro 06:20 - The strategic role of Bitcoin in advancing the success of a local football club. 08:11 - The impact of high-profile investors like the Winklevoss twins on the club. 08:11 - Highlights from the "Cheat Code" Bitcoin conference and its integration with local business. 13:05 - How the club manages competitive growth and future challenges with spending caps. 17:53 - Insights into Peter McCormack's journey of owning and promoting his football team. 22:07 - The significant developments in Bedford, including plans for a Universal Studios theme park. 32:08 - Lessons on leveraging cryptocurrency in traditional businesses and community development. Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences. BOOKS AND RESOURCES Buy your Real Bedford sporting attire here. Peter’s podcast, What Bitcoin Did. Learn more about the Cheat Code Conference. Peter's Twitter. Check out all the books mentioned and discussed in our podcast episodes here. Enjoy ad-free episodes when you subscribe to our Premium Feed. NEW TO THE SHOW? Follow our official social media accounts: X (Twitter) | LinkedIn | | Instagram | Facebook | TikTok. Check out our Bitcoin Fundamentals Starter Packs. Browse through all our episodes (complete with transcripts) here. Try our tool for picking stock winners and managing our portfolios: TIP Finance Tool. Enjoy exclusive perks from our favorite Apps and Services. Stay up-to-date on financial markets and investing strategies through our daily newsletter, We Study Markets. Learn how to better start, manage, and grow your business with the best business podcasts. SPONSORS Support our free podcast by supporting our sponsors: River Toyota Meyka AT&T Vacasa Fidelity Monarch Money Yahoo! Finance Long Angle Public USPS American Express Shopify Learn more about your ad choices. Visit megaphone.fm/adchoices Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

    TIP625: Berkshire Hathaway w/ Chris Bloomstran

    TIP625: Berkshire Hathaway w/ Chris Bloomstran
    Stig has invited legend investor Chris Bloomstran from Semper Augustus to teach us how to value Berkshire Hathaway on today's show. Semper Augustus has an outstanding track record with a compounded annual growth rate of 11.5% on equities since his fund's inception on 2/28/1999, compared to 7.6% for the S&P500.  IN THIS EPISODE YOU’LL LEARN: 00:00 - Intro 01:37 - The impact of holding cash on your portfolio returns.   24:07 - How to understand the five different components that make up stock market returns. 33:14 - How to estimate the expected return of being invested in the S&P500. 40:57 - What the intrinsic value of Berkshire Hathaway is. 45:51 - How Berkshire Hathaway has allocated capital since 2018. Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences. BOOKS AND RESOURCES Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, Kyle, and the other community members. Stig’s 2023 masterclass with Chris Bloomstran on valuing Berkshire Hathaway | YouTube Video. Stig’s 2022 masterclass with Chris Bloomstran on valuing Berkshire Hathaway | YouTube Video. Stig’s masterclass with Chris Bloomstran on equity valuations | YouTube Video. Chris Bloomstran’s website. Read Chris Bloomstran’s letters to his clients.  Buffett resource on CNBC. Check out all the books mentioned and discussed in our podcast episodes here. Enjoy ad-free episodes when you subscribe to our Premium Feed. NEW TO THE SHOW? Follow our official social media accounts: X (Twitter) | LinkedIn | Instagram | Facebook | TikTok. Check out our We Study Billionaires Starter Packs. Browse through all our episodes (complete with transcripts) here. Try our tool for picking stock winners and managing our portfolios: TIP Finance Tool. Enjoy exclusive perks from our favorite Apps and Services. Stay up-to-date on financial markets and investing strategies through our daily newsletter, We Study Markets. Learn how to better start, manage, and grow your business with the best business podcasts. SPONSORS Support our free podcast by supporting our sponsors: River Toyota CI Financial Meyka Fundrise Yahoo! Finance Long Angle iFlex Stretch Studios Public American Express Shopify HELP US OUT! Help us reach new listeners by leaving us a rating and review on Apple Podcasts! It takes less than 30 seconds, and really helps our show grow, which allows us to bring on even better guests for you all! Thank you – we really appreciate it! Learn more about your ad choices. Visit megaphone.fm/adchoices Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm