3 Ways to Help Your Team Build Resilience

A brief stroll through world history will show you that humans are very good at enduring hardship. However, the magnitude of the current economic crisis has us all questioning our ability to survive. Use these three tips to help your team remain resilient: Give much-needed perspective. If you and those on your team weren't born before 1945, you simply have nothing to use as comparison. Remind your team that most companies survive financial crises and many more businesses will be born from the recovery. Refocus on what you've got. While layoffs continue and unemployment rises, the reality is that most people still have jobs. If you are one of them, bring your team together to focus on making your company the best it can be. Develop the resolve to ensure it survives the downturn. Tell stories. We all know a story or two about someone who survived adverse events. Encourage your team to share stories both as a means of coping and learning.

Management Tip was adapted from "Help Your Team Build Resilience" by John Baldoni.

Rajesh Nair

Continue to Appraise Performance in a Downsized Organization

In the wake of layoffs and cut backs, many question the fairness of assessing employee performance, especially with redistributed work and the elimination of bonuses. But you can use performance appraisals to strengthen your organization and accomplish the following important tasks.
Reset expectations. Many companies are giving lower-than-expected bonuses or raises. Let your employees know if this is the case and the reasoning behind the decision. If employees know raises have been reduced to save jobs, they may not be happy but they may accept the disappointment more easily.
Focus on the future. Layoffs leave "ghost work" for survivors who are expected to pick up the slack in a leaner organization. Use appraisals to redefine job scope and make expectations clear.
Reward your top performers. Use what money you have to encourage your star performers to continue to excel. Small discretionary bonuses can go a long way in creating goodwill and fueling great performance.
Management Tip was adapted from "Appraising Employee Performance in a Downsized Organization" by Tom Krattenmaker.
Rajesh Nair

Why Should You Apologize?

Management Tip was adapted from "I Want You to Apologize" by Peter Bregman.

One of the clearest ways President Obama has set himself apart from his predecessor is by demonstrating his willingness to apologize. He has apologized for using inappropriate language, making jokes in poor taste and even acting arrogantly toward Europe in the past few years. What exactly is Obama doing? He is disarming his opponents and paving the path for reconciliation. Next time you are ready to defend your actions and play your part in a knockdown fight, consider apologizing first. Demonstrate empathy, concern, and willingness to change. Ultimately, apologizing is not an admission of defeat but a humane gesture that can keep you out of a fight.
When Should a Leader Apologize — and When Not?
Because the stakes are so high, leaders should not extend public apologies often or lightly. While selectivity is key, good apologies usually do work. What constitutes a good apology? Acknowledgment of the mistake or wrongdoing, acceptance of responsibility, expression of regret, and assurance that the offense will not be repeated.

Rajesh Nair

The Looming Commercial -Real Estate Crisis

There's been a huge drop in activity in the U.S. office-leasing market in the last year. In the 15 largest office markets in the country, 38.8 million square feet of deals were completed in the first quarter of 2009, compared to nearly 71.7 million in the first quarter of 2008. Among the 15 markets, only the Atlanta metro area has experienced no decline in leasing activity. Minneapolis/St. Paul has been hardest hit, with 81% fewer deals than in 2008

Source: Harvard Business Review, May 2009

Rajesh Nair

How Well Vetted Is Your Senior Management?

In 32% of 500 companies surveyed in 2008, candidates for senior executive positions went through only 1 to 5 interviews, while 12% of firms subjected candidates to 21 or more. Shockingly, only half of those recruited for the top three tiers of management were interviewed by anyone in the C-suite. And fully half the companies relied primarily on the hiring manager's gut feel, selecting a candidate believed to have "what it took" to be successful in any job.
Source: Harvard Business Review, May 2009
Rajesh Nair

10 GOLDEN RULES FOR INVESTING IN STOCKS

The fact is that few investors can hope to build real wealth without investing in equity. Necessary as investment knowledge is, by itself, however, it is not sufficient to ensure investment success.
In fact, many an expert holds that emotional maturity is the ultimate key to sustained profitable stock market investing. Overcoming bouts of panic and greed in down and up market phases is not an easy matter to master. Here are ten rules to help you do precisely that...
There is no such thing as a good stock
There are only good companies. When someone tells you 'this is a good stock' you need to look beyond the stock chart. Why is the company a good company? How will it grow its business? If you can't answer these questions, you don't know what you own.
Have a premise
When you buy a stock you must have a premise. A premise is a reason why that particular stock will go up. For best results, the premise will be one that explains why the company's line of business will increase, and why the marketplace will value that business at current or higher multiples. Without a premise, you don't own an investment, you just own a stock.
Think trends. Buy stocks
If you really want to invest in big growth stocks, you need to invest in secular trends. Secular trends are events unrelated to either the economy or individual company events. The advent of the PC, the birth of the Internet, and the desire for wireless phones, are all secular trends. The biggest investment winners are those companies which are ideally placed to reap the benefits of large secular changes.
Microsoft and Intel rode the transition to PCs as computing power became cheaper and cheaper. Nokia, Motorola, Qualcomm, and Ericsson all found them-selves unable to keep up with demand in the mid 1990s, when wireless phones finally reached the critical price points. If you want really big winners, find the trend, then find the stocks.
Know your risk tolerance
The biggest mistake most investors make is to buy positions with more risk than they can really tolerate. This is where most people got hurt in the Internet bubble burst. They had no idea they owned risky stocks. If you can always tolerate, both financially and emotionally, the complete loss of your entire position, you obviously will be okay. But most people aren't in that position. Figure out how much downside you can live with without having to sell. Figure this out before you buy the stock.
Don't average down to feel better
'Averaging down' is often a way to lose more. If you believe in the company, and the price goes down, you may want to invest more. But if you, like many others, purchase more simply to lower your 'break even' stock price, you are making a mistake. If you find yourself calculating new 'average price per share' points, you might be averaging down for the wrong reason.
Don't miss the train to shave a dime
If you are investing in a major trend through a stock, and have a multi-year investment horizon, what difference does a few cents per share make on your purchase? Many investors try to place buys with limit orders just below the ask, and wind up missing the purchase.
If you really want a stock, particularly a big position, place a limit order at the ask, or even slightly higher. You will at least get the order. This is especially important if you are trying to buy far more shares than the current ask size. If you are right about the trend, you will never miss the extra ten cents per share.
Don't buy hot and watch cold
Many investors buy a 'hot stock' and immediately look for big gains. When they don't happen, the stock falls away from the daily attention list. Pretty soon it starts to edge downward, and, emotionally, the investor stops watching it.
Pain avoidance is common to us all. But you can't let pain avoidance prevent you from watching your stock. If you do, you often take a look two months later and find the stock is far from hot, and you are now presented with a really painful decision.
A hold is as good as a buy
There is no such thing as a 'hold' decision. If you wouldn't buy the stock again today, assuming you had additional money, you should either sell, or admit that you are confused. Resolve the confusion. The hold condition often happens when you have owned a stock for years, are way ahead of your basis, and are basically happy.
But what is driving the stock today? What will make the price rise in the future? Why would you buy the stock today, assuming you didn't own it? If you don't know, you don't have a premise for this stock. See rule 2.
Don't be an inadvertent long-term holder
When your premise doesn't work out, or you no longer believe in the stock, you must sell, even if it means a loss. Holding on just to 'get my money back' is the single biggest reason for losing more money. Who owned all those stocks that lost 98 per cent of their value in 2000? A good percentage was owned by people who turned into long-term holders inadvertently, when they made the decision to just stick it out.
You will lose money
You won't be right every time. If you are going to be an investor, you need to become accustomed to losing money on some positions. This rule is the natural consequence of living up to rules 5, 7, and 9. Taking losses is often the only way you can save your capital from further losses.

Rajesh Nair
RajRak Advisors

THE WARREN BUFFET STRATEGY

In times of economic decline, many investors ask themselves, 'What strategies does the Oracle of Omaha employ to keep Berkshire Hathaway on target?'
The answer is that the esteemed Warren Buffett, the most successful known investor of all time, rarely changes his long-term value investment strategy and regards down markets as an opportunity to buy good companies at reasonable prices.
In this article, we will cover the Buffett investment philosophy and stock-selection criteria with specific emphasis on their application in a down market and a slowing economy.
The Buffett Investment Philosophy
Buffett has a set of definitive assumptions about what constitutes a 'good investment'. These focus on the quality of the business rather than the short-term or near-future share price or market moves. He takes a long-term, large scale, business value-based investment approach that concentrates on good fundamentals and intrinsic business value, rather than the share price.
Buffett looks for businesses with 'a durable competitive advantage.' What he means by this is that the company has a market position, market share, branding or other long-lasting edge over its competitors that either prevents easy access by competitors or controls a scarce raw-material source.
Buffett employs a selective contrarian investment strategy: using his investment criteria to identify and select good companies, he can then make large investments (millions of shares) when the market and the share price are depressed and when other investors may be selling.
In addition, he assumes the following points to be true:
• The global economy is complex and unpredictable.
• The economy and the stock market do not move in sync.
• The market discount mechanism moves instantly to incorporate news into the share price.
• The returns of long-term equities cannot be matched anywhere else.
Buffett Investment Activity
Berkshire Hathaway investment industries over the years have included:
• Insurance
• Soft drinks
• Private jet aircraft
• Chocolates
• Shoes
• Jewelry
• Publishing
• Furniture
• Steel
• Energy
• Home building
The industries listed above vary widely, so what are the common criteria used to separate the good investments from the bad?
Buffett Investment Criteria
Berkshire Hathaway relies on an extensive research-and-analysis team that goes through reams of data to guide their investment decisions.
While all the details of the specific techniques used are not made public, the following 10 requirements are all common among Berkshire Hathaway investments:
1. The candidate company has to be in a good and growing economy or industry.
2. It must enjoy a consumer monopoly or have a loyalty-commanding brand.
3. It cannot be vulnerable to competition from anyone with abundant resources.
4. Its earnings have to be on an upward trend with good and consistent profit margins.
5. The company must enjoy a low debt/equity ratio or a high earnings/debt ratio.
6. It must have high and consistent returns on invested capital.
7. The company must have a history of retaining earnings for growth.
8. It cannot have high maintenance costs of operations, high capital expenditure or investment cash flow.
9. The company must demonstrate a history of reinvesting earnings in good business opportunities, and its management needs a good track record of profiting from these investments.
10. The company must be free to adjust prices for inflation.
The Buffett Investment Strategy
Buffett makes concentrated purchases. In a downturn, he buys millions of shares of solid businesses at reasonable prices.
Buffett does not buy tech shares because he doesn't understand their business or industry; during the dotcom boom, he avoided investing in tech companies because he felt they hadn't been around long enough to provide sufficient performance history for his purposes.
And even in a bear market, although Buffett had billions of dollars in cash to make investments, in his 2009 letter to Berkshire Hathaway shareholders, he declared that cash held beyond the bottom would be eroded by inflation in the recovery.
Buffett deals only with large companies because he needs to make massive investments to garner the returns required to post excellent results for the huge size to which his company, Berkshire Hathaway, has grown.
Buffett's selective contrarian style in a bear market includes making some large investments in blue chip stocks when their stock price is very low.
And Buffett might get an even better deal than the average investor: His ability to supply billions of dollars in cash infusion investments earns him special conditions and opportunities not available to others. His investments often are in a class of secured stock with its dividends assured and future stock warrants available at below-market prices.
Conclusion
Buffett's strategy for coping with a down market is to approach it as an opportunity to buy good companies at reasonable prices.
Buffett has developed an investment model that has worked for him and the Berkshire Hathaway shareholders over a long period of time. His investment strategy is long term and selective, incorporating a stringent set of requirements prior to an investment decision being made.
Buffett also benefits from a huge cash 'war chest' that can be used to buy millions of shares at a time, providing an ever-ready opportunity to earn huge returns.

Rajesh Nair
CEO RajRak Advisors