What is a “Beta”?
No, we are not discussing pack dynamics. If I was a late-80s mitovational speaker then maybe I’d break off a little “If you’re not the LEAD DOG…” but as it is we’re in the 2010s and I’m not selling an actualization system.
The “beta” we’re discussing today is a general measure of stock risk. Businessdictionary.computs it thusly:
Measure of the securities-market risk (‘systemic risk’), <beta> is an indicator of the volatility of a stock (or a portfolio of stocks) relative to a benchmark, such as Standards & Poor’s 500 composite index (S&P 500)…
Beta values range from negative values to up around 3 or so. To put beta in perspective, we say that the entuire stock market has a beta of 1. A stock with a beta of 1.25 would be 25% more volatile in its returns than the market average. A stock with a 0.75 beta would be 25% less volatile than the market.
So investors wishing to invest in dependable, conservative securities want stocks with low beta values. Investors wanting to take a risk on higher returns would check out higher-beta stocks. Beyond that, investors with large portfolios might coordinate higher and lower beta values for diversification purposes.
Interestingly, stocks can have negative beta values. That means that they move in the opposite direction of most of the stock market. For example, if a major pawn broker had stock, it might go up when the rest of the market went down. These stocks are referred to as “insurance” because they under-perform in normal conditions but they can guard against general downturns.
Generational Accounting
One of my favorite business topics is long-term thinking. I am of the opinion (largely uninformed) that most companies, municipalities, states, and countries are short-sighted in their business plans. One can hardly blame them- short-sightedness tends to ensure short-term survival. A company can’t last 100 years if it doesn’t last one year. A politician won’t get re-elected if he shortchanges the voting public in favor of young or unborn constituents. More chillingly, a government might face revolt if they impose the kind of austerity that could be suggested by today’s topic:
Generational accounting. I couldn’t find a succinct definition on the web, but suffice that generational accounting is the study of how the fiscal policies of one generation might impact future generations. In particular, this has to do with debt loads and benefit coverage.
For this post I studied this great article at the Tax Policy Center. It lists many scary concepts, most of which you’ve read before. In short we’re spending too much, saving too little, and forging irresponsible policy to please the masses. This is true at the family level, the corporate level, the government level, and the global level.
There are criticisms of generational accounting: it assumes quite a lot about the future state of the market. Sometimes numbers or deadlines are picked almost at random. Nevertheless, I am constantly dismayed by the short-sightedness I see in public and private policy. Generational accounting is one area of study that helps to address my concerns.
What is an “orbit”?
Okay, so I phrased that poorly: in marketing, “orbit” is a verb. According to businessdictionary.com, “orbit” means:
In marketing, practice of rotating a radio or television commercial among different time slots to achieve greater reach (net audience).
Pretty simple concept- take one piece of advertising and present it to several different potential demographics. I wonder whether the term has taken on new shades since the advent of online (especially social media) advertising. “Orbit” might have too long of a connotation… “revolution”, “spin”, or “twirl” might all fit better in the world of super-short, super-targeted, context-sensitive digital ads.
Market Development vs. Market Penetration
MARKETING 101 TIME SO GATHER ‘ROUND:
These are two very important terms in marketing. Let’s look at businessdictionary.com’s take on each one. First off, “market development”:
Expansion of the total market served by a firm by (1) entering new segments of the market, (2) converting non-users into users, and/or (3) increasing usage per user.
Next up, here’s businessdictionary.com’s definition of “market penetration”:
Increasing market share of an existing product, or promoting a new product, through strategies such as bundling, extensive advertising, lower prices, or volume discounts.
Before I took my current marketing class for my MBA, I did not know the difference between these two terms. If anything, I thought “market penetration” meant “to PLUNGE your advertising dagger into new markets”. Nope.
Market penetration is concerned with practices that develop your current market- discounts, loyalty programs, and specialized advertising. The much more plainly-named market development is concerned with identifying and pursuing new markets. The more you know…
The “New”
The New Economy. The New Frugality. The New Normal. Fallout from the recent Great Recession is intense and it has lasted a long time now. Worker production is up, incomes are flat (at best) and everyone is still on pins and needles. Government seems at a loss about how to proceed, and the unemployment rate won’t budge. Many pundits, economists, and even elected officials suggest that we could be entering into a new way of life that is fundamentally different from the boom times of the 90s and early 2000s. Here are a couple of recent perspectives on “new”:
One of the books that got me interested in personal finance and business in general was “The New Frugality” by Chris Farrell. He takes a hard line that America’s hyper-consuming ways have changed and will stay changed for the foreseeable future. He lays out strategies and perspectives on saving, spending, and meeting the demands of the “new” economy. It is definitely worth a read.
On the other hand, pundits like Catherine Rampell warn against such definitive statements. In this recent blog post she presents a historical perspective on “new” thinking. She points out that economists have predicted fundamental shifts in American economic timbre before, but old habits always return to the fore. She concedes that conditions are likely to stay dire for a few years, but get this: bear with me now… take a deep breath… repeat after me… a few years is not forever.
Theory of Price
Why do consumers buy the products they buy? There are many factors including available alternatives, consumer income, and marketing. Let’s refine the question; what influences consumers to spend what they spend on goods and services? That is the central question of the “Theory of Price”. From Investopedia.com, the Theory of Price is
An economic theory that contends that the price for any specific good/service is the relationship between the forces of supply and demand. The theory of price says that the point at which the benefit gained from those who demand the entity meets the seller’s marginal costs is the most optimal market price for the good/service.
So goods and services are ideally priced at exactly what they cost to produce in terms of materials and effort. Congratulations! Of course there are many pieces to this theory of determining optimal price. Key concepts include economy of scale, marginal costs, opportunity costs, and scarcity. This simple idea (things should be priced according to the cost of production) is actually quite complex in practice.
While studying this concept I came across this excellent PDF from California State University. It’s a wide-ranging but relatively easy-reading document, and as soon as the Suns-Celtics game is over I’ll give it the attention it deserves!
Authoritarian Leadership
A couple of days ago The Daily Biz explored Servant Leadership. Today we venture about as far away from that as possible and into the realm of authoritarian leadership. The name is self-explanatory, but I never pass up a chance to use businessdictionary.com! Authoritarian leadership is defined as a
Leadership style in which the leader dictates policies and procedures, decides what goals are to be achieved, and directs and controls all activities without any meaningful participation by the subordinates.
So when we think about this leadership style we see Hitler. We see Napoleon. We see Ms. Grambrfunklez, our horrifying second-grade teacher*.
BUT WAIT!
Authoritarian leadership is not necessarily evil. It isn’t even necessarily a poor choice of leadership techniques! Authoritarian leadership has several upsides: decisions get made quickly. Oftentimes the leader has more accountability. It can be an ideal way to lead inexperienced workers in performing large, simple tasks.
Of course there are downsides. Authoritarian leadership is bad for morale. It does not breed proactive thinkers or new leaders. It limits pluralism of thought because (duh) no opinions are collected.
So on that note, go forth and have a great weekend. Now. BECAUSE I SAID SO IS WHY!
*Name changed to protect that nasty old lady.
Servant Leadership
Last week The Daily Biz offered a brief definition of leadership. I promised to follow up with separate articles about different forms of leadership. Today we start with one of the more fascinating approaches to modern leadership: “servant leadership”.
From 30,000 feet, servant leadership is driven by the notion that organizations open up myriad opportunities for “caring” or “nurturing” in modern society. By viewing leaders as servants, we can best distribute help and attention to do the most good. By framing this task in a certain way, we can redefine business leadership as the process of helping people to achieve success.
Servant leadership is the brainchild of Robert K. Greenleaf. In the 1970s he published a series of essays outlining his new concept. In his essay The Institution as Servant, he laid out his credo:
This is my thesis: caring for persons, the more able and the less able serving each other, is the rock upon which a good society is built. Whereas, until recently, caring was largely person to person, now most of it is mediated through institutions - often large, complex, powerful, impersonal; not always competent; sometimes corrupt. If a better society is to be built, one that is more just and more loving, one that provides greater creative opportunity for its people, then the most open course is to raise both the capacity to serve and the very performance as servant of existing major institutions by new regenerative forces operating within them.
The above quote is courtesy of the Greenleaf Center for Servant Leadership.
As with any long-standing theory, there are many vocal opponents of servant leadership. Some say that the concept of “caring” needs to be better defined in terms of contribution to the organization. Some say that this leadership method only grooms followers and does not nurture an entrepreneurial, goal-driven spirit. Take a look at this page for a good survey of some of the criticisms against servant leadership.
Dow Jones Industrial Average Nearing 12,000
The Dow Jones Industrial Average (DJIA) is nearing 12,000 for the first time since June of 2008 according to this CNNMoney article. On a top level, all you need to know is that the higher the DJIA goes, the better our economy is performing. What, you want to know more? Good thing I’m here.
Okay, here’s the deal on a slightly deeper level: the Dow Jones Industrial Average measures the average performance of 30 large U.S.-based companies. Despite the name, these are not all “industrial” companies in any manufacturing sense. The companies have varied widely over time, but the current 30 include such diverse companies as Kraft, 3M, Coca-Cola, and Microsoft.
One little level deeper because I like you folks: The formula for figuring the average is to take add up the price of one share of stock in each of the thirty companies, then divide that sum by the “Dow Jones Industrial Average Divisor”. Calculating that divisor gets really complicated and this website does a good job with the details.
What is a “Stakeholder”?
One term commonly thrown around in business circles is “stakeholder”. According to businessdictionary.com, a stakeholder is a
Person, group, or organization that has direct or indirect stake in an organization because it can affect or be affected by the organization’s actions, objectives, and policies. Key stakeholders in a business organization include creditors, customers, directors, employees, government (and its agencies), owners (shareholders), suppliers, unions, and the community from which the business draws its resources.
So the term “stakeholder” can be applied to a wide range of entities from individuals (customers, employees, shareholders) to defined groups (suppliers, unions). This definition focuses on the stakeholders of an organization, but the term can be applied to projects and initiatives as well. It does not have to be an organization-wide distinction. For instance, a workplace “Stop Smoking” campaign could have stakeholders. A new technology implementation could have stakeholders.
Identifying and coordinating the needs and concerns of stakeholders is a primary goal of many management categories. Project managers, human resource managers, and general middle managers all must work with and for multiple stakeholders.
