Tuesday, March 15, 2011

MBA Learin'

FLG was actually pretty solid on finance, statistics, and quantitative subjects before starting his MBA.  An undergrad degree in international economics with a focus in international finance will do that for you. 

However, FLG's knowledge of things like marketing and corporate strategy was rudimentary at best.  

As the first year of the program is coming to a close, FLG has reached a very definite conclusion that management skill is vastly overrated.  Either the economics of the industry you are in are generally favorable or they're not.  This leads to an important sub-conclusion -- if management wants to grow the business, then they can integrate vertically or geographically, but diversified conglomerates are for the birds.  If investors want diversification, then let them do that through equity stakes not do it for them.

There's an agency problem here.  Most management types want to make some mark.  If company has already grown geographically and integrated vertically to the extent possible, then management should just milk the fuck out of it.  Not sneakily.  Just say, this business is mature and going to become a cash machine and we'll be paying good dividends.  But that's not what managers want to say or do.  They want to be cool.

Some might say that Wall Street doesn't want to hear it either.  That they expect consistent and continuing growth.  FLG isn't so sure.  Microsoft, to take one example, wastes so much money getting into new businesses looking for growth that FLG thinks shareholders would be better off just milking Windows and Office and call it a day.

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