I have this habit of viewing everything with investors’ lens and again this was what happened when I watched Bohemian Rhapsody recently. This top grossing movie of 2018-19 was about Queen and its lead singer: Freddie Mercury. Friends and acquaintances raved all about it and seeing it as the top movie on the inflight entertainment, I put on my headphones and started watching before the plane left the tarmac.
It was good but not as good as my expectations. Expectations - the markets are also all about expectations. When expectations are too high, then the stock will likely fall. There you go, everything in investor’s lens. Bohemian did tell a good story, but the director Bryan Singer always gave enough clues about what to expect, which makes it too expectable. That’s my complaint. Otherwise, it’s good and deserves its SGD1bn box office worldwide.
Queen, the band behind Bohemian Rhapsody
Nevertheless, watching Freddie’s life story drew so many important lessons that I felt compelled to take notes while I watched in the plane so that I could write this for all the readers here. They are both life lessons and investment lessons, expectedly. Since most things that are important enough are usually universal right? So without further ado, here’s the four lesson from Bohemian Rhapsody:
1. Never betray your cadre
2. Identify bad advisors
3. Four heads are better than one
4. 祸从口出 (disasters come from the mouth)
Ok, before we go into details, I must warn that if you haven’t watched the movie, there are spoilers ahead. I have tried to make it as generic as possible but if you prefer to know nothing about the movie when watching then you should read this after you watched it.
First lesson: never betray your cadre.
This is something we all know but yet forget so often. By cadre, I mean people who we treasure most, be it friends, spouses, parents, teammates, siblings etc. In the story, it showed up again and again that artists are born free and hence they feel that they have to right to live way they wanted it. So Freddie betrayed almost everyone in his life, not just friends, but his parents, his band, his lovers. He did it in all ways imaginable too, like an artist. He spout words that one should never say (we will visit this in a later post). He makes unilateral decisions that were good for himself but bad for his band. In short, he was an asshole.
Unfortunately in life, we are bounded by rules. School rules, company rules and most importantly social rules. For example: we don’t get into a love relationship with more than one person (well at least in current times, in current Singapore and most OECD* countries). In the past, we could, if all parties accepted it. Sorry guys, doesn’t happen today.
By betraying our cadre, we break the primordial social contract that makes us humans. In fact, this is almost biological in mammals. Monkeys who betray the clan are casted out. However the follow-up lesson here is that your best friends and family members would forgive you if you sincerely repent and never do it again. Some squander these second chances. Then, you truly are the asshole and deserve to rot in hell.
What is the relevant investor lesson here?
Integrity before everything else
In investing, this boils down to the integrity of those driving the companies. Would they betray their capital providers? It’s usually too easy to betray shareholders. After all it's more a legal obligation than a social obligation. Sometimes, you can still betray shareholders legally. So what’s there to lose?
Normally, the lack of integrity comes in two forms: financial / accounting integrity and management integrity. Accounting integrity is the pre-requisite of any fundamental analysis. If the accounts are faked, then there’s nothing to analyse right? Most people don’t think to deeply about this because we “assume” the accounting has integrity. After all, it’s all listed companies, vetted by the stock exchange and audited by auditors. Unfortunately, it still happens. It’s illegal but people do it. Look at Midas, Informatics, Enron, Toshiba. So when there is a reasonable doubt that the firm lacks financial or accounting integrity, don’t bother to analyse anymore.
As for management integrity, it is also linked to the first point - how some had ulterior intentions to cook numbers. But it is also about having the “betraying-shareholders” mindset . Management has the onus to work for shareholders and other stakeholders but this doesn’t happen all the time. When the management is working for themselves (without breaking any rules), then shareholders will not see their money. This usually happens when the company culture devolved to be all about management themselves. Old case in point: CK Tang screwed shareholders by taking the firm private below book value. Valuing its Orchard flagship property at c.SGD1,000 psf. Everything was legal. It’s just business, nothing personal. But where’s the integrity?
Privatized below book value at c.SGD1,000 psf
As shareholders, we must always be vigilant. Caveat Emptor.
Next post, we talk about our life cadres and advisors!
*OECD stands for Organization for Economic Cooperation and Development. Today it consist of 34 countries including most European countries, Japan, Korea, Australia, New Zealand, Israel, US, Canada and Mexico.