Firm's Objectives - Profit vs Non-Profit

Part 4: Firm's Objectives - Profit vs Non-Profit

Fundamentally, the management structure in Warren Buffett's Berkshire Hathaway is arguably the best incentive-driven to yield maximum returns, that is, investment-wise it is stable in the setup in relation to motivation and incentive to perform.

Warren Buffett and his right hand man bullionaire Charlie Munger are quintessentially significant sharehokders in their investment holding company and the classical economic theory of profit maximisation for firms fits in nicely.

But when there is significant "gap" in ownership-management relationship aka known in economics as principal-agent relationship, then economics theory has long acknowledged that the classical profit-maximisation theory would not hold but alternative goals of firms take precedence. It is especially so when executives KPI and incentives are "not non-perversely structured".

In such firms, not only is the classical economic condition (MR=MC) of profit-maximisation violated, some other objectives such as "SATISFICING" are deep-seated in their management corporate culture.

The performance-incentive relationship in such firms is essentially "not stable" and "distorted". One theoretical analogy can be in what is known as the Nash Equilibirum which is the cornerstone of Game Theory widely taught in or part of economic courses. Paramount to this concept is that the dominant strategy of both or all parties ends up in a Nash Equilibrium and no party has the incentive to deviate from it as it yields the best outcome for all. In short, it is a self-sustaining stable relationship.

But what if such a Nash Equilibrium is terms of the company structure is not forged and thus one party has the incentive to deviate from agreed goals such as profitability? One example is what happened in the risk-taking by executives in some financial firms leading to the last GFC in 2008. In their investment venture (or "adventure"), it was almost unmistakably "heads they win, tails they walk away" (often with a golden hand-shake). In a way, such "skewed-" incentives driven deep-seated culture is "perverse".

Arguably, the shareholdership-management structure in Warren Buffett's Berkshire Hathaway is far more superior and stable and creates almost always a win-win scenario for both management and shareholders.

Sadly, from the financial carnages witnessed in the last GFC, the corporate governance in terms of incentives structure in many firms are found wanting and the executives' incentives are often "perversed" than not.

Leo81

Kim Trump Summit - Who is the rogue?

"The United States has never been closer to potentially having something happen with respect to the Korean peninsula, that can get rid of the nuclear weapons,"
Read more at https://www.channelnewsasia.com/news/asia/trump-says-singapore-among-possible-sites-for-us-north-korea-10189826

Read the above very carefully. Do you understand what it means? The impression given is that the world will be free of nuclear weapons. That is the fake news that Trump and the West have been blowing daily. When North Korea gives up its nuclear weapons, the world will be rid of nuclear weapons. Really? 

This is the kind of American and western propaganda that is being peddled daily for world consumption. And the stupid read this as the truth. And the Americans are not going to continue to possess the biggest nuclear arsenal in the world, they are going to make them more deadly, more destructive. When all the enemies of the Americans and the West give up their weapons, and the Americans and the West continue to possess them and increase their arsenal, the world is free from nuclear weapons.

The Kim Trump Summit is all about denuclearisation of North Korea, not of the American's deadly arsenal. This is Trump's main objective, no denuclearisation of North Korea, no talk. The more hideous objective is to bait Kim to travel out of North Korea.

The next agenda is choosing a meeting place. Where is a safe place for the two leaders to meet? Should the meeting be held in a country belong to the 'free' world or in a communist country? Which do you think is a safer place, a 'free' world country or a communist country? See the irony? 

Trump or any western leaders can visit any communist country, even North Korea, and can feel very safe from being assassinated. Kim Jong Un cannot visit any 'free' world country without being threatened by an assassination bullet. This is how free and how safe the western world has become. 

The so called 'free' world countries are very dangerous place as they are infested with rogues and assassins. Some countries are vying for the honour of hosting the Kim Trump Summit. Singapore is salivating for this privilege and great publicity. Have they ever think about their ability to prevent an assassin's bullet on Kim's head? There would be no assassin bullet on Trump's head for sure. No civilised people would do that. Only rogues would think of assassinating a head of state. 

Who is or are the rogues?

Would Singapore be so complacent to think that hosting this event is just like hosting a Saturday Night Fever party? Can Singapore prevent an assassination on Kim if the Summit were to be held here?

The free world is not free unless the Americans said so. They decide if a country is free or not free, a country is safe or not safe. They have an army of rogue assassins out there to do the killing of national and political leaders. This is the very reason why Kim Jong Un would not leave North Korea, or he would be dead like his brother Kim Jong Nam, assassinated in a so called 'free' world country.

PS. When Kim visited China, the whole trip was held indoor, including the inspection of the guards. China would not take the risk of having Kim walking on the streets even in China that is now as open as the 'free' world countries.  In the streets of Singapore, Kim would not stand a chance. Singapore should be smart enough to stay clear of this treachery scheme to lure Kim out of his safety zone.

Big money invest in big biz, not in kachang putehs

Warren Buffett's Berkshire Hathaway, invested US$232m in a Chinese company, BYD, a Shenzhen-based battery and electric car maker. The $232 million investment in 2008 is now worth about US$2.1 billion.

“When you got over $100 billion, you’re looking at any big market. We can’t go into tiny markets and really deploy enough capital,” he said. “We want to invest money intelligently. And obviously, big economies and growing economies have the potential.” Warren Buffett Yahoo News

The above comment by Buffett is what investment with big money is all about, invest in big economies, in big companies. How silly it is to have hundreds of millions invested in kachang puteh companies in sick economies. How silly it is to invest hundreds of millions in low skill, low tech, low capital and low barrier of entry companies.

Guess what type of big investment funds, with hundreds of millions to invest, would do exactly the opposite of what Berkshire Hathaway is doing? Would anyone with hundreds of millions of dollars to play with invest in tontine companies, in low level engineering companies, in hawker centres, in bakeries, in low tech, low skill mechanical workshops or in tuition centres?

Buffett said, invest intelligently in big economies, in growing economies, and in growing companies. Growing economies and growing economies must be really growing not by shouting that the economy is growing, the company is growing when they are not, not when growth is fiddling with numbers, juggling with numbers to make the icing looks good but in reality a rotten apple, rotten economies and rotten companies.

Is it so difficult to tell whether an economy or a company is all hype and nothing else? Oh, there are fake growth economies and fake growth companies, just like fake degrees and CVs. There are many con men everywhere with slippery tongues.

Is there anything to learn from Berkshire Hathaway? Or is it too late?

Modi visits China

These two big countries of Asia met again in Wuhan, China, with Modi making a scale down official visit short of a state visit by the head of a state. Nonetheless it is a good step forward to minimise tension and perhaps a small step towards more talks to reach some understanding in the territorial dispute and India's hyped obsession that China is going to invade and take over India.

Historically the two states had not gone to war or invade each other until the sneaky border war in 1962. There were natural barriers separating the two states and the centre of economic and political activities were far from the border. Further more, there was no state called India until the British colonised the land of the maharajas and tribal chiefs and subsequently gave it independence. Even independence was subjective as far as national boundaries were concerned. Not only India was an artificiality, there were no Pakistans before the colonisation, and the British carved up two states in the east and west of India and called them East and West Pakistan.

The whole damn shit in the subcontinent was the work of the British colonial masters that sailed from distant Europe to create states. And they drew up the boundaries for the natives that were not nation states then. India's trouble with China is the McMahon Lines. Who is this cunt that thought he was the lord of the day to draw lines between China and India and dictated to the two countries that the lines were the boundaries?

The questionable act of arbitrarily drawing lines freely by a foreign agent, an agent of colonialism, is now quoted by India as the authoritative source of their claims to Chinese land. Why would China want to accept the dictates of the British colonial power and let their land be written away from them? On what ground or reasons?

Why would India, a non state that became a new state in 1947 so happy to accept the lines drawn by their ex colonial master to make claims against Chinese land? Simple, it is land that did not belong to India but the British Raj said it belonged to India. So India die die insists that the land belongs to India because their colonial master said so.

The two countries should start from a fresh ground and stop relying on the colonial shit as the governing principle to settle their land dispute. The British were there to claim and conquer land belonging to other states and people. They did everything for their own interest under the power of the gun. If India does not remove this colonial hangover and insists that the British Raj was the authority to decide the land belonged to which state, then it is an unacceptable premise to start with.

And India should stop its silly hallucination that China is there to invade and grab Indian land, even invading India. This kind of unfriendly and hostile mindset would not do any good to bilateral relations. This is the 21st Century and acquisition of territories by war and by force is no longer acceptable except for the evil Empire. There are many smaller states around China and there is no fear of China invading them and taking them by force. Outer Mongolia with a population of 5/6 million was part of China, seceded due to Russian betrayal, but China is not even attempting to take it back by force. It could if it wants to.

The earlier the Indians removed this self deluded hysteria of China harbouring an intention to want to invade and conquer India, the earlier would they come to terms of the new reality and their senses and be at peace with themselves and with China. The fear of China is self induced. The territorial dispute is created by the British Raj and China or any country would not accept a foreigner or foreign power from afar to decide their territories.

When would India let go of this colonial hangover and start to think clearly and talk to China with sincerity and not living with its self delusion and fear of China? Why would China want to invade and inherit a subcontinent of problems that have little commonality with China?

Farrer Park’s demise’s a hard LAND-ing for Singapore

As far as usage of its precious land space goes, nothing is sacred in Singapore. The recent announcement that Farrer Park “will make way for redevelopment” (that dreaded phrase of conservationists) confirms this - if confirmation is at all needed. Still the imminent demise of Singapore’s football cradle - the birthplace of legends like Quah Kim Song, Fandi Ahmad and Sundramoorthy - hit us like fresh hammer blows at a time when the country’s footballing fortunes are going from First World to Third (ok, we were never First World in the first place but you get the picture). Standing at an all-time low of 183 in FIFA rankings, football fans need Farrer Park’s passing like a hole in the head. But in a way, no one should be surprised. This is a country that prized economics and pragmatism above all else.  Think the National Library, that old red brick building that was pulled down years ago to make way for a road. Think Bidadari cemetery, that historic abode of the dead that made way for the living in the form of pricey HDB flats. Think Bukit Brown cemetery, part of which made way for a viaduct and a flyover to ease traffic congestion.

Yes, this is a country that puts economics above history, efficiency above heritage, convenience above nostalgia, the future above the past. It would be easy to blame the Government for being trigger-happy with the wrecking ball but that is too simplistic. We get the government we deserve and the government reacts to the impulses of the voters who put them there. If they think Singaporeans will go along with policies that give them jobs, comfort, convenience and material well being - give and take the odd grumble - they will not hesitate to do it.  Wield the axe, send in the bulldozers because they have the mandate of the people which is more awesome than the mandate of heaven. So the buck really stops with us - the people - who must look ourselves in the mirror and examine our priorities .