Saturday, August 20, 2005

noise as filter

ever notice that commercials often play at higher volume than the TV shows? you end up having to turn up the volume to hear the TV program, then when the comercial comes on it plays really loud. another way that commercials are trying everything they can to get your attention.

Friday, August 19, 2005

From 2000: Joseph Rosenfield.

He passed away on June 8, 2000--one week after the publication of this article.


The Best Investor You've Never Heard Of


Jason Zweig
2,696 words
1 June 2000
Money Magazine
Issue: June 2000 Vol. 29 No. 6
(Copyright 2000)

This spring, in a modest apartment in Des Moines, Joseph Frankel Rosenfield quietly marks his 96th birthday. Rosenfield has far more to celebrate than living all the way from Theodore Roosevelt's first presidential term to Bill Clinton's second. If he were not a profoundly modest man, his mailbox would burst with birthday cards inscribed, "To one of the greatest investors in the world."

You've probably never heard of Joe Rosenfield, but trust me: You can learn a lot from him. Rosenfield is renowned among a small circle of elite money managers--including Warren Buffett, who has been one of his closest friends since the 1960s. How does Buffett sum up this master investor? "Joe," says Buffett, "is a triumph of rationality over convention." By ignoring the conventional wisdom about investing, Rosenfield has made money grow faster and longer than almost anyone else alive. Since 1968, he's turned $11 million into more than $1 billion. He has heaped up those gains not with hundreds of rapid-fire trades but by buying and holding--often for decades. In 30 years, he's made fewer than a half-dozen major investments and has sold even more rarely. "If you like a stock," says Rosenfield, "you've got to be prepared to hold it and do nothing."

From the mid-'60s through the mid-'90s, Rosenfield was the key member of the investment committee at his alma mater, Grinnell College in Grinnell, Iowa. It is for Grinnell, not for himself, that Rosenfield has worked most of his investing magic. By 1999, little Grinnell--with its 1,300 students and its 108-acre campus--had the largest endowment per student of any private liberal arts college in the country. Its total endowment, at $1.02 billion, dwarfed those not only of top liberal arts schools like Amherst and Vassar but also of giants like Carnegie-Mellon and Georgetown.

Allow me to introduce you to the man who turned one of the finest small colleges in the country into the richest. Lanky, with long hands and keen green eyes, Rosenfield spends most of his time in a wheelchair since undergoing knee surgery last year. Full of charisma, wisdom and wisecracks, he retains a mind as sharp as a razor. He decks himself out in dress slacks and a Chicago Cubs shirt. For decades, Rosenfield personally owned 3% of the team, and in his seventies he vowed to stay alive until the Cubs win a World Series-- which may explain the air of immortality that surrounds him.

Rosenfield graduated from Grinnell with a B.A. in political science in 1925, one year ahead of Frank "Cowboy" Cooper, who later became famous as actor Gary Cooper. In 1948, after practicing law for more than 20 years, Rosenfield became chairman of Younkers, a growing retailing chain that had bought out his family's department store in Des Moines. In the 1960s, however, as he neared Younkers' retirement age of 65, Rosenfield began to devote more time to Grinnell, whose board he'd joined in 1941. Says trustee Gardiner Dutton, "The day I joined the board in 1970, Joe said to me, 'Our job is to make this institution financially impregnable.' Those were his exact words."


Rosenfield can still recall the first stocks he bought for his own account--right after the crash of 1929. "In the early days I was doing too much short-term investing," he says. "I'd buy and sell stocks in 30, 60, 90 days: Studebaker, Dodge, Nash Motors. I thought I could make real money doing that, but I was wrong. I didn't go broke, but I got badly bent. Buying for a short period is always going to hurt you in the end."

That's a lesson he's never wavered from--and one that has defined his strategy for Grinnell from the very start. "I figured government bonds wouldn't get the college anyplace," says Rosenfield. So he started looking for "good common stocks we could own for the long term."

Before long he had help. In 1967, some friends introduced him to Warren Buffett. In those days, Buffett's private partnerships, which had beaten the market by a vast margin for 10 years, totaled less than $75 million. Virtually no one outside of Omaha had ever heard of him--but, recalls Rosenfield, "I could see what a fine mind he had, and I was immediately attracted to him." The two men bonded at a speech the Rev. Martin Luther King Jr. gave at Grinnell. "We hit it off immediately," confirms Buffett. "Joe is an extraordinarily generous and smart man. I'd never have wanted to replace my real father--but if after my dad's death I could have adopted Joe as my father, I would have." Rosenfield promptly invested in his new buddy's company, buying 300 shares of Berkshire Hathaway for Grinnell for $5,252. In 1968, Buffett joined Grinnell's board.

That was the same year that another Grinnell trustee, Robert Noyce, called Rosenfield to tell him about a new company he was starting. Noyce had been kicked out of Grinnell in his junior year for stealing a 25-pound pig from a nearby farm and roasting it at a campus luau; his physics professor, who felt Noyce was his best student ever, got the expulsion reduced to a one-semester suspension. Noyce had never forgotten the favor, which was why he was offering the college a stake in his start-up, NM Electronics. Was Rosenfield interested? "The college wants to buy all the stock that you're willing to let us have," he told Noyce instantly.

Grinnell's endowment put up $100,000, while Rosenfield and another trustee each kicked in $100,000 more, enabling the school to supply 10% of the $3 million in venture capital that Noyce and his sidekicks, Gordon Moore and Andrew Grove, raised for the company that they soon renamed Intel. By 1974, three years after Intel went public, Grinnell's endowment had more than doubled to $27 million-- even as the stock market lost 40% of its value.

Meanwhile, Rosenfield was keeping his eyes, and his mind, wide open. In 1976, Rosenfield heard from Buffett that a TV station, wdtn of Dayton, was for sale. Endowments rarely control private companies, but Rosenfield thinks like a businessman, not a bureaucrat. He grabbed wdtn for Grinnell at just $12.9 million, or a mere 2 1/2 times revenues at a time when TV stations were selling for three to four times revenues.

Next, from 1978 through 1981, on Buffett's suggestion, Rosenfield put $10 million, or a third of the entire endowment, into the Sequoia Fund. And in 1989, Rosenfield bought a $25 million stake in Freddie Mac, the Federal Home Loan Mortgage Corporation. Today, nearly two- thirds of Grinnell's endowment--more than $600 million--is in Sequoia. That's one of the largest investments ever amassed in any mutual fund by a single shareholder.

Between 1977 and 1997, Sequoia outperformed 94% of all diversified U.S. stock funds and beat the S&P 500 by 2.7 percentage points annually. Meanwhile, Freddie Mac boomed through the 1990s. Though Rosenfield has sold much of Grinnell's stake, the school has made roughly $130 million on it.


Rosenfield has broken rules right and left. First of all, he's never had any use for a committee to make investment decisions. For most endowment funds, a stake in an untested technology company and the private purchase of a TV station 600 miles off-campus would have had to go before a committee, which, after tedious debate, would probably have nixed such risky propositions. "I just bulled things through," says Rosenfield, squaring his shoulders.

And instead of spreading his bets, Rosenfield doubled down. Grinnell's endowment holds a total of fewer than 20 different stocks and mutual funds (and that's counting each of the 10 stocks in the Sequoia Fund separately). Many colleges have more investment managers than Grinnell has investments. Outside consultants typically slice and dice assets--putting, say, 3.5% in midcap growth stocks, 1% in small Japanese stocks, 2% in emerging markets bonds and so on. Each sliver has at least one manager, who in turn owns dozens, even hundreds, of investments. The result of spreading so many bets so thinly, and paying high fees on every layer, is sheer mediocrity: Over the 10 years through 1999, the average endowment earned 13% annually, while Grinnell's grew at 15.6%.

Finally, Rosenfield did as little as possible, seldom buying and almost never selling. In fact, he considers selling to be indistinguishable from error. Who can blame him? After Intel went public in 1971, Grinnell found itself sitting on a gold mine--but Bob Noyce treated it like a powder keg. Tormented by the fear that his fledgling company might financially cripple the college that had given him a second chance, Noyce began pestering Rosenfield to sell. "Bob was trembling about it," recalls Rosenfield. "He'd say, 'I don't want the college to lose any money on account of me.' But I'd say, 'We'll worry about that, Bob. We'll take that risk.'" Finally, however, Noyce wore Rosenfield down, and between 1974 and 1980 the college sold its Intel stake for $14 million, a 4,583% profit. "I wish we'd kept it," Rosenfield says. "That was the biggest mistake we ever made. Selling must have cost us $50 million, maybe more."

Then Rosenfield locks eyes with me and asks, "What do you think?" Hmm, I mutter, it might have cost a little more than $50 million; I don't have the heart to tell a 96-year-old man that the shares he sold would today be worth several billion dollars.

Grinnell sold its TV station, WDTN, only because its value rose so fast that Rosenfield could no longer justify keeping so much of the endowment in a private, illiquid investment. The Hearst Corp. bought it from Grinnell in 1981 for $49 million, a 281% profit over a period when the stock market went up about 90%.

Rosenfield sold Grinnell's stake in Berkshire Hathaway for $3.7 million between 1989 and 1993--for reasons that must have been compelling at the time but that neither Rosenfield, nor Buffett, nor anyone at Grinnell can now recall.

What about Sequoia Fund and Freddie Mac? These investments leave Grinnell heavily exposed to the financial stocks that have been the skunks of the market for the past couple of years. In 1999, Sequoia lost 16.5%, while Freddie Mac dropped in value by 27%. Many investors would long since have bailed out, so I ask Rosenfield if he's worried about these bad short-term returns. His entire face turns into a befuddled question mark. "Why should I worry?" he asks. "There are too many people who are nervous Nellies and panic when a stock goes down a few percent. That's what stocks do! I think that [Sequoia and Freddie Mac] are eventually going to make the college a lot of money.

"There's all kinds of propaganda making people believe that impatience will pay off," he continues, "but impatience is a sure way to lose money. I've always taken the long view." He adds with a grin: "I've got nothing but time."


What has Rosenfield meant to Grinnell? The massive endowment, says school president Russell Osgood, has enabled Grinnell to survive even as other small schools have shut down. Nor has Grinnell spent its war chest on extravagances. (The campus' tallest building is still shorter than the Golden Sun feed silo on the outskirts of town.) Instead, the money has gone into keeping tuition about 14% lower than at similar schools, providing aid to 91% of students and sustaining an incredibly intimate educational experience. The average class size is 16. Says Ellen Wolter, an English major from Bismarck, N.D.: "It's almost not like school; it's like an intense book club."

In my two days at Grinnell, it seemed to me that something was amiss, but I couldn't quite put my finger on it. Then it hit me: Of the 57 buildings on Grinnell's campus, not one is named after Rosenfield, and many of the students don't even recognize the name of their college's biggest benefactor. That's true modesty, the kind that accompanies true investing genius. You'll never find Rosenfield hyping his philosophy on CNBC--but that's precisely why it should command your full attention. Consider these lessons.

--Do a few things well. Rosenfield built a billion-dollar portfolio not by putting a little bit of money into everything that looked good but by putting lots of money into a few things that looked great. Likewise, if you find a few investments you understand truly well, buy them by the bucketful. However, I think Rosenfield is a rare exception. Without his kind of superior knowledge, skill and connections, most of us mere mortals need to diversify broadly across cash, bonds, and U.S. and foreign stocks.

--Sit still. If you find investments that you clearly understand, hold on. Since it was their long-term potential that made you buy them in the first place, you should never let a short-term disappointment spook you into selling. Patience--measured not just in years but in decades--is an investor's single most powerful weapon. Witness Rosenfield's fortitude: In 1990, right after he bought Freddie Mac, the stock dropped 27%--and Grinnell's total endowment shriveled by almost a third. And although Sequoia crushed the S&P 500 cumulatively from 1979 through 1998, the fund underperformed the index in eight of those years, or 40% of the time. Unlike the typical mutual fund investor, who holds on to his shares for an average of just three years, Rosenfield never panicked. Instead, he just waited. "Joe invests without emotion," says Buffett, "and with analysis."

--Invest for a reason. Rosenfield is a living reminder that wealth is a means to an end, not an end in itself. His only child died in 1962, and his wife died in 1977. He has given much of his life and all of his fortune to Grinnell College. "I just wanted to do some good with the money," he says. That's a lesson for all of us. Instead of blindly striving to make our money grow--or measuring our worth by our possessions--each of us should pause and ask: What good is my money if I never do some good with it? Is there a way to make my wealth live on and do honor to my name?

Rosenfield is still intent on increasing his own stake for those very reasons. "I just bought some Berkshire Hathaway B," he says, "but I know I have to keep it a while for it to perform." He leans forward, eyes twinkling, and asks, "So what if I'm getting old?"

The Ultimate in Targeting.

The making of a symbol.

Logo Doctors
By Rob Giampietro and Kevin Smith

Con Ed: The Power of a Logo
A celebration of the New York energy company's now 5-year-old classic emblem -- and of its creator, Peter Arnell

On Aug. 14, we'll celebrate (although that might be the wrong word) the second anniversary of the largest U.S. blackout in recent memory. Which makes it as good a time as any to celebrate (and here it's most definitely the right word) one of the most unsung logos in recent memory: the Consolidated Edison (ED) logo. It seems like such a classic solution, you'd never guess it's only three years older than the blackout itself.

Created in 2000 by branding guru Peter Arnell -- the mind behind identity campaigns for Reebok (RBK ), Tommy Hilfiger, DKNY, and Samsung, among others -- the logo aimed to reflect changes at Con Ed. No longer in the business of generating energy for New York City in 2000, it was now in the business of moving it around efficiently. The new visual identity debuted in October of that year with a citywide ad campaign and a New York Times article by media columnist Stuart Elliott.

A year later, what started as a simple consumer education effort gained momentum when Enron announced in October, 2001, that its stock was overvalued by $1.2 billion. Suddenly the new Con Ed campaign morphed into a mission to restore consumer confidence in private energy companies.

NO-FRILLS TYPEFACE. It happens that Enron's logo had been created by the grandfather of logo design, the great Paul Rand, who also created IBM's (IBM ) famous striped letters and the emblematic C of truck-engine maker Cummins (CMI ). If you merged these two classics, you'd have the Con Ed logo, which helps explain its timeless quality.

Prior to Arnell's innovation, the logo had been untouched since 1968, when the words "Con Edison" were stacked and emblazoned in sky-blue Helvetica. Arnell kept the Helvetica, an impersonal, no-frills typeface that's right at home in the context of a multibillion-dollar utility company. He also kept the sky blue. Not only does the color evoke unpolluted atmospheres and optimistic futures, it also creates a feeling of coolness, which, in these sweltering summer months, is one thing we all count on Con Edison for. Imagine if Arnell had jettisoned the blue for, say, the bright red of a hot stove?

Arnell did a number of other smart things as well. He convinced the folks at Con Ed to style the company name as "conEdison," shifting the emphasis from a negative, "con," to a symbol of innovation and ingenuity, Thomas Edison. The capped "E" also slyly signfies "energy," which is what the company delivers, and "efficiency," which is what the company plans to deliver it with.

AN IRONMONGER'S STAMP. The logo itself literally "consolodates" the letters "C" and "E" into a single, coiled unit. Its spiraling quality suggests an emanating force or an infinite loop. Its form initially struck us as similar to the "impossible fork," a children's optical illusion, or the sorts of symbols used by electrical engineers in making schematic diagrams. And it has the same concentric rings as a manhole cover, which harks back to the 180-year-old company's oldest trademark.

The first Con Ed logo wasn't made by a designer at all, but by an ironmonger. Like the stacked logo that followed it, the words "Con Edison Co" were imprinted on the city's manhole covers around the turn of the century. Prior to that, the covers had been emblazoned with the name of their fabricator.

In a project from the early '60s, designer Anthony Robinson trolled London streets for these early manhole covers bearing insignias like "C. Whitley, Ironmonger, King's Cross" and "Jelley Son & Jones, Grindstone Merchants, Blackfriars Road." These stampings, either cast or branded into the soft molten metal, trace their history back to the earliest printed marks, including stamps made by Greek potters called "graffiti," and marks pressed into Roman oil lamps that, before the advent of energy companies, once lit the way for citizens of the world's oldest cities.

In enlisting Arnell, a savvy interpreter of visual culture, Con Ed found a collaborator ready to both embrace the past and set a course for the future. Diagnosis? An elegant logo ready to last another 50 years.

Copyright 2000-2004, by The McGraw-Hill Companies Inc. All rights reserved.

Wednesday, August 17, 2005

Might as well take the whole industry to task.

The ultimate deception business.


The skin lotions that definitely aren't worth it

Women are being misled over the effectiveness of creams which claim to reduce cellulite and wrinkles, according to advertising watchdogs. Two TV commercials for L'Oreal products have been banned for failing to provide enough evidence to support their claims.

Adverts for Wrinkle De-crease and Perfect Slim should be banned unless L'Oreal can back up those claims, the Advertising Standards Authority said.

The wrinkle cream commercial featured model Claudia Schiffer pulling different facial expressions, giving the impression that the product worked on human face lines.

It claimed that 76 per cent of 50 women who self-evaluated the effects of the cream after three weeks reported visible reduction of their expression lines.

The product is "...the first anti-creasing cream with Boswelox to counteract skin micro contractions" and could "rapidly reduce wrinkles", the advert said.

After an investigation, the ASA ruled that L'Oreal did not have enough evidence to prove that the cream's effect was anything more than cosmetic.

The industry watchdog ruled: "The ASA's expert considered that there was insufficient evidence to allow such a claim about the effect of the product on the human face. We therefore considered the advertisement misleading on that point."

The watchdog also upheld complaints about a TV advert which claimed L'Oreal's Perfect Slim cellulite cream was "...judged best anti-cellulite product in an independent study (based on an independent French consumer study)".

And that it "... visibly reduces the appearance of cellulite (48 women tested; 71 per cent agree)." An ASA expert found that L'Oreal's consumer study was limited and was not scientifically evaluated.

Not enough evidence

Viewers would think the product could eliminate or reduce cellulite but this was not backed up by evidence, the watchdog said. "Because the evidence produced was below the standard that would be expected to back up claims relating to physiological action, we did not believe it was sufficient to support the claim that the product could help banish cellulite," the ASA ruled.

Trials carried out by the advertiser showed the average improvement was not noticeable to the user and that half of those using the product had not registered the improvement claimed, the watchdog said.

The Perfect Slim commercial must not be shown again without "sufficient evidence" to back up its claims, the ASA ruled.

Responding to the ASA's findings, L'Oreal said both commercials had been approved by the Broadcast Advertising Clearance Centre on the basis of the "technical substantiation of the product benefits".

The statement added: "Both L'Oreal Paris Wrinkle-De-Crease and Perfect Slim have been very popular with customers, demonstrated not just by their overall sales, but also the repeat purchases.

"In addition, research that was presented to the ASA shows a high rate of satisfaction for both products: 92 per cent for Wrinkle De-Crease and 84% for Perfect Slim."

"Although we disagree with the elements of the complaint that were upheld, L'Orial will comply with the ruling of the Advertising Standards Authority and adapt future advertisements accordingly."

©2005 Associated New Media

An emerging channel for memes: T-shirts

a follow-up to john's prior post on leveraging humans as billboards.

"Mr Housing Bubble" shirts strike chord, draw ire

Striking a chord with uneasy U.S. property investors,'s latest design -- "Mr. Housing Bubble" -- has become its best seller in less than a week.
The parody of the decades-old Mr. Bubble bath foam package offers a "Free Balloon Mortgage Inside." But the smiling pink house-shaped bubble also warns: "If I pop, you're screwed."
A disclaimer at the bottom reads, "Not affiliated with Mr. Internet Bubble."
Anthony Phipps, communications director, said the Austin, Texas-based t-shirt design and marketing firm has sold hundreds of the $20 cotton shirts since they went on sale last week.
He said the design had the right mix of market timing and dark humor.
"I think it's pretty clear that there are a lot of people in fear over the potential of a housing bust," Phipps said. "A lot of individuals have made some interesting moves financially with interest-only mortgages and the idea of suddenly having all that equity disappear is something that scares home buyers and policy-makers alike."
But the Realty Times newsletter chafed at the notion that real estate prices have reached unsustainable levels, declaring in a headline, "Mr. Housing Bubble T-shirts Indicate Market Confusion."
Arguing that Americans are widely benefiting from adjustable-rate mortgages that make monthly payments more affordable, columnist Blanche Evans said some pundits in the financial press were simply trying to scare real estate investors into shifting their money back into stocks.
Even Federal Reserve Chairman Alan Greenspan, with his recent ominous talk about froth in some U.S. housing markets, has not been able to slow an eight-year housing boom that has absorbed one-third of the nation's investment wealth, Evans wrote.
"Mr. Housing Bubble may get a lot of washings before it wears out," she said.

Tuesday, August 16, 2005

More on gossip.

August 16, 2005

Have You Heard? Gossip Turns Out to Serve a Purpose


Juicy gossip moves so quickly - He did what? She has pictures? - that few people have time to cover their ears, even if they wanted to.

"I heard a lot in the hallway, on the way to class," said Mady Miraglia, 35, a high school history teacher in Los Gatos, Calif., speaking about a previous job, where she got a running commentary from fellow teachers on the sexual peccadilloes and classroom struggles of her colleagues.

"To be honest, it made me feel better as a teacher to hear others being put down," she said. "I was out there on my own, I had no sense of how I was doing in class, and the gossip gave me some connection. And I felt like it gave me status, knowing information, being on the inside."

Gossip has long been dismissed by researchers as little more than background noise, blather with no useful function. But some investigators now say that gossip should be central to any study of group interaction.

People find it irresistible for good reason: Gossip not only helps clarify and enforce the rules that keep people working well together, studies suggest, but it circulates crucial information about the behavior of others that cannot be published in an office manual. As often as it sullies reputations, psychologists say, gossip offers a foothold for newcomers in a group and a safety net for group members who feel in danger of falling out.

"There has been a tendency to denigrate gossip as sloppy and unreliable" and unworthy of serious study, said David Sloan Wilson, a professor of biology and anthropology at the State University of New York at Binghamton and the author of "Darwin's Cathedral," a book on evolution and group behavior. "But gossip appears to be a very sophisticated, multifunctional interaction which is important in policing behaviors in a group and defining group membership."

When two or more people huddle to share inside information about another person who is absent, they are often spreading important news, and enacting a mutually protective ritual that may have evolved from early grooming behaviors, some biologists argue.

Long-term studies of Pacific Islanders, American middle-school children and residents of rural Newfoundland and Mexico, among others, have confirmed that the content and frequency of gossip are universal: people devote anywhere from a fifth to two-thirds or more of their daily conversation to gossip, and men appear to be just as eager for the skinny as women.

Sneaking, lying and cheating among friends or acquaintances make for the most savory material, of course, and most people pass on their best nuggets to at least two other people, surveys find.

This grapevine branches out through almost every social group and it functions, in part, to keep people from straying too far outside the group's rules, written and unwritten, social scientists find.

In one recent experiment, Dr. Wilson led a team of researchers who asked a group of 195 men and women to rate their approval or disapproval of several situations in which people talked behind the back of a neighbor. In one, a rancher complained to other ranchers that his neighbor had neglected to fix a fence, allowing cattle to wander and freeload. The report was accurate, and the students did not disapprove of the gossip.

But men in particular, the researchers found, strongly objected if the rancher chose to keep mum about the fence incident.

"Plain and simple he should have told about the problem to warn other ranchers," wrote one study participant, expressing a common sentiment that, in this case, a failure to gossip put the group at risk.

"We're told we're not supposed to gossip, that our reputation plummets, but in this context there may be an expectation that you should gossip: you're obligated to tell, like an informal version of the honor code at military academies," Dr. Wilson said.

This rule-enforcing dynamic is hardly confined to the lab. For 18 months, Kevin Kniffin, an anthropologist at the University of Wisconsin, tracked the social interactions of a university crew team, about 50 men and women who rowed together in groups of four or eight.

Dr. Kniffin said he was still analyzing his research notes. But a preliminary finding, he said, was that gossip levels peaked when the team included a slacker, a young man who regularly missed practices or showed up late. Fellow crew members joked about the slacker's sex life behind his back and made cruel cracks about his character and manhood, in part because the man's shortcoming reflected badly on the entire team.

"As soon as this guy left the team, the people were back to talking about radio, food, politics, weather, those sorts of things," Dr. Kniffin said. "There was very little negative gossip."

Given this protective group function, gossiping too little may be at least as risky as gossiping too much, some psychologists say. After all, scuttlebutt is the most highly valued social currency there is. While humor and story telling can warm any occasion, a good scoop spreads through a room like an illicit and irresistible drug, passed along in nods and crooked smiles, in discreet walks out to the balcony, the corridor, the powder room.

Knowing that your boss is cheating on his wife, or that a sister-in-law has a drinking problem or a rival has benefited from a secret trust fund may be enormously important, and in many cases change a person's behavior for the better.

"We all know people who are not calibrated to the social world at all, who if they participated in gossip sessions would learn a whole lot of stuff they need to know and can't learn anywhere else, like how reliable people are, how trustworthy," said Sarah Wert, a psychologist at Yale. "Not participating in gossip at some level can be unhealthy, and abnormal."

Talking out of school may also buffer against low-grade depressive moods. In one recent study, Dr. Wert had 84 college students write about a time in their lives when they felt particularly alienated socially, and also about a memory of being warmly accepted.

After finishing the task, Dr. Wert prompted the participants to gossip with a friend about a mutual acquaintance, as she filmed the exchanges. Those who rated their self-esteem highly showed a clear pattern: they spread good gossip when they felt accepted and a more derogatory brand when they felt marginalized.

The gossip may involve putting someone else down to feel better by comparison. Or it may simply be a way to connect with someone else and share insecurities. But the end result, she said, is often a healthy relief of social and professional anxiety.

Ms. Miraglia, the high school teacher, said that in her previous job she found it especially comforting to hear about more senior teachers' struggle to control difficult students. "It was my first job, and I felt overwhelmed, and to hear someone say, 'There's no control in that class' about another teacher, that helped build my confidence," she said.

She said she also heard about teachers who made inappropriate comments to students about sex, a clear violation of school policy and professional standards.

Adept gossipers usually sense which kinds of discreet talk are most likely to win acceptance from a particular group. For example, a closely knit corporate team with clear values - working late hours, for instance - will tend to embrace a person who gripes in private about a colleague who leaves early and shun one who complains about the late nights.

By contrast, a widely dispersed sales force may lap up gossip about colleagues, but take it lightly, allowing members to work however they please, said Eric K. Foster, a scholar at the Institute for Survey Research at Temple University in Philadelphia, who recently published an analysis of gossip research.

It is harder to judge how gossip will move through groups that are split into factions, like companies with divisions that are entirely independent, Dr. Foster said. "In these situations, it is the person who gravitates into a intermediate position, making connections between the factions, who controls the gossip flow and holds a lot of power," he said.

Such people can mask devious intentions, spread false rumors and manipulate others for years, as anyone who has worked in an organization for a long time knows. But to the extent that healthy gossip has evolved to protect social groups, it will also ultimately expose many of those who cheat and betray. Any particularly nasty gossip has an author or authors, after all, and any functioning gossip network builds up a memory.

So do the people who are tuned in to the network. In one 2004 study, psychologists had college students in Ohio fill out questionnaires, asking about the best gossip they had heard in the last week, the last month and the last year. The students then explained in writing what they learned by hearing the stories. Among the life lessons:

"Infidelity will eventually catch up with you," "Cheerful people are not necessarily happy people" and "Just because someone says they have pictures of something doesn't mean they do."

None of which they had learned in class.

Copyright 2005 The New York Times Company

Monday, August 15, 2005

Forget multinational: what does it mean to be multifunctional?

True risk diversification will one day involve going across disciplines, not simply going across borders. : Lessons on forging a world-beater.
Peter Marsh
2378 words
9 August 2005
Financial Times (FT.Com)

(c) 2005 The Financial Times Limited. All rights reserved

The most common view of a multinational is that it sells products, services or consultancy advice and tries to make its customer base as broad as possible, but without moving away from its area of expertise. That is how a giant business such as Procter & Gamble, which makes a huge range of consumer products but does not venture into consultancy or services, has built up an empire that sells to 180 countries.

KPMG and Deloitte, two of the world's biggest accountancy firms, have moved into management consultancy. Both, however, would be reluctant to use their financial knowledge to venture into manufacturing.

It is far from common for an international enterprise to set out to be an expert in a specific type of business and then use its knowledge to move into a number of new areas, spanning manufacturing, service and consultancy. The approach adds up to that of a "multi-function" business - one with a knowledge base that is fairly narrow but can be leveraged globally across a range of business functions.

One company that is trying to follow this strategy is Duferco, a "multi-function" business in the steel industry. Duferco's approach sheds light on a novel strategy that could appeal to companies in other spheres. For instance, it would be possible - at least in theory - for consultancy companies that are experts in forensic science to offer kits of chemicals to practitioners in the field, such as police forces. In biotechnology, a number of companies supply medical diagnostics kits and sell their ideas to bigger groups.

Based in the quiet lakeside town of Lugano in Switzerland, Duferco is already the world's biggest steel trading company. It has moved in the past few years into steel production through ownership of eight plants in countries including the US, Italy, Russia, Belgium and South Africa.

Bruno Bolfo, Duferco's chairman and owner, says the company has set its sights on going further than this and offering advisory services in steel production and trading to companies around the world with which it has relationships.

"I like the idea of the project manager approach in which we can bring our expertise in steel to help solve problems for companies across a variety of areas, from the technical aspects of manufacturing to involving disciplines such as investment banking," says Mr Bolfo, an Italian businessman who started Duferco in 1979 and has a reputation for being one of the shrewdest brains in the global steel industry.

Duferco's ideas may be relatively unusual, but they are not unique. Another model is Cargill, the giant US agribusiness company. With annual sales of $63bn (GBP35bn) and more than 100,000 employees in 59 -countries, privately-owned Cargill is a distributor, processor, consultant and banker in its chosen field of food and agriculture.

Another company following a "multi-function" approach - in the field of materials and energy - is Glencore. The Swiss-based company combines commodity trading with production operations around the world, with the latter employing 50,000 people. Glencore also owns stakes in several publicly quoted mining and metals companies such as the UK's Xstrata and Century Aluminium of the US.

Many big oil companies, such as Royal Dutch Shell and BP, use variants of the "multi-function" approach favoured by Duferco, by involvement in "upstream" and "downstream" parts of oil processing as well as in trading. The obvious problem with this approach is that it requires a huge knowledge base if it is to work properly.

All this takes a long time to acquire - and Duferco has not tried to do things in a hurry. It has taken its time devising a business structure to cater for the variety of different ways of making money - even though all are connected to steel.

From its origins as a pure trading company without production assets, Duferco started pursuing its broader "multi-functional" ideas from the late 1990s.

After guessing correctly that the steel industry would rebound from a moribund period partly because of huge demand from China and sector consolidation that made individual steelmakers more powerful, Mr Bolfo started recruiting production experts, financial specialists and project engineers who could consider proposals for new steel plants in different parts of the world.

Compared with Cargill and BP, Duferco is a lot smaller, with sales in 2004 of $5.4bn. The revenues came largely through shipping 14m tonnes of steel to customers, split roughly 60/40 between traded steel and material made in its own plants.

The company has 10,000 employees and 40 offices around the world, mostly concerned with trading, with the head office in Lugano employing 200.

It has tried to create a multicultural approach to management. The eight-member executive board includes Mr Bolfo and two other Italians, three Belgians and two executives from the US. Other senior executives come from Serbia, Britain, Ukraine, Argentina, Brazil and Canada.

Duferco has two important relationships with steelmakers that illustrate some of its ideas. One of them is Industrial Union of Donbass (ISD), one of Ukraine's -biggest steelmakers. It owns half of the trading side of Duferco's business, and -channels a large part of its steel output through the company, thus giving itself a broad sales network for its products.

In an extension of this relationship, ISD and Duferco teamed up last year to take over Dunaferr, Hungary's biggest steel producer. The two companies are also exploring a collaboration in which Duferco would acquire a stake in two ISD steel plants in the Ukraine. In exchange, ISD would buy into one of the Swiss -company's mills in Italy. In each venture, the two companies would use their different strengths to help each other, for instance in finding supplies of raw materials or customers.

Duferco last year also formed a partnership with Corus, the Anglo-Dutch steelmaker. Under this agreement, Corus will sell about three-quarters of the output of a large steelworks it runs in Teesside over the next decade to Duferco and a consortium of three other steelmakers (from Mexico, Italy and South Korea) that the Swiss company has identified. The agreement with Corus also gives Duferco a role in managing the Teesside sites, using its expertise gained from running other steel plants.

Through both of these ventures, Duferco aims to use its know-how in both manufacturing and services to help the partners, while learning something from them in return.

An example of how this works is that ISD is a leader in producing unfinished "slab" steel that is sent to steel users around the world for final processing. Slab distribution is a market that the Teesside works is entering into, therefore it seems likely that Duferco will transfer to its Anglo-Dutch partner ideas from its Ukranian supplier.

Mr Bolfo is casting around for other projects where Duferco's expertise could be relevant. The Swiss company is talking to investors and steel specialists in the Middle East about acting as the lead manager in projects that could take slab steel - perhaps from Duferco's own steel sites or those with which it has relationships - and bring it to plants in the region for final rolling operations to turn the steel into products such as sheet for packaging or industrial processing.

Part of Duferco's job, if such projects take off, would be to take a role in arranging finance for the $100m-$200m that such plants would cost, while also -advising on management or even running operations itself. It would also inject some capital. Mr Bolfo explains his approach as "somewhat similar to that of an investment bank".

"Rather than using only our own money to acquire 100 per cent of assets, we intend to use our name, finance capabilities, project skills, plant management and deal structuring capabilities to organise ventures where we contribute our experience and cash. In these projects, we would be combining a number of -functions, involving investment banking, venture capital, consultancy and orthodox business management."

Mr Bolfo says he has a number of projects under discussion, some of which could reach fruition in the next year or so.

"A key part of what we do is bringing business disciplines together in a novel way that you don't often see in our industry."

The art of selling one product to two markets

From a base in Markdorf, a quiet town in southern Germany, an unusual technology company has established itself as the dominant player in an important niche of the US decorating industry, writes Peter Marsh. The strategy of the privately owned Wagner shows how a fairly small company can take a set of engineering ideas, turn them into products and sell them to a broad group of customers, spanning both consumers and industrial users.

Over the past 20 years, Wagner has built itself into the biggest supplier of spray guns for painting in the US - a country in which many European companies have found it very difficult to do well, particularly in consumer products. While such guns are viewed in Europe as a tool for professional painters, in the US they are widely used by people in their own homes to paint interiors and outside surfaces such as fences. Wagner is thought to account for roughly 85 per cent of the $150m-a-year market (in factory prices) in the US for these products.

It has done this by capitalising on knowledge built up over several decades in Europe in the field of professional applications for paint guns. Thorsten Koch, chief executive of Wagner, calls his company a "category champion": it has taken ideas for one group of customers in industry and used them to meet the needs of consumers as well.

While the approach seems sensible enough, it is seen surprisingly infrequently across manufacturing companies. In many cases, companies consider the approach they need for selling similar products to consumers and industry users are quite different and are reluctant to espouse both.

That is why the commonest strategy in the drugs industry is for companies to concentrate on either prescription-only products or over-the-counter medications bought by ordinary people, but not on both types of medicine.

In industrial equipment, companies such as Atlas Copco of Sweden have built up enviable reputations for making cutting machinery but would not think of trying to sell the same hardware to a mass market of householders.

Even in the area of hand-held power tools - equipment similar conceptually to the paint gun - the idea of selling similar products to both consumers and professional users is not universally held. Bosch of Germany and Black&Decker of the US are companies that do sell to both. But Makita of Japan - which with these two companies is one of the three largest makers of power tools globally - has resisted the "category champion" approach. It insists on selling only to professional users, arguing that if it tried to make products suited to DIY aficionados, its reputation in the eyes of industry customers would be harmed: they would think Makita had gone "downmarket" by espousing "lower-tech" ideas.

Of Wagner's 349m ($431.5m) sales last year, 52 per cent came from the US. Nearly two-thirds of Wagner's US revenues derive from consumer paint guns - a product that Wagner invented in the early 1980s - with the remainder coming from different brands of painting systems sold to industry.

Crucial to this strength in the US is Wagner's obsession with the technology of paint guns - which it sells in about 3,000 varieties and at retail prices of between $50 and, for large industrial systems, $2m.

The company has a 170-strong development team, comprising one-tenth of its worldwide employees, split between its main administration and production centres in Germany, the US, Switzerland and Italy and a small plant in the Czech Republic.

"We build pumps that work to a high performance - operating at up to 500 times atmospheric pressure - and we put a lot of effort into developing components such as special nozzles and tubing that not only make the products work effectively but hard to copy," says Mr Koch.

Wagner's efforts in developing new technical ideas, backed by heavy use of -patents, are one reason why the company has relatively few rivals in both the consumer and industrial sections of its market. It has therefore avoided some of the strong competitive pressures facing companies in the related business of hand-held power tools, such as electric drills.

Another key ingredient to Wagner's progress - at least in the US - is heavy use of advertising. It spends $20m-$25m a year in this area in the US, mostly on television advertising to consumers.

"The outlay is two to three times as much as you'd expect from a company of this size," says Dean Buresh, chief executive of Marketing Drive, a US advertising agency that organises Wagner's US campaigns. He says that this level of advertising can pay off only if it is associated with a good product.

One potential problem for Wagner is that its category champion strategy could go awry if its base of professional customers are put off buying the products through the association with consumer items - just the association that Makita, for instance, is keen to avoid. Wagner recognises this as an issue and tries to address it by using a series of different brands to sell to the different groups of industrial users and consumers. As long as this juggling act carries on, the company believes its success can continue.


* Develop a range of skills by employing key people with specific knowledge in areas such as project management or investment.

* Employ top people of different nationalities and encourage them to exchange ideas freely.

* Pay attention to the production side - a role in which it is often difficult to gain expertise except through operational experience - by owning manufacturing assets around the world.

* Pay close attention to opportunities in emerging economies such as eastern Europe and China.

* Staying private may be wise - multi-functional businesses are hard to sell to most investors, who are used to the defined operations of conventional companies.