Tenets of Management by Pablo Escobar

Disclaimer: this article is not an endorsement of any illegal activities

In 2014, Google achieved revenues of US$66bn[1], which works out at an average of US$1.26 billion per week. Incredible money by anyone’s standards. In the 1980s, Colombian drug lord Pablo Escobar was estimated to be making about about US$420m a week[2] at the peak of his empire – incredibly, a third of Google’s revenues. It’s not difficult to see why Escobar is thought to the wealthiest criminal in history.

Pablo Escobar: Unwitting management guru

While stories of Escobar’s dealings are currently doing the rounds thanks to the excellent Netflix series, Narcos, there’s an element to Escobar which demands attention in its own right: his genius for management. Yes, the man was a vicious criminal whose fortune was made on the back of hard drugs and violence. But while he’s not the only thug who chose that career path (for want of a better word), he’s the only one to make $30 billion. What were Pablo Escobar’s tenets of management?

Delegate

Pablo Escobar is now just the face of the organization that we know as the Medellin Cartel. It wasn’t as though he was the one turning the cocaine plant into powder, however. He had Cockroach do that for him (before his untimely demise). Likewise, there were middle managers which hired smugglers of every persuasion to get drugs to their end market. From production to sale, Escobar never even had to touch the product he was selling.

Nurture Talent

Escobar snuffed out radicalist group M-19 in his customarily vicious manner but spared their leader, Ivan ‘the terrible’ Torres. Torres provided Escobar with the sword of Simon Bolivár but that wasn’t the reason that he wasn’t killed like his colleagues; rather, Escobar saw a talent for mayhem in Torres that could be exploited in Colombia – and appointed him, bizarrely, as head of Escobar's imaginatively-titled Death to Kidnappers.

Lobby

The Medellin empire wasn’t possible without lobbying just about every part of the Colombian system (Lobbying being a rather kind word for it in many cases). The police, army, government at every level, customs officials, media and judges were all paid handsomely to either turn a blind eye, protect, or in the case of media, promote Escobar’s business. Of course, if you didn’t bow to Escobar’s lobbying – well, you’d lose more than his vote.

Loyalty

Escobar is reported to have said, ‘only those who went hungry with me and stood by me when I went through a bad time at some point in my life will eat at my table.’[3] As loyalty goes, it’s not quite stock options but Escobar is not the first leader of a successful organization to preach about the importance of loyalty: Terry Leahy devoted a chapter to it in Management in Ten Words,[4] while Starbucks CEO Howard Schultz has said: ‘If people believe they share values with a company, they will stay loyal to the brand.’[5]

Manage cash

$30 billion in cash is not easily kept under a mattress. Narcos shows the extent to which Escobar went to hide the extraordinary quantity of physical dollar notes that were being generated by cocaine sales. So much so that a constantly-updated map was required to show where it was all hidden. $2,500 was spent every month on rubber bands alone (before Alibaba, admittedly) to tie up all the cash. Primitive treasury management? Certainly. But the cash pile still amassed $30 billion.

Exploit media

Mass media (and evidently, including this publication too) are guilty of giving Pablo Escobar an easy ride, even after his death. In researching this article, the number of media outlets that referred to a modern-day Genghis Khan (he was responsible for the deaths of over 4,000 people[6] – more than the troubles in Northern Ireland) as a ‘Robin Hood figure,’ or a a ‘folk hero,’ are astonishing. It does go to show how creating a mystique around you, your business or your brand does wonders for how the media will let you away with anything. Having the dashing Wagner Moura play you is no harm either.

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[1] https://investor.google.com/earnings/2014/Q4_google_earnings.html

[2] http://www.businessinsider.com/pablo-escobar-and-rubber-bands-2015-9

[3] http://www.azquotes.com/quote/1020276

[4] Leahy, Terry (2012), “Management in Ten Words,” Crown Business.

[5] http://www.apptentive.com/blog/30-customer-loyalty-quotes/

[6] http://www.gq-magazine.co.uk/entertainment/articles/2015-07/30/pablo-escobar-facts?fb_comment_id=889127907839213_899352423483428#f3ede28484

Making a Fortune the Taylor Swift Way

Why did Taylor Swift pull her music from Spotify on November 3, 2014? Was it really to “protect a superfan” as her bosses claim or even to fight for the rights of unsigned musicians everywhere? The answer is probably a lot more mundane. And more predictable. A quick view of Google Trends shows Taylor Swift’s relative fall in popularity  since late 2012:

But look at all those headlines generated in November 2014. A record amount of publicity generated for the young pop star. Something else happened on November 2014: Swift announced dates for her tour in 2015. All that publicity would come in handy. Presumably, it did no harm in shifting tickets, particularly as Swift was now looking out for the “super fan.”

The music industry has been accused of lacking ideas to generate revenue for over a decade now. Industry executives are told they should be more creative than the artists they're trying to promote. Whoever is responsible for the Swift PR exercise is truly a marketing whizz. Her next business ventures should be watched with interest.

Media Reaction to Another Round of Peace Negotiations in Israel and Palestine

It could be easy to take a generalist approach when looking at the Israeli media. However, we can nonetheless advance some theories about the reaction of the media should Israel and the Palestinians begin another round of negotiations towards signing a peace agreement. Although a peace settlement of one form or another is arguably in everybody’s long term interests, the media is likely to exaggerate the content of peace talks in one form or another.

Context is everything. Media outlets, traditional and otherwise, are wrestling among each other for decreasing revenues. In such a climate, sensationalist pieces make better cover – and generate more revenues (or at least, that’s how much of the prevailing thinking goes). In peace negotiations, the process often moves at a snail’s pace. Another round of negotiations towards peace (“here we go again”) is likely to stimulate some nationalist comment in the newspapers and elsewhere.

The peace negotiations are sure to stir up the “rally around the flag” rhetoric that becomes commonplace in media outlets during wartime. It’s not difficult to envisage a situation whereby Israeli negotiators are seen to give some concessions to the Palestinian side. It’s unlikely the concessions would be too significant in their impact but the Israeli media response is likely to converge around how Israel is, “giving in to terrorists” or “bowing to international pressure.”

In fact, an international element (America, Europe, the G8, etc.) will likely play some role, active or passive, in future peace negotiations. This could create a voice within the Israeli media, which questions the need for any outside participation at all. As much as every country and economic bloc has its own issues to contend with, the media is likely to draw comparisons between the UK and Northern Ireland. So, for example, “Northern Ireland has more so-called peace walls now than it did before the Good Friday Agreement and the UK wants to lecture us on how to achieve peace?”

Narrative-building like this is common in media, not just in Israel. In times when there is less headline-creating news, features – and political features – become more common. Features are open to being driven by narratives rather than what is happening. So, whereas the news would report about representatives from both sides entering a room, a lot of back and forth, and little outcome to report, a feature might present a narrative about these negotiations being part of a bigger Middle Eastern plot to oust the Israeli government.

Furthermore, when conflicts are polarized, as is the case in Israel, there is a tendency for people to view politicians from the other side as not only representatives of the people but almost representations of their people. So, when Israeli media outlets, rightly or wrongly, portray leaders of Hamas as anti-Semitic fundamentalists, there is a natural tendency (not just in Israel) for people to view all supporters of Hamas in the same light. Polarized views become the norm, whereas in reality, populations are like everything else – there is a normal curve representing all views across the political spectrum.

Once peace negotiations have been concluded – with a resolution or without - how the media presents what occurred within the negotiations is likely to impact on future efforts for peace (be they negotiations, efforts on the ground, etc.). Although war makes better print coverage than peace; the examples of Lord Kitchener’s “Britain Needs You” poster from 1914, or its American equivalent featuring Uncle Sam from 1917 or even Russian wartime propaganda posters  («Не болтай!» meaning “Don’t talk!” being the most famous). Somewhat regrettably, it is difficult to recall any peacetime slogans, imagery or print from these countries.

However, one piece of research in particular, on the role of media in (relative) peacetime in Israel (Wolfsfeld and Alimi, 2008) makes an outstanding contribution to the existing literature. The authors note that that is an “inherent contradiction between news and peace,” but note that leaders on either side of a conflict have the ability to initiate stories that provide hope to their people. Likewise, some form of peace can create novel news structures about “the other side.” They comment, “even negative stories about diplomatic and economic relations between the countries remind people that something fundamentally has changed and that normalization is possible.”

Bibliography

Wolfsfeld, G.,  Alimi, E.Y., Wasfi, K. (2008). News Media and Peace Building in Asymmetrical Conflicts: The Flow of News between Jordan and Israel. Political Studies: 2008 Vol. 56, pp. 374–398

The Media and the Bitcoin Bubble

The noise that surrounded Bitcoin since 2011 has intensified over the past 2 years. Everybody wants their say on where the price of this virtual currency is headed; advocates mention millions of dollars while far less optimistic onlookers suggest pennies. It is typical of what happens when something has no intrinsic value and yet everyone wants to name their price for it.

Disregard the hype surrounding “money 2.0” and you are left with scarcely little. Bitcoin is less of a digital currency and more of an ongoing modern parable about behavioural finance. Right now, there is only one certainty for Bitcoin: books about the irrationality of its hikes in price are being penned at this very moment in time for next Christmas.

A book they would do well to match on the subject is “Irrational Exuberance,” by Nobel prize- winning economist, Robert Shiller[i]. In a chapter covering the news media, he writes, “The history of speculative bubbles begins roughly with the advent of newspapers.” The relationship between the media (in particular, newsprint media) and economic bubbles is thereafter laid out by Shiller.

The Bitcoin phenomenon is almost certainly one such media-driven bubble. There appears to be a strong correlation between the frenzy created by the media and the price of Bitcoin. Unfortunately, much of the noise has been generated specifically by the financial media, who seem to have learned little from recent crises. For some people, it seems that virtual currency is just too much of a good narrative not to follow.

Word on the Street

Bitcoin received its first mention in the pages of the Financial Times of London on June 6, 2011[ii]. Interestingly, it was referred to in the title of the article as “virtual money,” which seems a far more accurate means of describing it than “digital money,” or “money 2.0.” One bitcoin could be purchased that day for $8.

Three days later, on June 9, 2011, the Wall Street Journal published an article, “Bitcoin: Online Currency Taking Off.”[iii] Bitcoins were already trading at $15 and were climbing. In the same article, the journalist pointed out to readers, “the thing to note is that Bitcoin has real, and actual, value;” Confusing a price with value: the hallmark of a bubble

By June 13, 2011, the price of Bitcoin had risen to $28 – a bullish market by anyone’s standards. In Just seven days, its price had risen 250%. In the same period, the S&P 500 fell from 1,286 to 1,271 – a fall of 1%. Granted, it’s not as good a story as that of Bitcoin’s meteoric rise, but at least the fall was probably more closely related to fundamentals.

Other media were also getting in on the action. On June 20^th 2011, The Bloomberg news channel ran a report on “what some are calling the money of the future.”[iv] Therein, we were told that “you can speculate” on Bitcoin. The piece finished by interviewing a man making Bitcoin ATMs – because presumably his venture on Betamax videos didn’t pay off.

“This time it’s different”

Headlines, articles and general financial media analysis of Bitcoin’s ascent show some outlets to be more culpable than others; what the majority of them were guilty of is giving weight to a phenomenon, which frankly, doesn’t deserve it (speaking from an economic perspective, at least).

One example is how much of the coverage features a supposed technology guru, who is understandably excited about the programming behind Bitcoin. The natural impluse for an investor who knows no better is to make an association with the last hugely successful tech shares they let go too late to invest in.

Secondly, coverage of Bitcoin frequently uses the expression, “money 2.0,” suggesting that this is the next generation of money – the internet generation. What investor would want to miss out on the next generation of money? Nobody wants to be the guy in the marketplace that was using leather money long after everyone else had changed over to paper.

Plus ça Change

Something else was happening, which could have had an effect on the price of Bitcoin: stock prices were hitting pre-crisis levels. In 2012, the S&P 500 continued its steady rise until it reached a record high at the beginning of 2013. With stocks touching a peak, it might make sense to “get in on the ground” elsewhere. Looking around for inspiration, investors might have been struck by the new virtual money that everyone seemed to be talking about.

At around the same time that the S&P 500 was approaching its pre-crisis peak, Bitcoin was receiving increasingly regular media coverage. A study conducted at the Charles University in Prague has shown the relationship between searches on Google containing the word “Bitcoin” and the price for a single bitcoin over the period between June 2011 and May 2013[v]. The studied correlation seems clear (see figure 1).

Figure 1. Relationship between Google Trends Searches and Bitcoin price

                                                                        Source: Dr. Ladislav Kristoufek   
 

Although causality is impossible to prove, even someone ardently against the idea that the media has played a significant role in the Bitcoin bubble would find it hard to reject the relationship between the above variables. The correlation has remained strong until the time of writing at December 2013.

The year 2013 finished as it begun – with more stories on the new form of money that was going to make you and yours rich. On December 26^th, Forbes.com ran a graphic with the headline, “How you should have spent $100 in 2013 (Hint: Bitcoin),”[vi] as value investors everywhere looked on in bewilderment.

Conclusion

Media commentators play an important role in bringing efficiency to capital markets. The information they provide is quickly contained in asset prices and allows investors to make better informed decisions. They cannot always be expected to get it right. That said, they have played a large role in the Bitcoin pricing bubble that at the time of writing, continues to expand.

The problem is that when prices become too remotely distant from value, investors get hurt. Certainly, Bitcoin has made millionaires and might make many more. As the renowned Professor of Finance, Aswath Damodaran, points out, “you can be right in your assessment of value and go bankrupt being right.”[vii]

When media commentators use the expression “money 2.0,” we should stop and ponder for a moment. Money went through its second incarnation several thousand years ago. To say “money 2.0,” shows a lack of knowledge of the complexity of money and how it got to here. And then, in speaking of the forms that money took – perhaps their advice should be taken with a pinch of salt.

Sources

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[i] Shiller, Robert J, 2000. Irrational Exuberance. Princeton University Press.

[ii] http://ftalphaville.ft.com/2011/06/06/585756/virtual-money-from-real-central-bank-mistrust/

[iii] http://blogs.wsj.com/tech-europe/2011/06/09/bitcoin-on-line-currency-taking-off/

[iv]http://www.bloomberg.com/video/71141386-virtual-currency-bitcoin-rises-in-usage-value.html

[v] Kristoufek, Robert, 2013. Bitcoin meets Google Trends and Wikipedia: Quanitifying the relationship between phenomena of the Internet era. Scientific Reports 3. Article 3415.

[vi]http://www.forbes.com/sites/kashmirhill/2013/12/26/how-you-should-have-spent-100-in-2013-hint-bitcoin/

[vii]http://aswathdamodaran.blogspot.com.ar/2012/06/activist-value-investing-be-your-own.html