Nick is the author of The Nature of Value: How to Invest in the Adaptive Economy (Columbia University Press 2014) and was involved in a technical confidential project with one of the world’s largest global macroeconomic hedge funds. He lectures in Columbia University’s MBA value investing program on innovation, macro-economic portfolio, and scenario risk management. Meanwhile, he is a top 1% performer as a portfolio manager for a long/short hedge fund (+20% v. -60% for S&P 500 2007-2009) and advises large banks on risk management, including the Flash Crash, and was a chief analyst managing commercialization for a science research institute modeled on the MIT Media Lab. His primary fields of inquiry include biotechnology, nanotechnology, artificial intelligence, renewable energy, genetics, quantum computation, and others such as
o Venture capital screening and start-up advisory work
o Founding software startups in social media and crypto currency space
o Expert testimony to the United States Senate on the international risks associated with the $200 billion Y2K technology issue
o Human behavior studies with an undergraduate degree in cultural anthropology from the University of Iowa focused on sustainable economic development in West Africa
He earned an MBA from The Ecole Nationale de Ponts et Chaussees in Paris with a thesis on a quantitative approach for hedge funds and is a designated Chartered Alternative Investment Analyst (CAIA). Nick resides in Greenwich (CT) with his wife and daughter.
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Morris: When and why did you decide to write The Nature of Value?
Gogerty: I started writing it in 2009 as a way of organizing my thoughts. It was to be a series of blog posts entitled “The Long Game” in regards to long term value investing. The topic grew as I asked “why how does that happen” repeatedly. Three years later the book was done, with a final year for cleaning up graphics and simplification of ideas, language and structure.
Morris: Were there any head-snapping revelations while writing it? Please explain.
Gogerty: A few come to mind:
1. The doblin model for innovation which I was introduced to by Larry Keely. It is one of the only robustly tested methods of digging into innovation, competitive capabilities etc. beyond product I have ever come across. The methodology of ten types of innovation provided the basis for my extension of considering the duration and depth of moat using the cycle lengths of each unique capability and the excess margin that each type of innovation may be delivered by the innovation. These capability sets match nicely with biological capabilities.
2. A second breakthrough was coming up with a “how” or means for innovation propagation, namely the ino. By creating the ino (in no) unit of innovation I had an informational unit analogous to the bit, gene or meme which is non-dimensional, context relevant, and ubiquitous unit for evolution’s economic domain.
3. Another major breakthrough occurred when my friend, Dr. Ed Rietman, introduced me to the work of astrophycisist Eric J. Chaisson. Chaisson’s Phi(m) metric shows evolution to be a process with a form of evolving progression or development working across time scales, physical domains including (cosmological, geological, ecological, economic and potentially post economic). Suddenly evolution provided not just an analogy but a framework for the mechanics. At its heart, the economic domain is a normal symbiogenetic extension from evolution’s ecological domain. The economy just uses different media and localized goals (value vs. life) to adapt, select and amplify information and expressed structures for increasing energy flow capture and increasing energy processing densities.
Morris: To what extent (if any) does the book in final form differ significantly from what you originally envisioned?
Gogerty: The original focus was on an explanation of what makes a company survive and thrive. The final book is a much deeper look at the economy as an evolving system. The addition of the monetary theory piece and how money as a social protocol, informationally supports resource allocation was also a first principle derivative of the work.
After moving beyond companies, the next question was economies and portfolios. Surprisingly after creating the quadrant approach to diversification among value creating/representing processes and monetary information growth I discovered the macro-quadrants mapped directly onto Berkshire’s four types of operating companies, the Harry Brown’s Permanant Porftolio, and one of the world’s largest hedge funds most successful global macro frameworks. This was unforeseen and seemed truly remarkable as the 1st principles approach using evolution, energy and information principles seemed to provide a generalized framework for all modern economies.
Morris: In your opinion, what is the source of all economic value?
Gogerty: People’s experienced perceptions. Economic value links back to people’s individually and in groups attempting optimize Maslow’s hierarchy of needs given their gifts and resources. As of 2014 there are $262 trillion in global wealth and all of it is due to humanity’s collective value perceptions.
Morris: In a society viewed as a garden, what are the defining characteristics of an organization — viewed as an organism — that is “growing”?
Gogerty: If a society or economy is growing, the role of the organization is to try and grow its ROC. This local goal of optimization is thwarted by competition which ends up delivering a super-ordinate goal of a wealthier and better off society. This occurs as economies get more complex and informationally “ino” denser.
Consider the complexity evolved to supply the estimated one billion SKUs on offer in New York city which are delivered ever more efficiently over time. Competition has adapted these incredible value delivering structures and capabilities.
The equivalent in ecology is evolution maximizing biological carrying capacity for a given resource set. This involves increasing biological complexity and density. The Amazon rain forest is an incredible robust energy processor which happens to be incredibly information (genetic) rich substrate network.
Morris: To extend the metaphor a tad, what are the defining characteristics of an organization — viewed as an organism — that is “withering” and “dying”?
Gogerty: Organizations are complex systems that are competing to create value effectively. Most complex systems fail in one of two ways and exhibit one of two characteristic dying processes. The most obvious death is a lightning bolt or something out of the blue, the proverbial asteroid if you will. This is rare.
Far more common deaths are stressors within or outside the competitive cluster leading to functional death. Complex systems under stress that ultimately prove fatal exhibit one of two characteristics.
1. Wild oscillations in behavior as the struggling firm attempts to find a new viable economic structure or form. This might be trying on new business models, capabilities, lots of M&A activity etc. and wild operating margin and balance sheet changes found in the organization and its competitors.
2. The other trait of dying organizations is absolute stasis. A stressor may cause analysis paralysis or reversion to a fixed structure that becomes inviolable while the operating context around it changes. Change will eventually kill those who fail to adapt and learn.
For those interested, the list of longest lived companies (firms founded before 1700) is mostly dominated by brewers, distillers, and small restaurants. These are small capability niches, some of which have been stable for over 500 years.
Morris: Obviously, I am fond of metaphors. Here’s another: economic “bubbles” that can burst organizations and even industries. What do the tulip, railroad, radio, and Internet bubbles share in common in terms of both causes and impact?
Gogerty: They were all fueled by the creation of money (credit or equity) which represented expected value used to chase rising price and ignoring the nature of their underlying respective value creation sources.
Money in the form of credit and equity was created that represented expectations of value creation that couldn’t be delivered. The railroad, radio and Internet bubbles all shared a collective failure to consider the competitive dynamic of the cluster i.e. the 2nd order effects of multiple entrants.
The Tulip bubble confused a positional good and relative good the same way the real estate bubble did. The South Sea bubble was merely a mass delusion of blind hope. Real estate bubbles are the same in which money chases a mostly income-driven positional versus an absolute good.
Morris: You observe, “Our economy is an adaptive selective process that evolves just like nature.” For example?
Gogerty: Evolution is simply a theory of change. Change happens in the economy as new goods come along, some items are selected by consumers becoming popular and suddenly there are more of those goods. A “successful” good and the organization producing it becomes a larger share of the economy. This adaptive, selection and amplification process unfolds the same way a successful species differentiates, amplifies and becomes a larger part of the ecology over time.
Morris: For those who have not as yet read your book, The Nature of Value shows how and why economic value adapts and changes. Detailed analyses illustrated with 110 charts and diagrams show how value is created, lives, and dies through an evolutionary adaptive selective process. To what extent (if any) can this process be managed?
Gogerty: The question of management occurs at many levels.
At the macro level, like ecology a relatively stable macro-environment allows for thriving diversity and complexity of participants. Stability in regulations, rule of law, anti-cartel legislation and an environment allowing for consumer information feedback. Unhindered and un-distorted information and feedback via price and behavior signals are vital.
At the corporate level, management must be good at 2 distinct roles, that of operator and allocator. The first, operator requires respect for employees, customers and value delivery. The 2nd role as allocator means focusing on long-term ROI and shareholder value preservation. Buffet hires operators and acts as the allocator. Few managers are capable of both roles for many reasons.
Morris: You also suggest that traditional economic thinking about prices misses the mark. How so?
Gogerty: An excessive focus on price and confusing it with value has led to most of the significant market disasters over time. The University of Chicago Economics School of thinking and efficient market hypothesis (EMH) are probably some of the most dangerously expensive schools of thought measured in terms of social impact by the West in the 20th century. EMH in various guises beat and confused thinking about volatility as risk soundly beat out common sense thinking.
Since 1970 EMH has dominated policy and risk taking belief at the BIS (bank of International settlements), most central banks, regulatory agencies and risk management office globally. Tellingly, the Chicago School has many adherents who even debate the possibility of bubbles.
Central banking behavior and institutional private sector behavior (i.e. blindly believing price is always equivalent to value) is bad scholarship which has contributed significantly to trillions in reckless money creation, economic dislocations, and acute periods of misery and mass unemployment on an epic scale(delete). There is nothing more dangerous than a flawed operating model of the world coupled with extreme hubris.
Most recent estimates for the 2007-2009 crisis are $7 trillion in bogus credit creation for housing and 31% US GDP underperformance in the post crisis deleveraging period to date. This doesn’t even include losses in Europe and credit stresses at work in Canada, France, Japan and potentially China. The final impact of the US-EU real estate credit bubble won’t be known for 5-10 years as the crisis is still unfolding and most economies are very vulnerable due to large sensitivity to potential changes in debt service costs. Proper monetary stimulus focused on lower debt yields supported by relative currency strength have temporarily allowed central banks to create huge balance sheets, while many countries have extreme sensitivities relative to yield spikes. Their treasuries risk is accelerated with short duration debt roll-overs and the needs for fiscal stimulus to avert deflationary disaster due to exacerbated relative debt service loads on fragile economies.
Current central bank policies are very sensitive to yield spikes or auction failures. A sudden failure in government credit markets combined with potential central bank asset purchasing limits could ignite an inflationary firestorm as growing debt service require significant debt issuance spikes and falling currency values. The world’s currency holders will eventually come to recognize the risks of a feedback loop of increasing yields leading to greater currency issuance suppressing debt appetites.
At the same time the public debt sector grows to service debts, the private sector could risk being crowded out. Ironically this would be due to a flight to “quality.” Sovereign credit market cycles typically run 20-30 years. One only needs to look back briefly to the recent cycle in the late 1970s which saw US currency and debt so weak that the U.S. Treasury Department was forced to issue bonds in Swiss Francs.
Morris: For those who do not invest and know little (if anything) about economics, what information and insights in the book will be of greatest interest and value?
Gogerty: Recent price is probably the least interesting aspect of an investment. Value is what counts.
Morris: As I indicate in my review of the book for various Amazon websites, there are dozens of passages throughout your narrative that caught my eye. For those who have not as yet read the book, please suggest what you view as the most important point or key take-away in each of these passages.
First, The Misunderstanding of Price (Pages 5-9)
Gogerty: Price is easy to find but only reflects others’ opinions. These opinions can vary wildly from true economic value. And therein lies opportunity. The foolishness of crowds shows up daily in every newspaper one just needs to look beyond price to realize it. Knowing this fact is powerful.
Morris: The Behavioral Economic Model of Price (11-13)
Gogerty: Recent price is probably the least interesting aspect of an investment. Value is what counts. Economies change like ecologies with some organizations/organisms amplifying their resource capture ability and representation in the economy/ecology. Some organizations/organisms replicate and dominate for longer periods than do others.
Like organisms, all organizations change, die, decay and disappear, it is only the rate and the pattern of growth progressing to death that varies.
Understanding why and how some organization’s thrive or survive longer is one of the key’s to understanding economies. Understanding and identifying the organizations that can generate high returns on capital and ethically create value for shareholders is the key to great investing.
Morris: Evolution: Flowing Change (39-44)
Gogerty: Evolution is the process of change. All change is driven by energy flow. At a system’s level — be it, geology, ecology, economy etc. — the system evolves to form structures for optimizing energy flow efficiency per unit of mass. These findings are supported by two schools of science: Constructal Theory of forms and the Theory of Cosmic Evolution with increasing energy densities capacities as put forth by astrophysicist Eric J. Chaisson.
Chaisson discovered a macro principle of structural change across systems in all domains indicating that domains evolve or change to become more complex in their interactions. This increasing complexity facilitates an ever increasing capacity for energy flow per unit of mass measured as Chaisson’s constant Phi(m). Jet engines and microprocessors are some of the highest evolved forms of energy flow density systems in the known universe.
Adrian Bejan, a distinguished professor at Duke University created the Constructal Law which states that here are three steps toward making “design in nature” a concept and law-based domain in science:
o Life is flow: all flow systems are live systems, the animate and the inanimate.
o Design generation and evolution is a phenomenon of physics.
o Designs have the universal tendency to evolve in a certain direction in time.
The Constructal Law is proposed as a first principle of physics accounting for all design and evolution in nature. It holds that shape and structure arise to facilitate flow. The designs that happen spontaneously in nature reflect this tendency: they allow entities to flow more easily – to measurably move more current farther and faster per unit of useful energy consumed.
Ecologies are networks of biological systems acting as macro-processes that tend to maximize the amount and complexity of biomass processing using multiple forms of energy, information and material following these same principles.
Economies are macro-processes that maximize the amount and complexity of value processing via organizations using various forms of energy, information and materials following these same principles.
Morris: New Capabilities Lead to New Offerings (65-69)
Gogerty: Organization’s develop new capabilities in order to improve the effectiveness of their value offerings. New capabilities are the expressed form of innovations. Organizations use innovations to express new products, services, distribution channels, brands etc. These capabilities fall into Ten Types or categories following the Doblin Consulting group model of innovation.
Morris: Experience Curves (78-84)
Gogerty: Experience curves are profound evidence of exponential economic progress over decades in hundreds of areas of material manufacturing, raw materials and expressed innovation. An experience curve is plotted as a chart showing how a product, technology or service becomes more energy and resource efficient as more of it is produced to flow through the economy to consumers.
Experience curves show economic tales of evolution’s progress writ large and are one of the keys to effective long term investing. The process of manufacturing airplanes, engines, beer, poly-vinyl-chloride, energy storage and most all products and commodities get exponentially cheaper over time measured in value flow as demand increases the flow effectiveness of economic value. Economies are giant macro-processors using resources, information and organizations adapting and learning how to create value more efficiently as increasing amounts of value flows through them.
Moore’s Law is a way of expressing an experience curve in time flow rather than value flow units. Example, “over the history of computing hardware, the number of transistors in a dense integrated circuit doubles approximately every two years.”
A standard experience curve is measures dollars/units of value flow, such as Swanson’s Law in Solar cells which states that for every doubling of solar PV cells shipped, the cost declines 22%.
The Nature of Value method merely measures the effect in units of a value flow through the economy getting becoming predictably more effectively produced at each value flow doubling.
Experience curves occur in almost all goods and services processed and flowing through the economy. On a large scale this begs the question of free will, progress and group determinism. Individually we consider our acts to fulfill our own desires and needs for order and stability. The result of economic processing creates “progress” showing up in these experience curves. A database from the Sante Fe institute highlights a few of them. http://pcdb.santafe.edu/
For many centuries and decades the economy has progressed along an accelerating trajectory pointed to some destination of ever-increasing material and information macro-processing capabilities. As actors we happen to be along for the ride. Its as if we are termites unknowingly building an ever-bigger more effective mound of value flows.
Morris: Defining Cluster Boundaries (103-108)
Gogerty: A competitive cluster is the “area” or space in which companies compete. Cluster boundaries are defined by customer perceptions. Some variations on the defining boundaries from traditional economic market definitions include choice blindness, behavioral biases and substitution effects.
Morris: Competitive Balance and Instability (112-122)
Gogerty: All evolving systems exist around the edge of instability. There is a continuum of efficiency, which exists like a barbell with “disaster” at both ends.
A system or organization, which is too efficient, risks being brittle at the slightest change in its operating environment. Think of over leveraged banks chasing high ROEs in what is effectively a commodity business as hyper efficiency, which comes at the expense of resiliency to shock.
On the other end of the efficiency continuum are under efficient systems. These systems die as competition defeats and replaces them.
Most economies and long-term sustainable firms constantly battle with increasing efficiency to compete while at the same time retaining resilient capability and capacities without being too fat or too slow.
Economies like ecologies are filled with organisms and organizations balancing staying lean to survive but not being so lean that a slight change in operating environment conditions wipes them out.
Morris: Dominant Design and Enabling Architectures (128-132)
Gogerty: A dominant design is the required form that a product or service has after the initial explosion of innovation converges to minimum viable offering. For example at the turn of the century there were steam, gas, oil and even electric cars with three and/or four wheels. Steering was done with a wheel or sometimes a tiller similar to the ones found on boats. Eventually cars converged to a dominant design of four wheels, a gasoline engine and a steering wheel. The macro-process of rapid adaptation exploring economic possibility spaces followed by rapid competitive convergence to the dominant design is a normal early cycle step in product and services.
Enabling architectures are sets of capabilities and features required to deliver a product or service. Firms develop architectures using a mix of Doblin’s ten capabilities to deliver their products and services. As a cluster demands new products or services architectures may become obsolete.
Research indicates even firms with dominant positions and resources typically fail to make the leap to the new sets of capabilities required for a new enabling architecture. Innovation research and case studies show how firms with significant capital and market knowledge adapted for extreme efficiency in one architecture can’t adapt to new required architectures.
At Columbia University’s Value Investing MBA program, I taught a case study showing how Kodak invented consumer imaging in the 1880s and dominated for 100 years in the film and camera business but couldn’t survive the architectural leap into the era of digital imaging despite having invented digital imaging in 1975, having a $30 billion market cap in the 1990s, partnering with Apple on digital cameras in 1994, and having 100,000 smart dedicated employees. Consumer imaging became a different business with HP, Pintrest, Instagram, Snapchat, GoPro, Apple, Facebook, and others dominating the newly adapted cluster requiring radically different enabling architecture of capabilities.
The message for investors is to find stable businesses with high stable ROEs in mature offering environments.
Morris: Red Queen Clusters (147-157)
Gogerty: The Red Queen is an evolutionary concept in which competitive survival capabilities co-evolve relative to each other. Overtime all may innovate but relative competitive positions stay the same.
Think of two auto-manufacturers who each likely adapted digital marketing, ERP systems and other new technical capabilities in the 1980s and 1990’s. They competed but may have stayed in the same relative position being forced to pass the value creating innovations to customers. Capex was required to stay in the race. In a commodity market that is subject to high innovation rates, competitive red-queen requirements may drain the ROCs as innovation’s value gets handed to consumers.
For example, in Berkshire Hathaway’s days as a textiles producer in the 1960’s, Warren Buffett quickly realized the innovation of mills moving to cheaper labor locations and more advanced machines. These innovations adapted by all textile firms required capital intensive options to “stay in the business”.
These innovations available to all competitors provided no long term relative competitive advantage and thus poor to negative returns on capital. The correct strategy in a Red Queen environment is to exit the race. That is challenging if not impossible for most firms because of their identification with what they do and who they are. Investors and managers need to understand Red Queen races and exit or avoid them at all costs. The allocator needs to see red queen’s the operator can dangerously overly apply capital to them.
Morris: Moat Depth, Moat Duration, and Moat Depth x Duration = Moat Value (173-176)
Gogerty: A moat is a lasting set of organizational capabilities creating a high return on capital due to investor-perceived advantages. This is Buffett’s use of the term.
The Nature of Value explains many types of moats and how to make a tentative estimate their value in terms of depth and duration. The depth of the moat is measured by how much real excess return on capital the moat delivers. The duration of the moat is the expected time that it may last subject to competitor or new entrant innovations in the competitive cluster.
Morris: Financial Clues for Spotting and Tracking Moated Firms (180-187)
Gogerty: Over the years, moats cast shadows across balance sheets, cash flow, and income statements. High stable operating margins over time, high returns on equity, pricing power, and stable repeat customers are all indicators that a moat is securely in place.
Identify the moat, understand the unique capabilities enabling it and the rate of innovation in a cluster and you have a good feel for the survivability of the business line. The next step involves making sure management are good moat operators and good allocators of the excess cash generated by the moat. Both operation and allocation skills are required of management.
Morris: Consumer Belief and Perception Moats (196-204)
Gogerty: Consumer belief and perception moats are created by customer beliefs in the relative value or uniqueness of a product. A product perceived as premium relative to competitors may command higher prices and margins. Many moats are created by people’s perception, behaviors and beliefs. You probably chew 2-4 types of chewing gum at most and are choice blind and price insensitive to others.
Morris: Managing Moated Firms (210-213)
Gogerty: managing a moated firm requires doing 2 things. Firstly, understand the capabilities that deliver a competitive advantage and defend those for the long term. This might mean giving up margins etc. for a few quarters and other short term economic costs. Putting customers and employees first before shareholders can actually be long term beneficial for shareholders. See Johnson and Johnson’s mission statement, behavior and total shareholder returns.
The 2nd requirement for managing a moated firm is the ethical allocation of excess returns. This means allocating to high ROC moat driven business initiatives or giving the money back to shareholders. Anything else is value destructive.
Morris: Levels of Economic Panarchy: Inos, Organizations, Clusters, and the Economy (219-222)
Gogerty: The economic panarchy is the whole picture of what, how and why economies work. A panarchy is a nested network of linked hierarchical systems. Ecologies and economies evolve and adapt into complex networks of adaptive hierarchies. Understanding the whole economic picture is pretty awe inspiring like seeing the complexity in a rain forest for the first time or viewing any amazing natural setting. You don’t have to know all the detailed feedback loops and food chain interactions to appreciate the profound beauty and complexity of the adaptive growth process unfolding in before your eyes.
Morris: Inclusive and Exclusive Economies (235-243)
Gogerty: Inclusive and exclusive economies are model put forth by DARON ACEMOGLU AND JAMES ROBINSON in the profound book, Why Nations Fail.
Having studied development economics casually for 25 years, I consider Why Nation’s Fail one of the best books on the causes of economic development. The basic premise is that political economies that allow or include a large number of competing participants develop and evolve more effectively. Economies that are exclusive and restrict economic participation either by corruption or state ideology have limited growth or become poverty traps. The Nature of Value thesis of economies focuses on value flows and suggest that optimal value flow growth (GDP growth) and human development requires broad inclusion and the equitable rule of law over a large enfranchised population.
Morris: Inflation’s Effects on the Allocator (282-289)
Gogerty: In macroeconomic terms broad Inflation occurs in a few ways as either a monetary shock or a raw materials shock broad enough to percolate through the economy impacting multiple supply chains and consumer demand.
Assuming the allocator can’t predict inflation or monetary flow changes the The Nature of Value approach is too neutrally allocate across 4 quadrants or sources of value. This asset allocation approach was derived from first principles of economic value flows and macro-economic money creation and destruction.
Interestingly, after completing this part of the Nature of Value in 2011, the 4 quadrant Nature of Value portfolio approach was found to map onto some highly successful manager’s approaches. The 4 types of Operating companies Berkshire Hathaway describes are analogous to The Nature of Value approach. In addition the publicly defined allocation strategy used by one of the World’s largest and best macro-economic asset managers also maps to it 1:1.
Morris: When concluding your brilliant book, you observe, “Economic value is ultimately measured in human terms. Prioritizing the value of friends, family, and freedoms ensures that the wealth of a lifetime will be correctly measured in the creation of memories, loving relationships, and a reputation for integrity. Never compromise these forms of value for mere money.”
Here’s my question: In your opinion, is this process of prioritizing more difficult today than it was (let’s say) in 2008 when the latest depression/recession /reset/whatever created so much tumult? Please explain.
Gogerty: I was recently on a NYSSA (New York Society of Security Analsyts) half-day panel discussing this with the vice chairman of Black-Rock (world largest asset manager), $4.5 trillion AUM, and Rick Bookstabber a senior researcher at the U.S. Treasury Department focused on systemic risk. My opinion is that 2008 was a normal credit crisis, the scale was unusual, and the instruments mechanics (CDS, SPVs, CDO etc.) were novel, but it was generic. The relationship between value creation and money hasn’t changed. The US has had 12 banking/financial crises since 1830 and 38 recessions. There will be another banking crisis.
The best an allocator can do is come up with a framework for understanding all crises and then study them and not just in the U.S. There is a lot to learn from 1873, 1893, 1907, 1920, 1929, 1980 etc. in other countries. If the allocator can think about the MV=P relationship mentioned in the book, a lot of profound things should be revealed. The rules of money and value flows are pretty simple, the only big variables are political and policy responses by central banks and politicians when the crisis hits. Even these are limited and fall into 2-4 generic buckets.
The book, Fragile by Design, is an excellent framework to study comparative banking systems over time.
Morris: Let’s say that a CEO has read and then (hopefully) re-read The Nature of Value and is now determined to establish or strengthen a workplace culture within which personal growth and professional development are most likely to thrive. Where to begin?
Gogerty: Foster an environment that rewards slow thinking, long term outcomes, taking short risks and losses while valuing people. Seperate near term operational thinking from removed cold at a distance allocation thinking.
Morris: For more than 25 years, it has been my great pleasure as well as privilege to work closely with the owner/CEOs of hundreds of small companies, those with $20-million or less in annual sales. In your opinion, of all the material you provide in The Nature of Value, which do you think will be of greatest value to leaders in small companies? Please explain.
Gogerty: There are two economic roles for every owner/CEO seeking financial success. The first role is owner/operator, a domain that involves understanding innovation dynamics and cluster strategies.
The send role is as capital allocator, seeking out the right process of allocation by focusing on ROE and ROC, not just top line growth or short-term capital investment for short-term competitive advantage. This lesson is tough because it can involve starving and shutting down what appear in the short term to be viable operations. Thinking about second order innovation and competitive effects is a required ability of the allocator.
Morris: Which question had you hoped to be asked during this interview – but weren’t – and what is your response to it?
Gogerty: “Who is reading or using The Nature of Value?”
The book is toolbox for professional groups and serious investors. This list includes multi-billion dollar hedge funds, global members of the Forbes 400, scientists, and think tanks like The Santa Fe Institute, Rand Corporation, and others internationally.
In addition, venture capitalists and futurists are interested in the innovation work and defensibility dynamics of clusters. Ultimately the book even hints at evolution’s post-economic future. A Nature of Value “hidden” chapter hypothesizing evolution’s post economic future is to be released soon.
I have the privilege of being invited to guest lecture the Nature of Value material at Columbia University’s Value Investing MBA class which was originally taught by Ben Graham and attended by Warren Buffett. Lastly, astrophysicist Eric J. Chaisson has mentioned the book’s economic role in a paper involving his broad spectrum overview of evolutionary theory.
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Nick cordially invites you to check out the resources at these websites:
His Amazon page link
The Nature of Value Amazon link
The Nature of Value website link
Thoughtful Capital Group website link
Eric J. Chaisson linkTags: Columbia University Press, Columbia University’s MBA value investing program on innovation [comma] macro-economic portfolio [comma] and scenario risk management, Judgment Calls, MIT Media LabThe Ecole Nationale de Ponts et Chaussees, Nick Gogerty: Part 1 of an interview by Bob Morris, the Flash Crash, The Nature of Value: How to Invest in the Adaptive Economy