Coolness, Customers & Cash

A cool company attracts many customers and generates a lot of cash – as the tale of Nokia is demonstrating, this order is also valid the other way round.

Nokia was founded in Tampere, southwest Finland, in 1865 – wait a moment, 1865 and mobile phones? Well, Nokia was in it’s first 100 years a paper- and then a rubber company producing solid rubber boots, among many other things.

The company we know today was born in 1967 and produced the first mobile telephone in 1981 – actually a car telephone who weighted several pounds – the first real portable phone followed 1987.

The decade from 1990 to 2000 can only be described as the golden years for Nokia. Country by country in Europe established a mobile network and a whole generation of europeans made their first mobile call with a Nokia. The typical ringtone became the soundtrack of the 90’s in trains, restaurants and cinemas all over Europe.

Simple in design, easy to use and almost indestructible. The phones of the cool finish company attracted customers en masse and generated an avalanche of cash. The stock market was euphoric, Nokias value, based on market capitalization, climbed over 250 billion USD in the summer of 2000.

Today, Nokia is valued less than 25 billion USD.

Something must have gone very, very wrong since 2000.

Even if a company can look back over a history of 150 years, it only takes a few mistakes to destroy a lot. In the case of Nokia, these mistakes were made  – and this is typical for a market leader – with regard to new trends, changing strategies and customers needs.

1. The managers overconfidence due to a long time market dominance, led to underestimate the power of new trends and to ignore the risk of loosing market share.
2. Denial of necessary changes – until it’s too late. Nokia kept the own symbian system too long in their products, instead of choosing an alternative like android.
3. Nokia products,  especially the smartphones, were built with a too strong inward looking technical approach, completely ignoring the consumer experience, Apple is so focused on.

Coolness, Customers and Cash were gone.

Now, as mentioned before, I have no intention to blame anybody for a failure in business, the approach is to learn from mistakes. That’s why I want to focus on the issue of overconfidence, since everybody tends to be overconfident and that can lead – as we learned from Sony or Nokia – to wrong decisions.

If you don’t believe to be overconfident yourself, then please read on.

When 100 men in France were asked: ‘Do you think, you are above average, when it comes to your performance with the ladies?’ – 97 said yes. I bet, if I would conduct a survey here in Bucharest with a question like ‘do you think, you are an above the average car driver?’ I would get close to a 100% ‘da, sigur’ in return. Since only 50 out of 100 can really be above average, we have a clear case of overconfidence.

Now, I can’t tell, how your overconfidence impacts your manners with the ladies or your driving style. But I can tell you the result of overconfidence at the stock market. With every successful trade, you start to ignore more and more the risk of loosing money, you probably invest higher amounts. In fact, the risk of a losing trade coming up next, is growing with every winner, at least statistically.

Speaking of successful stock traders. These guys are often gamblers by nature, so it’s common for a lot of Wall Street employees to hit the road after a day’s work for a casino, be it Atlantic City or one of the resorts in nearby Connecticut.

And some of them use a interesting strategy at the roulette tables. They define a basic amount to play, let’s say 500 Dollars, and bet this money on, let’s say, black. If the roulette ball stops in a black slot, and they win, they half their bet to 250 Dollars for the next game. But if the ball hits a red slot and they loose, they double the initial bet to 1000 Dollar for the second game and so on.

So, for instance, even after loosing the first three rounds, when the roulette ball finally finds the right color for you in the fourth game, with this strategy you make a profit (if you have the strength to stop gambling after a big win)..

Doubling the bet after a loss, reducing it after a win, seems to me a reasonable strategy – for sure they do not fall into the trap of overconfidence, former giants like Sony or Nokia were falling into.

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Last night, I saw ‘Spectre’, the latest James Bond adventure. Not bad is my humble opinion. But I still like ‘Goldfinger’ best in the 007-series.

That’s why I tell you a few things about the myths and realities, when it comes to investing in gold. More than just a few investors believe, the price of gold could double in the coming years. Find out more in the next chapter: http://www.theleader.ro/gold-a-magic-metal/