Wednesday, June 30, 2010

Notes from a Legal Seminar

Some notes from a recent legal seminar:

Judge: "[Court] Trials are civilized combat."

An example of an opening statement to a jury: you've got the facts, the law, and your common sense.

Judge Conrad Rushing on CMCs:

1) Make every appearance count; and
2) Don't continue it out. [i.e., avoid continuances.]

California has a 95% settlement rate, i.e., 95% of cases in the state do not go to trial.

In mediation, if there is an impasse, ask the side that is refusing to budge the following questions:

1. What do you think the case is worth?
2. If they offered that much, how much would you counter with?

Tuesday, June 29, 2010

Not My Stock Picks

Apparently some other website--without my permission--took a list of stocks it believed I had, and created a list with performance numbers. See below:

NVDA +0.36% since 08/12/08
JMBA +140.61% since 08/04/08
GRMN -9.46% since 07/30/08
SO -7.16% since 07/30/08

For the record, I am not recommending any of the stocks mentioned above. As a rule, I do not recommend any stocks or stock market actions, so if you run across a stock list related to me, ignore it. I used to publicize some of my own stock purchases for informational purposes only, but I stopped doing it when I realized I was becoming too focused on short-term gains and losses.

The information on this site is provided for discussion purposes only. Under no circumstances do any statements here represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence. To summarize, I do not provide investment advice, nor do I make any claims or promises that any information here will lead to a profit, loss, or any other result.

Monday, June 28, 2010

Rumi's Poetry

However long your patience, I will shred it.
If you sleep, I'll steal the dreams from your eyes.
Stand like a mountain, I'll melt you in fire;
Be the sea, and I'll drink your water dry.

More from Rumi HERE.

Friday, June 25, 2010

Yahoo Annual Shareholder Meeting (2010)

I attended Yahoo's Annual Shareholder meeting on June 24, 2010 at the Doubletree Hotel in San Jose, California. About 35 non-employee shareholders and 50 Yahoo employees attended. What a change! No media circus, no hoopla about Icahn's or Microsoft's intentions, and no ill-advised grandstanding by Bostock--just a normal, professional annual meeting. In short, Carol Bartz is simply amazing. She has taken Yahoo from seemingly endless PR disasters to instant credibility. Even Bostock--whose dithering I despise--seems tolerable next to Bartz. In fact, "to dither"--which means, "to be nervously irresolute in acting or doing"--seemed to be Yahoo's motif before Bartz.

Bostock (pronounced, "Bah-stock") opened the meeting by introducing Yahoo's Board of Directors and Executive team. (I was happy to see Brad Smith, Intuit's CEO and Yahoo Board member, at the meeting. Intuit's consistent ability to deliver strong products makes it an excellent partner to have.) Bostock said that Bartz had acted "decisively" and the Yahoo team had "made enormous progress." He turned the podium over to Yahoo's general counsel, who handled the formal portion of the meeting.

Yahoo's general counsel did a fantastic job. After hearing Responsible Wealth's representative Lincoln Pain introduce a shareholder proposal ("Say on Pay"), Yahoo opened the floor for comments on the proposal, limiting statements to two minutes. Yahoo's approach to shareholder proposal comments creates a good balance between too much information and too little information. Too many companies won't allow shareholders to comment on proposals or go the other direction and allow shareholders unlimited time.

One shareholder did have a comment on the "Say on Pay" proposal. He said similar proposals had been used as a club/baton to harangue the Board and CEOs. He criticized RiskMetrics, Responsible Wealth (the organization sponsoring the proposal), and ended by saying, "If you own a house in the Bay Area, you're [considered] rich," and "Responsible Wealth is ACORN for rich people." This proposal was defeated.

After the general counsel concluded the business portion of the meeting, the meeting was adjourned, and Carol Bartz shooed the general counsel off the stage and began her presentation.

Bartz detailed Yahoo's partnership with Microsoft. She said that by working together, Yahoo and Microsoft could attract 30% of the marketplace for search (with Google attracting the other 65 to 70%). Bartz indicated that Yahoo was focusing on several main areas: local, social, video, and mobile. She praised Yahoo's longevity, reminding us that while most tech companies founded fifteen years ago are now gone, Yahoo is still here. After a simple, crisp presentation, she opened the floor for Q&A.

Shareholder Anthony Mezzapelle mentioned that Yahoo's operating profit margin in the past three to five years seemed too low and wondered why Yahoo wasn't using its ample cash to improve its margins. Ms. Bartz answered that Yahoo had about $4 billion in cash, and agreed that Yahoo's 6% operating margin was "shockingly low." She said that Yahoo has spent money trying to improve margins, but revenue did not follow. Bartz seemed confident that Yahoo's margins would improve in the future. Ads are supposed to be fun, Bartz said, and Yahoo has better ads than competitors; moreover, Yahoo's partnership with Microsoft was generating more eyeballs and traffic for Yahoo's advertisers. Thus, while the advertising marketplace was fragmented, that fragmentation represents opportunity for Yahoo, according to Bartz.

Victor Anthony Cruz, representing Amnesty International, reminded Yahoo about Shi Tao, who is serving a ten-year sentence in China for voicing dissent in cyberspace. (See here for more on Shi Tao.) Cruz indicated that Yahoo's discomfort over the China issue pales in comparison to the prisoners' feelings, and Yahoo should be more active in calling for their release. Bartz responded by saying that Yahoo had "actively" called for Shi Tao's release and worked with the State Department to try to help Shi Tao. She reminded Cruz that Yahoo "can't do a jailbreak." She also said that Yahoo has not directly operated in China for years and would not be happy until Shi Tao was released.

Another shareholder discussed Yahoo's poorly timed share buybacks. He noted that Yahoo's average share buyback price was $26.35/share, and Yahoo bought much of its shares in 2007. Bartz said that buybacks should be analyzed over a period of 20 years. "Hindsight is perfect," she said, but Yahoo made the best decision at the time based on the information it had. Also, Yahoo was reviewing its buyback formula.

Other shareholders asked about Yahoo's foreign stakes. One shareholder asked if Yahoo would be returning some of Alibaba.com's value to shareholders. (Yahoo owns a stake in Alibaba.com and has a joint venture with Yahoo Japan.) Bartz responded that Yahoo had no plans to sell its Japan stake and would figure out how to monetize it over time. Bartz also told another shareholder that Yahoo had no operational control over Alibaba.com but was aware of the issues relating to Chinese monitoring relating to the website.

I made several comments, and opened by praising Ms. Bartz tenure at Yahoo. I said I was generally against high executive compensation, but in this case, she deserved every penny she got. She laughed, and responded that her compensation wasn't $47 million--the number most people throw out when discussing her package--and the share price would have to "triple" before she actually received that much money.

I then offered some suggestions. I told Yahoo that its online calendaring system had numerous glitches. Several months ago, Yahoo changed its calendaring system, creating several problems. For example, times set to repeat had suddenly changed, and some days at the bottom of the calendar could not be opened. I suggested whoever was in charge of the calendaring "needed a talking to," and the inability to handle a calendaring system affected Yahoo's credibility.

I then expressed an ongoing concern about Yahoo's choice of homepage content. I am sick of hearing about Hollywood "stars" and their personal lives. It bothers me that I actually know Kim Kardashian has a new boyfriend (thanks, Yahoo). It bothered me when Yahoo kept displaying stories about OctoMom, Paris Hilton, etc. (at this point, Bartz chimed in, mentioning Britney Spears and Kate and 8). I said I despised such stories so much that I had changed my homepage to something non-Yahoo. This comment set up an awkward exchange, where Bartz asked me what homepage I was using now. After some hesitation (hey, she asked), I answered, "Google"--causing several disgusted reactions in the room.

I also mentioned concerns with Yahoo's automatic updating and user sharing process. Right now, unless you opt out, whenever you make a comment on a Yahoo news story, your comment is displayed to your friends/contacts. In fact, I had no idea that some of my posts were being shared with my friends/contacts until someone mentioned a comment I'd made on a story weeks ago. Also, I had no idea that my actions on Yahoo would be shared without my consent. I immediately deleted my Contacts list and did the best I could to prevent my information from being shared. Nevertheless, Yahoo lost credibility by failing to have an opt-in social media system rather than an opt-out social media system.

Moreover, it was surprising to see Yahoo so behind the curve when it comes to privacy. When I post something on Facebook, I know I am sharing my comment with my Facebook friends. In contrast, just because I use Yahoo doesn't mean I expect my comments and user activity to be shared with my entire Contacts list, which could include people who've emailed me only a few times or many years ago. Although I criticize Yahoo for failing to foresee these privacy problems, I am still a Yahoo user. Overall, Yahoo gives me much more than it takes.

Finally, I jokingly asked Bartz when she was planning on going into politics (Meg Whitman and Carly Fiorina seem to be setting a trend for Silicon Valley female CEOs). Bartz immediately responded, "Never."

Congrats to Bartz for bringing some much-needed gusto to Yahoo.

Disclosure: I own an insignificant number of Yahoo (YHOO) shares.

Thursday, June 24, 2010

Charles Kesler on the New Liberals

Charles Kesler delivers an interesting take on the new liberalism in Imprimis' May/June 2010 edition:

FDR's New Deal implied that there's nothing to fear from making government bigger and bigger, because political tyranny—at least among advanced nations—is a thing of the past. In truth, however, the new socio-economic rights were group rights, not individual rights. They were rights for organized interests: labor unions, farmers, school teachers, old people, blacks, sick people, and so forth. Collectively, these rights encouraged citizens to think of themselves as members of pressure groups or to organize themselves into pressure groups. Subtly and not so subtly, citizens were taught to identify their rights with group self-interests of one kind or another...These new group rights were conspicuously not attached to obligations.

The new rights pointed to a kind of moral anarchy in which rights without obligations became the currency of the realm—in which rights, understood as putative claims on resources, were effectively limited only by other, stronger such claims. The result was, at best, an equilibrium of countervailing power....Liberalism in these terms is just a preference.


Basically, Kesler sees modern-day liberals favoring freedom without morality and duty. He believes such a path leads to moral relativism and a slow erosion of individual rights.

Wednesday, June 23, 2010

Thomas Jefferson on Restraint

"Let us hear no more of confidence in men but bind them with the chains of the Constitution." -- Thomas Jefferson

Tuesday, June 22, 2010

Immigration: Does it Cost Americans Jobs?

"Immigrant workers 'create almost as many' jobs as they occupy, 'and maybe more,' said Madeleine Sumption, policy analyst at the nonpartisan Migration Policy Institute. See here for more:

http://www.factcheck.org/2010/05/does-immigration-cost-jobs/

I am, however, willing to concede that immigrants take jobs from native-born American teenagers.

Monday, June 21, 2010

Justice Souter's Commencement Speech

Justice Souter's 2010 Harvard commencement speech:

http://news.harvard.edu/gazette/story/2010/05/text-of-justice-david-souters-speech/

The Constitution has a good share of deliberately open-ended guarantees, like rights to due process of law, equal protection of the law, and freedom from unreasonable searches. These provisions cannot be applied like the requirement for 30-year-old senators; they call for more elaborate reasoning to show why very general language applies in some specific cases but not in others, and over time the various examples turn into rules that the Constitution does not mention...

A choice may have to be made, not because language is vague but because the Constitution embodies the desire of the American people, like most people, to have things both ways. We want order and security, and we want liberty. And we want not only liberty but equality as well. These paired desires of ours can clash, and when they do a court is forced to choose between them, between one constitutional good and another one. The court has to decide which of our approved desires has the better claim, right here, right now, and a court has to do more than read fairly when it makes this kind of choice. And choices like the ones that the justices envisioned in the Papers case make up much of what we call law...

The Constitution is a pantheon of values, and a lot of hard cases are hard because the Constitution gives no simple rule of decision for the cases in which one of the values is truly at odds with another.

Souter will be one of the most-missed Justices.

Sunday, June 20, 2010

Sacramento Corruption?

Sacramento politicians gave $8.7 million to a private medical program that no longer functions. Yes, you read that right.  From Dan Walters: "The Assembly's budget writers wanted to give Drew $12.7 million, even though the Legislature's budget analyst, in a private memo, noted that Drew's medical-residency program no longer exists since its affiliated hospital, King/Drew Medical Center, lost its accreditation."

It gets better. The person in charge of the defunct medical residency program at Charles Drew University is a former Sacramento politician. Best line of the article: "the conference committee unanimously appropriated that [$8.7 million] amount this week without discussion." [italics mine]

Read more here.

[Note: this article has been updated since its original publication.  Outdated links to the Sacramento Bee were replaced.]  

Saturday, June 19, 2010

John Wooden's Wisdom

"Be more concerned with your character than your reputation, because your character is what you really are, while your reputation is merely what others think you are." -- John Wooden

Friday, June 18, 2010

Are You Smarter than a 7th Grader?

Are you smarter than a 7th grader? Here is a letter from a 7th grader to the CBO, the federal budget oversight office:

http://cboblog.cbo.gov/?p=1045

How will budget deficits affect people under the age of 18?

When the federal government borrows large amounts of money, it pushes interest rates higher, and people and businesses generally need to pay more to borrow money for themselves. As a result, they invest less in factories, office buildings, and equipment, and people in the future--including your generation--will have less income than they otherwise would. Also, the government needs to pay interest on the money it borrows, which means there will be less money available for other things that the government will spend money on in the future.

Kudos to the CBO for publishing the letter.

Thursday, June 17, 2010

Downtown SJ

In City Hall, there is a model replica of the city of San Jose. I've spent most of my last eight years working in this particular slice of San Jose.

Wednesday, June 16, 2010

California Education Spending: Just the Facts

"In 2007, more than four-fifths (82.9 percent) of statewide spending for schools went to pay for the salaries and benefits of teachers and other staff."

From a California Dept of Education affiliated website (Jan 2010): "Although there is some variation, expenditures on salaries and benefits for all employees typically make up 80 to 85% of a district’s budget, with the bulk of it going to teachers." More here.

The California Teachers Association has been the largest lobbyist in California over the last decade and has spent more than $200 million on campaign contributions and lobbying efforts.

Teachers' unions have also been effective lobbyists at the federal level. Unions have received federal money for 400,000 jobs. According to the White House, "Additional federal aid targeted at preventing [teacher] layoffs can play a critical role in combating the [economic] crisis. Such aid would be very cost-effective. There are no hiring or setup costs...The American Recovery and Reinvestment Act of 2009 included some of this aid for 2009 and 2010. The recipient reports filled out by states and school districts show that, last quarter, Recovery Act funds supported more than 400,000 education positions. (White House blog, June 12, 2010)

For more on California politics and government unions, click HERE (Troy Senik, Fall 2009).


Update on June 2012: for a more detailed post on teachers' unions, click HERE.

Update on April 2017: "61 percent of budgetary expenses are related to instruction, followed by 35 percent for support services, 4 percent for food services, and less than 1 percent for enterprise operations. Trying to infer salaries... is tricky, because salaries and benefits will be reflected across the categories, appearing in instruction, support services and enterprise operations. Generally speaking, a school district spends between 80 and 85 percent of its entire budget on salaries and benefits, meaning only 15 to 20 percent remains to address all of the rest of the budget’s priorities and needs... Salaries account for 67 percent of the budget, followed by 22 percent for employee benefits, meaning that school districts have spent close to 90 percent of their instructional budget on staff and benefits."  From https://www.aasa.org/uploadedFiles/Policy_and_Advocacy/files/SchoolBudgetBriefFINAL.pdf 



Tuesday, June 15, 2010

Richard Fisher on Banking

Richard Fisher once again proves he's one of the few honest government officials left:


My message to you tonight is to remember where we have been. We have collectively been to hell and back. Let’s not go there again. Let’s remember that bankers should never succumb to what is trendy or fashionable or convenient but should instead focus on what is sustainable and in the interest of providing for the long-term good of their customers...

This leaves us with only one way to get serious about TBTF [too big to fail]--the “shrink ’em” camp. Banks that are TBTF are simply TB—“too big.” We must cap their size or break them up--in one way or another shrink them relative to the size of the industry.

Ah, common sense. Capitalism can't survive without it.

Monday, June 14, 2010

PG-13 Moment of the Day

From my friend, Nader A.:

Putting bankers and corrupt politicians in the same room is like putting a bunch of drunk sailors in a whorehouse...someone is gonna overpay, and someone is gonna get screwed in more ways than one!

'Nuff said.

Stephan Pastis Autograph!

Mr. Pastis, author of Pearls Before Swine, is a former California attorney. Although he is a big Peanuts fan, Pastis' style is probably closer to Bill Watterson, who penned Calvin and Hobbes.

Update on April 21, 2013 (book signing in Willow Glen/San Jose, CA):

According to Stephan Pastis, the alligators' accents are supposed to be Russian.  I always thought they were Jamaican for some reason.


Sunday, June 13, 2010

Numbers Galore

Don't just look at the Fed and BLS numbers--Intuit has an interesting index of small business employment:

Saturday, June 12, 2010

SCU Magazine: Giacomini and John Adams

From SCU Magazine, Summer 2010, interview by Ron Hansen:

George Giacomini: John Adams has a quote that goes something like: "I study politics and war that my sons may study mathematics and philosophy and their children may study poetry and music." There's a progression of necessary learning. I'm a meat and potatoes guy. I still think you need to know politics and economics...and that's where I would put my emphasis in my classes...I don't want to trivialize what other faculty are doing, but I worry that in the process of enriching the material, we're losing the foundational events and ideas. Which just means I'm old.

Old Jesuits have lots of wisdom.

Bonus: John Quincy Adams, former U.S. President and Secretary of State: "We go not abroad in search of monsters to destroy." Oh, how things have changed post-Bush II.

Friday, June 11, 2010

Do Sanctions Make It Easier to Declare War?

Interesting theory--sanctions don't work, everyone realizes they don't work, but the sanctions make it easier to declare war against the target country:

http://www.balloon-juice.com/2010/06/09/sanctioning-iran/

Did sanctions work Iraq? Or did they just make it easier for the U.N. Security Council to grant permission to go to war?

Once you show that x country is violating a bunch of rules related to sanctions, you can then argue it is more likely that x country is violating another set of rules, like WMDs, nuclear weapons, etc.

Thursday, June 10, 2010

Film Rec: Putting Things in Perspective

If you want to watch an incredible, but tragic film, check out 2005's Beyond the Gates. It's an amazing re-creation of the Rwandan genocide.

If you wish to donate to a humanitarian association that assists refugees, you may want to consider https://www.theirc.org/

Wednesday, June 9, 2010

Peet's Coffee Annual Shareholder Meeting (2010)


Peet's Coffee (PEET) held its 2010 annual shareholder meeting at an Emeryville, California hotel. Approximately 110 people attended. Shareholders were offered fruit, yogurt, juices, water, and, of course, Peet's coffee and tea. The company also gave shareholders a Peet's bag with a pound of coffee and a selection of tea bags.

After the formal portion of the meeting, CEO Patrick J. O'Dea handled the first presentation. Buttressed by Peet's excellent performance, Mr. O'Dea had more bounce in his step than in previous years. Mr. O’Dea mentioned that sales were up 7%, with the grocery business growing at 19% for the year. Grocery’s growth accelerated to 28% in the second half of 2009 and 39% in the first quarter of 2010. The retail business remained stable, and Peet's expanded profit margins +260 bps.

Food service and the office and home delivery businesses were increasing, but growth was slower when compared to other divisions. [Note: According to Peet's, these remain very important businesses, on their own and also as vehicles to introduce the brand to new audiences and build awareness to support grocery growth. This business was slow last year with the economy (8% sales growth), but rebounded to 27% in Q1 2010.]

Mr. O'Dea then turned the meeting over to Doug Welsh (VP of Coffee) and Laila Tarraf (VP of Human Resources). Mr. Welsh referred to Peet's being the "gold standard" of coffee. In an effort to maintain its "gold standard" after substantial growth, Peet's began re-evaluating its values. After much discussion, Peet's decided to focus on four core values: mastery, responsibility, curiosity, and prosperity.

For Peets, "mastery" means pursuing excellence in the craft with integrity. To promote high quality, Peet's holds barista competitions but does not compete in national or world competitions because it wants to focus on regular customers instead of judges. Peet's barista competition starts at the store level, then district managers nominate someone, after which the winners are sent to a central pool of judges, including Mr. Doug Welsh. After that round, baristas move on to a regional competition and then one last level of competition. Also, every single barista is re-qualified each year to ensure quality service.

Mr. Welsh showed several slides of espresso, explaining what a cup of espresso ought to look like. He said "blonding," or discoloration, was bad--"blonde is not more fun in espresso," he quipped. He also said that after sipping, the form and color should hold, not get mixed or discolored.

As for a good cappuccino (my favorite coffee drink), Mr. Welsh explained that it's not a good sign when the steamed milk process "sounds like a 747," because the temperature is probably too high, which creates a scalding taste. It's also not good for the foamed milk to look like "shaving cream"; instead, the foamed milk should be glossy, with the consistency of milk and ice cream.

He showed us several slides of cappuccinos, including a "white-out," where the top of the cup showed nothing but a huge mushroom cloud of foamed milk. Peet's grading assigns a white-out a zero score. An "acceptable" cappuccino looked good to me, but Mr. Welsh explained that it showed a dull sheen with already-burst milk bubbles. The ideal cup has a clear white/brown contrast between the milk and espresso, i.e., a brown ring on the outside that nurtures the foam in the middle. The best cappuccino would be "very bright white inside," contrasted with "a dark grain of espresso all around the cup." This configuration allows you to taste both steamed milk foam and espresso with every sip. In short, you want an "integrated" taste with each sip.

Ms. Taraff said that Peet's "curiosity" balances its "mastery." With 3,500 employees across the country, it's important to be consistent, and Peet's has a "Brew U" website where employees can take classes through development programs to maintain their edge and expertise.

Ms. Taraff turned the meeting back to Mr. Welsh, who talked about Peet's emphasis on "responsibility." Through various slides, he introduced Roberta Mata (a male), who is the leader of the "Dota Co-op" in Costa Rica. He said that Peet's feels an accountability to the co-op, not just to its end users, and the conditions at the co-op are some of the best in the coffee-growing world. The co-op has also won awards for its sustainable practices. More specifically, the co-op turns its pulp waste into methane. (Methane is a biogas fuel and functions as an energy source.)

Peet's long-term outlook can create excellent results. For example, during 2004 and 2008, there was a coffee crisis, and market prices for coffee went below production costs. In other words, it cost more to produce coffee beans than to sell it, meaning co-ops were not making money. Peet's recognized the problem and agreed on a three-year fixed rate for coffee that allowed Peet's to hedge its costs. When the market turned, the fixed-rate arrangement helped Peet's bottom line. Also, Peet's willingness to work with the co-op during the coffee crisis generated goodwill that helped Peet's in future negotiations.

Mr. Welsh also talked about "prosperity," another one of Peet's values. He said that farmers working for TNS (TechnoServe: http://www.technoserve.org/) that sold to Peet's earned a 60% higher price than semi-washed (home-washed) coffee. Mr. Welsh proved that growers were better off upgrading from low level production (home-washed coffee) to Peet's higher standards.

CEO O'Dea punctuated the end of the meeting by saying, "That's your company," and we moved to the Q&A session. Unfortunately, there was no one walking around with a microphone, so many people, including myself, couldn't hear most of the questions. I've done the best I can to provide an accurate review of the questions and answers.

A shareholder asked if Peet's uses "E-Verify." No one seemed familiar with the system, which is used to check a potential employee's eligibility for work. (It's basically something designed to catch undocumented workers.) The system is relatively new and has major flaws, so most states don't use it. (Arizona employers are required to use it; California employers are not.)

Someone else said that his local store didn't carry Guatemala San Sebastian. The CEO said all stores offered all of Peet's coffee selections, and he would check up on the particular retail store.

In response to another question, the CEO indicated that most major grocery stores carry Peet's coffee beans, but Wal-mart (WMT) does not carry Peet's coffee beans. He also said that the "quality of service is the most important thing in retail [i.e., Peet's stores]," so he would not want Peet's retail store employees to have the same aggressive sales personality as its grocery store sellers. (One of the reasons I like going to Peet's is because of its outstanding employees.)

Another person asked whether baristas receive profit-sharing incentives. Peet's pointed out that all employees who are managers and above receive RSUs and all employees may participate in its ESPP, which allows employees to buy shares at a discount. Also, Peet's wages are significantly above minimum wage, which reduce turnover. Moreover, Peet's has the "best health insurance program by far"--after working 500 total hours, a Peet's employee need only work 21 hours a week or more to be eligible for Peet's health care program.

Someone asked whether Peet's would be expanding internationally. "Not in the next twelve months," because growth opportunities exist domestically.

Another shareholder asked, "What happened to Diedrich Coffee?" Peet's had made an offer to buy the company, but the acquisition did not pan out. The CEO said that Diedrich had a "license to produce K-cups," but the licensor was also interested and willing to pay more for the company. (K-cups allow users to easily make single cup servings of coffee.) Peet's CEO said he believes the single cup market will grow, especially in homes. (By the way, Peet's received an 8 1/2 million dollars break-up fee--not bad for a failed deal, huh?)

Peet's has closed stores about six or seven times because the location didn't work out. For example, in some sites, anticipated housing or commercial construction never occurred.

Someone asked about quality assurance, and Peet's CEO responded, "We're not perfect," so they rely on customer feedback. Peet's has customer feedback cards at various stores and also uses mystery shopper programs to check on its customer service.

I asked why Peet's didn't offer more Colombian coffees. The best coffee I've ever had has been from Colombia, and then from Costa Rica. Mr. Welsh said that Colombia was having serious coffee production problems and was four million bags short of production. (Four million bags is significant--a single "bag" is sixty kilograms, or 132 pounds.) Colombia had suffered from bad weather and a tree renovation program that caused the country to use much of its land for trees, limiting the land that could be used for coffee production. Although Colombia is the world's third largest producer of coffee, the supply of Colombian coffee had shrunk considerably, causing prices to skyrocket. Mr. Welsh indicated that "now is not the time" to buy Colombian coffee beans.

Someone asked whether Peet's had a poison pill provision. Peet's does not have such a provision, making takeovers/buyouts easier.

Another shareholder asked when Peet's would issue a dividend. The CEO said that Peet's can still find ways to grow the company and use cash to enhance value; therefore, it currently preferred stock buybacks to dividends.

As I've said before, Peet's consistently delivers a great annual meeting, so if you get a chance to go, you should take it. I am pleased to be a Peet's customer and shareholder.

Disclosure: I own an insignificant number of Peet's shares.

Tuesday, June 8, 2010

Mish on California's Government Unions

But Mish, tell us how you really feel:

Outrageously overpaid California public union parasites have every intention of sucking the last drop of blood out every taxpayer. Regardless of the cost to taxpayers, and even though their bloated benefit programs vastly exceed what the private sector gets, nothing will get in the union's way of protecting the overgenerous benefits they have, while still demanding more money from taxpayers, no matter what fiscal shape any of the cities are in because of those contracts.

More HERE. Mish is referring to police officers, firefighters, teachers, government lawyers, and anyone else who is part of a California government union that is refusing to accept wage cuts. The unions' refusal to be reasonable has caused layoffs of newer government workers, including teachers. It's sad, but tenured and retired teachers don't seem to care much about the next generation of educators, as long as their own gold-plated benefits are covered.

Here are three ideas: 1) every California government employee, including politicians, with more than seven years' tenure and making more than $65,000/yr should accept at least a 10% pay cut; 2) all new government employees should be eligible for 403b plans, not undefined pensions; and 3) all existing government employees eligible for pensions should increase their pension contributions by 5%.

Also, eliminate "3 Strikes and You're Out" for non-violent crimes and get rid of the death penalty, which costs over 200 million dollars a year to implement. (Do you want to spend 200 million dollars killing a murderer, or do you want to spend 200 million dollars on UCs, roads, community centers, etc.?)

Monday, June 7, 2010

Voting is Tomorrow/Tuesday, June 8, 2010

If you are fiscally conservative and socially liberal, you may want to consider the following candidates:

Superintendent Gloria Romero

Senator Tom Campbell

Governor Meg Whitman (Over the past decade, pension costs for public employees increased 2,000%. State revenues increased only 24% over the same period. California recently spent 3 billion dollars on pension costs in just one year. Ms. Whitman is not perfect, but she will try to fix the pension problem and can use her veto power against unreasonable public sector union spending.)

SJ City Council: Sam Liccardo

SJ City Council: David Clancy

SJ City Council: Magdalena Carrasco (I don't know her, but a friend tells me she knows Ms. Carrasco well and can vouch her.)

I suggest voting "Yes" on Props 13, 14, and 15; and "No" on Props 16 and 17. I usually vote no on all the propositions, but this year is unique. By the way, on November 2, 2010, Californians will vote on whether they want to legalize and tax marijuana. It will be interesting to see how libertarian most Californians are.

Gov Employee Pensions Bankrupting New York

MARY WILLIAMS WALSH and AMY SCHOENFELD discuss public sector pensions in the NYT. See HERE for more:

In fact, the cost of public pensions has been systemically underestimated nationwide for more than two decades, say some analysts. By these estimates, state and local officials have promised $5 trillion worth of benefits while thinking they were committing taxpayers to roughly half that amount.

As they say, a trillion here, a trillion there, and pretty soon, we're talking about real money. Sigh.

Bonus: "Christmas is a time when kids tell Santa what they want and adults pay for it. Deficits are when adults tell the government what they want and their kids pay for it." -- Richard Lamm

Sunday, June 6, 2010

Altera Annual Shareholder Meeting (2010)


Altera Corporation (ALTR) held its annual meeting in San Jose, California on May 6, 2010. Initially, no food or drinks were offered, but when the meeting was over, there was a small table with some pastries, coffee, and bottled water.

John Daane, President, CEO and Chairman, handled the meeting (he is the one in the suit in the picture above). He began by introducing the Board of Directors, executive team, and founders.

Unfortunately, I lost my notes from this meeting, and weeks have passed since I attended. All I remember is that CEO John Daane was extremely impressive. Many times, in response to a question, he would cite relevant numbers and statistics from memory. Mr. Daane seemed confident that Altera was well-positioned for steady growth and provided objective support for his statements.

I apologize for this sparse review--if I find my notes, I will revisit this post and do an update.

Disclosure: I own an insignificant number of Altera (ALTR) shares.

Saturday, June 5, 2010

For Aspiring Lawyers and Law Students

The blog, Not a Potted Plant, recently had an interesting post about law school:


If you are in law school right now, in California, chances are pretty good that by the time you get your J.D. you're going to have spent $100,000 on your legal education. And if you're like I was, you've borrowed that money. In some parts of the country, that's what it costs to buy a house. Only you can't default on student loans; you can't even bankrupt out of them.

The sad reality of it is, the majority of you law students aren't going to be getting $100K+ jobs.

If you're going to law school because you want to make lots and lots of money, you can do it, but there are better avenues if money is your primary goal.

Friday, June 4, 2010

Charlie Munger's Wisdom

The thoughts of others
Were light and fleeting,
Of lovers’ meeting
Or luck or fame.
Mine were of trouble,
And mine were steady,
So I was ready
When trouble came.
-- A.E. Housman

Charlie Munger: "You can say, who wants to go through life anticipating trouble? Well, I did. All my life I’ve gone through life anticipating trouble. And here I am, going along in my 84th year and like Epictetus, I've had a favored life. It didn’t make me unhappy to anticipate trouble all the time and be ready to perform adequately if trouble came. It didn’t hurt me at all. In fact it helped me." More here and here.

Thursday, June 3, 2010

California Water Service Group Annual Meeting (2010)

California Water Service Group (CWT) held its annual meeting on May 25, 2010 at a downtown San Jose hotel. Chairman Robert Foy, looking dapper in a bowtie, commemorated Dr. Edward Day Harris, Jr., a board member who recently passed away.

Mr. Foy then formally began the meeting by introducing California Water Service Group's executive team. Mr. Foy explained that CWT was holding its annual meeting in a hotel because of new construction on its nearby campus. After completing the formal portion of the meeting, he began a slideshow presentation. The first slide was a Vince Lombardi quote: "Individual commitment to a group effort is what makes a team work." Mr. Foy provided detailed background information on the Board's members and showed several comments praising them ("integrity," "beacon of consistency," etc.). After praising the Board, Mr. Foy turned the meeting over to CEO Pete Nelson.

Mr. Nelson complimented Mr. Foy for his service to the company and elsewhere, noting that the city of Stockton had recently awarded Mr. Foy "Stocktonian of the Year." Mr. Foy--clearly the most charismatic man in the room--was the CEO of Pacific Storage before he came to CWT. In addition, he is involved with numerous community, religious, political and charitable groups.

Mr. Nelson focused on the employees of the company, reminding us that there are "a thousand employees behind one glass of water." He explained that the company has meter readers (52 employees), customer service agents (119 employees), district managers, and many other employees who ensure safe and reliable drinking water. Customer service is a top priority--"96% of calls" get resolved on the first call. Meter readers, who handle five million reads a year, are also trained to be "field ambassadors."

Mr. Nelson said CWT values employee feedback. He said that "the people who do the work are best able to say how to do the work," i.e., "decisions must be local." He ended the meeting by saying that "each individual employee is important to the company."

I asked why someone would want to own CWT over San Jose Water Company (SJW). Mr. Nelson said that the companies were "sister utilities" and cooperated with each other. While different, they are "both good companies." (SJW owns some of CWT, and the Chairman of SJW's Board was present at the meeting.)

I also asked about the financial status of the company's pension plan. The CFO, Martin Kropelnicki aka "Marty," provided a delightfully detailed answer, mentioning the applicable IRS/FASB code sections from memory. The condensed answer is that the plan is over 80% funded, which is a reasonable amount.

Another shareholder complained about the service he was receiving from Delaware Water Company and asked CWT to buy them out. Mr. Nelson said he did not comment on acquisitions.

Another shareholder asked about desalination. Mr. Nelson indicated that "as a supply source, desalination is not economic yet," and there are also "environmental issues" associated with it.

Finally, a shareholder (and retired employee) complained about his medical care benefits and pension checks. Mr. Nelson said that the company had "dropped the ball" and planned on communicating with retirees better.

After the meeting, shareholders received a complimentary box that included a shower head and other water-saving tools.

As an investor, it's difficult to differentiate between publicly traded water companies such as SJW, CWT, AWR, AWK, and SWWC. They all know each other, so no one seems willing to badmouth anyone else. Also, much of the revenue is based on unpredictable political factors, such as the willingness of a water board to grant rate increases. Having a charismatic Chairman like Mr. Foy may give CWT an advantage over its competitors when it comes to political schmoozing, but it's still hard to predict which water companies will outperform. One interesting issue with water companies is that conservation may work against them; in other words, the more users conserve and cut back on water use, the less money water companies make. Overall, I enjoyed meeting Mr. Foy and the rest of the SJW team, especially Mr. Kropelnicki.

Disclosure: I own an insignificant number of shares of CWT, AWK, and SJW. Of the aforementioned holdings, I own the most number of shares in AWK.

Update: a reader on a different site left an interesting comment. See below:

I started following Water Utilities in 1997 and have been an investor in various ones ever since. However, I sold all CA water utilities after the electric crisis a few years back, and vowed never to own another CA utilities again. The cost of electricity spiked during the crisis and the largest operating cost of a water utility is energy to power the distribution pumps. These are operating costs that should be part of rate relief, but the CA PUC refused to allow the water utilities to recoup these higher operating costs, instead making shareholders eat the difference. This is like changing the rules mid-stream.

Wednesday, June 2, 2010

Callidus Software Annual Meeting (2010)

Callidus Software (CALD) held its annual meeting in the heart of downtown San Jose. Around nine people attended the meeting, including only two non-employee shareholders. The company offered shareholders a small box of donuts, water, and coffee.

CEO Leslie Stretch handled most of the meeting telephonically, along with CFO Ron Fior, who was present in person. CEO Stretch has a delightful English accent, which was fun to hear. There was no presentation, so we went straight to Q&A after concluding the formal portion of the meeting.

A shareholder asked several questions, focusing on the company's top line growth. He asked, "What improvement in gross margins can we expect by the end of the year?" CFO Fior responded that he expected gradual improvement. Over time, he was hoping that some technological improvements, along with scale, would improve on-demand margins. [Note: page 10 of CALD's 10K states, "our overall gross margin declined from 43% to 39% from 2008 to 2009, and "revenue declined by 24%" during the same period.]

The same shareholder also asked how the company expected to get to "cash flow positive" or "break-even." CFO Fior answered that he expected a "gradual increase" in revenues and margins.

I asked about page 14 of the 10K, which shows a shift in Callidus' business model from consulting/professional services to on-demand. I asked why the company made the shift, especially when its own 10K stated that a "substantial portion of [its] revenues are derived from the performance of professional services." (See page 16, 10K)

CEO Stretch and CFO Fior responded that services revenue had been declining for years and switching from legacy licenses business to a recurring on-demand business model with much shorter implementation times resulted in much lower services revenues. For example, a legacy on-premises license might take a year to two years to implement whereas now, in the on-demand center, a new customer can be up and running in 3 to 6 months.

I then asked about the company's "wide moat." People looked confused, so I explained that a wide moat refers to something that protects a company from being conquered or beaten by competitors. For example, Oracle's software, once installed, becomes an integral part of a company's operations. In short, Oracle's wide moat is the "stickiness" of its software. CEO Stretch responded that "no one can do what we do for insurance companies," noting that Callidus' customers include some of the biggest insurance companies in the world, such as Allianz North American and Allstate. He also highlighted Callidus' "90% renewal rate," which indicates customer satisfaction and/or "stickiness."

I wanted to know more about the reasons Callidus' product is especially suited for insurance companies, so I sent a follow-up email. The company was kind enough to send me some of its thoughts: "Our product is especially suited to companies that have large distribution channels (agents), complex plans, and large data volumes from multiple data sources. It allows industries such as the telecom and insurance industries where these conditions exist to simplify the complexity through our rule-based engine and at the same time have flexibility to change quickly. We solve a difficult problem and make it easier for these companies to implement new incentive plans on a much more timely basis. With our acquisition of Actek, Callidus accounts for 2 of the 3 companies Gartner Research ranked positive in the insurance space."

On a side note, when I asked questions about the 10K, someone interrupted me, demanding my name and how I held my shares. At that time, this person hadn't asked the previous shareholder any of these questions, so I was caught off-guard. I repeated my name and disclosed the name of my brokerage. I asked if he was general counsel (i.e., a lawyer who is an employee of the company). It turns out that he was outside counsel (i.e., a lawyer who bills the company for legal services but is not an employee).

I always get concerned when outside counsel takes over meetings, even if only temporarily. First, the general counsel usually attends annual meetings (as in this case), so if there really is a problem, the general counsel can step in. Also, why pay an outside lawyer to sit at meetings when the corporation's own general counsel should be able to handle any legal issues that arise? To me, paying outside counsel to sit at annual meetings seems like a waste of money, but that's just me.

Second, anytime outside lawyers feel entitled enough to direct questions to shareholders, it tells you that the company may be placing too much trust and discretion in an outside law firm. Such faith can be an expensive proposition at 200 to 500 dollars an hour. Personally, I prefer to see strong CEOs and management and weak lawyers--not the other way around.

Third, outside lawyers have directed questions to me at meetings only at small companies where performance has lagged. Perhaps the company's inability to make the numbers emboldens the lawyers, who feel the need to assert themselves; however, successful businesses rarely do well when management is taking directions from lawyers. This is because lawyers tend to be risk-averse, and winning in the business world requires risk and gusto. (I can't help but remember the following words about Citigroup, spoken by its largest individual shareholder: "My recommendation and advice for them is they don't hire anyone unless this guy has expertise in banking. I told them, next time no lawyer, please." See here for more.)

In any case, here is my advice: to the extent a company or lawyer wants to know the names and status of shareholders at the meeting, it's really simple--just have a sign-in sheet outside the meeting room and have someone check the information on the sheet before admitting someone to the meeting. If you can't handle that basic protocol, the solution isn't to interrogate someone during the meeting itself. That's just basic common sense. What if I was a major shareholder?

[Update: the CFO wrote to me and apologized if I felt singled out. It turns out the other person asking questions at the meeting represented a major shareholder and was already well-known to the company.]

Callidus looks like an interesting company. I don't usually invest in software companies, but if you believe insurance companies are growing and will continue to need sales performance management software, you may want to take a look at Callidus.

Disclosure: as of June 1, 2010, I owned an insignificant number of CALD shares.

Tuesday, June 1, 2010

Cadence Annual Shareholder Meeting (2010)

Around forty people attended Cadence's 2010 annual shareholder meeting. Coffee and some pastries were available. For some reason, the doors to the meeting room had been locked, which meant that if you were a few minutes late, someone with a key had to come by and give you access. (Cadence didn't intend to lock out anyone, and someone did come by within a few minutes to let everyone in.)

CEO and President Lip-Bu Tan (picture above) handled the informal portion of the meeting, which included a slideshow. Some highlights:

-- 46% of Cadence's revenue comes from the Americas, followed by Europe. Mr. Tan said that "last year [2009] we had to survive, but this year [2010] we are breaking out" and doing better.
-- Cadence has $619 million in cash (Q1 2010), with a 2009 backlog of $1.6 billion.

A shareholder asked questions about lost revenue due to overseas IP infringement. He wanted insight into business in China and licensing fraud. He said that he's heard small companies in China will buy one Cadence license and then allow multiple users or affiliates to use the license, costing Cadence additional customers and revenue. Mr. Tan said that Cadence was "making good progress in China," but IP issues would take time. [From what I've seen, it isn't unusual for tech companies to tolerate not maximizing revenue to gain a foothold or market share in China.]

Another shareholder asked about debt and upcoming debt payments. Cadence said it would consider all options but had plenty of money to make the upcoming payments.

I asked about Magma Design (LAVA), a competitor. Mr. Tan said that Cadence "will aggressively compete" against Magma Design. He referred my question about differences in the two companies' products to Dr. Chi-Ping Hsu, Sr. VP of the Products Group. Dr. Hsu said that Cadence was "doing quite well against" Magma Design and felt confident that Cadence's newer product lines would distance Cadence from Magma. Some people have mentioned that Cadence might buy out Magma; however, I saw no obvious signs that Cadence was actively thinking about acquiring Magma.

Mr. Tan also said that Cadence tries to be the full EDA (electronic design automation) solution for companies, referring to the "EDA 360" plan: 1) engage the customer early; 2) help the customer get to market first; and 3) use excellent customer service to prevent commodification. Mr. Tan emphasized that "time to market is essential" for Cadence's customers, because the faster Cadence helps them launch their products, the higher the premium/margin the company can charge in the marketplace. In short, Mr. Tan was saying that Cadence's customer service and complete solutions differentiate it from competitors such as Magma, Synopsys (SNPS), and Mentor Graphics (MENT).

I enjoyed meeting CEO Lip-Bu Tan and Sr. VP Chi-Ping Hsu. Both men carried themselves with confidence and yet without any trace of arrogance.

Disclosure: I own an insignificant number of Cadence (CDNS) and Magma Design (LAVA) shares. I do not plan on buying more shares of any EDA provider. Competition is intense, and companies must constantly innovate to survive. EDA is a very difficult business to be in.

Greenland's Importance to the World

Jim Folger, National Geographic, June 2010:

Greenland is warming twice as fast as most of the world. Satellite measurements show that its vast ice sheet, which holds nearly 7 percent of the world's fresh water, is shrinking by about 50 cubic miles each year. The melting ice accelerates the warming—newly exposed ocean and land absorb sunlight that the ice used to reflect into space. If all of Greenland's ice melts in the centuries ahead, sea level will rise by 24 feet, inundating coastlines around the planet.

Whoa.