#348 The Financial Genius Behind A Century of Wall Street Scandals: Ivar Kreuger
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The Power of Incentives
Incentives play a crucial role in changing behavior and driving performance. People often underestimate the power of incentives, but they are essential in management. Two examples - FedEx and Xerox - illustrate how a well-designed incentive system can lead to fault-free rapid performance and sales success. The key takeaway is to always prioritize getting the incentives right before anything else.
What I learned from reading The Match King: Ivar Kreuger, The Financial Genius Behind a Century of Wall Street Scandals by Frank Partnoy.
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Episode Outline:
1. Ivar was charismatic. His charisma was not natural. Ivar spent hours every day just preparing to talk. He practiced his lines for hours like great actors do.
2. Ivar’s first pitch was simple, easy to understand, and legitimate: By investing in Swedish Match, Americans could earn profits from a monopoly abroad.
3. Joseph Duveen noticed that Europe had plenty of art and America had plenty of money, and his entire astonishing career was the product of that simple observation. — The Days of Duveen by S.N. Behrman. (Founders #339 Joseph Duveen: Robber Baron Art Dealer)
4. Ivar studied Rockefeller and Carnegie: Ivar's plan was to limit competition and increase profits by securing a monopoly on match sales throughout the world, mimicking the nineteenth century oil, sugar, and steel trusts.
5. When investors were manic, they would purchase just about anything. But during the panic that inevitably followed mania, the opposite was true. No one would buy.
6. The problem isn’t getting rich. The problem is staying sane. — Charlie Munger
7. Ivar understood human psychology. If something is limited and hard to get to that increases desire. This works for both products (like a Ferrari) and people (celebrities). Ivar was becoming a business celebrity.
8. I’ve never believed in risking what my family and friends have and need in order to pursue what they don't have and don't need. — The Essays of Warren Buffett by Warren Buffett and Lawrence Cunningham. (Founders #227)
9. Great ideas are simple ideas: Ivar hooked Durant with his simple, brilliant idea: government loans in exchange for match monopolies.
10. Ivar wrote to his parents, "I cannot believe that I am intended to spend my life making money for second-rate people. I shall bring American methods back home. Wait and see - I shall do great things. I'm bursting with ideas. I am only wondering which to carry out first."
11. Ivar’s network of companies was far too complex for anyone to understand: It was like a corporate family tree from hell, and it extended into obscurity.
12. “Victory in our industry is spelled survival.” —Steve Jobs
13. Ivar's financial statements were sloppy and incomplete. Yet investors nevertheless clamored to buy his securities.
14. As more cash flowed in the questions went away. This is why Ponzi like schemes can last so long. People don’t want to believe. They don’t want the cash to stop.
15. A Man for All Markets: From Las Vegas to Wall Street, How I Beat the Dealer and the Market by Ed Thorp. (Founders #222)
16. A summary of Charlie Munger on incentives:
1. We all underestimate the power of incentives.
2. Never, ever think about anything else before the power of incentives.
3. The most important rule: get the incentives right.
17. This is nuts! Fake phones and hired actors!
Next to the desk was a table with three telephones. The middle phone was a dummy, a non-working phone that Ivar could cause to ring by stepping on a button under the desk. That button was a way to speed the exit of talkative visitors who were staying too long. Ivar also used the middle phone to impress his supporters. When Percy Rockefeller visited Ivar pretended to receive calls from various European government officials, including Mussolini and Stalin. That evening, Ivar threw a lavish party and introduced Rockefeller to numerous "ambassadors" from various countries, who actually were movie extras he had hired for the night.
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Be like Gareth. Buy a book: All the books featured on Founders Podcast
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