Master Circumstances

Honoré de Balzac was a noted French novelist and playwright.  His magnum opus is considered La Comédie Humaine, a multi-volume collection of interlinked novels and stories, depicting French society during the Restoration and the July Monarchy, 1830 to 1848.  Balzac is considered one of the founders of realism in European literature, built on his unfiltered observation of society.

He wrote, “There are no principles; there are only events.  There is no good and bad; there are only circumstances.  The superior man espouses events and circumstances to guide them.  If there were principles and fixed laws, nations would not change them as we change our shirts, and a man cannot be expected to be wiser than an entire nation.”

That is true.  Morality is mutable.  We like to pretend we are civilised, that a higher calling governs us.  That is a lie.  Even religion becomes a vehicle for prejudice and fault, justifying oppression in the name of some divine.  Since it is unsatisfactory to be the victim of circumstance, the correct path is to seek power and influence, so we shape the world to our own needs.  If we do not, others will.

Nixon Going to China Proves the Point

President Richard Milhous Nixon spent his entire political career as America’s foremost anti-communist.  In 1972, he flew to Beijing and shook hands with Mao Ze Dong, ending 23 years of diplomatic isolation between Washington and the People’s Republic of China.  The Sino-Soviet split had opened a strategic gap.  Nixon and his national security adviser, Henry Kissinger, exploited it without hesitation, regardless of decades of stated ideological principle.  Nixon put the logic plainly: “Great nations act based on interest, not sentiment.”  The political maxim that followed, “only Nixon could go to China,” captures Balzac’s point.  Only a man with zero prior commitment to flexibility could reverse course this completely and still command his own coalition’s trust.  Principle did not move him.  Circumstance did, and he mastered it rather than let it master him.

Business Leadership Runs on the Identical Logic

Wilmot Reed Hastings Jr. built Netflix into the dominant DVD-by-mail rental company in America.  He then dismantled that same business himself, launching a streaming platform in 2007 that directly cannibalised the DVD service, generating his own revenue.  Blockbuster, the market leader Netflix had been chasing for a decade, held onto its rental-store model as a fixed principle and filed for bankruptcy in 2010.  Hastings held no comparable loyalty to his own original model.  He read the circumstance: streaming bandwidth was becoming viable, and moved before the shift forced his hand.  Balzac’s superior man does not defend the business he built.  He defends the business the moment demands, even when that means burying the one that came before it.

The lesson scales down to any leader facing a decision that contradicts his own stated position.  A fixed principle, held past the point it serves its purpose, becomes a liability disguised as integrity.  Nixon abandoned decades of anti-communist rhetoric the moment strategic advantage demanded it.  Hastings abandoned his own most profitable division the moment technology made it obsolete.  Neither man was wrong to hold the earlier position.  Both men were right to abandon it once circumstances changed, and neither waited for permission or consensus before acting.

Principles feel stable because they demand nothing of us in the moment.  Circumstances demand everything, immediately, with no guarantee of vindication until years later.  Balzac’s superior man does not wait for circumstances to resolve themselves favourably.  He reads them accurately and moves first.  Nixon did it with a nation’s foreign policy.  Hastings did it with his own company’s core revenue.  Neither one asked whether the move was principled.  Both asked whether it was correct, and history answered the question for them.

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Terence Nunis | Executive Chairman, Equinox Zenith | Author, The 1% Playbook: The Billionaire Cheat Code

Beautiful Deceptions

Francesco Vettori was an Italian diplomat, a politician and a writer from Florence, who served during both the republican and the de Medici regimes.  His chief claim to fame, however, was as one of the primary personal correspondents of Niccolò di Bernardo dei Machiavelli.

Francesco Vettori wrote, “I thought to myself with what means, with what deceptions, with how many varied arts, with what industry, a man sharpens his wits to deceive another and through these variations, the world is made more beautiful.”

There is an art to achieving power and influence.  Some play this game for the prize, and some, for its own sake.  The former is rational, whereas the latter is a weakness, an affection akin to gambling.  These people are to be avoided.

The Stratagems of Wise Men

The Arthashastra is an ancient Indian treatise on statecraft, economic policy and military strategy.  It was written in Sanskrit, and is thought to be the culmination of the wisdom of several authors.  The author is traditionally credited to be Kautilya.  Kautilya is thought to be Chanakya, the teacher and guardian of Emperor Chandragupta Maurya, and the true strategic genius behind the establishment of the Maurya Empire.

Kautilya said, “The arrow shot by the archer may or may not kill a single person.  But stratagems devised by wise men can kill even babes in the womb.”

There is no substitute to long-term strategy to address issues before they become problems.  That is what to “kill even babes in the womb” means.  A potential adversary must be neutralised early, a potential problem must be nipped in the bud.  We play chess in the real world, and that means subtly moving pieces in places.  When this is done successfully, no one, least of all the potential problem, is aware that the issue has been addressed.

Force & Cunning

Johann Wolfgang von Goethe said, “The only means to gain one’s ends with people are force and cunning.  Love also, they say; but that is to wait for sunshine, and life needs every moment.”

And that is precisely the point.  We are here for a limited time.  We do not have the luxury of waiting for the stars to align.  If a man has ambition, if he has the wherewithal, then he should spend his waking hours in ensuring his success.  There is no need to be unethical or unjust, but there is a need to be focused, and ruthless.  There should be none of this ingrained  societal fear of offending people.

People, by their nature, will be offended.  Even saints have enemies.  Rather, it is important to understand why they are offended, and exploit it.  It is sentiment, masquerading as empathy, that fools us into thinking that every person matters.  People’s feeling matter when they have use, when they have earned their place in friendship, when they have proven themselves.  Those who fall outside this circle do not have such privileges.  This is what determines success and failure.

Eagles & Lambs

Friedrich Wilhelm Nietzsche, the German nihilist, said, “There is nothing very odd about lambs disliking birds of prey, but this is no reason for holding it against large birds of prey that they carry off lambs.  And when the lambs whisper among themselves, ‘These birds of prey are evil, and does this not give us a right to say that whatever of the opposite of a bird of prey must be good?’, there is nothing intrinsically wrong with such an argument - though the birds of prey will look somewhat quizzically and say, ‘We have nothing against these good lambs; in fact, we love them; nothing tastes better than a tender lamb.’”

In the relationship of power, there are two perspectives, and what one group loves, the other naturally hates, due to what they each gain or lose.  That explains the disconnect between the politicians and the electorate, for example, especially in predatory systems.  What is good for the powerful always necessitates sacrifices among the powerless.  That is why it is important to gather power.

The Courts of Man

Philip Dormer Stanhope was the 4^th Earl of Chesterfield, KG, PC.  He was a noted British statesman, a diplomat, a man of letters, and an acclaimed wit of his time.  He wrote a series of letters to his illegitimate son, also called Philip Stanhope.  They were compiled into “Letters to His Son on the Art of Becoming a Man of the World and a Gentleman”, in 1774.  It was written in English, French, and Latin.

In one of his letters, he said, “Courts are, unquestionably, the seats of politeness and good breeding; were they not so, they would be the seats of slaughter and desolation.  Those who now smile upon and embrace, would affront and stab, each other, if manners did not interpose.”

This is as valid now, as it was then.  Throughout history, a court has always formed around centres of power, perceived or otherwise.  These are the people who gravitate around people of authority, from residual royalty, to ministers, to wealthy businessmen, to even the class president.  It is a natural process.  In the same vein, it is also natural, within companies, within organisations, within any group of people, that groups and competing agendas develop.  It is the nature of people to seek power, recognition, validation and titles.  It is not inherently wrong.

What is inherently foolish, however, is when people pretend these things do not exist, and that they are immune from these tides of human passion and ambition.  If this is an ocean of needs and wants, the superior man knows how to keep himself above it, by not being drawn into any particular camp, and yet be useful to all.  There is a n etiquette in hierarchical organisations.  Whilst direct, violent attack, by word or deeds is frowned, people play at power using the system.  It is important to understand this, and be aware that the embrace may hide a dagger.

Temasek Holdings’ Returns are Not Special

Temasek Holdings began publishing its annual reports, only from 2005.  It is a welcome move towards transparency, although much more needs to be done.  Working with what we have, the financial reports make interesting reading, but throw up many questions.

For example, in the 2010 annual report, Temasek Holdings’ claimed 20-year ROI was 16%.  In the 2014 annual report, it was 6%.  This is a substantial drop.  Using data available in the public domain, when we calculate backwards, we arrive at the conclusion that the early 1990s was the period of greatest growth for Temasek Holdings.  This is important.  In 1993, SingTel was listed.  But in 1992, and 1994, Temasek Holdings did not list its portfolio value, which is not necessarily a coincidence.  Again, calculating from data, the listed portfolio value was approximately S$15 to 20 billion.

The end of Temasek Holdings’ fiscal year was moved to the 31^st of March, from the 31^st December, in 1993 to align it with the Singapore Government and GLCs.  On the 31^st March 1994, portfolio value was estimated at S$70 billion.  This is a marked increase in a period where there was no evidence of major portfolio activity, or market movement, to account for this.  We should note that Temasek Holdings has never actually provided any meaningful breakdown of its portfolio, let alone the value of its position in SingTel.

Going back to 1993, the year before SingTel went public, Temasek Holdings’ listed holdings were valued at S$6.5 billion.  This means unlisted portfolio assets were valued between S$8.5 to S$13.5 billion.  It would be more likely that the actual number is closer to the former than the latter.  Since Temasek Holdings listed its portfolio value at S$70 billion in 1994, and considering the S$8.5 billion, this would mean SingTel was valued at S$17.5 billion after listing.  This is a more than a 100% increase, which is reasonable.  SingTel was a grossly undervalued asset, considering its dominant market share, its captive client base and assets.

The conundrum here is that if we calculate the value of other known holdings, we arrive at a portfolio value that is S$27.5 billion.  This is still less than the claimed portfolio value of S$70 billion, in 1994.  I would assume that Temasek Holdings valued SingTel at a nominal sum, which would make sense, since when the Singapore Government transferred SingTel over to Temasek Holdings, it was without compensation from Temasek Holdings.  It could be argued that they gave a public asset away, as a form of capital injection.  Considering the 1994 portfolio is estimated at S$17.5 million or so, it implies that the remaining S$10 billion was now S$42.5 billion.  This would further mean an asset growth of over 400%, which is unexplainable.

Based on the scarce information we have then, we can calculate that the declared portfolio of Temasek Holdings have earned a 12.5% return since 2005, the year they began publishing their reports.  However, their undeclared holdings have lost just over 9% per annum in that same period, until 2018.  If we consider that the averaged total return of their listing history, it was just over 10% per annum, but the earnings per share growth is 7% in that same period.  There is a discrepancy in that number since the total earnings have exceeded their market earnings.

Now, to compound the issue, we know, for a fact, that in 1997, SingTel was given S$1.5 billion for relinquishing its monopoly on telecommunications.  Since the owners of SingTel, M1, and Starhub are ultimately the same, it is arguable if there really was a relinquishment of monopoly.  This was just four years after its listing.  This S$1.5 billion was 20% of its market capitalisation then.  This money was a subsidy in all but name.

This method was later used on Temasek on SMRT, on Singapore Power, on ComfortDelgro, on Singapore Airlines.  Public assets were transferred to profit centres at nominal cost, or in an exercise that was essentially a capital injection.  I can understand the rationale behind this.  The idea was to make them efficient by subjecting them to market forces, and lower costs in the long term.  My point is that they were hived off to Temasek Holdings at no capital acquisition costs.  Temasek Holdings then brought them to market at a significant gain, and claimed these gains as part of portfolio growth, artificially inflating their returns.  Once we account for this, Temasek Holdings is not better than any other asset manager.  It is not special.