THE TAO FOR CEOS AND INVESTORS

Cuốn sách đầy đủ và xúc tích nhất nhất giúp cho nhà đầu tư hiểu về kinh dịch và áp dụng vào phân tích chứng khoán. THE TAO FOR CEO’S AND INVESTORS INTRODUCTION First things first My personal Journey Rediscovering the I CHING Clarifications Acknowledgements BOOK ONE – The TAO for CEOs 1 .1 The Creative 1 .2 The Receptive 1 .3 Initial Difficulties 1 .4 Youthful Folly 1 .5 Waiting 1 .6 Conflict 1 .7 The Army 1 .8 Union 1 .9 The Taming Power of the Small 1 .10 Treading 1 .11 Peace 1 .12 Standstill 1 .13 Fellowship with Men 1 .14 Possession in Great Measure 1 .15 Modesty 1 .16 Enthusiasm 1 .17 Following 1 .18 Work on what has been spoiled 1 .19 Approach 1 .20 Contemplation 1 .21 Biting Through 1 .22 Grace 1 .23 Splitting Apart 1 .24 Return 1 .25 Innocence 1 .26 The Taming Power of the Great 1 .27 The Corners of the Mouth 1 .28 Preponderance of the Great 1 .29 The Abysmal 1 .30 The Clinging 1 .31 Influence 1 .32 Duration 1 .33 Retreat 1 .34 The Power of the Great 1 .35 Progress 1 .36 Darkening of the Light 2 1 .37 The Family 1 .38 Opposition 1 .39 Obstruction 1 .40 Deliverance 1 .41 Decrease 1 .42 Increase 1 .43 Breakthrough 1 .44 Coming to meet 1 .45 Gathering Together 1 .46 Pushing Upwards 1 .47 Oppression 1 .48 The Well 1 .49 Revolution 1 .50 The Caldron 1 .51 The Arousing 1 .52 Keeping Still 1 .53 Development 1 .54 The Marrying Maiden 1 .55 Abundance 1 .56 The Wanderer 1 .57 The Gentle 1 .58 The Joyous 1 .59 Dispersion 1 .60 Limitation 1 .61 Inner Truth 1 .62 Preponderance of the Small 1 .63 After Completion 1 .64 Before Completion BOOK TWO The TAO for Investors 2.1 The I CHING Basic Investment Concepts 2.1.1 George Soros’ Reflexivity Theory and the I CHING 2.1.2 The I Ching and Capitalism 2.1.3 Christianson’s Disruptive Technologies and the I CHING 2.1.4 The I CHING and the Fed 2.1.5 The I CHING, Seasonality and the Stock Market 2.1.6 The I CHING and Asset Allocation 2.1.7 The I CHING and Sector Selection 2.1.8 The I CHING and Stock Selection 2.1.9 The I CHING and Hedge funds 2.1.1 0 The I CHING and Technical Analysis Tools 2.2 The I CHING Basic Investment Rules 2.2.1 Buying and Selling stocks with the I CHING 2.2.2 Asking the Question 2.2.3 Do not doubt the Oracle – it will only answer once 3 2.2.4 Investment Rules and the I CHING 2.2.5 The I CHING and the corporate elements 2.2.6 Research and the I CHING 2.2.7 The decision making process and the I CHING 2.2.8 Consulting the I CHING, the media and the proper frame of mind 2.2.9 The I CHING Basics 2.3 The I CHING The Hexagrams Interpreted 2.3.1 The Creative 2.3.2 The Receptive 2.3.3 Initial Difficulties 2.3.4 Youthful Folly 2.3.5 Waiting 2.3.6 Conflict 2.3.7 The Army 2.3.8 Union 2.3.9 The Taming Power of the Small 2.3.10 Treading 2.3.11 Peace 2.3.12 Standstill 2.3.13 Fellowship with Men 2.3.14 Possession in Great Measure 2.3.15 Modesty 2.3.16 Enthusiasm 2.3.17 Following 2.3.18 Work on what has been spoiled 2.3.19 Approach 2.3.20 Contemplation 2.3.21 Biting Through 2.3.22 Grace 2.3.23 Splitting Apart 2.3.24 Return 2.3.25 Innocence 2.3.26 The Taming Power of the Great 2.3.27 The Corners of the Mouth 2.3.28 Preponderance of the Great 2.3.29 The Abysmal 2.3.30 The Clinging 2.3.31 Influence 2.3.32 Duration 2.3.33 Retreat 2.3.34 The Power of the Great 2.3.35 Progress 2.3.36 Darkening of the Light 2.3.37 The Family 2.3.38 Opposition 2.3.39 Obstruction 2.3.40 Deliverance 2.3.41 Decrease 4 2.3.42 Increase 2.3.43 Breakthrough 2.3.44 Coming to meet 2.3.45 Gathering Together 2.3.46 Pushing Upwards 2.3.47 Oppression 2.3.48 The Well 2.3.49 Revolution 2.3.50 The Caldron 2.3.51 The Arousing 2.3.52 Keeping Still 2.3.53 Development 2.3.54 The Marrying Maiden 2.3.55 Abundance 2.3.56 The Wanderer 2.3.57 The Gentle 2.3.58 The Joyous 2.3.59 Dispersion 2.3.60 Limitation 2.3.61 Inner Truth 2.3.62 Preponderance of the Small 2.3.63 After Completion 2.3.64 Before Completion BOOK THREE – Investment Cases 3.1 Favorable Cases 3.1.1 American International Group 3.1.2 Amgen 3.1.3 Anheuser Bush 3.1.4 Cabletron 3.1.5 Citicorp 3.1.6 Compaq 3.1.7 Computer Science 3.1.8 Ford 3.1.9 General Electric 3.1.10 Home Depot 3.1.11 IBM 3.1.12 Microsoft 1 3.1.13 Microsoft 3 3.1.14 Noble Drilling 3.1.15 Unisys 3.1.16 WalMart 3.1.17 Xerox 3.2 Unfavorable Cases 3.2.1 Andrews 5 3.2.2 Apple 3.2.3 ATT 3.2.4 Borland 3.2.5 Boston Chicken 3.2.6 Digital Equipment 3.2.7 Federated Department Stores 3.2.8 Informix 3.2.9 Intel 3.2.10 Mercury Finance 3.2.11 Microsoft 2 3.2.12 Netscape 3.2.13 Oakley 3.2.14 Peoplesoft 3.2.15 Phillip Morris 3.2.16 Polaroid 3.2.17 Solomon Brothers 3.2.18 Sunglass Hut 3.2.19 U.S. Robotics 3.2.20 Union Carbide 3.2.21 XOMA

THE TAO FOR CEO’S AND INVESTORS INTRODUCTION

First things first

My personal Journey Rediscovering the I CHING Clarifications

1.13 Fellowship with Men

1.14 Possession in Great Measure

1.26 The Taming Power of the Great

1.27 The Corners of the Mouth

1.28 Preponderance of the Great

BOOK TWO - The TAO for Investors

2.1 The I CHING - Basic Investment Concepts

2.1.1 George Soros’ Reflexivity Theory and the I CHING 2.1.2 The I Ching and Capitalism

2.1.3 Christianson’s Disruptive Technologies and the I CHING 2.1.4 The I CHING and the Fed

2.1.5 The I CHING, Seasonality and the Stock Market 2.1.6 The I CHING and Asset Allocation

2.1.7 The I CHING and Sector Selection 2.1.8 The I CHING and Stock Selection 2.1.9 The I CHING and Hedge funds 2.1.10 The I CHING and Technical Analysis Tools

2.2 The I CHING - Basic Investment Rules

2.2.1 Buying and Selling stocks with the I CHING 2.2.2 Asking the Question

2.2.4 Investment Rules and the I CHING 2.2.5 The I CHING and the corporate elements 2.2.6 Research and the I CHING

2.2.7 The decision making process and the I CHING 2.2.8 Consulting the I CHING, the media and the proper frame of mind 2.2.9 The I CHING Basics

2.3 The I CHING - The Hexagrams Interpreted

2.3.1 The Creative 2.3.2 The Receptive 2.3.3 Initial Difficulties 2.3.4 Youthful Folly 2.3.5 Waiting 2.3.6 Conflict 2.3.7 The Army 2.3.8 Union 2.3.9 The Taming Power of the Small 2.3.10 Treading

2.3.11 Peace 2.3.12 Standstill 2.3.13 Fellowship with Men 2.3.14 Possession in Great Measure 2.3.15 Modesty

2.3.16 Enthusiasm 2.3.17 Following 2.3.18 Work on what has been spoiled 2.3.19 Approach

2.3.20 Contemplation 2.3.21 Biting Through 2.3.22 Grace

2.3.23 Splitting Apart 2.3.24 Return

2.3.25 Innocence 2.3.26 The Taming Power of the Great 2.3.27 The Corners of the Mouth 2.3.28 Preponderance of the Great 2.3.29 The Abysmal

2.3.30 The Clinging 2.3.31 Influence 2.3.32 Duration 2.3.33 Retreat 2.3.34 The Power of the Great 2.3.35 Progress

2.3.36 Darkening of the Light 2.3.37 The Family

2.3.38 Opposition 2.3.39 Obstruction 2.3.40 Deliverance 2.3.41 Decrease

2.3.42 Increase 2.3.43 Break-through 2.3.44 Coming to meet 2.3.45 Gathering Together 2.3.46 Pushing Upwards 2.3.47 Oppression 2.3.48 The Well 2.3.49 Revolution 2.3.50 The Caldron 2.3.51 The Arousing 2.3.52 Keeping Still 2.3.53 Development 2.3.54 The Marrying Maiden 2.3.55 Abundance

2.3.56 The Wanderer 2.3.57 The Gentle 2.3.58 The Joyous 2.3.59 Dispersion 2.3.60 Limitation 2.3.61 Inner Truth 2.3.62 Preponderance of the Small 2.3.63 After Completion

3.1.9 General Electric 3.1.10 Home Depot 3.1.11 IBM

3.1.12 Microsoft 1 3.1.13 Microsoft 3 3.1.14 Noble Drilling 3.1.15 Unisys 3.1.16 Wal-Mart 3.1.17 Xerox

3.2 Unfavorable Cases

3.2.2 Apple 3.2.3 AT&T 3.2.4 Borland 3.2.5 Boston Chicken 3.2.6 Digital Equipment 3.2.7 Federated Department Stores 3.2.8 Informix

3.2.9 Intel 3.2.10 Mercury Finance 3.2.11 Microsoft 2 3.2.12 Netscape 3.2.13 Oakley 3.2.14 Peoplesoft 3.2.15 Phillip Morris 3.2.16 Polaroid 3.2.17 Solomon Brothers 3.2.18 Sunglass Hut 3.2.19 U.S Robotics 3.2.20 Union Carbide 3.2.21 XOMA

HEXAGRAM IMAGES

Figure One (The Great Circle)

Figure Two (Triagrams)

Why I wrote this book

INTRODUCTION

FIRST THINGS FIRST

I am a Financial Advisor I work for Merrill Lynch where I have served my clients for the last twelve years Before joining Merrill, I worked for Citibank for ten years as a corporate banker in three countries as an International Staff I hold a BBA in Economics and a MBA in Finance from New York University’s Stern School of Business

I am resigning from Merrill Lynch because I consider it the honorable thing to do I believe top management should resign also The I CHING demands that CEOs must

have “greatness of spirit, consistency, and strength” to lead and hold the corporation

together

• The I CHING says: "Such holding together calls for a central figure around whom

other persons may unite To become a center of influence holding people together is

a grave matter and fraught with great responsibility It requires greatness of spirit, consistency, and strength

“Therefore let him who wishes to gather others about him ask himself whether he is equal to the undertaking, for anyone attempting the task without a real calling for it only makes confusion worse than if no union at all had taken place If a man has recognized the necessity for union and does not feel strong enough to function as the center, it is his duty to become a member of some other organic fellowship.”

It has now become evident that Merrill’s top management has lost the greatness of spirit,

is seriously lacking in consistency and strength, and should become members of some other organic fellowship

The I CHING would also demand, in light of such ineptitude and gross negligence, the CEO apply the necessary punishment both to himself as well as to his top management

• The I CHING says: “Penalties are the individual applications of the law The laws

specify the penalties Clarity prevails when mild and severe penalties are clearly differentiated, according to the nature of the crimes This is symbolized by the clarity of lightning The law is strengthened by a just application of penalties This is symbolized by the terror of thunder This clarity and severity have the effect of instilling respect; it is not that the penalties are ends in themselves The obstructions in the social life of man increase when there is lack of clarity in the penal codes and slackness in executing them The only way to strengthen the law is to make it clear and to make penalties certain and swift”

During my 12 years as a Financial Advisor with Merrill Lynch, I gathered $150 million in assets and produced $2 million a year becoming a member of the top producers’ Eagle Club I became a top producer by holding meetings for my clients every Tuesday where

I would hand them the latest recommendations of Merrill Lynch’s research department

I relied on Merrill’s well known, particularly at the institutional level, research piece called

recommendations based on an A,B,C,D risk quality and a 1 to 9 ranking system designed to signal Buy, Hold or Sell recommendations to its clients In theory this strategy was sound provided the analysts who made buy recommendations when the companies were doing well would issue sell recommendations when the same companies were doing poorly The system, however, did not work and the evidence lies

on the fact that Merrill was forced to make drastic changes to its research system, thus acknowledging serious flows with its previous system

Simply put, the product was faulty It was faulty much like the cigarette that causes cancer and is still deliberately produced, or the car that exploded when hit from the rear and was still made to come out of the assembly line, or the airplane that went into a tailspin because a faulty pump locked the rudder and yet was still produced In the end, the bean counters won the day at Merrill, and so far, given the small penalties the company has had to pay, they were right

Why was Merrill’s research faulty? Because Merrill’s top management either encouraged

or deliberately looked the other way while the investment bankers pressured the analysts to say only good things about their corporate clients How could a Merrill analyst issue a sell recommendation of a corporation without risking the relationship between that same corporation and Merrill’s Investment Banking Group? How could an analysts who was sharing in the income of Merrill’s investment banking fees, issue a downgrade of the same corporation that was paying the fee?

By giving excessive power to the Investment Banking Group, such as power over the research group and even over the Financial Advisors (the IBG gave the IPOs mostly to a few selected clients, including its CEOs) Merrill’s top management violated one of management’s most important rules; it assigned social rank based on arbitrary and unjust rules

• The I CHING says: “Thus the superior man discriminates between high and low,

and thereby fortifies the thinking of the people Heaven and the Lake show a difference of elevation that inheres in the natures of the two, hence no envy arises Among mankind also there are necessarily differences of elevation; it is impossible to bring about universal equality But it is important that differences in social rank should not be arbitrary and unjust, for if this occurs, envy and class struggle are the inevitable consequences If, on the other hand, external differences in rank correspond with differences in inner worth, and if inner worth forms the criterion of external rank, people acquiesce and order reigns in society.”

Yet nowhere in any of Merrill’s research pieces I gave out to my clients every Tuesday, was it ever made public that Merrill had a relation with the corporations we covered or that our analysts received remunerations from our Investment Banking Group’s fees Surely if the Financial Advisors had known the analysts were receiving bonuses from our Investment Banking Group, they would have never followed their recommendations And surely had our clients known about it, they would have used Value Line or some other independent research firm The sad truth is that Merrill’s management betrayed the trust of its clients, shareholders and Financial Advisors by deliberately looking the other way while the Henry Blodgets issued misleading research recommendations

I remember feeling sick when our CEO sent us an e-mail stating that our clients could not hold us liable because for our clients to sue Merrill they would have to first prove

“malicious intent” For the best known financial institution in Wall Street to come up with such a statement was a sure sign that the much touted Merrill Lynch Principles had been set aside for the next bull market The McDonald’s employee who served a lady in Florida a boiling hot cup of coffee certainly had no “malicious intent” to cause her second degree burns, yet the damage was done and McDonalds had to pay millions to compensate her for the serious harm she suffered

Worst still, Merrill’s management began to distance the corporation from its Financial Advisors by hinting in the weekly branch meetings that the Financial Advisors were personally liable for issuing poor recommendations to their clients Financial Advisors began to realize Merrill Lynch was a bad partner

The I Ching says: “A king is the symbol of a fatherly man who is richly endowed in mind

He does nothing to make himself feared; on the contrary, the whole family can trust him, because love governs their intercourse His character of itself exercises the right influence”

But what made my stay at Merrill even more unbearable was the cocky new policy of its future CEO obsessed with turning Merrill Lynch into a Goldman Sachs, while keeping the Merrill Lynch name

If Wal-Mart improves its products and personnel and opens a branch in front of Tiffany at Fifth Avenue, how many of those millionaires who have always shopped at Tiffany will cross over Fifth Avenue to buy at Wal-Mart? If Merrill Lynch throws out its clients below

a million dollars, after incurring substantial loses due to poor research recommendations and after years as loyal clients, will that signal to the multimillionaires of the world that now Merrill is like Goldman Sachs? Well, that is exactly what management was doing, while in the process robbing its Financial Advisors of their income by reducing their payout while keeping the commissions from the small clients for itself

The I Ching says: “Evil is not destructive to the good alone but inevitably destroys itself

as well For evil, which lives solely by negation, cannot continue to exist on its own

strength alone The inferior man himself fares best when held under control by a superior man.”

I guess Marriot’s CEO refused to live solely by negation By having a group of hotels

such as Fairfield Inn, Courtyard, Marriot and J.W Marriot, he achieved brand differentiation without offending his clients, shareholders or employees

As I leave Merrill Lynch, I would like to leave its CEO and top management with a simple advice

• The I CHING says: “When the good elements of society occupy a central position

and are in control, the evil elements come under their influence and change for the better When the spirit of Heaven rules in man, his animal nature also comes under its influence and takes its appropriate place.”

I dearly hope the good elements within Merrill Lynch will occupy the central position and

MY PERSONAL JOURNEY

Many years ago, as a student at New York University’s Graduate School of Business, I came into contact with E F Schumacher's works while preparing a research paper I was delighted to find out that the Noble prizewinner and author of "Small is Beautiful" had written one of the best self help books ever written under the title of "A Guide for the Perplexed" In his simple yet elegant manner Schumacher draws a map of where we are at present and the direction we should take His map influenced me greatly

First he describes the levels of beings such as minerals, plants, animals, humans and spiritual beings, and the marked difference that exists between each other Each level of being gains an extra element, as it moves higher, that separates it from the lower but that also gives it power and control over the lower level Such is the case between minerals and plants, between plants and animals, between animals and humans, and between humans and spiritual beings

Second, he points out that while man's mayor efforts during the last three thousands years has been aimed at studying the methodology to ascend from the human level to the spiritual level; unfortunately, his mayor efforts during the last century have been aimed at studying the lower levels of being He reminds us of our primary goal to do our utmost effort to move higher He quotes Saint Thomas of Aquinas –

• “the slenderest knowledge that may be obtained of the highest things is more

desirable that the most certain knowledge obtained of lesser things”

And third, he asks of us to do our utmost to develop our “Heart” and turn it into an adequate (Adequatio) organ so that we may recognize the reality of the spiritual beings and reach for their higher level

Schumacher's book as well as Thomas Aquinas mandate becomes imperative in today's world because our true happiness lies in becoming spiritual beings, or Superior Men as the I Ching would call us And the only way to do it is by moving higher What is a matter of concern, however, is that our scientists have gathered tremendous amounts of knowledge of the lower levels of being but have made no effort to gather any knowledge

of the higher levels of being We know almost everything about minerals, plants, animals and even humans But how much do we know about spiritual beings?

That which we reward, multiplies Our belief that the solution to our problems comes from without will lead us to “progress” as we continue to develop new technologies to solve those problems But if we were to decide that the solution to our problems comes from within, then we will find enlightment rather than “progress”

I was already familiar with the I CHING for at least 10 years before reading "A guide for the Perplexed" But after reading it I made a commitment to deepen my studies of the I CHING I decided to rely on the I CHING as my coach to guide me on my path to “the higher levels of being” After 35 years of studying the I CHING, I have no idea how far have I traveled in this journey, and it really does not matter Some of us might be in the beginning, others at the end of the beginning, while others well on their path to the end Like the stock market, the path will take you two steps forward and one backwards What is important is to start moving

As one who has studied the I CHING for 35 years and, following the example of Confucius who studied it for 80 years, hopes to continue to study it throughout my life, it

is my deepest desire to share with you the wisdom I have discovered in the I CHING I hope it will help you in your journey “upwards” to become a “higher being” and a happier one

I am a man with a mission: to assist the I Ching in helping people become “Superior Men” as the I Ching would want us to be superior men; that is, people who first recognize the condition in which they find themselves and second apply the proper attitudes to either overcome (if they are in YIN) or improve (if they are in YANG) those conditions The I Ching would want those who aspire to become Superior men to apply

to their lives those attitudes – honesty, resoluteness, integrity, humility, hopefulness –which will get them closer to Heaven (YANG) and reject those attitudes which will keep them closer to Earth (YIN)

The I Ching, however, recognizes how difficult it is to exercise virtues and proper attitudes in the midst of misery and squalor Thus, to ensure people practice the right attitudes, the I Ching would first help people take care of their future by investing and managing their business adequately; that is, by encouraging investors to choose those investments which preferably go to Heaven

While the I Ching teaches us how to invest and take care of our future, it really teaches

us how to become better persons My mission, therefore, must be also to help people become wealthier while helping them become Superior Men I know a few can become Superior Men without achieving financial security; however, my concern is not for the few but rather for the many; that is, for people like myself

I find this mission of great importance, particularly now in light of the dramatic market crash and the fact our research misled our clients and caused them to loose large amounts of wealth I have found the I Ching to be much more superior in predicting the fortunes of corporations than our research department, particularly when we take into account the Enron episode and the Arthur Anderson involvement in it Only an innocent instrument, such as the I Ching, can see through the lies of the analysts, the fraud of management and the deceit of the accountants

REDISCOVERING THE I CHING

Most of us who are familiar with the I CHING have almost always used it as an oracle

We have asked the I CHING's help in making decisions and in its generosity the I CHING has always been willing to comply But few of us have ever stopped to think of the I CHING as more than an oracle We can gain wisdom if we do so

There is a wonderful story about a monk who was walking down a road He found a beggar, stopped, handed him over a diamond, all the wealth the monk possessed, and continued on his journey After a while, the monk heard the voice of someone calling him As he turned, he discovered it was the beggar who was asking him to exchange the diamond for something the monk possessed The surprised monk told the beggar

he had nothing else to give him But the beggar insisted saying he wanted from the monk “whatever it was” that made him hand out the only possession he had

The I CHING as an oracle can make us rich if we ask of it to give us information about the future of the best growth and value stocks But the I CHING can make us wise or Superior Men if we ask of it to give us “whatever it is” that made it hand out the only possession it had

• The I CHING as a Book of Virtues

Think of the I CHING as a book of virtues or the ultimate self-help book The I CHING wants you to transform yourself into a Superior Man by exercising virtues It can help you become a better manager or CEO or investor or leader or politician or parent or anything you would like to be but first and foremost it will help you to become a better person However, you must first embrace the idea of practicing the virtues it preaches if you want to become a better CEO and a better investor

There are sixty-four Hexagrams and each Hexagram has 6 lines In each line the I CHING has a lesson to teach the CEO as well as the investor Virtues such as humility, patience, courage, honor, duty, faith and hope (the I CHING even ends on a hopeful note in Hexagram 64 by hoping that after the long winter, we will soon reach spring), are crucial for becoming better CEOs as well as better investors The I CHING also warns

us about pride and arrogance as the main reason for the CEOs' and the investors' fall Motivators like Covey and Robbins have already mentioned many of these virtues What is interesting is that the I CHING already extolled these virtues over three thousand years ago

• The I CHING as the Ultimate Coach

Think of the I CHING as a coach It will coach you mostly on attitude, on taking the right attitude for each circumstance you will encounter It will coach you on how to become a better man, or a Superior Man as it calls the man who attains ultimate wisdom and knowledge, or the man it would like us to be For each Hexagram as well as for almost each line within each Hexagram, the I CHING has the proper attitude for the CEO as well as for the investor

When Saddam Hussein invaded Kuwait, I asked the I CHING about the outcome of such event I was interested in knowing the effect the invasion would have on the world’s oil supply and its future’s prices The I CHING called his action that of the Wanderer or Hexagram 56, advising me his stay would be short It also made it quite clear that he would behave brutally and do lots of damage

• The I CHING said in line three: “the wanderer’s inn burns down He looses the

steadfastness of his young servant Danger A truculent stranger does not know how to behave properly He meddles in affairs and controversies that do not concern him; thus he loses his resting place He treats his servant with aloofness and arrogance; thus he loses the man's loyalty When a stranger in a strange land has no one left on whom he can rely, the situation becomes very dangerous”

In this line, the I CHING describes a brutal man meddling in affairs that are not his business and loosing the support of the very same people he wants to win over to his cause Had Saddam Hussein asked the I CHING about the ultimate outcome of his invasion plans, the I CHING would have advised Saddam Hussein not to invade to start with But even if had he invaded and asked the I CHING on the proper conduct to follow, the I CHING would have advised him to behave diplomatically because that is the way a Superior Man would have behaved if he were in a Wandering position The proper attitude or code of conduct would have saved him

Anyone can consult the I CHING and understand the basics of decision-making because

it is an open system; however, as you become a better man by following its coaching you will get a richer meaning from its readings It is said that a good man will use a good tool with good results, but an evil man will use a good tool with evil results The I CHING wants us to become Superior Men and tells us how to do it We must behave properly if

we want to be good CEOs and lead our corporations on the right path We also must behave properly if we want to be good investors to manage our portfolios profitably

• The I CHING as a the Ultimate Portal

Think of the I CHING as the ultimate portal, or the PORTAL of Portals to the ultimate Web, the WEB of Webs and the SERVER of servers A Web where all the information in the Universe is stored including information about the past, the present, and, what is even more important for CEOs and investors, information about the future

Life is change as well as choice And the I CHING is here to help us make the correct choice Indeed it is the perfect tool for decision-making The Universe is constantly changing and we want to know about the outcome of those future changes The I CHING or the Book of Changes was specifically designed for such task It has been doing so for thousands of years When we consult the I CHING, it will connect us with the universal web, and will describe, warn and prepare us for change But the choice is always ours The role of the CEO and the investor is not to avoid change but to profit from it And I believe based on my personal experience as a financial consultant that it works

But in the end it is a matter of change and choice and of choice and change You must

change and then you must choose based on the I CHING’s advice and your own experience

As a financial advisor I have had the unique opportunity to follow CEOs’ and investors’ decisions It is amazing how many mistakes they both would have avoided had they consulted the I CHING before making their decisions One of the classical cases where consulting the I CHING would have made a difference was AT&T’s purchase of NCR In

my reading, the I CHING referred to the deal as the Fellowship with Men (Hexagram 13),

a positive reading but also a warning –

• the I CHING says: “true fellowship among men must be based upon a concern

that is universal”

It sounds so basic but why did AT&T’s CEO not realize at the time of the take over that a telephone and a computer companies might not have much of “a concern that was universal”?

But the line I drew in the Hexagram should have kept even the most optimistic CEO away from such take over It was a six in the second line

• The I CHING says: fellowship with men in the clan Humiliation There is danger

here of formation of a separate faction on the basis of personal and egotistic interests Such factions, which are exclusive and, instead of welcoming all men, must condemn one group in order to unite with others, originate from low motives and therefore lead in the course of time to humiliation”

The I CHING has a strict protocol for bringing people together and AT&T’s CEO went against it How much waste of assets could AT&T have avoided if its CEO had asked the I CHING to answer a simple yet fundamental question, should I buy NCR?

What made it worse was the fact I had investors interested in buying AT&T with the hope

of participating in one of the “greatest corporations of the future” Who would have believed me if I had told investors to keep away from AT&T based on the I CHING’s advice? People stayed with this loosing corporation for many years instead of moving

on to ones with a much superior readings such as Citicorp, American International Group, Microsoft, or so many others that had positive readings

The I CHING would contend the CEO is ultimately responsible for the well being of the corporation No doubt corporations are teams requiring a common effort for its success, but in the final analysis the market recognizes the CEO as the one who can either make

or break the corporation Three thousand years ago the question was asked if the Emperor had the mandate of Heaven Now we should ask if the CEO has the mandate from Heaven The CEO is the Emperor There is no figure closer to an Emperor than the all-powerful American CEO Anyone who has worked for a large multinational will certainly agree with me I wish to present the I CHING to the CEOs of the world by establishing a relationship between the language of the I CHING and the language of management The I CHING is a wise counselor I strongly believe CEOs can be very successful if they apply the wisdom of the I CHING to the actual management of the corporation

The I CHING would also contend the investor is ultimately responsible for the success of his portfolio He should not let everything in the hands of the mutual fund or portfolio manager It is up to him to keep the discipline of buying at the end of the YIN and selling

at the end of the YANG I wish to present the I CHING to the investors as an alternative amongst all the methods in choosing their investments Most investors use fundamental

or technical analysis Some would throw darts at the Wall Street Journal and rely on the Random Walk Theory I believe the I CHING combines most theories into one but as an investor you must keep an open mind and be willing to try new methods without prejudices

Every individual is an investor He might invest his time, perhaps the most important of assets, his capital, his energy or any other means of wealth; but he will always be an investor – a good or a bad one All investments, on the other hand, inevitably require investors make a basic decision Should I or should I not invest? If the answer is yes, then we must continue to make other basic decisions such as the amount and the timing If the answer is not, then we must look for other investment alternatives The I CHING is an ideal tool for decision making because it works on the basis of yes or no answers or the YANG and YIN answers corresponding to each side of the coin

I am sure no one will argue about the I CHING’s valuable advice for the CEOs with every Hexagram describing a particular situation telling the CEO how to best deal with it But I

am aware of the criticism many will have on the notion an investor can choose a good investment by throwing coins Believe me; you can, especially if you combine it with good, independent research All you have to do is keep an open mind and be patient

On this issue, it is my greatest desire that every investor with an open mind, who is willing to try this method of investing, be willing to contribute to create a complete volume with actual experiences specifically directed to the I CHING and the world of investments

I wish to offer CEO’s and investors an operational manual The purpose is to coach them on how to use the “mysterious” language of the I CHING to apply it to the decision making process of the managerial and the investment world Once this is accomplished, they will begin to learn the philosophy behind the I CHING While the I CHING teaches CEOs and investors about managing and investing, it also teaches them to become Superior Men

My word of advice to CEOs and investors is to start using the I CHING and avoid arguments about its validity with people who do not know the I CHING The proof of the pudding is in the eating Also keep away from arguing over the accuracy of the interpretations with those who are already familiar with the I CHING Such arguments are useless No one has surpassed its creators’ or Confucius’ judgments and interpretations of the original text and no one has been able to match Richard Wilhelm’s translation I strongly recommend that anyone who wants to become a serious student

of the I CHING should first buy the Richard Wilhelm translation of the I CHING I would also recommend the reader to start first with the Wilhelm translation to understand the I CHING on a general level before applying this book to the investment and managerial levels

CLARIFICATIONS

Originally I thought of writing this book under a pseudonym to make sure the I CHING received all the credit as well as all the attention –

• The I CHING says: “The wise man gladly leaves fame to others He does not

seek to have credited to himself things that stand accomplished, but hopes to release active forces; that is, he completes his works in such a manner that they may bear fruit for the future.”

However, thanks to the advice of a wonderful coach called Caterina Rando I decided to use my own name I would like to thank Caterina for her honest advice

I also would like to clarify right from the start on some issues:

First, while I worked for Merrill Lynch or Citigroup, I never advised any client or anyone else to buy or sell or to perform any transaction whatsoever based on my studies of the I CHING However, looking at the cases in Book Three, I strongly believe my clients would have been much better off had they followed the I Ching’s advice Particularly had I encouraged them to follow the seasonality of the YANG/YIN investment strategy - buying and holding only for the YANG or positive period which is from November 1st to April 29th, and selling and keeping away from the market for the YIN period which is from April 30th to October 31st

Second, this book is my personal interpretation of how the I CHING can be applied to managing and investing It is based on my personal studies of the I CHING for the last

35 years as well as on the decisions made by CEO's and investors over the years

Third, I have never charged anyone for any consultation with the I CHING nor have I ever made any money out of advising anyone with the I CHING Furthermore, I have never organized any profit or non-profit business based on the I CHING I do, however, intend to do so in the future And,

Fourth, this book, The Tao for Managers and Investors, is first and foremost about becoming a better person by understanding and applying the I CHING's code of ethics Only by becoming better persons will we become better CEOs and investors

ACKNOWLEDGEMENTS

Gratitude is a rare virtue to find among men, and I for one have rarely shown it Nevertheless, the I CHING would want the Superior Man in all of us to express gratitude

as a sign of humility As my true friend, I will gladly follow its advice

My eternal gratitude is to the I CHING who has coached me since I was 14 years old and to Richard Wilhelm for bringing the I CHING to us from China All the citations and quotes I use from the I CHING in my book are from his book, a book all serious I CHING students must have in their libraries

Thanks to my dear wife, Yoly, and my children to whom I dedicate this book Thanks for your patience and understanding my need to write it To my parents and to my aunts Isabel and Beatriz, thanks for being there for me when I needed you To my boarding school in the USA, where I first came in contact with the I CHING and to the good friend who taught it to me

Thanks to my good friends Cania and Carletto for developing a program for the automatic building of the Hexagrams It saved me lots of time and allowed me to follow stocks more easily It also helped me to organize my thousands of consultations with the I CHING and to keep every consultation under a single database Thanks to my talented and good friend Diego for his wonderful book cover and to Gabriela for her encouragement to finish the book

Thanks to Citibank and to the Kingdom of Saudi Arabia, where for three years I enjoyed their renowned Bedouin hospitality and where, inspired by the beauty of the dessert, I began to work on the first draft of the book Thanks to my wonderful clients and colleagues at Merrill Lynch, particularly to David Mallach for his Investing for Growth strategy based on the earnings expectations cycles, and to Richard Bernstein for his Investing Styles

Thanks to Sy Harding, the author of the StreetSmart Report Thank you for your Seasonal Strategy which confirms YANG/YIN investing both in theory as well as in reality

And finally, I would like to express my gratitude to the Masters of YANG/YIN investing: Soros, Buffet and Templeton If you only knew how much you have in common with the

I CHING and its 3,000 years old strategic thinking

Copyright C 2002 by Julio Urvina

Legal Deposit Lf 252 2002 155515

ISBN 980 07 8134 X

Cover designed by Diego Macellaro

1 BOOK ONE THE TAO FOR CEOS

1.1 THE CREATIVE

ISSUE:

The CEO – creating the corporation

This is the Hexagram of successful corporation at its very beginnings This is the Hexagram of Steven Jobs and Apple of Billy Gates and Microsoft, of Larry Ellison and Oracle You would have drawn this Hexagram if you had been lucky enough to consult the I CHING about Apple, Microsoft, or Oracle years ago when they were starting their operations This Hexagram also represents companies such as Xerox, Polaroid, Home Depot, Cisco, in their beginnings

This Hexagram represents the beginning of a brilliant idea as well as a very profitable one for investors This idea will definitely take material form becoming a very successful corporation, because not only is it an idea which time has come, but what is most important is that the man behind it has the mandate from Heaven When talent and perseverance unite with the mandate of Heaven we have a winner He has been blessed with a flux of Ch'i, or heavenly beneficial rain The wise investors should take advantage of this flow of Ch'i

• The I CHING says, "The power represented by the hexagram is to be interpreted

in a dual sense - in terms of its action on the universe and of its action on the world of men In relation to the universe, the hexagram expresses the strong, creative action of the Deity In relation to the human world, it denotes the creative action of the holy man or sage, of the ruler or leader of men, who through his power awakens and develops their higher nature.'

This is one of the strongest and most promising of the Hexagrams This is definitely a growth stock It represents one of the highest returns as an investment The I CHING

says that this Hexagram "stands for the primal power, which is light giving, active,

strong, and of the spirit." It could produce returns of 10, 15 or even 20 times the original

investment, or 20 baggers, as Peter Lynch would call them

LESSON:

The CEO must:

• Follow Heaven’s mandate Nothing can stop the CEO when his time and place has come The I CHING tells us there are a time and a place for everything And this corporation is an idea which time and place has come Even though the founders of the corporation might appear as amateurs, like Jobs or Gates when they started, they are really guided by an invisible and heavenly hand Thus, nothing can stop this idea from becoming a reality and nothing can stop this stock from growing

• Do what he loves and the money will follow This takes special significance when the creative forces of the universe are the driving force behind their idea The CEO

o What he enjoys

o What comes natural

o What he believes to be right

• Be passionate His passion might make him appear as aggressive and tenacious, but it does not matter He must show there can be no doubt he will carry out his ideas

• Be a visionary The creators of this product are men of vision because they can see into the future The I CHING places great importance in seeing or visualizing an idea

in as much detail as possible well before the execution of the idea, both in terms of causes and effects, and the subsequent causes and effects

The I CHING would say these are very special men People like Jobs, Gates or Ellison are indeed great men And they should be seen as such by the investor who wants to be successful They are special because they are men of:

a) Principle As strange as it may seem to the cynics of this world and even to these men themselves, Jobs, Gates and Ellison are men of principles This is usually the case with those who are touched by such creative forces

b) Conscience What really matters to them is not the material, which they know will inevitably take form, but rather the ideas themselves For only the ideas are everlasting, while matter will eventually be transformed

c) Tenacity It is interesting to note how the I CHING defines tenacity or duration,

which by the way has nothing to do with clinching your teeth

• The I CHING says, "Its energy is represented as unrestricted by any fixed

conditions in space and is therefore conceived of as motion Time is regarded as the basis of this motion Thus the hexagram includes also the power of time and the power of persisting in time, that is, duration.”

The I CHING adds further that to be tenacious is basically to follow in time a series of steps one after the other To be tenacious it is always best to concentrate on the next step

• The I CHING says, "Since there is only one Heaven, the doubling of the

trigrams Ch'ien, of which Heaven is the image, indicates the movement of Heaven One complete revolution of Heaven makes a day, and the repetition

of the trigrams means that another follows each day This creates the idea of time Since it is the same Heaven moving with untiring power, there is also created the idea of duration both in and beyond time, a movement that never stops nor slackens, just as one day follows another in an unending course This duration in time is the image of the power inherent in the Creative With this image as a model, the sage learns how best to develop himself so that his influence may endure He must make himself strong in every way, by consciously casting out all that is inferior and degrading Thus he attains that

tirelessness, which depends upon consciously limiting the fields of his activity.”

d) Humility, in spite of their apparent arrogance They are humble because they reward merit, and put merit above all things rather than friendship or nepotism Microsoft is famous for paying its employees with stock options, thus the employees feel they have ownership in the corporation, and making millionaires out of thousands of its employees

e) Generosity They are generous men, as unbelievable as it may sound Bill Gates has proven that you win when you are generous

First, when IBM came to the newly born Microsoft looking for an operating system, Bill Gates in a truly generous act recommended another corporation to them because he did not have it But as fate would have it, the other corporation blew it and IBM came back to Microsoft The rest is history

Second, in another truly generous act, Gates proposed that Apple make its disk drives compatible with DOS so IBM PC users could more readily swap data with the Mac Gates also proposed early on that Apple out-license its friendly operating system to "clone" computer makers The theory was that Apple could broaden its market share in the way IBM PC clones had popularized DOS But Apple chief John Sculley rejected it The rest is history Any reasonable investor would have asked before investing in Apple at that time, what does a manager like Scully coming from a bottling company like Pepsi knows about running a computer company? Those who chose Scully as CEO were the ones responsible for the destruction of Apple

Third, in another generous act, Gates continued to support the Mac software in spite of the look and feel suit, which Apple brought against Microsoft

And fourth, he helped saved Apple by injecting US$ 150m into the company What the truly great man knows is that to be good to others is to be good to one self

In general, they are special men because they: 1) live by a strict code of ethics, which is

to make the best product available to the public not matter what the effort 2) Are strict in rewarding those who produce results and firing those who don't, and thus will always keep around them the most talented of the industry, and 3) truly enjoy what they do, so much so that in the beginning they did it for fun and they might have continued doing it for fun were it not so profitable How could a CEO get tired or exhausted if he is having fun?

Bill Gates knew that Windows would take material form, because it was destined to do

so, and because he had plenty of time and perseverance Microsoft had excellent ideas and a very creative Research and Development department It also had the necessary human resources, even though not necessarily plentiful equity to start with, to carry out their ideas, and both the owners and the managers were willing to work hard to achieve success They also had the required elements for success such as: a passion for the ideas, a proper corporate culture, even if small, and respect and commitment to

Few investors are visionaries Few investors knew from the beginning that these products would have great demand Yet, those investors who bought these stocks in the beginning and were willing to persevere had very high returns

• The I CHING says "When an individual draws this oracle, it means that

success come to him from the primal depths of the universe and that everything depends upon his seeking his happiness and that of others in one way only, that is, by perseverance in what is right"

THE LINES:

The I CHING mentions six basic attitudes for the CEO to manage during the times of

“The Creative” He should:

• Be patient The CEO’s idea is a winner but lacks supporters This is Apple and Steven Jobs or Microsoft and Bill Gates at its very beginnings This newly born corporation (or a recently restructured one) has new and brilliant ideas for brilliant products Nevertheless, these products are still at a theoretical level or on the drawing board And its creators are not yet known The CEO must be patient All the elements of success are present except for the timing He must not overreach because the time is not yet ripe The CEO should be true to himself and to his dream, and to resist the advice of those around him who will surely tell him to desist just when he is about to turn his corporation into a successful one

• Be passionate This is a must when the CEO’s corporation is becoming more visible This is Microsoft when IBM endorsed its operating system The investment bankers had recognized Microsoft's brilliant ideas The market is beginning to pay attention The I CHING advises the CEO to keep his goal in sight and not let go Ha has what

it takes to be successful

o The I CHING says ”what distinguishes him from the others is his seriousness

of purpose, his unqualified reliability, and the influence he exerts on his environment without conscious effort.”

• Be prudent This is the case when the CEO is reaching a much higher position He

is now well known, and everyone wants a piece of the action The CEO must be careful because at the highest point lays the highest danger, when he might lose his focus and vision as harmful influences would have him deviates from his original course His humility, the secret to his original success, is about to turn to pride, the mother of all evils He must be honest and keep true to himself and to his dream

He must resist the advice of those around him who will surely tell him to desist just when he is about to become successful This is Microsoft when it went into production The Corporation is preparing to produce the first prototype of the product, in spite of the jitters of the corporation's founders The investors smell a killing The more aggressive portfolio managers are beginning to ask questions about the stock and begin to buy small amounts Nevertheless, some doubts still

appear which will be dissipated in the future by the great quality of the product

o The I CHING advises the CEO: ”He who remains in touch with the time that is

dawning, and with its demands, is prudent enough to avoid all pitfalls, and remains blameless."

• Be generous The CEO must now face a crucial period of transition He may license out his technology for the whole world to participate with it, or he may decide to go at

it alone and try and keep all the potential winnings for himself This is Microsoft in full production The product has been very successful, and the corporation is in full production By now this is old news for most investors who long ago recognized the value of the product The stock's value begins to increase But now the corporation has to decide if it will produce in great scale and go to the merchant bankers to sell its stocks and raise additional funds to keep the market for itself, or to become a specialty product This was the original problem of Apple computers - to drop the price and license its products for other companies to mass produce it and for everyone to buy it and become the industry standard as well as a virtual monopoly in the hardware and software PC market, or not to license their product and try to maintain their position of a specialty product with excellent quality, high prices and highly inaccessible This is a crucial decision for the corporation The CEO’s best course is to be humble and to share your knowledge with the rest of the world This corporation should keep in mind what Apple never did and what IBM always says and does: the corporation that shares its power will keep it This is especially the case in the long run

• Be humble The CEO has brought his corporation to the highest level of its production and marketing cycle The best talent of the industry wants to join this corporation The CEO is like a magnet that attracts the best in the field Like attracts like The best wants to be with the best But now the CEO is facing the beginning of the end Now that all the important people in the world want to be with and listen to what this CEO has to say his humility will turn to pride At the highest point of success, pride, the seed of destruction, always appears The CEO will behave in a very arrogant fashion, much like the CEO of Apple in their later stages of success The CEO will deliberately:

• Fail to recognize the disruptive technologies He will delude himself into thinking that their product will continue to sell even if their improvements are not what the market is asking for at that particular time (the case of the first portable Mackintosh and Newton)

• Allow the drain on brainpower to take place It might be that the corporation’s competitors, not being able to compete head on, will begin to steal their most brilliant executives who are the creative power behind the corporation Or may

be some of the brain power will leave because the corporation became too conservative instead of keeping eternally young such as Hewlett Packard when the original founders were alive Or may be because the less competent but very savvy managers are driving them out, as they did with Steven Jobs of Apple

• Encourage the corporation to step on newcomers much like Microsoft did with Netscape Such arrogance will only lead it to problems with the law It requires certain humility; such as the one IBM surprisingly showed after its debacle a few

years back, to turn the corporation around However, turnarounds are usually very rare, and this corporation will not make it

• Be flexible To think out of the box the CEO must always remember: everything changes and transforms itself This could well be the case of Hewlett Packard when its founders were alive; with its high and lows in the value of its stock, but

as a constant element of excellence, behaving in a very professional manner and with the strength of a commitment Nevertheless, even this type of corporation has its maturing and aging cycles, and it will eventually die Nothing lasts forever Everything changes and transforms itself

The classical examples are those corporations, which tried to imitate IBM or Intel The more these corporations copy, the more successful they are, but the more they try to create their own products, the more errors they fall into There are some corporations, which like to copy Mercedes Benz instead of trying to create their own designs Even though there will always be a market for their products, they are smart enough to realize that their success lies in the fact that they are imitators, not creators

LESSON:

The I CHING advises the CEO to:

a) Look for guidance from the other corporations before making any move on his own To move on his own would mean making grave mistakes such as turning tolerant competitors into enemies Ironically, only then he will realize that his original competitors were willing to accept him as an imitator but not as a creator This corporation needs a company to generate the ideas like in Hexagram 1 – the Creative If the CEO could make a joint venture with a corporation that generates brilliant ideas, there would be no limits to its abilities to execute the projects Or it could become an EMS or electronic manufacturer services and manufacture someone else’s products

b) Look for guidance from his subordinates This is a time for the CEO to be led rather than to lead, and to learn from both his subordinates as well as from the actual business conditions Those same business conditions will point the way for him to follow It is quite difficult for a CEO not to lead, after all that is what they are trained to do; however, he must be strong enough to allow others to lead him, and to allow the circumstances to lead him on the right path Obviously, the CEO must rely only on his must trusted advisors and closest assistants to lead him, not just on anyone

c) Find a place where he can be alone to look for the way the corporation should

closest advisors as well as the business circumstances show him the strategy, the decision must be his and his alone No CEO can ever escape the loneliness

of the decision making process By taking the decision by himself and in a place where he can be alone, he makes sure none of his advisors influence him on the decision making process Because he allows his trusted advisors to show him the various strategies, every advisor will want to influence him on accepting his personal advice By retiring to be alone, the CEO can choose without the least emotions, lest he becomes biased towards a particular advisor on the right path

to follow

THE LINES

The I CHING mentions six basic attitudes for the CEO to manage during the times of

“The Receptive” He should:

• Be prepared The CEO should prepare for two possible scenarios that could affect his corporation: a) a recession might be approaching, and the corporation will have

to struggle throughout these hard times Or b) the corporation itself might be about

to run into a period of a sales drop The CEO must prepare for hard times ahead The CEO should be aware that periods of decay are natural and inevitable; but it is possible to prepare for them once their first signs appear The CEO could reduce headcount or inventory, or launch a new marketing effort, or introduce new product lines

o The I CHING says: “in life precautions can be taken by heeding the first signs

of decay and checking them in time”

• Be receptive This is the case of a very productive company with a strong market for its products, even tough they are not very original The typical example is Intel’s imitators, which might be productive, but must always follow Intel’s lead Still, they have a strong market with large buyers The I CHING advises the CEO to accept his situation and make the most of it

o The I CHING says: “The Receptive accommodates itself to the qualities of the

Creative and makes them its own”

• Be modest The CEO must be humble and hide his good managerial qualities so as not to draw attention from the press or from his competitors He could go to the press but only if needed His aim is not to get public recognition for making this a successful corporation, but rather to make sure the corporation’s success will last for

a long time The CEO’s attitude is the right one Some CEOs, such as the case of John Reed of Citicorp discover with some chagrin that the more visible they become

to the public and to his subordinates, the more opposition they generate from everyone The CEO should be smart enough to realize his error quickly enough, keep quiet and maintain a low profile One way to appreciate this attitude is by observing George Soro’s work with regards the introduction of capitalism and

democracy into the communist world, or Warren Buffett’s desire to stay in Omaha far

away from the maddening crowd

o The I CHING says: “The wise man gladly leaves fame to others He does not

seek to have credited to himself things that stand accomplished, but hopes to release active forces; that is, he completes his works in such a manner that they may bear fruit for the future.”

• Be inconspicuous The I CHING warns the CEO this is a time of danger because he

is about to make his move The CEO faces a dilemma - if he is too assertive with his subordinates, he will generate opposition from the same people he is trying to lead

If he is too soft with his subordinates, he will be perceived as a wimp In both cases

he will have the Board of Directors against him The I CHING advises the CEO to avoid acting in either way The way to do it is to keep a low profile with his subordinates

• Be responsible The CEO has been given great responsibilities and a leading position, yet he is also a corporate man and may not act without proper consultations from the Board of Directors The CEO should keep his plans to himself so as not to generate opposition, and to show his excellent leading qualities by his own calmness

in front of desperate situations The CEO should teach by his own actions rather than

by his words

• Be honest The CEO should be true to his own nature when fighting the classic battle between opposing good and evil forces He must not change the mandate from Heaven and convert this corporation from a Receptive corporation to a Heaven corporation This is applicable to both the CEO as well as to the corporation: a) In the case of the CEO, he must resist the temptation to change the focus of his managerial style from that of a humble servant of the corporation’s interest to that of

a self-serving tyrant A lack of humility would draw a considerable opposition, which would bring harm to him as well as to the corporation And even though the CEO will eventually receive a reinforced support from the Board of Directors, he cannot repair the harm And b) In the case of the receptive corporation, such as the case of an electronic manufacturing services, it should resist the temptation to change from a receiver of ideas or depending on the creative corporation to become a producer of ideas Such change would create much anger amongst the creative corporations and encourage them to destroy it In the process the receptive corporation could hurts itself as well the creative corporations Sometimes the CEO should leave things as they are

o The I CHING says: “While the top line of THE CREATIVE indicates titanic

pride and forms a parallel to the Greek legend of Icarus, the top line Of THE RECEPTIVE presents a parallel to the myth of Lucifer's rebellion against God, or to the battle between the powers of darkness and the gods of Valhalla, which ended with the Twilight of the Gods.”

1.3 INITIAL DIFFICULTIES

ISSUE:

The CEO – managing a project’s initial difficulties

Hexagram 3 represents the initial difficulties of a new project for both a newly established corporation as well as for the well-established corporation This is the beginning of what appears to be a good enterprise, one that will take a few years to develop Yet what seems to be an acceptable investment, will eventually encounter many obstacles

LESSON:

The I CHING warns the CEO he should:

a) Prepare for conflicts In a corporate start up, new people will come together to execute a new project This usually means conflicts and hardships New projects, like new births are often difficult, painful and stormy

b) Concentrate on the smaller projects and give up any grand schemes After the storm there usually comes the calm Tension gives way to peace and the dangers that threaten a project will go away

c) Find able executives to support him in reaching his objectives However, he must work side by side with his executives, even though they might seem more experienced

d) Persevere till the end The success of any initial startup requires of great perseverance on the part of the founders, of plenty of help on the part of those who had the genius to develop the idea, and of plenty of patience on the part of the investors who are backing it up It will also require a strong leader in management who will impose order and purpose This applies to almost all the companies, whether large or small, or whether they are listed in the stock exchange or not General U.S Grant’s tenacity easily comes to mind,

e) Take an active lead He only has to eliminate all the layers of chaos to get to the

perfect corporation

• The I CHING says: “in the chaos of difficulty at the beginning, order is already

implicit So too the superior man has to arrange and organize the inchoate profusion of such times of beginning, just as one sorts out silk threads from a knotted tangle and binds them into skeins In order to find one's place in the infinity of being, one must be able both to separate and to unite.”

THE LINES

The I CHING mentions six basic attitudes for the CEO to manage during the times of

“Initial Difficulties” He should:

• Be flexible The CEO must tenaciously maintain his overall strategy if he wants to succeed; however, he must change his tactics He should seek the best executives

in the market, reward them based only on merit, and keep an unassuming posture so

as to inspire his employees

• Be cautious In managing at times of initial difficulties, the CEO will face all kinds of problems including both financial and labor related He might, however, encounter

an investor, a white knight, who might be interested in the company and might be willing in a disinterested fashion to provide it with the necessary financial support The CEO should accept such help provided it does not come with any attachments,

as it might tie him down for any future maneuvers If the help is truly generous, the white knight’s honesty will become evident and the CEO will accept the investor However, it might be years before this happens The best strategy in this case is one the I CHING finds acceptable – that is, to wait and do nothing, which is more important than acting and making a mistake

• Be informed The CEO’s initial difficulties could arise from the fact that he has entered into a business of which he knows almost nothing about and done it without the necessary assistants to advice him about the best alternatives The CEO must learn that no investment should be made without the proper advice from experts By investing without proper advice, the CEO will waste resources He must get out of the business he knows nothing about and save as much as possible from the original investment before he loses it all

• Be open The CEO should look for outside assistance He must have the inner strength and vision to realize he needs help and to take it There is no shame in realizing one’s own weakness and in making the necessary corrections when needed

• Be expressive The CEO’s initial difficulties might arise from the fact that he cannot communicate his plans properly, allowing his opponents to seize the opportunity to create confusion and to misinform the other executives The CEO must realize that

no new project, especially large ones, should be carried out without the proper communication and the employee’s general understanding of the project This is crucial to create ownership, trust and loyalty to both the CEO as well as his project The way for the CEO is to continue to take one step at the time He should not try to

go for a great project because this would require of a great consensus in which all the parts are in common agreement Only when he has a clear mandate from the investors and employees should he endeavor in such a grand undertaking He must continue to work hard in those goals where everyone is in agreement, he must pay attention to the smallest details and above all, he must be patient until his corporation is out of the initial difficulties period

• Be determinate When the initial difficulties prove too much for the CEO and his assistants, when financial and human resources are exhausted and the corporation

is heading for bankruptcy, the CEO should realize that what really is causing this is management’s unwillingness to continue the fight Such resignation is the saddest of

all things Therefore Confucius says of this line: "Bloody tears flow: one should not

persist in this."

1.4 YOUTHFUL FOLLY

Issue:

The CEO – managing under the weigh of his youthful inexperience or lack of managerial experience – how it affects the corporation

Hexagram 4 represents the CEO’s:

• Youth, and his lack of managerial experience, as well as lack of knowledge of the industry However, by no means does it represent the CEO’s lack of intelligence It also represents the CEO’s inability to take action when facing unknown dangers

• Inability to take action in the face of unknown dangers The I CHING envisions the time when the CEO will freeze because he does not know how to deal with the problems he will encounter in this industry, thus his lack of experience The irony lies in the notion that the same act of freezing in the midst of danger sometimes, strangely enough, helps him to succeed - but only sometimes In a way, if and when success is achieved, it is to be seen as beginner’s luck and not as the result of the CEO’s wisdom and experience

Lesson:

The CEO must realize there is nothing wrong with lack of experience provided there is humility, awareness of one’s ignorance and a sincere desire to learn The best advice for a CEO when he lacks knowledge is to:

a) Be humble and to seek and rely on expert advice as the sure way to achieve success

b) Show respect for his experienced advisors by executing the advice exactly as he was told The worst attitude would be for the inexperienced CEO to ask for advice and then proceed to do as he pleases This unfortunately is a common event Read the book Focus to realize all the folly of the CEOs

c) Continue to practice until he gets it right For the CEO to learn about an industry

he must continuously practice, with the help of experienced assistants, until he becomes an expert Through constant practice, he will become successful Tenacity, the kind U.S Grant had, is the key to success

This Hexagram is not for the self-deluding CEO who should not look for advice from the I CHING This Hexagram at times might even imply the CEO’s doubt about the I CHING’s advice and the I CHING’s contempt for his attitude The I CHING also gives the CEO an important warning: because the CEO goes to the I CHING to ask for advice rather than the I CHING going to the CEO, it is the CEO’s duty to pay close attention and ask the question only once It is typical of some CEOs to ask the oracle the same question again and again as if by so doing they will get the answer they want When that happens, the I CHING will only play with the CEO and sometimes even confuse him on purpose When the I CHING tells the CEO at first that a decision is bad for the

from The I CHING is very clear and very definite in its answers to the questioner The I CHING will not help the CEO who shows doubt

• The I CHING says “A teacher's answer to the question of a pupil ought to be

clear and definite like that expected from an oracle; thereupon it ought to be accepted as a key for resolution of doubts and a basis for decision If mistrustful

or unintelligent questioning is kept up, it serves only to annoy the teacher He does well to ignore it in silence, just as the oracle gives one answer only and refuses to be tempted by questions implying doubt.”

THE LINES

The I CHING mentions six basic attitudes for the CEO to manage during the times of

“Youthful Folly” He should:

• Be disciplined The CEO’s Youthful Folly might lead him to take his managerial responsibilities in a light manner His behavior might become erratic On the one hand he might not follow any rules himself, and on the other he might not impart any discipline on the employees Worse, because of his inexperience, he might not know how to punish And when he does punish, he might go over board and punish the personnel in an excessive manner The I CHING advices the CEO something that should be written in letters of gold by private industry, government, parents, teachers

and anyone else who wants to learn the essence of management: Law is the

beginning of education To apply discipline to others we must first apply it to

ourselves, to conquer others, we must first conquer ourselves The CEO should be serious about his job and apply discipline to both him self and others, but without stifling growth and creativity

o The I CHING says, “Law is the beginning of education Youth in its

inexperience is inclined at first to take everything carelessly and playfully It must be shown the seriousness of life A certain measure of taking oneself in hand, brought about by strict discipline, is a good thing He who plays with life never amounts to anything However, discipline should not degenerate into drill Continuous drill has a humiliating effect and cripples a man's powers.”

• Be gracious The CEO might have the qualities, the experience and even the maturity to do the job, but he might lack the power However, if he works on two basic qualities, he might bring about an eventual success He must have the patience to put up with the youthful inexperience of his personnel, and the kindness

to turn them around without insulting them Yet this does not represent a winning team but rather the abilities of a single person The I CHING’s advice to the CEO could be regarded as a controversial one, particularly amongst women It advises the CEO to treat his personnel the same way one should treat women; to be kind, tolerant and understanding, because women, like any other large social body (i.e a

nation or a corporation) require chivalrous consideration

o The I CHING says: “The same attitude is owed to women as the weaker sex

One must understand them and give them recognition in a spirit of chivalrous consideration Only this combination of inner strength with outer reserve

enables one to take on the responsibility of directing a larger social body with real success.”… “Given in addition a perseverance that never slackens until the points are mastered one by one, real success is sure to follow Thus the hexagram counsels the teacher as well as the pupil.”

• Be dignifying This CEO’s Youthful Folly might be caused by lack of character He not only is inexperienced but is also a wimp He lacks character, the essence of leadership He is an imitator of the CEO of the most successful corporation in his industry He has failed to create a corporate culture This case represents both the typical corporation that copies its products from the more successful competitors, as well as a corporation, which is desperately looking for someone to buy it out The CEO must develop character and dignity to earn the respect of others and be successful Any CEO, who is looking for a buyer for his corporation, must wait until someone approaches it first rather than go out desperately looking for the first buyer that comes along

• Be humble The CEO lacks the necessary humility to be successful: he is arrogant about his goals for the corporation, which are completely unrealistic, and he seeks but will not heed the advice of his most experienced counselors The obsessive execution of his unrealistic plans will lead the corporation to loose its best people and will cause an eventual drop in the value of the stock, and the CEO’s demise The CEO must realize that when his goals are unrealistic, no decent consultant or assistant will be willing to work his corporation In a way this is good, because out of the catastrophe will come the change in management and the corporation’s eventual turnaround

• Be solicitous The CEO’s humility will eventually bring him success In a way this represents some of the Japanese companies in their beginnings They had a tremendous desire to improve themselves and to succeed; they were also very humble and desirous to learn from the West This in turn was flattering for the western companies, which were willing to share their knowledge with them

• Be repentant Sometimes a CEO is so inexperienced and so arrogant that there is

no hope for him The market has already become aware of the CEO’s poor managerial abilities and his corporation is about to reflect this fact with a mayor correction in the price of the stock This correction will be kept up until the Board of Directors changes the CEO or his goals in which case the market will immediately push up the price of the stock After all, the corporation in essence is good, but the Board of Directors has to first make some major changes, beginning with its CEO This was certainly the case of ATT in the early nineties When the CEO is too arrogant and stupid to listen to the experts’ advice in a matter he knows nothing about, and when he insists in executing his strategies against the advice of his own

experts, then it is time for the Board of Directors to replace him

o However, the I CHING warns us that such punishment must not be done in

anger: “Sometimes an incorrigible fool must be punished He who will not

heed will be made to feel This punishment is quite different from a preliminary shaking up But the penalty should not be imposed in anger; it must be restricted to an objective guarding against unjustified excesses

1.5 WAITING

ISSUE:

The CEO - waiting patiently when danger is all around him

Hexagram 5 addresses both the CEO of the corporation as well as the investor Both must wait until the corporation’s economic conditions improve Neither must take any immediate action This is a mandate from Heaven and there is absolutely nothing that can be done about it The corporation has all the necessary elements to be successful; nevertheless, at this particular time, it is going through a very difficult period For the investor as well as for the CEO who has the strength and the willingness to wait, the returns will be very positive

The CEO can wait because he has the inner certainty Heaven will be on his side when the proper time comes Heaven will bestow great opportunities to this corporation in due time, provided the CEO can wait patiently

IBM is a good example of this Hexagram IBM had a great corporate culture and the financial strength Its management had the humility and the strength to face its own problems and to take the necessary measures (through joint ventures and restructurings) It did its own self-examination and faced the truth But what is most important is that it had the tenacity to carry out the necessary corrections and to regain its past position Management knew it had all the elements for success; all it had to do was wait

LESSON:

The I CHING advises the CEO to:

a) Relax and be patient He must keep the corporation’s financial strength for the right moment Meanwhile he must wait This waiting period is recommended by the I CHING itself and carries the wisdom of the sages It is the sound advice of

an expert This alone should be enough to encourage him while he waits The economic scenario approaching is negative There could be a recession or a downturn in the corporation’s business due to a change in consumer preference

or changes in technology This is not the time to set up goals or plan for grand schemes or strategies This is the time to strengthen the corporate balance sheet Such was the case of Citicorp during the eighties Its Chairman established a policy of bulletproofing the bank to face the heavy competition from the Japanese banks and the banking industry’s downturn Thus the advice to nourish the corporation and wait patiently was the proper one for the time

b) Accept this event as Heaven sent The I CHING advises the CEO that this is a matter of Heaven’s will and when fate is at work there is nothing to be done except wait It is of no use to try to act before the proper time, as it will only make matters worse Meanwhile, however, he must strengthen the corporation for such a proper time

c) Maintain the correct attitude The I CHING advises the CEO to be true to his own self because only then will he have the strength to go through the waiting period If the CEO is true to him self, if he is willing to cast away anything that is

of no value to the corporation, if he is willing to see things for what they are and not for what he wants them to be, then Heaven will shed the light on him that he may see the true path However, once Heaven has shown him the true path, then he must be tenacious in pursuing such path Anything less than true commitment will result in failure

Hexagram 5 represents one of the best managerial lessons Waiting is an art All CEOs must learn to wait Even though there would appear to be a stigma attached to waiting, there is nothing cowardly in waiting when waiting is the best alternative The CEO requires great strength to wait particularly when facing danger The weak CEO, on the other hand will loose his nerve in the face of danger and act foolishly, thus placing the corporation in a dangerous position

• Be still The CEO must prepare for the difficult times, which are very near He will face heavy criticism from all quarters including the Board of Directors, the stockholders and the Press The CEO must be silent and not get into a shouting contest with any of his critics Only then will he take away the anger from his critics’ worst attacks This was the case of Citicorp’s Reed, who earned the hard way to keep quiet during Citicorp’s darkest hours

• Be dead serious When the CEO miscalculates the timing and fails to strengthen the corporate balance sheet, he will place the corporation in a dangerous position He will expose it to a possible take over, encouraging its enemies to either buy it or destroy it The CEO might still save the corporation provided he realizes how weak the corporation is and maintains a very serious attitude about its future

• Be patient When the worst has arrived the CEO must face the imminent destruction

of his corporation If its enemies are successful and buy it out, they will lay off many employees The CEO must wait with resignation and strength until the worst is over

He is in the hands of Heaven and if Heaven so ordains it, the corporation will survive

In this particular line when danger is at its worst the best thing to do is to wait For the I CHING not doing is as important as doing

• Be focused When the CEO is dealing with a corporate crisis at its worst, there might

strengthen it and improve its chances for survival The CEO must realize that if he makes the best of these moments of relative calm and strengthens the corporation while stubbornly resisting, he might save his corporation after all Success lies in keeping an eye on the goal at all times while maintaining certain cheerfulness even

in the face of danger This means waiting because there will be a way out rather than waiting because there is no way out

• Be hopeful This is the case when the CEO’s efforts have been in vain He has not been able to save his corporation This is his corporation’s worst situation Yet in the midst of all the worst, an unexpected investor might show interest mainly due to the CEO’s positive attitude The investor’s intentions might not be clear; nevertheless if the CEO keeps the same positive attitude towards the new potential owners, he just might save the corporation and its future Historically we can compare this line to Hiroito’s when facing the defeat of Japan Both he and his empire were at the worst of dangers Yet he trusted and waited calmly and Heaven and his enemies favored him with a good outcome after all

1.6 CONFLICT

ISSUE:

The CEO – managing under conflict - internal opposition and external litigation

Hexagram 6 describes a CEO and his corporation, which will soon find itself in the middle of a great conflict, or may be litigation The CEO knows his cause is just and fair and this only nourishes his pride, his worse enemy It is this same pride, which will lead him to an open conflict whenever he faces opposition

LESSON:

The I CHING advises the CEO to:

a) Be humble and meet his opponent in the middle In the case of litigation, this would mean reaching for an out of court settlement To fight it to the bitter end could be an alternative, but that would be fatal to the corporation even if the CEO were in the right A fight to the bitter end would be no solution to any conflict, as the hatred would last forever An ideal solution could be to find an impartial arbiter who would seek an impartial solution to the conflict An arbiter both parties would find acceptable To do so the CEO would have to be very clear about his position

b) Avoid initiating grand schemes because nothing grand can be accomplished in the middle of a fight This was a great lesson for Bill Gates It would have been

of no use to try and implement grand schemes while in the middle of a fight with the US department of Justice and so many states

c) Fight conflict the same way we should fight evil – avoid it from its very beginning

In the war of browsers, Microsoft knew from the very beginning that they were doing something wrong even if perhaps not something illegal They probably found resistance from Dell and Compaq and IBM and other software vendors when they “encouraged” them to install Microsoft Explorer rather than Netscape’s navigator, the original consumers’ choice They must have known based on the same opposition they found from its clients, not matter how weak this opposition was, that this was the beginning of conflict which could possibly result in litigation Had they paid attention to this conflict, they would have avoided the suit from the Department of Justice

THE LINES

The I CHING mentions six basic attitudes for the CEO to manage during the times of

“Conflict” He should:

•

has greater economic resources In this way the CEO saves the corporation a sure loss of resources This attitude would minimize losses and avoid much damage

• Be flexible The CEO must realize that even though the litigation process is in its beginning stages, the corporation can still withdraw strategically without loss of honor For the CEO to hold on to a given position out of stubbornness, obstinacy or righteousness will surely cause his corporation heavy losses Pride is the end of all CEOs To be conciliatory rather than to act out of a sense of hurt pride is the best course of action This is particularly the case when the opposing forces are stronger and the damage would extend to the corporation’s employees

• Be righteous The CEO, who has decided to fight openly or to proceed fully with the litigation process, must realize that to fight his way out of a conflict, he must make sure he is in the right position In the case of litigation over a patent, if the corporation developed the product and it is truly original and not a copy of another corporation’s product, then surely the corporation will win this litigation and any other future litigation But if the CEO enters into a litigation to take away someone else’s work, then surely Heaven will eventually punish him even if the law does not

• Be honest Sometimes the CEO will feel restless because his corporation is too

“small” for him to manage The danger lies in that he will be tempted to look for a smaller opponent to raise a conflict with, one with fewer resources The CEO must

do what is right The CEO knows he could easily win, but he also knows that he would benefit from someone else’s work The CEO should do the right thing and pay for the patent This would provide his corporation with enough time to dedicate to production rather than litigation, and that will make it a successful corporation

• Be trustworthy At times of conflict, the CEO should accept and deal with mediators They just might prove to be trustworthy This, plus the fact that the corporation’s product is indeed originated by their own research department, creates the circumstances for the corporation to win the litigation and be successful Mediators carry a lot of weight and the probabilities are strong the CEO could win his fight

• Be moderate When a CEO takes his corporation’s litigation efforts to its final consequences and wins, he might be winning an empty victory The CEO must realize the best fight is the one he avoids When the CEO wins at too high a cost, the corporation will be left financially exhausted And worst still, he might not have seen the end of it yet There might be more litigation in other courts and other companies will join in the fight against them Could this be the case of Oakley and its eternal litigations?