Book Notes - GOLDMAN SACHS - The Culture of Success

A book, as they say, is known by its cover. I must say that a book on GS (popular name of Goldman Sachs) adds to the aura to the institution which is synonymous with wall street for significantly more than a century. It remains my favorite books read all time. Here, I bring some excerpts of the book to you:

1. A partnership is a much more personal organizational structure than a corporation.
2. In a private partnership none of the assets of partners are shielded from liability, and the individual partners are exposed down to the pennies in their children's piggy banks.
3. Capital should be a restraint. It helps you make selections.
4. All partners regardless of their stake, left the bulk of each year's earnings with the firm, to be withdrawn only after retirement. Partners took home an 8 percent draw each year against the amount they had in their capital accounts(the amount of the firm's profits they had accrued but left invested with the firm.
5. If there is a recurring theme In our thought process, it is that Goldman Sachs under promises and over delivers to itself.
6. Not everyone can be the first with a new idea, but there is no excuse for not copying a good idea quickly
7. Through its strong client focus Goldman Sachs has been able to control egos and monitor arrogance. The client, mot the salesman, banker, or trader, is the focus of any transaction. The banker is there to do his client's bidding.
8. Clients are simply in your custody. Someone before you established the relationship and someone after you will carry it on.
9. If you are willing to turn down money and you keep your ego under control, you can save yourself a lot of heartache in this business.
10. Gus levy's maxim- greedy, but long term greedy, was the firm's watchword.
11. Partners reinvested almost all their earnings in the firm, so the focus was always on the future.
12. Value of ownership-No one ever washes a rental car.
13. One of the most visible manifestations of the the firm's culture is its emphasis o understatement. Men of great wealth, the partners of Goldman Sachs deliberately discouraged its overt trappings...believing money is for bank account, not flashing about.
14. Money is always fashionable- Henry Goldman
15. Save and serve.-Henry Goldman
16. Most men can stand adversity; very few men can stand success.
17. During 1930s Weinberg's contribution to the firm was so great that he was accorded one third of the firm's profits. But as his son john pointed out more than sixty years later, one third of nothing is still nothing.
18. To Gus(Gus Levy) short range was what's happening this morning and long range whats going to happen this afternoon. Levy had two secretaries on the theory that he would never need to wait for one to be free.
19. Short term profits would not be earned at the expense of of long term relationships.
20. J Aaron's philosophy was 'never tell anybody how much money you make, just smile on the way to the bank.' in a public limited company we would never have been able to do that'
21. The standards of fitness for individuals within an organization should be conducive to achieving fitness for the organization.
22. The risk arbitrage business, in its most simplified form, involves the purchase or sale of securities deemed to be mis-priced, often because of their complexity or some change occurring in the company of which the shares represent ownership. Many of these opportunities arise as a result of a takeover by one company by another.
Risk arbitrage is all about risk.
"you had to stick to your discipline and try to reduce everything in your mind to pluses and minuses and to probabilities", Rubin remembers. "if a deal goes through, what do you win?" if it does not go through, what do you loose? It was a high risk business, but I'll tell you, it did teach you to think in terms of probabilities instead of absolutes. You couldn't be in that business and not internalize that probabilistic approach to life. It was what you were doing all the time."
23. When Weiner announced his retirement after forty years he was a vigorous sixty five years old. He joked that wanted to out "a master of my own destiny, and not drooling." he explained: These guys are ready, and I'm ready. This is the logical time. When the goose is cooked, you better go ahead and eat it."
24. Friedman has said "facts are extremely wiggly; they are like greased pigs, so you have to ask a lot of questions."
25. Losses are part of trading; learn something from them and move on. Rubin grew up with trading risk. He argued that "as long as there are risks there will be losses. If the day ever comes when there are no risks, there will also be no profits."
26. Levy taught many things, but the most important was about risk. Never worry about how much money you are going to make on a trade, focus instead on how much you are going to lose if you make a mistake.
27. For Rubin and Friedman, if GS was not surging ahead, it was falling behind.
28. In 1993, profits were going up so fast that mo one worried about the fact that risk was going up faster- a trader
29. In 1993 annual review, Friedman praised the firm for its exceptional year. But he took time to remind all concerned that trees do not grow to the sky. A lover of military history, he knew that after great victories in battle generals would have a spectacular procession to mark the event. As they marched in the parade someone would follow a few steps behind whispering in their ear, "remember you are mortal, remember you are mortal."
30. Investment banks live and die by their ability to analyze the balance between risk and reward.
31. Bad assets(non performing loans and the like), liquidity problems, and lack of legal compliance are the three things that can bring down firms in a heartbeat.
32. There are good times and bad, but the shared values that make up the firm's culture are immutable.- John Weinberg
33. Don't trust self made men because they think it's their fault.- Michel David Weill, Chairman of Lazard Freres
34. Jon Corzine could deliver bad news and make you feel good about it.
35. For every one you layoff, you frighten four," says limited partner Roy Smith. "You're destroying loyalty in the interest of year-by-year profit management."
36. Corzine feels that a leader passes on a culture not just by what he says and does, but also by whom he selects for the succeeding generation of leadership.
37. By bringing a larger group of partners into the upper reaches of management, the culture of the firm, as transmitted by its leaders, could more easily be spread to a larger group of people. "You have to broaden the number of people who have a leadership mandate," Corzine said. "Against that you have to make sure that you don't dilute the value of the mandate."
38. "We need to do something that challenges the organization to be more than it is today," Jon Corzine
39. Structure follows strategy.
40. Good firms worry about competition. Great firms worry about their clients. - Hank Paulson
41. The two Johns were opposed to the partners selling the firm. They believed strongly that "if it ain't broke don't fix it."
42. Greed is a two-sided coin, Corzine argued, and a system in which 1.5 percent of the participants reap the vast majority of the rewards in good times and adjust the compensation and headcount of the other 98 percent of the firm in rough times also might be viewed as grossly unfair. Perhaps, Corzine ventured, selling the firm in good times and spreading the largesse broadly, deeply, and generously would actually be less greedy.
43. In a risky cyclical business it makes no sense to expose the resources of a handful of people to the whims of the world's capital markets.
44. The most successful traders make their fortunes over time not by picking the biggest winners but by deftly cutting their losses, putting it all behind them and then moving on with an open mind.


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  2. Hi sitesh,

    “Never worry about how much money you are going to make on a trade, focus instead on how much you are going to lose if you make a mistake.”
    Best one. Thanks for the informative article. Continue the good work.