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Wealth Creation by Bartley J Madden

first posted: 2023-05-20 08:18:28.532537

Born in 1969, Bartley J Madden cofounded in 1969 a firm to connect stock price to company fundamental performance. He transitioned to money management in 1984 and joined Holt in 1992, which was aquired by Credit Suisse in 2002.

Holt created the CFROI model, which is a leading valuation method along with EVA. Bartley J Madden wrote many books motivating his approach to performance.

Wealth Creation: a systems mindset (2010)

This book was recommended by ValueFocus Investing, by Rawley Thomas, William Mahoney, who also wrote the Handbook of Valuation.


Systems Mindset:

  • How we know what we think we know: humans create simplified representations of reality
  • PAK loop: perception action knowledge helps improving the system fitness
  • Examples of System Thinking
  • High reliability organisations: avoid complacency, firefighters or aircraft carrier crews have high attention to anomalies,
  • Eli Goldratt
  • Cp;pme; John Boyd, OODA loops

Wealth Creation Systems

  • Perception of Free Market Capitalism
  • Govt regulations and its risks: Housing Crisis. Regulations are supposed to correct market failures. They can have unintended consequences (mortgage for everyone politics is one of the cause of the subprime debacle).
  • Standard of living: author reminds that capitalist saw scientific progress applied to improving people's life

Free Market System

  • Wealthy consumers and producers, competition
  • Efficiently providing what consumers want

Competitive Lifecycle of the Firm

  • growth phase
  • lower profitability phase
  • decay and death or resurrection
  • examples: Kodak, IBM, Apple

Lifecycle Valuation as a Total System

  • emt vs behavioral:
  • valuation model principles
  • measurement unit: must take into account inflation
  • capm cost of capital: $r=r_0 + \beta (r_e-r_0)$ is used without checking its validity
  • improving the valuation process: author is suggesting to tweak short term lifecycle assumptions by firm

Companies as Lean Value-add chains

  • presents Toyota as the success story
  • everyone is involved in the quality process
  • less command and control
  • less inventory, made on demand.

Corporate Governance

  • company governance needs repair
  • standard of performance for boards
  • Shareholder Value Review
  • valuation model review
  • value-relevant track records
  • Business unit analyses
  • SVR as evolutionary process

Madden is also inspired by Werner Erhard concept of integrity and wrote a book about the four core beliefs that shape worldview and constrain our performance:

  • past experience shapes assumption
  • language constrains perception
  • fixing key constrains
  • focus on what people control for

Being mindful of these can help raise creativity and productivity.

You can find more about Bart Madden's work on his website.

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