Harvard Study Reveals One Word Is The Secret To  Being Likable And Emotionally Intelligent

As I’ve grown older and more experienced the greatest of all lessons learned is how simple most things in life really are and yet how we try our darnedest to complicate them. In part I’m sure that’s because we feel that complicating anything makes us feel more valuable. 

Which is why coming across a recent Harvard Study, described in an HBR article, impressed me with advice that is utterly simple but incredibly profound. 

The research looked at the role of asking questions in interpersonal relationships. It’s findings pointed to the simple act of asking questions as oen of the most important aspects of trusted and open interpersonal relationships, higher emotional intelligence, and learning. 

Before I dive into its findings, I’d like you to stop for a minute and think about the people with whom you have the closest relationships. These are not just the longest-standing relationships or acquaintances and colleagues that you just happen to be with most frequently, out of necessity, but the people that you genuinely look forward to getting together with–the ones who stimulate your mind and create a feeling of connection and emotional bonding. 

I’ll bet that if you think about the sorts of conversations that you have with people who fall into this inner circle of advisors, confidants, and perhaps even soulmates, you’ll discover one thing stands out in how you communicate, the role of questions; you’re more likely to ask questions of them without reservation and you’re more likely to enjoy having them ask questions of you. There is a mutual exploration exposing that happens when you do this and it uncovers not only a level of authenticity in how you reveal yourselves to each other, but also in how you arrive at ideas, answers, and insights that you would not have likely arrived at on your own.

That essential chemistry is at the heart of what Harvard researchers Alison Wood Brooks and Leslie K. John uncovered. 

So, Where’d Your Learned To Question? 

Learning how to ask questions is not something that most people are taught, not unless you’re a lawyer, in law enforcement, a doctor, or a journalist. That’s not to say that any of those professions has a universally applicable formula for how to best ask questions, only that in each case it’s critical to shift the focus of the conversation onto the other person in order to build the sort of rapport and transparency needed to make the relationship an effective one. 

The bigger, and more important question (The puns are just unavoidable, right?) is how to use questions in cases where a longer term relationship is the objective. 

What Brooks and John discovered was not remarkable in and of itself. We all understand that empathy and interest in another human being shows that we want to better understand them. Yet, how we to best ask questions that illustrate that empathy sincerely is not something that we necessarily practice and, if we do, we may still be going about it in the wrong way. 

To help, Brooks and John present five guidelines, from their research, for how to best ask questions that form a solid foundation of bonding, trust, empathy, transparency, and emotionally intelligent intimacy.

1) Favor follow-up questions.

According to Brooks and John there are “four types of questions: introductory questions (“How are you?”), mirror questions (“I’m fine. How are you?”), full-switch questions (ones that change the topic entirely), and follow-up questions (ones that solicit more information).” 

All of these are fair game and have their place, but follow-up questions are especially important because they signal an interest in the person you are talking to. The opposite is also true. If you ignore follow-up questions and simply stick to an agenda of pre-scripted questions the conversation turns into an inquisition at worst and a disinterested, awkward exchange at best. Also, keep in mind that when someone answers a question they are often opening the door a little wider in the hopes of revealing information that they want to share more of.

2) Know when to keep questions open-ended.

We’ve all heard that open-ended questions are better than simple yes/no or multiple choice questions, since they result in richer and more revealing answers. That’s true, however, what we often ignore is the risk of closed-ended questions that introduce bias and a sense of manipulation.

We’ve all been on the giving or receiving end of questions that are subtly trying to drive to an already anticipated conclusion with the use of closed-ended questions. I have one good friend who’s notorious for both asking and answering closed-ended questions in a way that almost makes it appear as though my being there is optional! When you ask a question stop, wait, and allow the person to digest and respond. Don’t try to just fill the silence or move away from what appears to be a dead-end. For example, one of the best ways to do this is by following-up a closed ended answer, such as yes or no, with the question, ” Can you tell me why you answered Yes (or No)?” 

3) Get the sequence right.

One of the most interesting findings of the research was that the order of questions has a significant effect on how people respond. For example if gaining insight and just getting information–regardless of the longer term relationship–is the objective, then starting with the tough, or most invasive, question first is the preferred method. This because if you start with a really tough question the rest will seem far less invasive. 

However, in relationship building the opposite is true. We need to build up to intimacy,  trust, and transparency. The researchers use the example of the work behind a viral Ted talk about the 36 questions that would make two people fall in love. The 36 questions were based on work they describe it in their HBR article, 

“Arthur Aron recruited strangers to come to the lab, paired them up, and gave them a list of questions. They were told to work their way through the list, starting with relatively shallow inquiries and progressing to more self-revelatory ones, such as “What is your biggest regret?” Pairs in the control group were asked simply to interact with each other. The pairs who followed the prescribed structure liked each other more than the control pairs. This effect is so strong that it has been formalized in a task called “the relationship closeness induction,” a tool used by researchers to build a sense of connection among experiment participants.”

4) Use the right tone.

Of all the things we do to help open up or shut down a conversation, tone has to be among the most critical. The findings here is exactly what you’d expect, “People are more forthcoming when you ask questions in a casual way, rather than in a buttoned-up, official tone.” 

But what’s especially interesting is that this applies across the board to all sorts of communication, even online questions nd surveys. The researchers talks about an online survey in which some study participants used a very conservative and official looking survey page while other participants used a fun and playful page. According to the research “Participants were about twice as likely to reveal sensitive information on the casual-looking site than on the others.”

Of course, as with any strategy to open people up, this too cuts both ways. In fact the sorts of apps that were used to gather personal data via social media, leading to the Cambridge Analytica fiasco that Facebook had to deal with, came from exactly these sorts of playful interactions with seemingly trivial game apps.

5) Pay attention to group dynamics.

It’s not always the case that you’re asking questions one-on-one. When a group is involved the responses will necessarily be influenced by the group at large. What’s interesting is that it usually takes only a few people to be either especially closed or open, in how they answer questions, to influence the entire group. The other thing they found was that third party observers to a conversation tend to like the person answering the questions more than the person predominantly asking them. The reason here is that the questioner isn’t giving up much and may come across as arrogant or aloof. 

The research also delves into what makes response to questions meaningful and productive in furthering a sense of equity, bonding, and sharing. The bottom line seems to be that you need to strive for balanced transparency and sharing. An imbalance, one way or the other, can tilt the conversation and create discomfort or skepticism as to the motives of the questioner. 

All in all , this isn’t complicated stuff. Yet, I’d suspect that if you made and effort to consciously keep track of what you’re asking, how you’re asking it, and the degree to which you’re actually following the above five guidelines, you might be amazed at how often you stray from them. 

The beauty of what’s revealed in this research is its simplicity and effectiveness. We all want to feel someone is interested in us, we all want to share what we feel is uniquely us–the things that makes us valuable people, we all want to connect with people who are trustworthy, and we all want others to see us as trustworthy.  

In a word, ask the right “question.” It really is that simple; don’t complicate it.

The 1 Ridiculous Question Big Companies Now Ask Job Candidates

Absurdly Driven looks at the world of business with a skeptical eye and a firmly rooted tongue in cheek. 

It used to be that big companies didn’t have searching job interviews.

They’d just check whether candidates went to the right universities and, as long as they had no obvious personality difficulties, they were offered a job.

Things have changed. HR people think they’re far smarter now because they have smart tools.

And, indeed, the smartest modern tool of all — the algorithm.

I’m, therefore, prostrate from a lack of surprise that algorithms are now screening candidates for their deeper psychological aspects, just as they do when they decide which shoes you should buy.

The Cambridge Code was once merely a chat about which Cambridge college you went to.

Now, it’s a set of 55 questions that apparently uncover your “subconscious latent potential.”

This test, according to its creators, is deeply revelatory.

“Our algorithm has enabled a new approach to assessing individuals providing an x-ray of the subconscious mind,” they say.

I’m not sure about you, but I wouldn’t like some capitalist concern x-raying my subconscious mind. 

I’m strange.

Would they really understand what they see? Don’t they realize that my subconscious has been through interesting times and, especially when it comes to dream time, it can be vivid in its approach?

Oh, but some of the questions apparently ask you about how you’ve handled conflicts with your lover or your parents.

I’ve already prepared my answer: Mind your own bloody business.

I’ve come here for a job, not a shrink session. 

Still, the questions make for high titillation.

Sample: When you have done something well, who do you want to know?

Your choices — because, of course you can’t answer Golden State Warriors coach Steve Kerr — include my partner, God and no one.

But what if God is no one? What if God is my partner? The philosophical conundrums here are considerable.

One question, though, might sever the relationship between a candidate and their equilibrium.

That question? Have you ever had an imaginary twin?

Currently, I’m having an imaginary wish to lock these people in a room with a baby alligator and ask them, every hour on the hour, whether they’re imagining they might have made someone angry.

You will, perhaps, adore two of the answers you’re allowed to give to this question: 

1. Now it has been mentioned, I would really like one.

2. I live the thought of being understood and not being alone.

Now it has been mentioned, I live the thought of wondering what goes through the minds of people who think they’re so clever in assessing people.

I live the thought of wondering why they think they can mine someone’s subconscious in order to work out whether they’d be good at managing, say, a rail network or a psychiatrists’ convention.

Here, though, is one additional joy.

Dr Curly Moloney, one of the founders of this putative successor to the DaVinci Code, says she hired two candidates by using this fine test.

Yes, without ever meeting them.

Because these days, you’re not hiring a person. You’re hiring, well, what, a number? 

Subconsciously, that is.

Beware Of Crypto Risks – 10 Risks To Watch

HONG KONG, HONG KONG – JUNE 15: As a visual representation of the digital Cryptocurrency, Litecoin (LTC), Monero (XMR), Bitcoin (BTC), Ethereum (ETH), Ripple (XRP) and Dash on June 15, 2018 in Hong Kong, Hong Kong. (Photo by S3studio/Getty Images)

You know we are at the top of the hype cycle on blockchain and cryptocurrencies when examples of peak crypto include glistening fleets of Lamborghinis as a reflection of price spikes and talk of crypto-utopia with no central governments. Nonetheless, there are a number of key risks that plague this asset class and stand in the way of broader market adoption and stability. While there is no doubt cryptocurrencies, digital tokens and blockchain-based business models are here to stay, understanding how risk interplays with this emerging market and their underlying technologies will not only help protect investors, it will also give regulators a steady hand and, hopefully, guide how entrepreneurs are approaching risk management in their projects, which is not easily done after the fact. One unique facet that blockchain-based projects bring to the market is that unlike the analog economy, which hopes to code good conduct in people who have the care, custody and control of our savings and assets, is that “good conduct” can be coded at the technology layer and in an unalterable and transparent manner. In short, a machine is not naturally greedy or prone to moral hazard (risk taking without bearing the consequences).

What follows are 10 examples of key risks that imperil cryptocurrencies and stand in the way of market progress.

Wide Entrance, Narrow Exit – It is true that the advent of bitcoin and its ilk of cryptocurrencies, of which there are more than 1,600 and counting that have been digitally minted, has democratized many aspects of finance. This lowered barrier to entry creates a wide entrance and a very narrow exit, which as is prone to happen in the real world during Black Friday shopping frenzies for example, can lead to collateral damage as people rush to get out. The exit can be barred due to technological constraints, currency inconvertibility and few counterparties with whom to trade. While the asset class is generally uncorrelated to the traditional economy, it is all correlated to itself, which can create market panics and runs.

Intangible, Illiquid, Uninsured – The true miracle of blockchain-based cryptocurrencies, such as bitcoin, is that the issue of double counting is resolved without any intermediary, such as a bank or banker. This feature captured by the notion of digital singularity, where there can only be one instance of an asset is powerful and one of the primary reasons this asset class has blossomed. However, the intangible and illiquid nature of cryptocurrencies (combined with the point above about narrow exits) hampers their convertibility and insurability. Indeed, despite reports of growing insurer interest in the segment, the majority of crypto-assets and crypto companies are either under-insured or uninsurable by today’s standards. There is no deposit insurance “floor” for this asset class, which can help broaden appeal and investor security.

Mark To Market – As crypto holders seek to exit the intangible asset class returning to fiat currencies or other assets, which are often loathed by many crypto purists, their flight to safety or liquidity most often takes them to the greenback or U.S. While the price pegs work well on the way in to cryptocurrencies as investors informed by their “animal spirits” who want in on a speculative wave have a willingness to pay at a stated value or peg. On the way out, however, this mark to market feature sees many investors subjected to downward price pressure, which highlights the adverse effects of illiquidity, narrow exits and narrow participation in the asset class. These types of issues are being remedied as more institutional investors enter the space and more markets and trading platforms open. In the meantime, market participants would be wise in minding currency inconvertibility and the implied volatility of cryptocurrencies, which would make high-frequency traders flinch. To truly understanding blockchain’s potential requires the suspension of disbelief. To truly capture the investment thesis of cryptocurrencies requires the suspension of the traditional economy yardstick.

From Extortion To Manipulation – While no investor should part ways with money they are not prepared to lose, no matter how nominal the amount, cryptocurrencies are particularly prone to social engineering and misinformation risks. The naïve, as with the analog economy, can become easy prey to cyber extortion, market manipulation, fraud and other investor risks. The U.S. Securities and Exchange Commission, SEC, has gone as far as creating a fake initial coin offering (ICO) website as a way of alerting would-be crypto investors to “shinny object” threats. Indeed, emerging regulatory clarity on what constitutes a truly decentralized asset, such as bitcoin or ethereum, which is beyond the control of any one party, versus company-issued cryptocurrencies or tokens is a growing area of securities attention.

Care, Custody And Control – Despite the intangible and unseen nature of cryptocurrencies and digital assets more generally, one of the single biggest issues plaguing the market is care, custody and control. Not unlike the perennial challenges of cyber and physical security of the traditional banking sector, there is a veritable standards war taking place among crypto custodians on who is providing the highest standards of investor protection and asset security. The number of high profile and high value crypto heists suggests that this playbook of best security practices is still being written. The wealthiest crypto investors are going to great lengths to protect their intangible hoard by using cold storage devices placed in physical (offline / airtight) vaults and bunkers. Not every crypto investor can afford this level of security no more than every crypto investor is a target, but all are subject to the emerging nature of care, custody and control standards. Here too, the absence of a basic “floor” in terms of security and capital guarantees, like a cyber Federal Deposit Insurance Corporate, FDIC, means that investors are exposed on a first-loss basis.

Cyber Risks On All Sides – As is true with cyber threats, which evolve according to Moore’s law, the space between the keyboard and the chair (or the smart phone and the digital wallet) is as important as the cyber hygiene and defenses of the crypto custodian. While in principle the bitcoin blockchain has proven to be among the most cyber resilient innovations thus far, the firms that plug into it, like other cryptocurrencies, are often new entrants with lax cybersecurity standards and wherewithal. By this measure, not all cryptocurrencies are created equal in term of their traceability, transaction ledgering and levels of trust or fiduciary responsibility. For this, risks as simple as “mysterious disappearance” and as complex as ransomware attacks and AI-powered bots scouring the Internet for weak links and easy prey are complex and fast-moving perils.

Human Error (And Forgetfulness) – Given the intangible nature of the asset class, human error and something as confounding as password amnesia can spell total loss of a crypto fortune. Not everyone is as lucky as 50 Cent, who forgot he accepted bitcoin for an album release and discovered an $8 million bitcoin bounty. The prospect of being locked out, losing hardware or facing “geophysical risks,” such as spilled coffee is often enough to create losses – not to mention the ever present risk of buyer’s remorse given cryptocurrency price volatility. At the crypto whale end of the market, the high-profile nature and public quality of large asset holders may expose people to direct physical security threats, such as kidnaping, ransom and extortion. A fleet of lambos will not add to the needed discretion of not becoming a potential target.

(Un)Safe Havens – Another key risk with cryptocurrencies and this asset class more generally is the lack of coordination and clarity on regulatory, financial, tax and legal treatment. This is unsurprising given the relatively new nature of this market and the often slow moving and lagging quality of “regulatory catch up.” Indeed, most regulators around the world did not begin to form an opinion about cryptocurrencies until their rise to prominence with bitcoin’s meteoric appreciation in 2017. Suddenly, countries and jurisdictions around the world have entered a crypto land grab by seeking to become destinations of choice for prospective investors and projects. Like the global financial system, coordination and coherence can go a long way in eschewing risks of the systemic and mundane variety while improving overall market stability.

Technological Risks – There have been many reports about the computational complexity and energy consumption of bitcoin mining, as one example of some of the technological limitations of cryptocurrencies. This computational complexity may also work in the inverse and pose potential risks to the asset class under the premise that complex systems fail in complex ways. It is true that the decentralized feature of true blockchain structures gives then an inherent disaster and risk-proofing that is not enjoyed by centralized databases (which are veritable honey pots as evidenced by Equifax’s massive breach). Yet not all cryptocurrencies or tokens are riding on similar rails. For this, investors should beware of the technological risks and false promises of decentralization that are being made in many projects, for not all blockchains are created equal.

Civil Wars With Forks – Last, but certainly not least, while much crypto wealth is concentrated in the hands of people who are thinking long term about the positive change this asset class can have on the world, there is nevertheless the constant specter of civil wars and forks, which can bifurcate the consensus on cryptocurrencies, thus eroding market share, valuation and adoption. This standards war continues to flare up, including most recently with the advent of Bitcoin Cash. It is also notable that despite the talk amongst crypto-utopians of a world ruled by blind scalable trust and no centralized authorities, that councils of large crypto holders, much like a papal conclave or the Bank for International Settlements (BIS), can set a course on the market influencing outcomes and price fluctuations. As with the real movement of whales, smaller fry can either get gobbled up or caught in the wake.

Precisely because there are risks in the cryptocurrency market there are rewards. Countless new entrants, from large traditional enterprises who have awoken to blockchain’s promise, or startup teams bent on creating a new democratized future challenging status quo, all realize that a new technology driven wave of value creation is upon us.  Understanding the potential perils of diving into this wave can help improve the long-term prospects of cryptocurrencies and broaden their adoption beyond risk-seeking first movers.

Fiat Chrysler kicks off Magneti Marelli spin-off

MILAN (Reuters) – Fiat Chrysler (FCA) (FCHA.MI) has kicked off its planned spin-off of parts maker Magneti Marelli which will be registered in the Netherlands and listed on the Milan stock exchange, a document outlining initial plans and seen by Reuters showed.

Fiat Chrysler Automobiles (FCA) U.S. headquarters is seen in Auburn Hills, Michigan, U.S. May 25, 2018. REUTERS/Rebecca Cook

The spin-off is part of a plan by FCA Chief Executive Sergio Marchionne to “purify” the Italian-American carmaker’s portfolio and to unlock value at Magneti Marelli.

Analysts say Magneti Marelli could be worth between 3.6 billion and 5 billion euros ($4.2 bln-5.8 bln). It sits within FCA’s components unit alongside robotics specialist Comau and castings firm Teksid.

FCA has created a separate entity called MM Srl, the document showed, into which it will fold Magneti Marelli’s electronics and electro-mechanical operations related to racing motorbikes and racing cars, as well as 14 other holdings in various companies around the world, including Germany, Slovakia, Mexico and South Africa.

MM will be incorporated into a Dutch holding company via a cross-border merger, it added.

FCA declined to comment.

The move follows a similar procedure adopted by FCA for the spin-off and listing of trucks and tractor maker CNH Industrial (CNHI.MI) and supercar brand Ferrari (RACE.MI), which are both registered in the Netherlands and listed in Milan.

The Dutch holding company would allow Marchionne, known for his success in extracting shareholder value through spin-offs, to introduce a loyalty share scheme to reward long-term investors through multiple voting rights, as was the case with CNH and Ferrari. That would tighten the grip of FCA’s controlling shareholder Exor, the Agnelli family’s investment holding company, on the parts maker.

Magneti Marelli, which employs around 43,000 people and operates in 19 countries, is a diversified components supplier specialized in lighting, powertrain and electronics.

The Magneti Marelli separation is expected to be completed by the end of this year or early 2019, FCA has said.

FCA’s advisers initially looked at a possible initial public offering for the business to raise cash to cut FCA’s debt, but the Agnelli family – FCA’s main shareholder – was put off by low industry valuations and did not want its stake in Magneti Marelli to be diluted, three sources close to the matter told Reuters in March.

Magneti Marelli has often been touted as a takeover target and FCA has fielded interest from various rivals and private equity firms over the years.

South Korea’s Samsung Electronics (005930.KS) made a bid approach in 2016 but negotiations fell through as it was only interested in parts of the business, other sources have said.

($1 = 0.8595 euros)

Reporting by Agnieszka Flak and Paola Arosio; Editing by Susan Fenton

Tesla Fires A Shot Across The Bow

ARS Technica reported Friday that Tesla (NASDAQ:TSLA) has removed the $35,000 version of Model 3 from its orders page. Though the company claims the lower-priced, short-range version of Model 3 will be available eventually, some Model 3 reservation holders are sure to be disappointed. On the other hand, focusing on more heavily optioned, higher-margin Model 3 cars should cheer the company’s shareholders. Tesla “shorts” would do well to look carefully to this development because it suggests an aggressive and potentially winning strategy.

Tesla Model 3

Background

Tesla has this month sold its 200,000th electric car in the US, beginning the 18-month wind-down of the federal income tax credit for US Tesla buyers. Elon Musk announced on July 1 that the 5,000 per week Model 3 production goal had been achieved (more or less). Both of these events conform to a Tesla strategy described last April for maximizing the gross amount of federal incentives for its customers.

For Tesla, a key factor in a credits maximizing strategy is that initial high-rate Model 3 production can be skewed toward higher-end configurations because early US customers will enjoy the full $7,500 tax credit (in addition to any state and/or local incentives), making these higher-priced cars affordable for a wider range of buyers. We see exactly this in Tesla’s producing long-range, AWD and performance configurations of Model 3, while delaying the lower-priced, short-range versions. Higher-end Model 3 configurations, particularly those carrying Autopilot and Full Self-Driving software options, will give Tesla higher margins. These fancier models are also likely to appeal to BMW’s (OTCPK:BMWYY) 3 Series and Mercedes’s (OTCPK:DDAIF) C Class higher-end customers.

Let us remember briefly what happened in the high-end luxury sedan segment when Tesla brought Model S to the party. The fun part happened in 2014 and 2015. In an essentially static market, Model S sales took off, while all the other players lost ground.

Luxury segment change in sales 2014-15

And Tesla’s Model S ended up king of the hill.

2015 US Luxury car sales

Images from Author’s February 18, 2016 article here.

Will it happen again?

Could Model 3 grab market share in the much larger entry-luxury car segment like Model S did in the high-end luxury car market? Because, if Tesla were to carve the heart out of the BMW 3 Series, Mercedes C Class, and similar models from Audi (OTCPK:AUDVF), Lexus (NYSE:TM), Cadillac (NYSE:GM), Acura (NYSE:HMC) and others, these carmakers will feel a lot of pain. And Tesla might just make a go of its Model 3.

The first thing to understand about the market for entry-luxury cars is that buyers don’t have to buy these cars. Anyone purchasing or leasing even a base model BMW 320i ($34,900 base price) can buy or lease a Toyota, Hyundai (OTCPK:HYMLF) or Chevy that will take them to where they need to go and bring them back for a lot less money. Entry-luxury cars offer something “special” beyond basic, efficient transportation that buyers are willing to pay extra to have. The “special” something may be quicker acceleration or cushier seats, or fancy wheels, or special headlights, or any of a bunch of other nice, cool or trick features, gizmos and tasteful brand badges that set one of these cars apart from those driven by the hoi polloi motoring public. And at least some buyers in the entry-luxury market are willing to pay a lot more to drive a “special” car. Many entry-luxury cars are offered with an array of optional configurations and optional features that allow a customer to spend much more than the base car price. A Mercedes C Class sedan (base price $40,250) in the AMG C63 S configuration can be optioned-up past six figures by just checking the boxes (and it’s still not as quick as the AWD Performance Model 3.)

Tesla Model 3 doesn’t have to be cheaper than the competition to win in the entry-luxury market. It just needs to be price competitive and have better “special stuff”. And Model 3 has special stuff – smooth, quick acceleration; clean, futuristic interior; Full Self-Driving; batteries; SuperCharging; a Tesla badge – that other cars in in this market do not have. (Let’s not get into an argument about Tesla’s Full Self-Driving being “real”. The company offers the feature. Its cars have the hardware. You can’t tick the box for this for any non-Tesla car.)

This leaves the question of Tesla’s pricing compared to the ICE competition. Let’s take a look at how three different Tesla Model 3s compare to three roughly similar BMW 3 Series cars. Using Tesla’s Model 3 website and BMW’s US website, I configured three Tesla Model 3 cars and three roughly comparable BMW 3 Series sedans: base models, AWD models and performance models. The following table gives an idea of how these cars compare on performance and pricing. For simplicity, the 0-60 time is used as the performance metric and only to show that chosen car configurations are of generally similar performance. Pricing shown is the manufacturers’ US list before any tax credit, incentives, discounts, etc.

Model 0-60 Base Optioned

Tesla Model 3 – Base Model

5.6 35,000 35,000

BMW 320i – Base Model

7.1 34,950 34,950

Tesla Model 3 – Long Range, AWD

Blue Paint; 19″ Wheels; Auto Pilot; Self-Driving;

Delivery

4.5 53,000 64,500

BMW 340ix – AWD

Premium Pkg; Executive Pkg; Blue Paint; 19″ Wheels

Drive Asst; Park Ctrl; Blind Spot; Active Cruise;

Heated Rear Seats; Heated Steering Wheel;

Charging + WiFi; Apple Play; Destination

4.6 50,950 63,535

Tesla Model 3 – Long Range, AWD, Performance

Blue Paint; 19″ Sport Wheels; Auto Pilot; Self-Driving;

Delivery

3.5 64,000 74,000

BMW M3 – RWD Performance

Blue Paint; 19″ Wheels; Drive Asst; Executive Pkg;

Automatic Trans; Stainless Pedals; Blind Spot;

Charging + WiFi; Apple Play; Destination

3.9 66,500 78,320

This comparison shows that in order to match the performance and features of a Tesla Model 3, one is looking at a BMW 3 Series that costs about the same. While many investors think of Tesla cars as being “expensive” compared to the touted $35,000 base price, quite the same thing can be said of BMW cars – and, presumably, those of its competitors as well. Tesla’s “effective” pricing is lower by the amount of federal tax credit, any state and local incentives, and any purported fuel cost savings over the ownership period. BMW’s prices are also lower by the amount of any dealer discounts, promotional incentives, trade-in allowances and the like.

The big price differential between Tesla and BMW (and most legacy players) comes in the guise of Tesla making higher-end configurations, while (for now) avoiding lower-cost versions of the Model 3. It isn’t that Tesla cars are more expensive, the company just makes more expensive [versions of its] cars…

Shot Across The Bow

This is where Tesla’s strategy and the outlook for the entry-luxury car market starts to look interesting. What the company has done in reaching 5,000 per week Model 3 production, delivering its 200,000th US car at the beginning of Q3 and delaying the Model 3 short-range configuration is to tell the car market this: Tesla will make a quarter million high-end BMW 3 Series comparable cars a year, sell these (primarily in the US for Q3 and Q4) and not bother with entry-level product (yet). Or, to put it more bluntly, the company just told BMW, Mercedes, Audi, Lexus, Cadillac and the other entry-luxury segment carmakers that it will eat their lunch. Because if Tesla sells a half million highly optioned entry-luxury cars into the market, the other companies will be left mostly with the entry-level end of the market. Ouch!

Tesla is aiming to repeat what it did with Model S, but this time on a much, much larger scale. And we are not talking about someday. The company’s plan is up, running and in play right now, today.

The competition has nothing ready to put in Tesla’s way. The GM Bolt electric car is not an entry-luxury product, and no versions are offered that effectively compete with higher-end Model 3 configurations. Jaguar’s (NYSE:TTM) iPace is coming to the market, but it is aimed at the costlier Tesla Model X, and no robust cross-country Supercharger-like network exists to support the iPace at this time.

How It Will Go

Entry-luxury carmakers offer cars from low-end entry models through AWD and performance cars. Unit sales are largely at the low end, but a disproportionate amount of carmakers’ profit is earned from higher-margin, highly optioned cars. In a market of competing, mature technology ICE cars, and with a need to sustain dealer networks and maintain market share, legacy carmakers must deliver a full range of product. Build only high-end cars and most of their customer base will defect and market share and dealer networks collapse. Build only entry-level cars and most of the profit goes away.

In 2016, BMW sold 545,116 3/4 Series (sedan/coupe) cars. To achieve this sales volume, the company offered entry-level as well as higher-end configurations of its 3/4 Series cars. Arguably, to steal half a million sales from BMW’s 3/4 Series for the Model 3, Tesla would need (at least) to deliver both high-end and entry-level Model 3 cars, because that covers the price range of cars that BMW 3/4 Series customers buy. But such does not appear to be the company’s plan.

Tesla aims to take market share from the high end of the entry-luxury car segment mix. It has put off making the short-range, $35,000 version of Model 3, so buyers with $35,000 to spend can’t buy a Model 3, at least for now. This means Tesla has no chance, for now, of stealing half a million BMW 3/4 Series customers for Model 3 and wiping the BMW 3/4 Series cars from the face of the earth. But Tesla doesn’t need every BMW 3/4 customer. There are plenty of Acura, Alfa Romeo (NYSE:FCAU), Audi, Cadillac, Infiniti (OTCPK:NSANY), Jaguar, Lancia, Lexus, Lincoln (NYSE:F), Mercedes and Volvo (OTCPK:VOLAF) entry-luxury customers to be had. Tesla may even bag some BMW 5 Series, Audi A6 and Mercedes E Class customers with its long-range, AWD and performance versions of the Model 3.

If Tesla pulls off this high-end, cream-skimming strategy – like it did with Model S – that will be good for the company and for shareholders. It will be disastrous for legacy competitors because profits come largely from selling high-end configuration, highly optioned vehicles, and Tesla is going after those high-margin sales. It is one thing for a company like BMW to see, say, 20% of its 3 Series customers across the board go over to Tesla and quite a different thing should the top (high end) 20% of its customers defect.

Conclusions

Tesla has embarked on a bold strategy, choosing to target Model 3 sales at the high end of the entry-luxury car market rather than offering Model 3 configurations covering the entire segment. Tesla is following a strategy that will “cream-skim” high-end, high-profit customers from the likes of BMW, Mercedes, Lexus and Cadillac. Tesla did this same thing with Model S. Its strategy is already in play. Within the next quarter or two, investors may expect to see a rout of legacy carmakers even greater than was seen in 2014-15 with Model S as Tesla takes on the entry-luxury segment in earnest with Model 3.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: These writings about the technical aspects of Tesla, electric cars, components, supply chain and the like are intended to stimulate awareness and discussion of these issues. Investors should view my work in this light and seek other competent technical advice on the subject issues before making investment decisions.

No blank checks: The value of cloud cost governance

How much does you’re public cloud cost month to month? If you don’t know, you’re hardly alone. Most people in IT don’t have a good understand of what a public cloud service costs per month. Most wait to find out what the bill says rather than proactively monitor cloud consumption, much less have cloud cost governance in place.

Even if your financial budgeting model can handle uncertain costs, not knowing what you’re spending has a downside. When you moved to the public cloud, your company put a value driver in place when defining the business cases—and part of that was based on ongoing costs per month.

If those costs are higher than originally estimated, the value metrics won’t support your goals. Although you can make a case for the cloud’s value around agility and compressing time to market, that will fall on deaf ears among your business leaders if you’re 20 to 30 percent over budget for ongoing cloud costs.

There’s no reason to not know your ongoing cloud costs. In the planning phase, it’s just a matter of doing simple math to figure out the likely costs month to month. In the operational phase, it’s about putting in cost monitoring and cost controls. This is called cloud cost governance.

Cloud cost governance uses a tool to both monitor usage and produce cost reports to find out who, what, when, and how cloud resources were used. Having this information also means that you can do chargebacks to the departments that incurred the costs—including overruns.

But the most important aspect with cloud governance is not monitoring but the ability to estimate. Cloud cost governance tools can tell you not just about current use but also about likely costs in the future. You can use that information for budgeting.

Cloud cost governance also means placing limits on cloud computing usage based on allocation of costs. If the devops team is allocated $150,000 a month but spends $200,000, the tools should take automated corrective action—meaning turning off cloud services after multiple warnings. The idea is not to stop productivity but to make people aware of what costs they are incurring over that of what’s been budgeted.

Traveling This Summer? Get a Lot More From Your Trip Without Spending a Dime

I knew I was destined to travel on business to India, even though I have turned down numerous offers over the years, mainly because I was afraid of getting sick. My fears finally abated when friends in their 70s and 80s returned from India without any health problems, so when a global tech company invited me to deliver a workshop at their leadership summit in Bangalore last month, I accepted. The trip was a great experience and thankfully my fears never materialized. I attribute this to creative resilience and a little ingenuity:

Check government websites for visa information, and traveler’s alerts. (I don’t travel anywhere that has a red-letter warning.) Give yourself and your client ample time to get all the paperwork completed if you are getting a business visa. It can be quite complicated and time-consuming.

In addition to getting the appropriate vaccinations, my best defense against gut problems is to take a high potency probiotic every day starting two weeks before departure and about one week after I return. I also diligently avoided unpeeled produce.

Use a travel agent to book your ticket because if anything goes wrong, they can fix your problem more easily than if you booked online through a third party.

2. Learn about local culture (corporate and societal)

Check with your clients about local customs and dress codes so you don’t make any faux pas. Learn a few words of greeting in your host’s language to create a connection. Whenever I said namaste or namaskar, people would light up. Even security.

I reached out to my network in Bangalore via Linkedin to let them know I would be in town, and as a result, I received several invitations for lunch and dinner, including being a guest speaker at the Bangalore chapter of the Institution of Engineering and Technology. These were wonderful opportunities to connect with local business leaders and innovators and to gain new perspectives about creativity and innovation from their point of view. 

Reconnecting with my contacts from India before I went to Bangalore also helped me prepare psychologically. Several people gave me tips on what to expect and offered help if I needed it, and that helped me feel safer.

While staying at my gloriously opulent hotel, I met other business executives who were in town to check on their Bangalore teams, and it was illuminating to compare notes about doing business in India. My client for example put on an impressive first-class summit at a luxury hotel for their Indian contingent to benefit from in terms of engagement and professional development. In contrast, an executive from another global company told me they never host conferences or summits for their Indian employees. No surprisingly, they have a hard time keeping their employees, even when given raises, because the company is not cultivating connection and employee engagement.

4. Be curious and be present

Nothing makes me feel more present than being immersed in the unknown. As much as I loved being in the lush tropical gardens at my hotel, I also wondered on my own down busy commercial streets (where you take your life in your hands because there are no lights for pedestrians) and quiet residential neighborhoods, inhabited by stray dogs and cows.

I relied on advice from the hotel concierge, trip advisor and chance encounters with locals about what to see and where to go within my limited timeframe to make the most of my visit. I place a lot of value on chance encounters. As my friend Synne Kune Loh says, “Your destiny lies with the next person you might.” That is especially true when traveling, and I strike up conversations with anyone I think might be interesting, including people in lineups, at museums, and in restaurants. Sometimes I’ll invite them to join me at my table, or vice versa. The best conversations happen when you are genuinely curious and honoring of other cultures. 

Enhance your travel experience by keenly observing the world around you. Take in the big picture as well as the details that make a place special. Easily done with your camera but take note: if you always have your nose in your devices you are not being present to your environment. 

5. Step out of your comfort zone

Traveling to foreign lands is a great way to step out of your comfort zone, discover different world-views, break out of outmoded mental models, and gain new cultural experiences; all of which will lead you to new creative ideas and business insights. Enjoy your adventure.

Let Advanced Auto, AutoZone and O'Reilly's Pick Up the Repair Bills

FORT WASHINGTON, MD – JULY 03: Automobile traffic moves along the Capitol Beltway during rush hour one day before the 4th of July holiday July 3, 2018 in Fort Washington, Maryland. The American Automobile Association (AAA) is predicting that 39.7 million Americans will drive 50 miles or more away from their homes during the Independence Day holiday week, a 5 percent increase over last year. (Photo by Chip Somodevilla/Getty Images)

The following statistics can make you wonder why would anyone would want to drive on their vacation. AAA stated in 2015 that, “U.S. drivers reported making an average of 2.1 driving trips per day, covering an average of 29.8 miles and spending an average of 48.4 minutes driving, which translates to an average of 763 trips, 10,874 miles, and 294 hours of driving annually.” The Federal Highway Administration notes that these averages have increased consistently every year since 2013, and in 2018 travel in the U.S will reach an all time high of 3,188,711 million vehicle miles per year.

This summer, many people are looking towards the all-American road trip to satisfy their vacation needs. A recent study posted by ISPOS in June of 2018 states that 72% of Americans plan to go on vacation in the next 12 months. Vacationers are looking to skip the security checkpoint lines and excessive baggage fees with MMGY Global reporting that domestic vacations account for 85 percent of American getaways, with 39% of those being road trips. With these numbers, Americans better make sure their cars can withstand the journey.

For travelers looking for convenient and low cost vacations this season, a road trip is the perfect choice.

Recent AAA roadside data shows that vehicles over 10 years old are twice as likely to break down and four times more likely to be towed in comparison to younger vehicles. We have listed three automotive companies below that, we believe, could fuel your vehicles in addition to your investments.

The foundation of our recommendations is to identify companies that perform best and worst on the collective basis of value, growth, EPS revisions, profitability, and LT momentum. The CressCap systematic trading model gathers data daily on 6,500 companies globally and assigns academic grades (A – F) for each financial metric. These grades are scored relative to its region/sector.

CressCap uses a multi-factor model to select the best-performing stocks. Our data is updated daily and the academic grades (A – F) for each financial metric are scored and ranked on a regional/sector relative basis. The foundation of our recommendations is to identify companies that possess the collective investment style of Value, Growth, EPS Revisions, Profitability and LT Momentum. Academic grades of C or better indicate that each metric scores well compared to the peer sector.CressCap Investment Research

Advance Auto Parts, Inc. (AAP-US)

The first company on our list is Advance Auto Parts. This company is a leading automotive aftermarket parts provider that serves both professional installer and do-it-yourself customers. The Company offers a selection of brand name and private label automotive replacement parts, accessories, batteries and maintenance items for domestic and imported cars, vans, sport utility vehicles and light and heavy duty trucks. According to the its first quarter 2018 results, the company experienced first quarter net sales of $2.9 billion along with a gross profit of $1.3 billion. Additionally, its operating income increased 10.3% to $198.2 million and adjusted operating income increased 9.3% to $224.1 million. CEO Tom Greco stated in the same report that the company’s first quarter performance reinforced its commitment to driving increased value for shareholders.

During the first quarter of fiscal 2018, the sales of appearance chemicals and accessories was down for the company as a result of, “unusually cold temperatures and above average levels of precipitation in March and April”. Tom Greco continued on to say that, “spring-related demand bounced back nicely in May and we expect improved top line sales in Q2”. With Americans eager to get on the road when the weather improves, this is a perfect time to invest in the company.

This stock is one to watch for with an A- CressCap sector grade along with impressive financial metrics. This stock’s YTD performance is up 41.27%. The company’s value metrics are on par with the sector holding a Price/Sales ratio of 1.10x vs. sector 1.35x. The momentum metric stands out amongst its competitors in the consumer discretionary sector. The mid and long term price momentum outcomes are favorable compared to the sector with an A- grade. The mid-term price momentum is 25.44% vs. sector 6.06% and the long term price momentum is an impressive 48.97% compared to sector 15.90%. Profitability metrics for this stock also look favorable with a B+ grade for its gross profit margin at 44.12% vs. sector 33.93%, and a B grade for ROI with the stock at 11.30% compared to sector 8.64%.

AutoZone, Inc. (AZO-US)

AutoZone is the nation’s leading retailer and a leading distributor of automotive replacement parts and accessories with more than 6,000 stores in the US, Mexico, Brazil and Puerto Rico. Each store carries an extensive line for cars, sport utility vehicles, vans and light trucks, including new and remanufactured hard parts, maintenance items and accessories. This Tennessee based company stated in its 3rd quarter 2018 earnings that it recognized net sales of $2.7 billion, an increase of 1.6% from the third quarter of fiscal 2017.  Further, both the net income and diluted EPS for the quarter increased, with net income increasing 10.6% over the same period last year to $366.7 million and the latter increasing 17.3% to $13.42 per share.

In the company’s third quarter 2018 results, CEO William Rhodes stated he had confidence in the company’s performance moving into the summer months. He stated that, “the northern Mid-Atlantic and Midwestern geographies did not excel as expected after the harsher winter. However… [over] the last two weeks when most of the country entered a dry hot weather pattern, our sales improved materially and in the geographies and the categories that we expected”.

The outlook on this company is favorable, with profitability, EPS revisions and value metrics producing strong CressCap grades of A, B+ and B respectively. AutoZone’s profitability can be seen in the ROI, given an A+ grade at 37.73% vs. sector 8.64% and EBIT margin at 19.10% compared to sector 9.35% accompanied by an A grade. The CF/ROI ratio at 46.27x compared to sector 15.66x suggests stock is very undervalued. The stocks current P/E ratio is 15.59x vs. the sector 18.92x, given a B+ CressCap grade. Its EPS revisions continue to be adjusted higher for FY1 and FY2 showing us that this stock has good momentum. This year, it had a market cap change of 27.83% relative to a sector change of 18.06%. In our opinion, the stock looks good for quant, technical, and fundamental criteria and it should be viewed as a place to put your money during the summer season.

O’Reilly Automotive, Inc. (ORLY-US)

O’Reilly Automotive, Inc. is the last company on our list. This Missouri based company is one of the largest specialty retailers of automotive aftermarket parts, tools, supplies, equipment, and accessories in the United States, serving both professional service providers and do-it-yourself customers. The company saw sales for the first quarter of 2018 increase 6%, to $2.28 billion from $2.16 billion for the same period one year ago. Gross profit for the first quarter increased to $1.20 billion from $1.13 billion from the same 2017 period. The company has had a good 2018 thus far, with its performance up 19.26% YTD.

In addition to O’Reilly Automotive reporting both a sales and gross profit increase in the first quarter, their metrics also show tremendous upside potential. Notably, the company’s profitability stands out reflected by an A ranking. This ranking is backed by the stock’s ROE at an impressive 99.45% compared to that of the sector at 13.33%, along with the stock receiving A+ and A grades in ROI and EBIT margin respectively. The growth of this stock looks promising, with its 2 year forward EPS growth rate at 36.29% vs. a sector 25.99%. Long term momentum for the stock is strong, with an A- CressCap rank, at 45.64% compared to a sector average 15.90%. In our opinion, the stock looks good for quant, technical, and fundamental criteria and it should be viewed as a place to put your money during the summer season.

Written By: Steven Cress ([email protected]) and Alison Geary ([email protected])

For additional information, feel free to send questions to [email protected] or view our website www.cresscap.com. Please click here to view CressCap Investment Research’s full disclaimer.

17 Fascinating Ways United, Southwest and Other Airlines Are Changing Their Airplanes. Do Passengers Notice?

Here are 17 of the most interesting examples–culled from my recent interviews with the airlines and other sources. (Hat tip to the U.K. newspaper The Telegraph for a few of these.)

Almost every airline cited new, thinner seats as a weight-savings measure: Southwest and United especially. Even if nobody likes them otherwise.

“I know these have a less than stellar reputation,” United spokesperson Charles Hobart said, “but they can be just as comfortable as the previous seats once you work them in.”

2. No more plastic straws

American Airlines and Alaska Airlines have done away with plastic straws. American says their planes will drop 71,000 pounds as a result, but it’s not the initiative they wanted to highlight.

“Our fleet is more fuel efficient today because of hundreds of new aircraft we’ve taken over the past five years,” an American Airlines spokesperson told me via email. “It’s the youngest fleet among the big U.S. airlines. That’s the main point I’d make for American,”

3. Lighter in-flight magazines

Changing the card stock on in-flight magazines means United’s weigh only an ounce; previously they were several ounces. British Airways did this too.

With about 757 planes, 8,700 total seats, and one magazine per passenger, a single ounce means four tons less weight to lift off the ground with each United flight per day.

4. Less paper in the cockpit

Southwest pointed this one out: “We recently finished equipping our pilots and flight attendants with electronic flight bags, eliminating the need to carry paper charts and manuals.  Switching to these tablets removed 80 pounds from each flight and saved more than 576,000 gallons of fuel.” 

5. Smaller video screens

JetBlue gets a nod: “On our restyled A320 aircraft, our (Inflight Entertainment) IFE is lighter and there are fewer of those under seat boxes that power the IFE,” an airline spokesperson told me. “We have also recently changed out food and beverage carts to a lighter weight cart.”

JetBlue: We have lighter video screens.

United: We have no video screens!

“We’ve removed video screens as you know,” United’s Hobart told me. “Many people are bringing their own on board. We offer streaming PDE–personal device entertainment instead. That’s a considerable weight-savings.”

The Australian airline Qantas has a new line of flatware and tablewear that it says is 11 percent lighter: “The range has now rolled out across our International fleet (and Domestic business class), resulting in an annual saving of up to 535,000 kilograms in fuel,” a spokesperson said.

8. No heavy plates in first class

Similar move on Virgin Atlantic, “which has thinner glassware and got rid of its heavy, slate plates from upper class,” according to the Telegraph.

“The carrier also changed its chocolate and sweet offerings to lighter versions, redesigned its meal trays (which in turn meant planes were able to carry fewer dining carts), and altered its beverage offering for night flights, when fewer people drink.”

Those big bottles of alcohol and perfume all add up, so they’re grounded. “We removed on board duty free products,” United’s Hobart told me. “Very few people were purchasing them anyway.”

10. Restocking the galley

Southwest: “We changed the way we stock our galleys, reducing the weight carried on each flight, and saving an additional 148,000 gallons of fuel in 2014 and 2015 combined.”

British company Thomas Cook “no longer prints receipts for in-flight purchases, saving it the need to carry 420,000 till rolls across its fleets,” according to the Telegraph.

It also “reduced the number of spare pillows and blankets it carries from four down to two.”

I’ll say that one again: pillows and blankets.

Spirit Airlines gets the mention here, and for something people complain about: their comically small tray tales. Besides being slightly less expensive to manufacture, they weigh a little less, which means less fuel required to transport them.

This one seems smart, like there are probably a lot of ways to make a drink cart weigh less. Several airlines said it was a priority.

“Ours were 50 pounds, and we got them down to 27 pounds,” United’s Hobart said.

I’d never heard of this one, but the Telegraph said that in 2008, Air Canada cut life jets out of some planes, and replaced them with “lighter floatation devices.” Apparently this was allowed as long as the aircraft “didn’t venture more than 50 miles from the shore.”

Did anyone even notice? Prior to its merger with Delta Air Lines, Northwest Airlines reportedly made a point of slicing limes into 16 slices as opposed to 10. That means they nearly halved the number of limes they had to carry.

16. The straight up solution

This one goes back 30 years, but it’s so apt. In 1987, United reportedly realized that removing one olive from every salad it served could save $40,000 a year. That would be just over $89,000 today. Not significant in itself for a $37 billion a year company, but hey, everything counts.

This is the tricky one that airlines would probably love to implement, but it’s hard. In 2013, Samoa Air introduced a “fat tax,” as the Telegraph put it, “whereby passengers would be charged a fare according to their weight.”

Separately, Japan’s All Nippon Airways, in 2009 “asked passengers to visit the lavatory before boarding because empty bladders means lighter bladders.”