20 Jan 2014, 21:53

Software is eating the world

This comes as no shock to anyone – software has been replacing a lot of things over the past few decades. This post is about that, but why I think we’re still only at the beginning of it all.

Virtual Reality

Michael Abrash published a PDF about where he believes Virtual Reality will be within the next 2 years. It’s a great write up and really helps give some framing to what you can expect. Michael knows his stuff and is working on VR at Valve software. He’s also one of the pioneers in 3D graphics having worked alongside John Carmack on games like Quake.

I’m super exciting about VR. I backed the Occulus Rift on Kick Starter. I spent more than my fair share of time focusing on how to make it more immersive. I really enjoy researching it.

I’m curious about who else is seriously interested in this space, so I thought I’d jot down some of my thoughts on where this technology could take us.

Integrating more of your senses

Current virtual reality work focuses on the visuals & tracking. Making things work visually is the first big step. Tracking is improving, latencies are dropping. The ability to have the world around you adjust fast enough to your head movements is important in creating full immersion.

But that’s just one of your senses being served.


The major advancement after the visuals will be touch. Tactile response will take immersion to a significantly higher level.

Obviously there’s a lot of work to make this work. I personally don’t even know where I’d start with this. Maybe some crappy gloves? The issue here would be the strength and the awareness you had to wear gloves to make it work. Anyway, I’m getting off topic.

Touch will unlock the real power of software. It will make the “software is eating the world” metaphor of today look like the entr√©e.

All hardware becomes software

Consider a world where you have amazing VR headsets – full motion tracking, detail so high you can’t tell the difference between real life and the screen in front of your eyes.

Then consider we have nailed the tactile response problem.

Why do we need hardware? Almost anything can be software.

In your virtual world you have an iPad. You’re using it in your hands. It looks great. It’s not real. It’s just a software simulation of an iPad. But it feels real. It’s no less real to you than the hardware based version you have today. Only this one could literally weigh 0 grams if you wanted.

Existing hardware is dead

When a “new iPad” is released, it’s a software update – not something constructed in China, shipped to your door. You update it instantly over the air.

You decide your TV needs to be the size of your entire wall for a movie night? No problem, it’s just a property you set on your TV. Because the TV isn’t real, only existing in your Virtual Reality world, it can be any size you want it to be. Could this be the future of the in-app purchase? Upgrade to a 120″ TV screen – $1.99!

Need a 3rd monitor on your PC? What about a wall of monitors? What about changing all their sizes? All software.

Think about this for a moment. It starts to get insane how many things you don’t really need once it’s inside a realistic virtual space.

People could have apartments that only have their bed, kitchen, couch, dining table. Nothing else.

Virtual Reality or Augmented Reality?

Some of this doesn’t need to be in an entire Virtual Reality space. Some of it could just be Augmented Reality. The Television example, or iPad example. You may still have your actual apartment or workspace around you, but just be seeing physical objects that don’t actually exist.

The benefits of the model

Remember when computers seemed new? You wouldn’t need to buy expensive encyclopedias for your kids – you wouldn’t need to cut down half a tree just to print those books. You didn’t need a type writer. You could store your recipes on there.

Then the internet took that up a level too.

What I’m suggesting for the future makes that look like peanuts. Think about all the different things that wouldn’t actually be needed. I can see about 20 things on my desk alone that could just be virtual. Resource consumption would plummet. Shipping would be non-existent. Demand for software developers would explode.

The App Store model would replace almost everything you buy from Amazon. The only exceptions I can think of are food and furniture. I also suppose folks won’t be adopting nudism, so lets lock in clothing as still existing too ūüėČ

If you ever wanted to disrupt Amazon, you’d do it by making the need for delivery & warehousing redundant.

How far away is this?

I think it’s still pretty far away. But still closer than many might imagine – inside my lifetime is my hope. The big challenge in my view of the future here is the tactile response hardware. There’s significant investment occurring in the visual & tracking space, but less so in the tactile response arena.

About a year ago I spent a reasonable amount of time researching what did exist in the tactile space. It didn’t fill me with confidence as the current “state of the art” wasn’t very good. Having said that, it struck me as being where Virtual Reality was about 20 years ago. Technology moves faster and faster.

Do you agree?

What do you think? Where do you see this technology going?

I think it’s an awesomely exciting time to be alive. What strikes me as crazy is that almost anyone reading this blog is likely to have the ability to be part of creating this type of future. I’d love to hear from you if you’re interested in this type of space as it would be great to share some ideas.

13 Jan 2014, 03:31

My 2014 Goals

I don’t normally write publicly what my goals for each year are but decided it might help me hit more of them if folks knew them. I’m pretty good at hitting my annual goals (typical strike rate of about 80%) so curious to see if I can improve on that by sharing them.

In no particular order…

Get married

In 2013 I got engaged to the perfect woman for me. I’m not a huge fan of being engaged for a long time so looking at getting married this year.

12 high quality blog posts here

This isn’t one of them ūüôā I actually quite enjoy writing. When I do it consistently I get better at it too! About one solid post a month seems like an achievable goal (history would strongly disagree with me though ;)).

Double my investment portfolio value

This excludes my holdings in my companies & private company investments. I enjoy dabbling in the share market and have done so since my mid teens. I haven’t normally had a goal beyond ‘don’t lose money’, so we’ll see how it goes this year. This excludes new investment, just double the sum currently invested.

Complete the round-the-lake cycle race

My 2013 fitness goal was to do a half marathon and I did that (also doing it again this year). This year I needed a new challenge physically so a 160km cycle race seems like a goer. I used to love cycling but haven’t done any in about a decade. Time to buy a new bike and nail it. Anyone keen to join me?

Get my weight under 80kg

Does anyone ever not have a weight goal for each year? I’m only 4Kg off this but it would be a nice psychological win to get out of the 80s.

2,500 twitter followers

Currently at 1,085. If you like business, investing and technology you could help me out ūüôā

Two business goals

I have two business goals that I’ll be keeping under wraps for now. I’ll report on them at the end or during the year when they’re hit.

They’re my goals for 2014. What are some of yours?

29 Sep 2013, 22:07

Why Raygun is not free

When we released Raygun, one of the deliberate decisions was to not provide a ‘Free’ version (beyond the free trial that is!).

Many of our competitors do have a freemium model. They trumpet how many users they have, and yet I’m doubtful that some of them actually make very much money.

Here’s how I weigh freemium for Raygun.io:


  • You get a nice big vanity number of users.
  • Some of those users may one day start paying you, one day.
  • The user metric may assist in boosting valuation.
  • Some investors may see that number as validation of ‘traction’.
  • Some acquirers may see that as potential revenue being left on the table.


  • Paying users are subsidising free users, lowering your margin.
  • While “software developers” is not a tiny market, it’s not a massive one either. With 1% paying we couldn’t end up with 1 million paying customers.1
  • It consumes a lot more time & effort in supporting Free users (and those who claim you could just offer no support‚Ķ yeah‚Ķ right).
  • We start paying attention on a number that doesn’t matter because it makes us feel good. Even if subconsciously.

As with most business decisions, I keep evaluating the freemium concept for Raygun.io. So far I’m still sticking with ‘no, it would not be a good idea’ for many of the reasons above.

I do suspect that having a lot of free loaders can play to your advantage in an exit negotiation. There is a revenue rainbow that can be sold: “If we just get 10% of those free loaders to pay we could make, like, a million dollars!”.[2] I often wonder if this sort of logic is why we see so many acquisitions in the tech sector and then we see that product get shut down 6-12 months later. They never do manage to catch that rainbow.[3]

Having a business focused on generating sales and supporting those paying users well is the fastest way to be a viable business. Surely if you’re wanting to depend on a service you’d want to ensure they’re going to be around for a while, being cash flow positive is one way to ensure that.

1 This would be a different story if our products were a consumer play.

[2] Interestingly we’ve found that it’s very rare to have users say we charge too much. Users fall into one of two camps typically: complaining that our product is not free, or a paying happily. While completely unscientific I believe this is also why you’ll never convert many the free loaders to paying – if they didn’t value you to start with, why would they start now?

[3] Others are clearly just acqui-hires, where they don’t care about the product and just want the team.

04 Aug 2013, 04:48

Down with the dairy industry!

I follow a bunch of people in the IT industry on twitter and over the last couple of years I’ve noticed an increase tweets from developers about how New Zealand needs to move past relying on the dairy industry. I absolutely agree that New Zealand would be best served by generating income from many different sources. Unfortunately I’m seeing a lot of poorly thought out arguments being made, often by people I respect, and I can’t be bothered condensing this argument into 140 characters.

Allow me to climb on my soap box and speak like I’m an expert about why I think most of these people are wrong ūüôā Here are some common mistakes I see being made.

For the IT industry to succeed, farming must fail

Bull. Shit. No pun intended. If farming suddenly fell backwards by a big margin, New Zealand would suffer immensely. I fail to see any connection between farming failing and the technology industry improving and I’ve never heard a good argument made for it. It’s not like we can’t hire developers because they’re all becoming farmers.

This is about the most nonsensical view I see.

The Government over funds the farming sector

Sure, farming gets a bunch of benefits – that’s what happens when you’re the biggest industry in the country! It’s like these same people aren’t watching folks like Rod Drury poke and prod to see how much they can get the government to chip in on the IT industry. That’s fine – as we should as the industry grows. If technology was the biggest industry in New Zealand I’d put money on the fact that the government would have tossed in to have Pacific Fibre funded. Then those in other industries would be complaining about favouritism too.

Give it time tech folk, we’re going to be the biggest. We are in the process of having our house rebuilt of glass – lets stop throwing stones.

Farming succeeds because of Government money

Farming was significant because New Zealand needed it originally. You may have noticed we’re miles from anywhere. Forget shipping meat etc to New Zealand in our early days. We have a perfect climate for farming. Unsurprisingly it grew to be a massive industry. Once we could sell our world-beating quality meats to the world it became even bigger.

See point 2 on why the Government now puts cash and effort into supporting Farming.

Farming isn’t part of the technology industry

New Zealand develops world leading technology in the domain of farming. The industry certainly is driven by selling meat and dairy product but there is some significant money in the technology developed by New Zealand organizations. Parts of farming really are in the technology industry much more than many realise. It contributes to why our farming is literally the best in the world.

So, lets stop looking silly shall we?

Rather than bitching like kids on twitter and blaming other industries, the government — everyone but ourselves — for not being the #1 industry in New Zealand, how about we put our heads down and just become #1? That separates the successful from the losers.

Note: I’m certainly not saying farming is perfect. There are significant challenges facing it as an industry around environmental issues and the constant threat of disease absolutely decimating it as an industry. On the latter point, don’t you think that we, as members of a fast growing industry, should double down on our own efforts to surge ahead in our income generation for the protection of the New Zealand economy?

14 Jul 2013, 04:34

Review: Gates by Stephen Manes and Paul Andrews

Recently on a holiday in Bali I had the time to read Gates:¬†How Microsoft’s Mogul Reinvented an Industry and Made Himself the Richest Man in America. I also found time to get engaged but a review of that event will have to come in another blog post ūüėČ

The basics

This book covers the life of Bill Gates from his birth through to around 1993. There is an update for the book written in 2012.

5 Things I learned about Bill Gates & Microsoft

  1. Gates says what you want to hear. One IBM executive secretly attended more than 30 speaking events that Gates spoke at over the course of two months. IBM wasn’t sure they were getting the whole truth from Gates on various subjects and so did some digging. Gates changed opinions, complete 180 degree changes on what he had just said hours earlier, depending on the audience who was listening. Judging the direction Gates would be going based on what he said was pretty pointless by most accounts.
  2. Gates avoids firing people. Despite the image of an intimidating titan of industry who cuts anyone down as needed, he avoided firing people at almost all costs. They would simply be shifted into parts of the company where they were not on the critical path of anything.
  3. Windows was almost an accidental success. The company worked tirelessly trying to get IBM to realise the potential of OS/2. The Windows team initially was tiny and certainly not considered the best and brightest in the company. Many big brained coders were enlisted into the OS/2 march. It wasn’t until IBM forced Microsoft away that work on Windows was stepped up a gear.
  4. Modern software development is built on the shoulders of giants. This book reminded me that the early days really were the early days. Tooling was non-existent. Computers barely functioned. There was no fancy GitHub or static analysis tools. No Agile methodologies. No unit tests. No anything really. The fact any software shipped – and worked – is nothing short of a miracle.
  5. Paul Allan is an under valued player. I semi already appreciated this from reading Paul Allan’s biography but it was very clear that his technical capabilities were critical in the early success of Microsoft. While he impacted many areas of the technical delivery of Microsoft products it seems the value of his hardware emulation software was significant. This internal IP to Microsoft allowed the company to emulate devices that they didn’t have access to, allowing Microsoft to ship products for new computers as they came to market. Keep in mind that the PC industry of the day was extremely fragmented and therefore this clever software was of huge value to Microsoft.I was surprised how frequently throughout the book the hardware emulation system that Paul Allan developed came up. This emulation software was written by Paul to assist in building BASIC for the Altair — the very first Microsoft product.

There are many other interesting points to note throughout the book, but these points stood out to me in particular.

The good parts

Overall I thought this book was very well written and provides a great insight into how Microsoft came to be the colossus that it is today. See how Gates, then a young executive, managed business relationships, growth, product direction and other every day business challenges was educational.

Getting insight into low level tactics and what ‘business as usual’ looks like for Bill Gates ¬†is a great contrast to many modern books about Gates. Most modern books tend to focus on the epic victories such as taking the Browser market with only casual insight into the nitty gritty details. Or they portray the OS/2 & Windows wars as some master plan by Microsoft — this book paints a clear picture that it was only under significant pressure that Microsoft even seriously developed Windows.

This book is also well written, fast paced and easy to lose a few hours to without realising it. That’s usually my measure of a good book — the fact I came away with lessons learnt was just the cherry on top.

The bad parts

The book was updated in 2012 and I feel this was relatively worthless outside of drawing attention to the fact that this book existed at all. It seemed cheap to have a few pages condensing almost 20 years of change in the computing industry, Microsoft and Bill Gates’s life. The update also focused nearly entirely on the gradual decline of Microsoft in recent years and less on the truly epic ascension of Microsoft with Windows 95 through to Windows XP.

Having said that, this tack on section of the book is only a minor negative note in an otherwise interesting business read.

Wrapping up

If you have even a passing interest in the business of software then I’d strongly recommend reading this book. I grabbed it for $10 on the Kindle and you should too.

12 May 2013, 01:42

Is Oculus Rift the future?

Short answer: Yes.

Long answer:

I backed the Oculus Rift project on KickStarter last year. The team were promising an order of magnitude improvement in head mounted virtual reality goggles, along with very low latency head tracking.

A couple of weeks ago my Oculus Rift developer kit arrived. Here’s my thoughts following a couple of weeks of playing with it.

1. This is the future, no doubt

It’s not an IF, but a WHEN, that this type of technology replaces certain usages of computers. I’ve been thinking about this a bit lately while chilling out – think bigger than just gaming, this has the chance to really change everything. Look at Google Glass, a similar bit of technology in terms of head mounted display (not head tracking or virtual reality, more a heads-up-display for your life).

My guess: We’ll see a bunch of companies doing cool stuff in this space and then one day somebody will pull an Apple and release something that takes the best of all of them and we get a collective ‘Ah ha!’ moment (to complete the scene, I’m talking about the iPhone. No one part was particularly unique per se, but the way it was done was magnificent and changed everything in the phone space).

2. The Oculus Rift isn’t perfect

And neither was I expecting it to be. For one, this is the dev kit — I have no idea if higher spec’d units are planned for the consumer space.¬†

The Oculus Rift has a flat screen in front and then these lenses that sit in front of it. They help curve the image to your eye and create a better VR experience. The dev kit ships with three sets of lenses: Those for near sighted people, long sighted people and those with perfect eye sight.

This is where I think the resolution of the Oculus Rift suffered a little. Effectively these lenses act as magnifying glasses for each eye and that means if you pay attention you can actually see black lines between pixels. It also means you need to very carefully calibrate the headset so your eyes are¬†perfectly aligned. If you’re not perfectly aligned the image becomes blurry and not as impressive.

The lenses are¬†really fricken close to my eye ball. I’ve been cursed with beautiful long¬†eye lashes¬†and this means getting the lenses to be close enough to be immersive¬†but far enough away for me not to just smear them every time I blink is quite a challenge.

The Oculus Rift does allow adjustment to push the distance of the lenses out further but I equally found that the maximum distance from my eye, while best for my eyes, lowered my immersion. Time to trim the eye lashes me thinks.

3. It won’t feel awesome to begin with

Everyone in the Mindscape office gave the Oculus Rift a test drive. Even people not in our office came to check it out. Universally there were comments about feeling sea sick and the feeling that the wearer was going to fall over.

I seemed to suffer the least from this, but I did get it slightly.

4. Wonderfully packaged

The team at Oculus did a fantastic job packaging this tech. Strong beautiful case, all the possible cables you’d need, lots of padding. Really felt like I’d spent a lot more than $300 USD to get this. Great work.

5. Head tracking latency is really good

I’ve used a few VR headsets many many many moons ago. The head tracking in the Oculus is really good. There’s still some minor lag, but it’s significantly better than anything I’ve used before. The bigger issue is the screen quality I mentioned in point #2.

6. You’ll want a lot more

This isn’t a fault of Oculus, but as soon as you start wearing this thing you’ll start¬†feeling what the future will be like:

  • Why isn’t it wireless? I can’t turn around a lot without binding myself in cables and ripping my pc off the desk.
  • I can’t see my hands? That’s clearly the future. It’s a little off putting to throw your hands up and not see them. At Mindscape we’re playing around with connecting the Oculus Rift with a Kinect so we can show your hands in the VR world. Seems like a logical next step.
  • I still have to use the WASD keys to move in my game? Seems logical to have an omni directional treadmill here. That would be amazing immersive and WoW players would be the fittest people in the world. Also see: Why isn’t the Oculus wireless?

7. It makes you look super sexy


Not really.

In conclusion dear reader

We’re on the edge of another great round of innovation in the world of human computer interaction. I recommend grabbing an Oculus Rift just to experience some of this as well as helping back an innovative player in the market.

I, for one, look forward to spending my twilight years in the Matrix being Superman.

06 May 2013, 05:13

7 business lessons from Andrew Carnegie

Over the last month or so I’ve been working my way through a biography of Andrew Carnegie written by David Nasaw. The book is aptly named ‘Andrew Carnegie’.


The book is a fatty. At almost 900 pages I didn’t have the upper body strength to endure the physical book so I purchased the audio book version.¬†

The book goes into deep detail of Andrew Carnegie’s life. Throughout the book you come to learn that Carnegie was a¬†prolific¬†writer, stored a lot of what he wrote and that’s why this book has so much more content than some of the other biographies from that time (mid 1800’s to early 1900s).¬†

At times, with that level of detail, it becomes a little bit of a slog. There’s a lot of great stuff in there but you literally get a blow by blow account of every major voyage taken, trips to golf courses and when he went trout fishing.¬†

If you’re a big fan of the old tycoons of that era then this book will suit you. If you’re not so keen, avoid this book and look to those of the other businessmen of the time.


Business lessons learned

The book does detail a lot about how Carnegie rose to be so wealthy. One thing that struck me was that he didn’t seem like a complete prick — although he did quite happily employ others to take on that role for him. Here’s a few things I noted down that led to the success of Carnegie Steel (along with the insane demand growth for steel…).

1. Have rich friends

Carnegie’s story is certainly a rags to riches story. His father was certainly not a go-getter and his mother needed to support the family (not such a big deal in this age, but in the 1800’s it wasn’t such a good look it seems).

Carnegie got his initial start by getting the attention of people who did have wealth. In particular, the management of the Pensilvania Railway in the form of Tom Scott. 

When Carnegie got invited to invest in companies by Tom Scott, Tom Scott would also provide the capital and provide a very friendly way of repaying that debt Рthrough the dividends of from that investment. Talk about easy street! 

By the time Carnegie got involved in Iron (which later became steel, and in turn became Carnegie Steel), he was independently quite wealthy. 

2. In the tough times, run to capacity

I’ve been pondering how this would apply to industries that aren’t in manufacturing, but the lesson was there: always run to capacity, ignore your margin.

Throughout the ups and downs, Carnegie insisted that his steel plants remain open and run at capacity — even if that meant forgoing top margins on your product.

This was smart in that it allowed Carnegie interest to not contract in size in the down times of the market. At the same time, his competitors would contract in size and after the market rebounded his concerns were much larger and capable of getting larger contracts. Oh, and now they were at much fatter margins. 

3. Don’t be loose lipped with your finances

Carnegie Steel was run as a partnership and there were several partners. Carnegie himself always retained more than 50% which gave him significant control but a common theme was that the profitability of the business was kept quiet. 

It wasn’t until Henry Frick was booted out the company (remember the hired prick comment from earlier? Henry was your man if you needed a harsh task master) that this unravelled. Frick took Carnegie Steel to court to argue that his share value – that he was forced to sell back to the concern upon being kicked out – was worth significantly more than the book value. To establish market value Frick outed the extremely high profitability of the firm which shocked everyone.

The benefit of this is that nobody can use your profitability as a¬†bargaining¬†chip when negotiating rates. Carnegie Steel took it a step further in using it as a reason why tarifs should stay in place…

4. Control the Government

Carnegie was personally a friend or at least influential advisor, to almost every President of the United States from the time of starting Carnegie Steel. This gave him tremendous leverage in negotiating and getting deals.

5. Invest in technology

One of the reasons that Carnegie Steel was so insanely profitable was because Andrew Carnegie constantly invested in the newest technology of the time to drive down the costs of production. This allowed him freedom thanks to higher margins.

6. Invest in yourself

Carnegie was often at odds with his other partners on the amount being paid out in dividends. He was always a fan of keeping more money in the business to invest in new technology, new plants and increasing the integration across the industry.

7. Cash is king

While early on Carnegie had relatively little cash (to his later life), he pushed hard to make his cash work for him when young. This was risky but it paid off.

Even early on in the life of what would ultimately become Carnegie Steel, he became the go-to man for the businesses he was involved in as well as friends. 

If an investment looked smart he was always ready to take advantage of it.

That’s a wrap

As mentioned, if you’re really keen on the history of business in a America, this is a good book. If not, don’t read it.

01 Apr 2013, 03:58

Some thoughts on Mighty River Power

Note, this comes prior to the prospectus being delivered and before the loyalty scheme is announced. It’s also me sharing my thoughts – I’m not a financial advisor so this is as much a journal of some of my thoughts on the Mighty River Power sale.

As many New Zealanders know, Mighty River Power is about to be partially privatised. I’ve registered my interest in investing, along with over 440,000 other kiwis.

Estimates & percentage of profit paid out

Current estimates are that the shares will generate around a 4-4.5% dividend return (keep in mind, these are estimates from brokers). What’s concerning me with this is that the board of Mighty River have elected to pay out between 90-110% of profit. This is up from the previous dividend ¬†payout of 75% of profit. That means that at the upper end Mighty River could be paying out previous retained earnings[1].

This is apparently a wise idea because the company currently has no major capital requirements as no new infrastructure is needed at present.

This is fairly standard thinking for when to issue dividends – if you don’t need to spend any money and you’re not investing in growth then you should pay the money out to shareholders. [2]

My thoughts on this policy

I take a rather conservative approach to business – keeping money for a rainy day always seems to work out well. I cannot see that paying out that highly is a wise idea. I’m not anti paying a dividend but common sense is telling me that 90%-110% is too high and is likely going to be used to temporarily boost the attractiveness of the shares which, in turn, drives up the price.

In my view, and generally speaking, investing in a power company is an investment in a stable business – you likely won’t get crazy capital gains but you should be able to obtain a reliable dividend yield and expect the company to not¬†falter too badly¬†in a tough economy (electricity supply is not something you’re likely to cancel in a hurry! _Whoops_, turns out there’s some very real risks to electricity demand – another concern I may blog about soon).

If the business is paying out ~100% of profits then that will be priced into the share price (higher price because it has a higher return). They’re also paying ~100% at a time when they have no need to invest capital in infrastructure.

What concerns me is that the moment Mighty River needs to invest in new infrastructure they will either need to:

Raise debt (which has associated servicing costs and lowers profits which, in turn, lowers dividend returns and therefore would harm the price since dividend return is likely the primary driver of their share price).[3] 


Dramatically lower their dividend to pay for the work in the medium turn to conserve profits. This would lead to a slide in the value of the shares since you’ve invested primarily because it’s a stable¬†cash flow¬†producing investment – not a growth share. [4]

Either way, it would likely result in the¬†share price¬†taking a reasonable hit. It’s a question of¬†when not¬†if they need to undertake significant capital works. It may not necessarily be a new power plant, it may be that an existing plant needs substantial work done to it.

I’m on the fence

Personally, I’m registered but waiting to see the details before making a final decision. I have several concerns like the one outlined here that I’d need to think about carefully before diving in.

Just to reiterate, these thoughts are prior to seeing any official documentation and based entirely on comments in the market and a quick skim of the 2012 annual report from Mighty River Power. I appreciate any feedback.

I’m also a long term investor typically – if you’re buying for a quick buck or are an active trader then your view of the business could be entirely different. Also, to reiterate, I’m not a financial advisor, just some guy with a website sharing his thoughts!

I appreciate that several people reviewed this blog post before publication. I didn’t get permission to name them so I won’t, but I very much appreciate their input. There’s no perfect answer to some of these points so their input helped in improving my own thinking prior to posting.

John-Daniel Trask

Additional notes and thoughts

[1] I’m told that this doesn’t necessarily mean that they would be spending savings. Utilities have big depreciation charges (non-cash) and when coupled with low capital expenditure then after-tax cash flow can be larger than net profit after tax. As mentioned, I’m not a financial expert by any stretch, but my general feeling of unease remains – they’re paying out more than I feel comfortable with.

[2] I learned a new term when working on this post: Agency Costs. Simplifying, as a shareholder you may not believe that the business would be spending the profits as efficiently as you might, or worse, just outright waste those profits on (perceived or real) stupid projects. In that situation you’d want the business to pay that profit out to you, the shareholder. Personally, I don’t think you should invest in a business that you believe is not well managed or where you don’t trust that the management would operate the business effectively.

[3]¬†There is of course an advanced discussion on good debt and a business being able to leverage it effectively — that’s beyond the scope of this post but I’d still argue that Mighty River Power is not leaving much after their hefty dividend policy to service this without some impact on the dividend.

[4] They could also do other things like issue new shares but that’s beyond the scope of this chin-stroking-out-loud-pondering post.