Category: Books

Books that we read and our thoughts about them.

Book Review: The Behavioral Investor

The Behavioral Investor (Amazon,) by Daniel Crosby had me nodding in agreement at every page. It is one of those books that produces your thoughts in print.

You are not built to be happy or to make good investment choices, you are built to survive and reproduce. Asking someone built for short-term survival to become a long-term investor is a bit like trying to paint a room with a hammer. You can do it, but it’s not pretty.

Successful investing is hard. It has more to do with controlling one’s own emotions than finding a superior strategy. Being mindful of our decision making process is half the battle won. The book has some good ideas on how we can be aware of when we are making poor decisions so that we can take a pause and reconsider.

Recommendation: Read it now!

Book Review: The Myth of Capitalism

In the book The Myth of Capitalism: Monopolies and the Death of Competition (Amazon,) authors Jonathan Tepper and Denise Hearn lay out the case that capitalism is dead in America and that over regulation and under-enforcement of anti-trust is to blame.

Key points:

  • Regulation suppresses startups and cements the lead of incumbents who can afford the added compliance costs.
  • Current anti-trust only focuses on “consumer welfare.” And the welfare of the consumer is really only measured by low prices. But what about keeping markets open to all new entrants, dispersing economic and political power, preventing collusion, and protecting small suppliers from predatory pricing?
  • What is good for the CEO to do for his company is not necessarily good for the whole economy. In the economy, it is logical for big companies to try to seek efficiencies, acquire competitors, pay lower wages, and increase their own income, but when all companies try to do this at the same time, everyone is worse off.
  • Investing in a portfolio of companies that spend the most on lobbying and influencing regulators would consistently beat the market. Over the past 10 years, the Strategas Lobbying Portfolio beat the Standard & Poor’s 500 by five percentage points every year.
  • Government is not a passive bystander in the increase in inequality. It is an active participant, granting favors to the wealthy and powerful, looking after the interests of the well connected.

I thought I had a personal philosophy about competition but according to the book, I am an “Ordoliberal.” Ordoliberalism argues that capitalism requires a strong government to create a framework of rules that provide the order (ordo in Latin) that free markets need to function properly. And I completely agree with the label.

A lot of supporting evidence is provided in the book to further the point. And the policy prescription is fairly straightforward. But here are some exceptions that do not really fit the narrative:

  1. Amazon routinely steals ideas from successful marketplace products. Does this mean we need marketplace regulation? Probably not because without Amazon, those businesses probably wouldn’t exist in the first place. And there are other market place competitors, like Etsy, Instagram, Pinterest, etc who act as a counterweight.
  2. Facebook is effectively a payola scam where you have to pay up if you want your own fans to see your content. Does this mean it should be regulated as a media company? The last company that had a walled garden of content was AOL. The world wide web is just a click away.
  3. Kraft Heinz took a huge markdown on its brands because consumer tastes changed and they hadn’t invested enough in R&D to be on top of it. Moats are only apparent when they are under attack.

Do I agree with the authors that capitalism needs fixing? Yes. But do I think the situation is as alarming as it is made out to be in the book? No.

Recommendation: Must read!

Book Review: Atomic Habits

In the book Atomic Habits: An Easy and Proven Way to Build Good Habits and Break Bad Ones (Amazon,) author James Clear lays out a step-by-step guide on how to adopt better habits.

An excerpt from the book that hit the spot for me:

Your current habits are not necessarily the best way to solve the problems you face; they are just the methods you learned to use. Once you associate a solution with the problem you need to solve, you keep coming back to it.
Habits are all about associations.
You see a cue, categorize it based on past experience, and determine the appropriate response.
Every action is preceded by a prediction. Life feels reactive, but it is actually predictive.
Our behavior is heavily dependent on these predictions. Put another way, our behavior is heavily dependent on how we interpret the events that happen to us, not necessarily the objective reality of the events themselves.

Most investors are well aware of biases that they should overcome. However, when the hypothetical becomes real, they feel powerless to control their behavior. How do you go about making the right choices by default? By making them a habit. And this book will put you on a path where you can make better choices.

Recommendation: Must read!

Book Review: The Geometry of Wealth

In The Geometry of Wealth: How to shape a life of money and meaning (Amazon,) author Brian Portnoy starts with the difference between being rich and being wealthy and takes us through what it means to our investments and career choices.

While it may come across as a cross between a self-help and a personal-finance book, it is not as boring as those typically are. Besides, it is concise, running at around 150 pages.

What I like the most about this book is that it makes you take a step back and question why you are doing what you are doing. What is the whole point of saving and investing? It is a means to an end. Not an end in itself. Also, we are wired to think that something complex is better. But in investing, it is the simpler things that compound your portfolio. And simple doesn’t mean easy.

Recommendation: Worth a read.

Book Review: Everybody Lies

In the book Everybody Lies: Big Data, New Data, and What the Internet Can Tell Us About Who We Really Are (Amazon,) author Seth Stephens-Davidowitz provides a peek into how “big data” can help us understand the world around us provided we know how to ask the right questions. And that, depressingly, people are consistently lying to themselves.

The author goes on to show how some of the most successful companies in recent memory are based on capitalizing on the difference between what people say they are and what they really are.

The book also touches on a common problem faced by quants who are trying to use big data for building trading models: the curse of dimensionality. We discussed this in our GEM and SMA series of articles (GEM, SMA) – there is no single “best” look-back period for calculating momentum or moving averages. There are trade-offs involved and there is always risk. These issues tend to snowball when using large, multi-dimensional data-sets to a point where it is hard to discern signal from noise.

The principal take-away from this book is that big-data is useful to answer questions typically raised in the social sciences and public policy. But a poor fit where the underlying data is heteroscedastic or the system itself is complex-adaptive.

Recommendation: must read!