Tag: review

Book Review: What It Takes

What It Takes: Lessons in the Pursuit of Excellence (Amazon,) is Steve Schwarzman’s biography. He is the founder of The Blackstone Group ($BX,) a $60 Billion enterprise.

Sadly, the book is not about private equity. It is about whatever Steve decided to share about himself to a wide audience. So, if you were looking for investing gems, then you would to sourly disappointed.

I have excerpted the interesting bits on my Evernote. You can skip the book and read that instead.

Recommendation: Avoid!

Book Review: Alchemy

In Alchemy: The Dark Art and Curious Science of Creating Magic in Brands, Business, and Life (Amazon,) Rory Sutherland makes a strong point that the pendulum has swung too far to the side of “rationality.” Businesses are so enthralled by scientific thinking that they have stopped taking risks.

The problem that bedevils organisations once they reach a certain size is that narrow, conventional logic is the natural mode of thinking for the risk-averse bureaucrat or executive. There is a simple reason for this: you can never be fired for being logical. If your reasoning is sound and unimaginative, even if you fail, it is unlikely you will attract much blame. It is much easier to be fired for being illogical than it is for being unimaginative.

The fatal issue is that logic always gets you to exactly the same place as your competitors. If you are wholly predictable, people learn to hack you.

For an investor, there are quite a few aha moments. To out-perform, you need to be different from everybody else. But if you are a professional money manager, then being different is very hard to defend if things don’t work out. So the larger your get, the lesser the risks you can take. If you think quantitative models will solve this problem, think again:

The risk with the growing use of cheap computational power is that it encourages us to take a simple, mathematically expressible part of a complicated question, solve it to a high degree of mathematical precision, and assume we have solved the whole problem.

We should also remember that all big data comes from the same place: the past. Yet a single change in context can change human behaviour significantly. For instance, all the behavioural data in 1993 would have predicted a great future for the fax machine.

The book is an insightful, yet easy read.

Recommendation: Must read!

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!