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The 5 Best Books I Read in 2017
Last year was a great year for reading. Even if I fell short of my goal for number of books read, the quality of books was excellent and a few of them were pretty massive in length so I think it evens out. I am still working on assessing my resolutions from last year and forming new ones for 2018, but I think one adjustment I am going to make is to not have a goal for reading a specific number of books, but instead just work on habit of reading and variety. For starters I want to read more fiction in 2018. I sometimes get too over-obsessed with reading non-fiction to gain knowledge that I forget that fiction can offer insights into the human condition just as deep, if not deeper, than any non-fiction effort. I am sure there will be more to come on that.
Without further delay, here are the 5 best books I read last year.
This book is a follow up to his first book, Influence. For the unfamiliar, I highly recommend you read Influence first, and then read this one.
While Influence covers broadly the tactics persuasive people use to gain compliance - “weapons of influence” as they are referred to - this book covers setting the stage to help prepare your intended audience to receive a message. One of the first examples Dr. Cialdini gives is someone trying to get people to agree to give their email address. Predictably, in most situations compliance with this request is very low. Only 33% of people stopped agreed to give this information. However, once the experimenter began asking “Do you consider yourself an adventurous person?” the rate jumped to 77.5%. Apparently, by getting people to think “I suppose I am a pretty adventurous person” they were then more willing to agree to go out on a limb and offer up their contact information.
Great Quote: “The basic idea of pre-suasion is that by guiding preliminary attention strategically, it is possible for a communicator to move recipients into agreement with a message before they experience it.”
This book is a no-brainer for anyone who is a fan of Michael Lewis (Moneyball, Blindside, The Big Short) or familiar with the work of Daniel Kahneman and Amos Tversky. Lewis again shows off why he is a master at story-telling by combining intimate portraits of these men with the lessons their insights provided to the world of social psychology. The book illustrates how their work paved the way for what has become known as the field of behavioral economics.
Great Quote: “With the passage of time, the consequences of any event accumulated and left more to undo. And the more there is to undo, the less likely the mind is to even try. This was perhaps one way time heals wounds, by making them feel less avoidable.”
This was a fascinating study on the way everything changes as size changes. The book’s 2nd chapter opens with why Godzilla would be a physically impossible manifestation. There was also a terrifying anecdote about how veterinarians not familiar with the laws of scaling gave an elephant a lethal overdose of LSD.
While it is primarily rooted in physics, the book has relevant application to the worlds of business, investing, biology, sociology, and urban planning. Why is 4 a magic number? How many gas stations does it take to sustain a city of 2,000 people compared to a city of 200,000? What is the difference in heart rate between a mouse and an elephant? You have no doubt heard about a business refer to ‘economies of scale’ but this book will change your perception of what that really means.
Great quote: “So what was irrelevant at one scale can become dominant at another. The challenge at every level of observation is to abstract the important variables that determine the dominant behavior of the system.”
I’m really surprised I had known more about Edward Thorp before reading this book. He definitely deserves a spot in the annals of investment history. From beating blackjack, to inventing the first wearable computer to beat roulette, to creating one of the first quant hedge funds, the book goes through Thorp’s thought process on how he approached each of these problems.
Great quote: “For most academic theorists, (the 1987 crash) was as close to impossible as anything can be. It was as though the sun suddenly winked out or the earth stopped spinning. They described stock prices using a distribution of probabilities with the esoteric name lognormal. This did a good job of fitting historical price changes that ranged from small to rather large, but greatly underestimated the likelihood of very large changes.”
This massive tome covers the life and legacy of John D. Rockefeller. I did not know much about him outside of what I knew from history class, saw on the History channel, or read in random articles or other sources. The size and scope of Standard Oil was well known, along with the legacy of his Rockefeller foundation, but there were so many anecdotes and lessons starting with how he approached getting a job. “I was working every day at my business – the business of looking for work. I put in my full time at this every day.”
Going into his late 20’s and early 30’s he was already one of the most ice-cold operators in business and was pushing competitors out of business and buying up their assets. The dichotomy of his life between the ruthless oil baron, and the pious, churchgoing family man was fascinating to read about. This book is often featured on the reading lists of great executives, and for great reason. There are many lessons to learn from this Titan of American business.
Great Quote: “He was golfing at Pocantico with Father J.P Lennon from the Tarrytown Catholic church when he learned of the decision (of the court’s anti-trust ruling against Standard Oil) and he did not seem particularly perturbed. ‘Father Lennon’ he asked, ‘have you some money?’ The priest said no, then asked why. ‘Buy Standard Oil,’ Rockefeller said – which turned out to be sound advice.”
The Most Important Thing by Howard Marks – This book definitely deserves a place in the top five of the year but I figured a lot of serious investment people have already read it. It is an absolute staple in the investment curriculum and if you have not read, you should move it up the list.
1776 by David McCullough – it was amazing to me to find out how close that rag-tag band of rebels were to annihilation and this little experiment called the United States was so close to ending before it began. An engrossing and near unbelievable narrative, well told.
Deep Thinking by Garry Kasperov – This was a really interesting book about artificial intelligence from the man who lost to IBM’s Deep Blue chess machine. One interesting insight was the “sacrificing the queen problem”. It appeared that many chess machines upon studying thousands of chess matches had trouble separating cause and effect. Since sacrificing the queen was such a rare move for chess masters, and was only done when there was a huge advantage to do so, computers would interpret that as sacrificing the queen is always a brilliant move.
On Deck for 2018
I am still deep in the middle of House of Morgan, another Chernow epic. After that, I plan to continue my gilded age education a little further with The Tycoons by Charles Morris for a broader picture of the era, and Money Lords by Matthew Josephson. My next deep dive is to go through some of the classic economic texts. I want to read Wealth of Nations, Road to Serfdom, and General Theory of Employment, Interest, and Money but will add in a couple of other books that I had been meaning to get to in between. I still have Drive by Daniel Pink and I’m also dying to read Behave by Robert Sopolsky. That one may move up the queue since it’s been staring at me from the shelf for the last six months.
A friend of mine also recommended Killers of the Flower Moon by David Grann so I will try and read that this year as well.
In regards to reading more fiction as mentioned above, I did recently pick up The Three Body Problem by Cixin Liu after seeing and hearing multiple recommendations for that book. It is a Chinese, science fiction novel and I am excited to check it out.
As always, plans might change. I called a few audibles in 2017 on the reading list and I’ve learned that that’s ok. The important thing is to just read, whatever it is. I have come to accept my tilts in interest and lean with them instead of against them.
Let me know the best books you read last year. What is on your bookshelf for this year? I’m always happy to hear about more ideas.
Until next time…. “The more that you read, the more things you’ll know. The more that you learn, the more places you’ll go.” – Dr. SuessContinue Reading
Weekend Reading Links 12/08/17
It’s been a busy but productive and incredibly exciting last few weeks. I recently started a new position which has been excellent. I joined the trust department of a very highly respected community bank to help build out the investment process and grow the overall wealth management offering. As I try to keep my daily work separate from the content I keep here, I won’t go into any further detail, but if you have any questions, I will be happy to talk more about it.
Plus, we have all the traditional December business. The kids have their Christmas programs and concerts, holiday parties, and trying to find time to get some shopping done. We ended up decorating the house just last night.
The financial world seems to be focused on just two things these days - Bitcoin and tax legislation. 2018 should be a very interesting year. While I am hopeful that December can take its time passing – I love the holiday season – I do look forward to what the future has in store. Let’s see what was interesting to read the last couple weeks!
The first is in an interesting post on Medium which lays out the Bitcoin timeline. It goes from founding and development and quickly goes into speculation but its very interesting – The Three Economic Eras of Bitcoin
If you are still unsure of the difference between Bitcoin and blockchain, this is a good primer from MIT – Blockchain Explained
This is very critical take on the whole Bitcoin experiment from Preston Byrne (@prestonjbyrne). While I don’t agree with all the parallels made, it is an interesting take and something any crypto fan should read and think about - Introducing the Nakamoto Scheme
If you are looking for some good books, check out these lists.
This article from CNBC asks the question I have been wrestling with for over a year now – Lack of Wage Growth Remains the Economy’s Greatest Mystery
Farming is actually growing as a profession for the first time in a very long time, as this article from the Washington Post points out. – A Growing Number of Young Americans are Leaving Desk Jobs to Farm
Lawrence Hamtil (@lhamtil) is one of the best at investing myth busting. Here he gets into what has become a pervasive argument about a company’s capital allocation – The Annoying Capex vs Buybacks Narrative
I wrote a post a while ago in direct response to some of the stock buyback critics – Why Stock Buybacks are Good for the Market and the Economy
Other Interesting Tid-Bits
Do you want to move to space? You could become a citizen of Asgardia. – Asgardia Satellite Launch
Have you ever wondered which general in history was the greatest battlefield tactician? Ethan Arsht (@ethanarcht) has your back. He took some baseball statistical methodology and applied it to battlefield prowess. Now you can see every general’s WAR ranking. – Napoleon was the best general ever and the math proves it
Are you having trouble getting into the holiday spirit? Well as Buddy the Elf says, the best way to spread Christmas cheer, is singing loud for all to hear. Let DMX start things off with his version of Rudolph the Red-Nosed Reindeer.
That’s all this week. Let me know if you’ve read anything interesting lately!
Weekend Reading Links 11/17/17
Happy weekend and welcome to a late edition of the reading links. It was an exceptional week this week with a lot going on. I spent a lot of time grading finals and attending kid events which did not leave much room for reading and writing. There are some other exciting developments under works as well, but those will be discussed over the next few weeks. So stay tuned and here are the stories that got my attention this week!
One of my very first investing idols was David Swenson, the CIO of the Yale endowment and author of the single greatest investment book I’ve ever read (yeah, I said it) Pioneering Portfolio Management. He is voicing his concern about this market being potentially over heated. – Yale’s Swenson Says Low Market Volatility Profoundly Troubling
Have you heard the news out of Africa? – Link from Reuters – Zimbabwe’s Mugabe, Coup Chief Meet with Smiles and Handshakes
It’s been a bad week for oil companies. First up, the world’s largest single pot of investible money on the planet is mulling the idea of completely divesting from fossil fuels. – Norway Idea to Exit Oil Stocks is ‘Shot Heard Around the World’
Then of course, the event TransCanada definitely did not want to hear. The opponents of Keystone XL are jumping all over this. – Keystone Oil Pipeline Leaks in South Dakota as Nebraska Weighs XL
This is an excellent blog post from Nick Maggulli (@DollarsAndData) about how easy overconfidence can affect you, including a graphic that every investor needs to observe and acknowledge throughout their career. The lesson is – the more you know, the more you know you don’t know. – A Little Knowledge is Dangerous
Elon and Tesla had a big announcement this past week. Some people were not completely enthusiastic about it. - Elon Musk Breathlessly Introduces Two New Products That He Will Inevitably Fail to Produce
That’s all for this week. Thanks for reading and let me know what you think
The Most Important …. Man for All Markets
Top lessons from two of the greatest investment minds of our time.
This summer's investment curriculum included two books which I was very excited to read.
The Most Important Thing by Howard Marks
To start with Marks, I am amazed it took me this long in my career to read this book. (Side note: the version I bought is The Most Important Thing Illuminated, which features commentary from other investors. I found most of the commentary worthless and skipped the majority of it. I would recommend buying the original version.) It really is a staple in the investment cannon and ranks right up there with The Intelligent Investor by Ben Graham and Random Walk Down Wall Street by Burton Malkiel as must reads.
The book is laid out as 21 chapters each titled as “The most important thing is ….” Suggesting that each of the points Marks lays out is, in itself, the most important thing. He outlays the importance of things like finding value, identifying cycles, contrarianism, among others. The book is short and concise, and it took me a long time to get through simply because I took a ton of notes and reread entire sections to make sure I retained as much as possible.
A Man for All Markets, is the autobiography of one on the most successful investors that no one has ever heard of. (I hope this book, and his subsequent appearances on popular podcasts, has helped to change that). It is a great look into how his mind works and the thinking that went into everything from beating blackjack to creating an insanely successful hedge-fund. His telling of this journey uncovers a ton of gems about how to assess risk, size bets, and think systematically.
I highly recommend anyone interested in investing to read both of these books but here are some ideas that are key takeaways.
Risk and Probability
Thorp – “(Academic Theorists) described stock prices using a distribution of probabilities with the esoteric name lognormal. This did a good job of fitting historical price changes that ranged from small to rather large, but greatly underestimated the likelihood of very large changes.”
Marks – Howard quotes his friend Bruce Newburg “There is a big difference between probability and outcome. Probable things fail to happen – and improbable things happen – all the time”
Lesson – calculate the odds, but also calculate the cost if your wrong. I liken it to being dealt pocket aces in a game of Texas Hold’em poker. It is statistically the best hand, but just because you have great odds of winning does not mean you should bet the whole stack of chips. Bad beats happen all the time, not just in Hold’em but in investing and in life as well. You have to be able to survive those bad beats.
Risk and Leverage
Thorp – “The lesson of leverage is this: Assume the worst imaginable outcome will occur and ask whether you can tolerate it. If the answer is no, then reduce your borrowing”
Marks – “The Financial Crisis occurred largely because never-before-seen events collided with risky, levered structures that weren’t engineered to withstand them.”
Lesson – If you are seeking to increase your returns through leverage, remember your risk will also be magnified. Nothing leads to financial destruction faster or more often than over-borrowing.
Sizing Bets and Making Bets
Thorp – Explaining the Kelly Criterion method for sizing bets “…for a favorable bet that pays odds of $A for a bet of $1, the optimal Kelly bet is the percent of your capital equal to your edge, divided by the odds.” – Thorp tells the story of going to Vegas to apply his blackjack method and starting with risking a very small amount compared to his overall bankroll. As he counted cards and would evaluate a favorable deck, he would increase the size of his bets as his edge increased and reduce them as it went down. "I planned to play conservatively, betting twice my lowest bet when the advantage for me was 1 percent, four times as much with a 2 percent edge, and finally leveling off at ten times my small bets when the game was 5 percent or more in my favor."
Marks – “When there’s nothing particularly clever to do, the potential pitfall lies in insisting on being clever.”
Lesson – You should only put on an active bet when you have an edge, and even then, you should size your bet according to the odds.
Thorp – What it takes to beat the market, 1) Get good information early. 2) Be a disciplined rational investor. 3) Find a superior method of analysis. 4) Invest ahead of the crowd.
Marks – “To achieve superior results, your insight into value has to be superior. Thus you must learn things others don’t, see things differently, or do a better job analyzing – ideally all three.”
These lessons just barely scratch the surface of what is offered in these books. I definitely recommend both, but if you need one or the other, I would say if you are serious about learning the craft of investing, you have to go Marks. If your interests are more worldly, than go with Thorp. Either way you can’t go wrong.
Until next time…..
“The most important thing is the relationship between price and value….Since buying from a forced seller is the best thing in our world, being a forced seller is the worst. That means it’s essential to arrange your affairs so you’ll be able to hold on – and not sell – at the worst of times. This requires both long-term capital and strong psychological resources.” – Howard Marks.
Further reading –
After a week off to carve pumpkins, take kids treat-or-treating, and to go see Thor: Ragnorak, the links are back. It has been a productive and enlightening couple of weeks with a lot of interesting things to read, but before I begin I want to share an excerpt from the book I am reading, Titan: The Life of John D. Rockefeller.
This really hit me because when my son, Dean, was 4 he got Scarlet Fever. No big deal, he took an antibiotic and was fine. Jack got Scarlet Fever when he was 4, and died. It is a little sobering to think that this child’s death lead to progress which meant that other children contracting the same disease would not have to suffer the same fate.
On that note, hug your loved ones, cherish the time you have together, and mind your health. Now let’s work on our mental health by catching up on some reading.
First up, is a link from Inc.com offering tips on how to approach learning. I assume that people reading this post with any regularity are doing so because they share a love of learning, and these are a few good take-aways. A short Tim Ferris video is a bonus. – 3 Geniuses Best Tips to Accelerate Learning
I cannot seem to escape crypto-mania. Bitcoin, ethereum, and others have taken the finance world by storm. I’ve made my views of this space clear (link here), but here are some recent, relevant links.
If you think crypto is cool because Floyd “Money” Mayweather is into it, watch out. These celebrity figures may be getting paid to promote it, and if they are not disclosing that, they could get into a heap of trouble from the SEC. I can only hope. – SEC Warns Celebrities Endorsing Virtual Money
A lot of people have compared the recent mania in cryptocurrency to the tulip bulb bubble in Holland in the 1630’s. One analyst has said that the recent development of a futures market for bitcoin is another parallel – Bitcoin Futures Mirror 1637 Tulip Bubble Crash, UBS Says
And remember, if you do plan on playing in the crypto sandbox, do so at your own risk. Josh Brown (@ReformedBroker) puts it elegantly….
And my friend, Professor Clive (@TooCliveCrew) has a slightly stronger opinion
This is the story they are quoting - ‘$300 million is cyrptocurrency’ accidently lost due to bug
One big development of the last couple of weeks is President Trump’s nomination of Jerome Powell to serve as the chairman of the Federal Reserve Board. This post is arguably one of the most powerful in the world and Jerome Powell is largely unknown to the greater populace. So naturally, people want to know....
And after you get to know Mr. “Jay” Powell a little, you really need to read this amazing Twitter thread from Josh Zumbrun (@JoshZumbrun) of the Wall Street Journal. – “…how Larry Klane, Alfalfa Bill, London Whale & Swedes led to Fed Chair Jay Powell”
The other big news people need to be paying attention to is happening in the Middle East. The Crown Prince has been arresting dozens of his cousins in the name of curbing corruption. Critics call it a blatant power grab, while supporters think it the greatest step of progress for Saudi Arabia in modern times. This story from Bloomberg does a good job of explaining what’s going on – The Saudi Purge Isn’t Just a Power Grab
This excerpt from the story illustrates well the dichotomy of the situation: ‘“The one positive thing is that maybe things will get more equitable, more meritocratic,” says a young Saudi management consultant who, tellingly, declines to be named. “It’s also scary. There’s no due process, and people can disappear.”’
One of the most interesting investing posts I’ve read in a while is from Corey Hoffstein (@choffstein) of the Flirting with Models blog. But, fair warning, this is for the more advanced investment geeks out there. – It’s Long/Short Portfolios All the Way Down
And finally, just for fun, check out this short video. – 7 Things You Didn’t Know About Sherlock Holmes. And if you haven’t, or it’s been some time, pick up a few of the original Conan-Doyle stories.
That’s all for this week. I have house hunting, yard work, and youth hockey to attend to this weekend. I’m also hoping to finish my book and to get started on another. I have the J.P Morgan bio on deck, but I’m thinking of calling an audible and throwing in something short and light to break up my education of the Gilded Age. (and yes, I am aware I’m mixing my sports analogies. Just remember to skate to where the hoop is going to be 😉)
Have a wonderful weekend!
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