Porter, Michael E. - Competitive Strategy

Free Press, 1980 [Business] Grade 5

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A concept that Warren Buffett has popularized in the world of investing is circle of competence. It describes what industries and businesses the investor understands well enough to be able to make an informed investment decision. It may be easy to understand the notion but its realization surely is harder than it seems. An integral part is to grasp the inner workings of an industry and the competitive situation of the specific business. A book that has stood the test of time and that will give the reader some well-needed guidance on the subject is Competitive Strategy by Michael E. Porter.

Porter is a Professor of Harvard University and Head of the Institute of Strategy and Competitive Strategy. He has written several pioneering books and papers and is possibly most renowned for Competitive Strategy and Competitive Advantage written five years later. He is a thought-leader and his material is widely used in academia worldwide and by practitioners as managers, consultants and investors. Porter has throughout his career worked as a consultant to help businesses improve their skills in making strategic decisions. He has studied hundreds of businesses in his research while teaching at Harvard Business School and has used much of that experience to produce his groundbreaking writings.

Competitive Strategy is divided into three parts. In the first part covering chapters one to eight, Porter presents a framework for how to analyze an industry and its competitors. His famous five forces, the key concept of the book, act as a base for the analysis. Chapters one, two, seven and eight are essential reading for both the investor and the manager as they present a foundation for how to think about competitive advantages on various levels while chapters three to six are more tilted towards managers and management consultants by giving hands-on information on how to device strategies. The management’s task is to develop strategies to strengthen the competitive advantage while the investor’s job is to analyze if management is doing the right things. In other words, management builds the competitive advantage and investors measure it. The second part of the book covers strategies for different industry structures as for example fragmented industries with many competitors and no dominating leader as well as emerging industries lacking stable rules. In the last part, again more interesting for managers and consultants, Porter presents several important strategic decisions that firms need to take and applies the ideas and lessons earlier described. Appendix 2 is also useful as it presents a hands-on way on how to conduct an analysis.

Investors, arguing that it’s too difficult to use his material in practice, sometimes criticize Porter. Conducting the strategic analysis is an assignment that ranges from weeks to months depending on the investor’s prior knowledge and network and it includes a lot of footwork and reading. On the other hand, investing is a full-time job and who is to say that it should be easy? Furthermore, investors who apply the five forces get criticism from Porter for being too superficial when using the model. Reading the book is tough and applying the lessons from it is even tougher which drives investors to take shortcuts. Porter also stresses that change is vital while many use the five forces in a static way. One could argue that it's understanding whether the future of the business will be better or worse than the consensus view has it, that is the key question for investors as the rest should be built into the current share price.

My recommendation to the reader is to compile a couple of case studies of businesses while reading the book as this will lead to a better understanding of the framework. Before I read the book, I had heard that it was challenging - which was confirmed. I had also heard that it would be worth the effort, which I agree on as well. Fully grasping the ideas will potentially make the investor recognize the challenges of a business before the information is public which will lead to an important analytical edge.


Niklas Sävås, October 13, 2018

Scruton, Roger - Fools, Frauds and Firebrands

Bloomsbury, 2015 [Surrounding Knowledge] Grade 4

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This is a deconstruction of the ideas of most of the leading socialist thinkers during the last 70 years including for example Jean-Paul Sartre, Michael Foucault, Jürgen Habermas and Antonio Gramsci. The author Sir Roger Scruton, who is a Cambridge philosopher, describes the theories of the thinkers, dissects what they really mean and by this exposes emptiness and charlatanism as well as intellectual vanity and the pursuit of power.

My big take from this exposé of over 20 post-world war socialist-Marxist thinkers is that they are largely all the same. The socialist intellectual movement is a purely academic discipline advanced by well-situated university professors who criticize the society that supports them. They all share a conspiracy theory type of framework where a secret force governs a system and by this is able to exercise power over a mentally sedated people. The culprit thus extracts the spoils of power. The tranquilized and deceived people on the other hand miss out on living in the paradise-like utopia that would materialize if they weren’t - unknowingly to themselves - ruled by this secret force. The academic is the only one who sees through the fog of domesticizing norms of power and must as part of a self-elected elite - a true philosopher king of Socrates’ - lead the people’s rebellion and by this liberate the enslaved noble savage of Rousseau so that he can live a life in spiritual harmony.

The secret force varies between thinkers. It can be the bourgeois, the western world/the US, the rational scientist, the corporation, capitalism, neo-liberalism, universal truths and rights, the consumer society, the society of the enlightenment and - later on - the man, the white man, the heterosexual (man) etc. etc. It is a rejection of the very society and context of the academic – making it an exercise in theatrical cultural self-loading (“their revulsion is a kind of holiness” as Scruton puts it). The arena of the coming revolution also conveniently varies with the academic discipline of the thinker and could be language/literature, the historic narrative, philosophy, sociology, art, architecture etc. It is always very unclear what the utopia really looks like. The important thing is instead the struggle and the solidarity of the select elite who leads it. “The contradictory nature of the socialist utopias is one explanation of the violence involved in the attempt to impose them: it takes infinite force to make people do what is impossible.” All thinkers are obliged to add their contribution to the ever-growing terminology swamp of academic socialism to mask that they all say pretty much the same thing.

Thus, the structure of the framework is the same as the one initially constructed by Karl Marx and Friedrich Engels but the arena is now almost always cultural rather than a “materialistic”-economic one as in old-school Marxism - the exception perhaps being Gramsci, staging his revolution from below through the infiltration of all of society’s most important institutions (with regards to their power to influence the mind of the masses). Obviously, the “worker” still has to be paid tribute by all thinkers and generally functions as a lazy type of alibi in their theories, but in reality he is immaterial to these culture wars of the learned class. The worker is simply there to be governed by someone. The existential struggle is by whom – the progressive learned intellectual or the fascist Other.

It is indeed interesting to learn the historic origins of many of the expressions and phenomena that one is exposed to when reading the culture pages of daily newspapers. The reader for example learns the history of critical theory (Max Horkheimer’s “systematic critique of capitalist culture”), concepts like late-capitalism (Habermas’ spätkapitalismus) and “the gaze” and why communist thinkers’ texts seemingly confuse subject and object in the most peculiar way. The one large drawdown of the book is the language which is that of an elderly British philosophy professor. The book is no picnic to get trough but it’s totally worth it in the end.

Frightening but brutally vital knowledge.


Mats Larsson, October 8, 2018

Gunter, Max - The Zurich Axioms

Harriman House Ltd, 1972 [Finance] Grade 4

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At its core this is a book containing 12 rules – or axioms - for speculation in financial markets in the same vein as previous learning’s about risk, reward and human behavior that have been passed on by the likes of Jesse Livermore, Gerald Loeb and Bernard Baruch, i.e. the notorious financial speculators of the early part of the twentieth century. It is the investment philosophy of a former group of Swiss bankers.

The Zurich Axioms also comes with a quite fascinating background story. Max Gunter is a journalist, an author and the son of Franz Heinrich – in the US called Frank Henry. The author’s father was during a long period the US head of what is today UBS and also a core member of an unofficial network of Swiss expats on Wall Street that met irregularly at the bars around where they worked, starting in the mid 1940s all the way until the early 1970s. The topic for discussion was always the currently available investment opportunities – or speculative opportunities, as they would have put it themselves. Thus, the author grew up with a father that socialized with Jesse Livermore, Gerald Loeb etc. and that often invested in stocks or commodities side by side with them. The book came about when Max Gunter one time, when being advised by his father to make an investment, asked him what the basis was for the advice, what Frank Henry and his Swiss acquaintances actually based their decisions on. The thought process that followed in the Swiss network in trying to formulate their rules for speculation resulted in this book, first published in 1972.

The axioms advocate taking large stakes in a few meaningful opportunities at the time, to set targets for when to take profit and to immediately get out if a position is turning sour – and never try to average down or get in again on a loosing position. Positions are based on the judgment of the speculator regarding what is happening now and not on forecasts or other people’s opinions. The time horizon is short to medium term (months, rarely years) and even if the author never uses the old saying “let your profits run and cut losses short” the thinking is very much aligned with this. Overall, the philosophy of Frank Henry and his fellow Swiss bankers is based on trading psychology that much later formed parts of what is today know as behavioral finance. Much, like the advice to disregard the consensus as it probably is wrong or the distrust in forecasts, should resonate well with more long-term fundamental investors. Other advice will not and the last “minor axiom” from Max Gunter reads, “Shun long-term investments”. We will post the full list of axioms of the website separately.

The odd axiom out is number eight, On Religion and the Occult, that is not only a plea to keep superstitions out of one’s speculations (but not necessarily ones life) but also discussions on why it is inadvisable to base positions on the statements of fortune tellers and the use of tarot cards – but if you do, don’t bet too much on the positions advocated. It might just be me, but I surely hope this axiom is a bit dated.

Interestingly the axioms for speculating in financial markets also tie in to a parallel view on how to live one’s life. To make any gains in life something – money, time, love etc. - has to be placed at risk – nothing ventured, nothing gained. And even if this in the end means that now and then a person loses money, wastes his time or gets his heart crushed, this is still better than never having dared to live life to the fullest. Life should be an adventure. The Zurich Axioms are about calculated and intelligent risk taking in all straights of life.

The Zurich Axioms is a charming short and lively book with a pedigree that it is very easy to feel sympathetic about. And even if it perhaps doesn’t add that much new to trading philosophy it fits well on the shelf beside Reminiscences of a Stock Operator or The Battle for Investment Survival.

Mats Larsson, September 27 2018

Lowe, Janet - Damn Right!

Wiley, 2000 [Business] Grade 4

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There are multiple books and papers written about the vice Chairman of Berkshire Hathaway, Charles T. Munger. When Damn Right! was published however there wasn’t much. And whereas a lot is written about Munger as an investor, in this biography we get to know him on a more personal level from his birth to his 70s around the year 2000. Munger and his family always wanted to remain out of the public eye, causing very little information to be available about Munger before Damn Right!. Thus, Munger’s family was not overly excited about this book from the start. Still, the author Janet Lowe told Munger that she was going to write about him with or without his consent and after a while he agreed to be cooperative. Lowe is an investment writer and author. She specializes in books about business leaders and has among others portrayed Benjamin Graham, Warren Buffett and Bill Gates.

Damn Right! describes how Munger was born in 1924 and grew up in Omaha. His family taught him the sound morals of Thomas Jefferson and Benjamin Franklin from an early age. His father was an Omaha judge and Munger followed in his father's footsteps by pursuing law. Early in his career he suffered from both distractive events as being forced into military service, as well as sad ones with a divorce and the tragic death of his son. It took him until his thirties to start accumulating his fortune which he built out of savings from his legal practice, invested into real estate projects. Having realized that debt is a vital ingredient to be successful in real estate investing together with it being a full-time job, he soon moved on to other interests. This involved starting an investment partnership and resigning from being a lawyer after having co-founded the law firm Munger, Tolles and Olsen - which is used by Berkshire to this day.

Munger ran a concentrated investment portfolio with huge success but also wild fluctuations. He frequently discussed his investment ideas with Warren Buffett who he later famously went into business with, taking the subordinate position as vice Chairman of Berkshire Hathaway. Munger is famously known for teaching Buffett that it pays off to pay up for quality. What is not so known but explained in the book is that he himself also learnt that lesson fairly late. The company that in this regard made the strongest impression on him and Buffett was See’s Candies, a high quality, premium chocolate company located in San Francisco which has been a home run for Berkshire.

Aside from getting to know some of his and Berkshire's investments in See’s Candies, The Buffalo Evening News and Salomon Brothers the reader is introduced to Munger’s moral compass, which is strongly influenced by Franklin - his biggest hero. Munger is of the view that honesty and hard work will take a person a long way. Morals aside, a trait he is famous for which isn’t as positive though, is his manners. People who don’t know him well may think he is arrogant and rude. One thing that defines Munger is that he didn’t set out to become superrich but rather financially independent enough to pursue interests within education, medicine and philanthropy and also his hobbies of architecture, travelling and fishing.

Although the book is filled with timeless quotes from both Munger and Buffett I still feel that some quotes are a bit misplaced where one subject is discussed and then followed by a quote or writing which is not really connected with the prior text disrupting the flow of the reading. However, this is more of a minor observation than a large negative. For me, a book about Munger could never be boring. I like Poor Charlie’s Almanack more, which is a book I often go back to, but I still rate Damn Right! highly and it’s a must for all Buffett & Munger fans. The part I enjoyed the most was to get more insight into Charlie Munger the person and not only his sharp quotes and wisdom, even if the book gives the reader plenty of that too.

The only thing I would ask for now is for someone to fill in the gaps of the last 20 years of the fascinating life of Charlie Munger.

Niklas Sävås, September 23, 2018

Ford, Henry - My Life and Work

Garden City, N.Y., Doubleday, Page & Co., 1922 [Business] Grade 4

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When considering the most successful and influential businessmen of the 20th century, Henry Ford certainly comes to mind. Many entrepreneurs and businessmen of later times have arguably been influenced by how Ford ran his business and how he created the world's most prosperous automobile company. In Ford's autobiography "My Life and Work" the reader gets thrown into the early beginnings of the Ford Motor Company and its evolution. Asked the question if it was tough to build his company Ford answered: “I cannot say it was hard work. No work with interest is ever hard.”

In chapters one to three Ford describes how he at an early age became interested in machines and how he started to work as a mechanic. During that time, he managed to build his first car and resigned from his job to start his first company and later on his legacy, the Ford Motor Company. Already from the outset he aimed to take the automobile from a luxury good to a public good. In chapters four and five Ford presents his efforts to produce the perfect car, called the T-model, which could be made so cheap that practically everyone with a decent salary could afford it. In chapter six until the end of the book the author drifts away from the Ford Motor Company to discuss his more general and ideological views on business and things in general. He presents his views on the rise of the machines, wages, profits, money, banking, charity, education among else. Always with passion and a very firm view on what is right and wrong.

It wouldn't be wrong to characterize Henry Ford as a "moat-creator". He believed in the low-cost model which is often described as the strongest type of moat or competitive advantage. By always increasing efficiency and constantly improving it's possible to keep competitors at bay. He had a similar view to Jeff Bezos’ in that all the time spent watching competitors is time lost on improving the own operations - and thereby opening up to competition. Many of the factors modern businesses pinpoint today as decentralization and constant improvement were methods employed by Ford. He tried to reduce the costs as much as possible in order to sell more cars and reduced prices constantly to increase the market for his cars. One example is how he paid back 50 dollars per car to the consumers one year as he thought the profit was too high. Talk about goodwill!

Some other characteristics of how Henry Ford ran his business give signs of a great corporate culture. Instead of using the word profit he says service. He believed that the function of the producer is to deliver as much value as possible to the consumer. He also used the word partners instead of employees. “It is not usual to speak of an employee as a partner, and yet what else is he?” On incentivizing his employees, he thought that high wages were key. Ford describes that it pays to create a situation where the employees are strapped from financial worries.

During the evolution of Ford Motor Company Henry Ford often got seething criticism publically for the choices he made as they were often against the general view of the market. As a true contrarian Ford had the view that everyone with a decent salary should be able to afford a car and worked tirelessly with this objective in mind. When the public opinion thought Ford was crazy with regards to the number of cars he was to produce he simply didn’t care. Another side of Ford was his ideological views. Some chapters, as for example one about money, are more a discussion about what Ford thinks is right without really getting to the point on how he wants things to be. Even if the book at parts is filled with too much ideology for my taste it's also packed with essential wisdom on business.

This is an important book for the investor who wants to understand the power of having a low-cost advantage built by a fanatic CEO. Hopefully the investor can benefit from improved pattern recognition by learning about the success story of Ford to find tomorrows Ford Motor Company, Wal-Mart or Amazon.


Niklas Sävås, September 8, 2018

Doerr, John - Measure What Matters

Portfolio Penguin, 2018 [Business] Grade 3

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What is the secret tool that has created Google’s success? It turns out to come from Intel. In Measure What Matters John Doerr, venture capitalist extraordinaire, presents the Objectives and Key Results model (OKR), where objectives define what an organization or sub-unit tries to achieve and key results detail how these objectives will be met. Hence, it is a type of execution tool that drives an organization and its employees to work in the same direction towards a joint goal. The aim of the book is simply for Doerr to present the model to a larger audience than the companies that he invests in and by this help an even larger crowd to become more industrious.

The book is partly self-biographical as Doerr looks back on the many companies he has funded. Approximately a third of the text describes the OKR-tool and the rest contains a large number of case studies and success stories from various (mostly) technology companies that with Doerr’s help have used the tool with great positive effect. It is certainly an impressing list of contributors to the book as for example Larry Page, Bill Gates, Sundar Pichai, Susan Wojcicki, Bono and loads of others contribute sections to the book. Further, Jim Collins, Sheryl Sandberg, Al Gore etc. add write-ups for the book’s cover so the author obviously has a vast network. The real hero of Doerr and of the book is however the late Andy Groove of Intel. Apart from being an early mentor to Doerr, Groove is also the intellectual father of the OKR-tool – event though much of the ideas were openly borrowed from Peter Drucker.

To work with OKRs means setting aggressive objectives - essentially goals - that are “significant, concrete, action oriented and (ideally) inspirational” and then deciding on 3 to 5 executable action items called key results that lead to the objective if fully met. These results should be specific, measurable, and verifiable and come with clear deadlines. Further, it should be crystal clear who the owner of each OKR is. The benefits of using the model, and also the structuring of the chapters in the book, are according to the author an organizational focus and commitment to the issues that really matter, a transparency and alignment to joint purposes that produces work satisfaction for employees plus a sense of community and team spirit, an accountability that brings power to the execution of initiatives (plus, by this, a flexibility to quickly change direction if so needed) and an ability to reach stretch targets by working towards them in smaller increments. The process is steered through a dynamic and continuous process of performance management the author calls CFR (Conversation, Feedback, Recognition). Doerr recommends a dual cycle with both annual and quarterly OKRs and further that the objectives are set both top-down and bottom-up. Also, one should work to connect teams through cross-functional OKRs. On the look of it, I think this is a great tool for organizational execution but also culture building.

When reading the many case studies I’m quite struck by how very similar the Silicon Valley establishment thinks and sounds. With all their “amazing”, “10x”, “fail fast” and “we are going to be the next xyz”, the attitude of the Silicon Valley contributors to the book is virtually missionizing – it’s a bit like listening to 10 Jehovah’s witnesses, one after another, although, the holy trinity of this cult is rather wealth, productivity and creative destruction – all through the power of technological change. The contributors that stand out as molded in a somewhat differentiated form are the thoughtful Bill Gates and Bono that obviously comes from a totally different environment. In my view the balance of the book could have been shifted somewhat from case studies to a more collected presentation of the OKR and CFR models. With the current structure it is important that the reader doesn’t miss the so-called resource sections of the appendix as they give more meat to the models.

In sum, I like the tool more than the book.

Mats Larsson, August 29 2018

Gray, Wesley R. & Vogel, Jack R. - Quantitative Momentum

Wiley, 2016, [Equity Investing] Grade 5

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Momentum investing works - period. I thought momentum was all about buying stocks that have gone up, and coming from a value background I found it a bit idiotic, but little did I know about the quantitative world behind all of this. This might not be as much of an epiphany for you as it was for me, but this book opened my eyes to a world that I was extremely unfamiliar with. If you, like me, find yourself reading the same old Graham-mantras over and over just reiterated by different authors, this is most probably something you should read.

The book is split in two parts where the first part is all about understanding momentum - what momentum really is, why it works and why it should continue to provide a sustainable edge going forward. The second part is all about the craft of constructing a momentum-based portfolio based on academic proof. To be fair Quantitative Momentum is a…quantitative book. It’s packed with graphs, tables, numbers and references to academic studies. Although its academic nature, the book is written by two PhD’s – go figure, the book is an unexpectedly pleasant read. I had no problem keeping up despite generally reading the book on my busy and chaotic morning commute.

The authors start off with explaining what momentum is, and more importantly, why momentum works. They argue that momentum investing and value investing both work because they are essentially just two different sides of the same behavioral bias-coin. Maybe the reason that active portfolio management actually works is that we humans are overly skeptic in nature. The authors write: “Value investing's edge is often characterized as pessimism in the presence of poor short-term fundamentals, which causes stocks to become too cheap relative to future expectations. Perhaps momentum investing's edge could be characterized as pessimism in the presence of strong short-term fundamentals, which causes stocks to remain too cheap relative to future expectations."

The authors are not trying to make people pick sides with this book, rather they are trying to convince value investors that a quantitative momentum approach would bring great balance to the overall portfolio composition.

The book is packed with “good stuff” but one of my favorite takeaways is the concept of “frog-in-the-pan-momentum” where the path a momentum stock takes makes a big difference going forward. The point is that a stock with lower volatility, but strong uptrend, can continue to have a strong trend while staying under the radar of most value investors. On the opposite side, a volatile stock which spends every other day on the scoreboard of best/worst performers will constantly be in the eye of investors and will therefore have a higher probability of having its trend interrupted by active investors trying to correctly value the asset.

Another key concept for me was that of mean reversion in different time series. That things mean revert in nature is hardly news, but shouldn’t mean reversion work against momentum to cancel out the effect? Well, yes and no. The authors find that stocks mean revert in shorter and longer time periods (under 1 month and over 1 year) but follow the momentum trend in medium-term time periods. Basically, stocks that have gone up the most the last month will tend to mean revert and go down the most in the coming month, and vice versa. On the other hand, stocks that have performed the best over the last 12 months will typically continue to perform well over the coming month or months. In the authors’ stock-selection-model they solve these contradictory concepts by looking at momentum for the past 12 months, while ignoring the last month, thereby using both the medium-term-momentum while also taking the mean-reversion-effect into account.

For those already praying to the momentum god, this is a great book filled with ideas and proofs to improve their momentum stock selection. For the community of Graham-believers, me included, this book is a definite must-read.

Olle Qvarnström, August 22, 2018

Iddings, Sean & Cassel, Ian - Intelligent Fanatics * 2

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This is the joint review of Intelligent Fanatics Project from 2016 and Intelligent Fanatics from 2017. The books written by microcap investors Sean Iddings and Ian Cassel are chronicles of corporate and management success in the same genre as iconic business books like In Search of Excellence by Tom Peters and Robert Waterman, Good to Great by Jim Collins and The Outsiders by Bill Thorndike. Iddings and Cassel are also in various ways behind the Anglo-Saxon investor forum MicroCapClub.com and the website intelligentfantatics.com dedicated to sharing case studies of so called intelligent fanatics - the archetype successful businessman profiled in these books. The aim is partly to guide investors in finding companies that will outperform thanks to great management, partly to help CEOs emulate the winning characteristics.

Charlie Munger coined the expression intelligent fanatic. Idding’s and Cassel’s definition from the 2017 book reads as follows: “Founder, CEO or management team with unconventional ideas and a fanatical drive to build a high-performance organization. A learning machine that can quickly adapt to change. Able to create a trust based culture that aligns everyone to think like owners. Focused on acquiring, training and motivate their best talent. Their time horizon in in ten-year increments, not quarterly, and they invest in their business accordingly. Regardless of the industry, they are able to create an impenetrable moat that competitors initially cannot understand and eventually fear.” Almost every word in this definition is in my view critically important as an ingredient for - at least the chance of - sustained business success. The core of the term is however an obsessive drive towards a visionary goal guided by sharp analytical reasoning.

The first book also offers a formula that is said to embody an intelligent fanatic:

Intelligent Fanatic = (Long-term vision + Focus + Energy + Integrity + Intelligence) * Execution

The formula – more so than the definition – zooms in on how Warren Buffett and Charlie Munger have described the management qualities they search for. It is obvious that the authors are themselves standing on the shoulders of giants in their quest of trying to distill what it is that leads to business accomplishment. In the first book’s definition they had a second paragraph where an intelligent fanatic also could mean the “outsider CEO” of Thorndike. However, the capital allocation angle of business management isn’t at all as prominent among the intelligent fanatic case studies as in those of The Outsiders and this section was subsequently dropped. My feeling is that the authors by the second book had gained the confidence to move on from their towering heroes.

These two books are very simple when it comes to their set up. A brief introduction and short conclusion frame 8-9 case studies of about 15-20 pages that each profile a – often relatively unknown - CEO and how he (the profiled intelligent fanatics are exclusively men) managed to steer his company to a roaring long-term success. No one will be surprised that the traits and actions from the definition show up in various forms in almost all chapters. The similarities certainly underline the point that there are key traits and actions that can lead to success but it also makes the chapters somewhat alike and thus the reading in my view becomes a bit repetitive.

Iddings and Cassel deserve huge credit for their painstaking groundwork in finding, researching and presenting these CEOs in two books. Still, in my view, the next book from Intelligent Fanatics LLC cannot simply picture an additional batch of CEOs. The success criteria are now set (although it is always tough to weed out survivorship bias). The next step should according to me be to help investors detect indications of these criteria and present a methodology of how to handle tradeoffs. For now however, these books are a great start.

Mats Larsson, August 12, 2018

Harari, Yuval Noah - Homo Deus: A Brief History of Tomorrow

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Liberal humanism has overtaken traditional religion as the dominating narrative to drive the world forward. Still, the dominance is only temporary and in time dataism will take over. Homo Deus is the story of how this will happen and how the human race potentially will succumb in the process. Yuval Noah Harari who is a professor of history and teaches at the Hebrew University of Jerusalem is the author of Sapiens that looked to the history of mankind. Homo Deus is the sequel where the historian instead looks to the future.

In a very condensed form the story Harari presents is the following one. Humans are only different in grade from animals. We are just slightly more advanced with regards to certain abilities but not others. The reason why the unexceptional humans have come to rule the world is our ability to rally behind shared narratives in large groups and the collective power that comes from this. Historically the dominating stories were various religions as they both provided a purpose to life and processes that helped mankind’s progress. Still, there was no free will as god ruled supreme. With the breakthrough of science traditional religions were proven false. By killing god humans seized power over their own destiny but by doing this they risked losing life’s purpose.

The savior turned out to be humanism that Harari defines as ideologies that worship humanity or the human – communism and Nazism are included but the chief humanist religion is democratic liberalism. Our belief in our own exceptionalism has managed to both free us from the deterministic reign of religious thought and still keep a purpose. Humanism has created a golden age – at least in relative historical terms - where starvation, war and plagues are manageable issues and where those in the elite now are looking to more ambitious goals such as eliminating death, creating artificial life and by this reaching a semi-divine status as a species.

Unfortunately science and artificial intelligence instead conspire against our ability to eat the cake and still keep it. Neuroscience threatens to degrade us to biological automata without free will that just react to external stimuli and all that we can do robots will soon do much better. Intelligence is decoupling from consciousness. Humanism’s revering of the human will falter and with it the meaning of human life will do the same. Still, people need an algorithm to live by. Just as humanism during its era was more useful than the defeated traditional religious faith, the next phase will require a new belief. The ideology that the author sees winning is called dataism where the purpose basically is data processing. “Dataism declares that the universe consists of data flows, and the value of any phenomenon or entity is determined by its contribution to data processing”. People will degrade to units in a universal data processing system.

I’ve given Homo Deus an average rating. Still, there is nothing average about this book. The author is encyclopedic in his knowledge-scope and the topic is the survival of the human race. The grade instead reflects the intellectual dishonesty of almost force-feeding a narrative down the reader’s throat without openly discussing any uncertainties or qualifying the assumptions made along the way. What if we are exceptional - also in isolation and not only as a collective? What if we do have free will? What if Harari’s rather pointless dataism attracts no-one and something else emerges? Annoyingly, three pages from the end and after spending the book bulldozing any attempt to argue against his narrative, the author hints that he himself might not believe in his own Silicon Valley dystopia. Further, the sunny description on the book sleeve describes the many wonders of human achievement, while the book in itself portrays how we are relentlessly marching towards Ragnarök. It’s almost false advertising.

If you know what you are getting into and have the time to dwell on paths alternative from the author’s this is a very worthwhile book to read – but don’t judge it by its cover.

Mats Larsson, August 5, 2018

Robbins, Tony - Awaken the Giant Within

Simon & Schuster Paperbacks, 1991 [Surrounding Knowledge] Grade 4

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To know yourself and how you act is often described as essential attributes for the investor. Having patience and a long-term perspective are two examples of such traits. Certainly, you also need to master the craft of investing and finance but in order to stick out from the crowd it is necessary to master your own emotions. Most of the literature on psychology is theoretical where the guidance on how to avoid negative reactions is slim. Awaken the Giant Within turns this upside down and is purely written for the practical person who wants to understand how to use the theories in real world situations.

Tony Robbins is one of the leading self-help influencers in the world. He is widely known as a speaker, advisor and author and is also a very successful entrepreneur. He wrote Awaken the Giant Within as a 31-year-old having studied the subject of psychology voraciously from a very young age. Robbins calls himself a coach and wants to create a way of life for others where negatives are turned into positives and where they become able to master their emotions, physiology, relationships and financial situations. He has advised numerous influencial people as Bill Clinton, Wayne Gretzky, Margaret Thatcher and Nelson Mandela. One example of a successful investor who Robbins has been able to transform is Guy Spier who talks warmly of Robbins in his book The Education of a Value Investor.

The book is organized in four sections. All sections consist of various practical challenges which forces the reader to be active. The first part presents most of the theoretical background on why we feel and act as we do and what measures can be taken to improve. Part one is more than half of the text. The second part confronts and challenges the reader to figure out which values and rules his life is based on and how they should be changed and re-arranged in order to lead to improvements. The whole third part is a seven-day challenge consisting of a step-to-step guidance on how to improve emotionally, physically, relationship-wise and financially. The last part is all about philanthropy and how it's possible to become a better person and at the same time help people in need by giving.

This is a book that can help investors and others to break out of negative thought patterns. The author describes easy methods as how the usage of less negative words to describe a situation will improve the actual temperament of the reader. If you are saying that you are stressed out, exhausted or angry the negative emotion will become even stronger. As humans, we are trying to avoid pain and instead experience pleasure. An example in how that can distort rationality is in situations when the proof tells us that we are wrong and we disregard it due to the truth being too hard to bear, a concept named cognitive dissonance. This is not a recipe of good thinking for the rational investor. Some simple, but hugely important, wisdom from the book is to prioritize the long-term versus the short-term, to avoid distortive substances and to be aware of the shortcomings of oneself and how to tackle them in order to improve.

I was positively surprised by how much of Robbin’s work is built on the latest theories in human psychology. For me that created trust in the tools presented in the book. Awaken the Giant Within is for the active reader and needs to be read with a pen in hand. The commitment to read the book is therefore greater than the mere 500 pages. To get the full benefit of the book the reader needs to be open for change and take on the challenges the author presents. This is therefore a commitment stretching from weeks to years. The end result is likely to be a game changer for your life and who you want to be as a person.

If you are not willing to put in the substantial effort of reading it now I suggest you read something else and pick up this book when you are ready and motivated to transform yourself and people around you. But why wait?

Niklas Sävås, July 31, 2018

Lo, Andrew - Adaptive Markets

Princeton University Press, 2017, [Finance] Grade 4

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Due to the immense influence of Paul Samuelson economics in the mid twentieth century adopted much of the mathematical and statistical methodology of physics. The economic theories became all-explaining, exact and mathematically beautiful - but wrong. Starting in the 1980s a bunch of half-economists and half-psychologists emerged and formed the sub-discipline behavioral economics and were rude enough to point to the inaccuracies. Still, these new guys had no real alternative economic system to offer. They could tear down what was foul but had little ability to build anew. “It takes a theory to beat a theory” to speak with Milton Friedman. Then the Hong Kong born Andrew Lo, one of the more free-thinking economists of our age, a Professor at MIT and chairman of the hedge fund AlphaSimplex, launched a theory that it might actually be concepts from biology that will fit both traditional economics and behavioral economics into one unifying grand scheme. The framework became known as the adaptive market hypothesis (AMH) and it is the topic of this important book.

Broadly the book is structured so that chapters 1 through 5 give the reader background knowledge of the efficient market hypothesis of traditional finance, behavioral economics, neurofinance and biology’s evolutionary theory. Then chapters 6 to 8 present and exemplify the AMH. Finally, the last 4 chapters try to show that financial crises could be understood through the AMH and how we by this could form regulation and practices to if not prevent a crisis, at least stop it from escalating into something more severe.

Lo is a very good storyteller with a fair dose of humor. My only big complaint of Adaptive Markets is that it’s too comprehensive and thorough. The first 175 pages give necessary pieces of the puzzle so that the reader can understand Lo’s theory, but the reader probably hasn’t bought the book to read exactly these long sections on the basics and history of economics, psychology, biology etc. – we want the juicy stuff; the AMH. Then in chapter 9 there are another 30 pages giving a basic context behind the recent financial crisis. All in all these background stories are long enough to fill a normal length book by themselves. Although they clearly show the broad scholarship and knowledge of the author these sections should probably be cut in half for the second edition.

According to Lo price formation in markets follows the principles of evolution with its competition, adaptation and natural selection – or death - of spices in an ever changing environment. The spices in question are different groups of market participants that in a “satisficing” manner apply varying strategies and heuristics to compete for market profits. The choice of strategies are decided by an innovative (mutational) is interactive trial-and-error process, where the market feedback reinforces the use of some and deters the practice of other in an ever ongoing feedback loop towards refinement. A strategy that doesn’t fit the current environment would be deemed irrational by the traditional economist but is simply not adapted to the surroundings in an evolutionary meaning.

Now, unfortunately the environment isn’t static but depends on both external forces and the behavior of the competing spices. When too many populate the same habitat, i.e. uses the same strategies, the potential for profits is exhausted and a strategy that was well adopted becomes unprofitable, leading to a flight from the habitat. Eventually this exodus might restore the potential for returns and we get an ever oscillating market environment. An efficient market is simply a model of an unchanging market, something that only exists for so long. Interestingly, some “irrational” behaviors discovered by behavioral finance look to be unconsciously designed to spread one’s bets in case of change.

Anyone with an intention to have an edge in financial markets should really have read Adaptive Markets – because their competitors will have.


Mats Larsson, July 24, 2018

Belobaba, Peter et. al. (ed.) - The Global Airline Industry

John Wiley & Sons, 2016, [Business] Grade 4

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This is a highly ambitious and voluminous textbook introduction to the airline industry and to airline operations written by a total of 17 authors, mostly academics at the MIT Department of Aeronautics and Astronautics but also from other universities and a few industry practitioners. Much of the content was apparently originally developed for an MIT course, quite naturally, called the Airline Industry.

The coverage of the book is impressive and at first looks at airlines from a top-down managerial point of view, then goes in to more practical and operational details when surrounding airlines and finally covers a number of related subjects. Among the first types of topics are the industry history, the regulation of both airlines and airports, the economics of the airline market, pricing options and revenue management plus costs and productivity.

The second type of subjects includes fleet and route planning, flight crew management during both regular operations and when things don’t work out as planned, labor relations and security handling. The last type of subjects includes airports, air traffic control, industry related environmental issues and how IT effects the management of airlines. This is all obviously very comprehensive. The only topic I can think of that’s missing and that might have warranted a comment is the authors view on whether the traditional long haul hub-and-spoke network model could be rivalled by smaller fuel efficient, long range planes deployed in “long and skinny” point-to-point networks.

The sector has obviously changed a lot over the years for example with the emergence of low-cost airlines and the growth of new airlines originating in developing countries – both topics covered extensively in the book. The largest change is however the transition from a fully nationalized sector to a commercial industry. It is today almost chocking to read about how tightly regulated the industry has been both between the 1950’s up until the deregulation in the 1980’s, but in reality also up until now. Apparently, in some aspects the European Union has been a global forerunner in the deregulation of the sector which only goes to show how bad it has been.

For me as an investor chapters three through six were obviously the most useful covering the economics of both the industry and if an airline corporation. Commendable enough these chapters start off with a section on airline terminology, definitions and also acronyms such as RPK (Revenue Passenger Kilometer, i.e. one paying passenger transported one kilometer) or ASK (Available Seat Kilometer, i.e. one available seat flown on kilometer). In the end I think one must conclude that air transport is a commodity and in any commodity business the low cost providers will usually turn out to be winners.

Initially my worry was that with the authors predominantly being academics the text would be too detached from practical life but this is not at all so. They clearly have a very deep domain knowledge. This doesn’t mean that it’s 500 pages to breeze through. Reading it is rather hard work as it is full of detail in anything from regulatory agencies to airline schedule development. Also, a book containing material from this many authors never really addresses the reader in a fully coherent language.

This book works well as a university textbook and it would be an excellent choice if you as an outsider have been recently recruited as an airline CEO and need a crash course on what you are getting into. However, it is probably too heavy and full of operational aspects to really suit an investor looking to understand the industry economics.

Mats Larsson, July 14, 2018

Rosling, Hans - Factfullness

Flatiron Books, 2018, [Surrounding Knowledge] Grade 4

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Very few persons hold a factual view of what the state of our world is. We consistently think our problems are grimmer than they are. In Factfullness the late Hans Rosling points to biases that shape our faulty views and also shows us how to correct them. Rosling was a physician, statistician and Professor of International Health at Karolinska Institute who took the TED Talks audience by storm with his folksy style and enlightening diagrams showing us the world as we hadn’t seen it before. The aim of his public talks as well as this book was simply to combat the ignorance of how the world looks, since without a correct worldview we will make the wrong decisions.

First out the reader is put to the test as Rosling asks thirteen multiple choice questions about the state of the world, i.e. topics like population growth, life expectancies, literacy, income distribution, education, health and global warming. The same test has previously been put to 14.000 persons globally and excluding the global warming questions the average number of correct answers was two out of twelve. We significantly underperform blind chance and the results are little different or even worse among population groups with higher education. We are actively and systematically misrepresenting the world.

The problem isn’t a lack of facts, an evil conspiracy or fake news, but our own biases. We are hard wired to over-dramatize. We notice and remember spectacular events while we ignore gradual but more important changes. Further, negative events render a lot more interest than positive. A commercial media industry that competes for consumer attention then naturally serves us exactly this; a never ending array of spectacular negative news items. This is what sells, and this is also what we as media consumers want to buy. Incentives also matter in other ways. Rosling, who at least in his youth politically had a leftish bent, in one of his public speeches notices that professional investors were among those with the most fact based view and showed the most interest to learn and correct what they had gotten wrong. The reason was simple. If they got it wrong they lost money. In contrast, developing world aid workers knew less and also didn’t really want to change. A world in disarray was what they thought necessary in order to mobilize the rich to help the poor. At least some even felt threatened by a world view where the developing world wasn’t a helpless victim being brutalized by their former colonial masters.

Factfullness isn’t a book that tries to show the true state of the world, but a book that in ten chapters lists ten cognitive biases in how we understand our surroundings. Rosling calls them the Gap Instinct, the Straight Line Instinct, the Blame Instinct and so on. Some are due to our less developed ability to instinctively grasp statistics, some are due to how emotions often trump analytical reasoning. The chapters all contain introductory anecdotes from Rosling’s upbringing and life as a practicing medical doctor in for example rural Africa and as such the book also becomes a type of memoir. The chapters also give practical advice on how to correct the biases so that we can see the world as it is for ourselves.

Rosling charmed the audience of TED Talks with his energetic, enthusiastic, down to earth and almost naïve style presenting a combination of real life stories and graphs on global developments. His combination of integrity and empathy is rare and the distinctly Swedish dialect only added to his popularity. To me, Rosling’s style that in public presentations was so disarming and endearing, at first felt a bit banal in written text. In the end however I had to capitulate. Rosling is above all extremely rational and his pursuit to make the world a better place through facts is admirable. The plain language might actually be what gives the book the broad readership it deserves.

Read Factfullness both to gain a fact based worldview but also to gain peace of mind as so much is getting better over time.

Mats Larsson, July 9, 2018

Walton, Sam & Huey, John - Sam Walton: Made in America

Bantam Books, 1992 [Surrounding Knowledge] Grade 4

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Sam Walton: Made in America pushes the reader to become a better and more honest person by presenting the standards that Sam Walton set on himself and others. "I'd hate to see any descendants of mine fall into the category of what I'd call "idle rich" - a group I've never had much use for." There are dozens of similar quotes in the book which summarizes Walton's worldview. The book is a biography filled with wisdom and real life lessons on business and management.

Sam Walton was the founder of one of the most successful businesses of the 20th century, Wal-Mart. What started with one store in the small town of Bentonville, Arkansas, developed into a store network covering the whole US. Walton who in building Wal-Mart became the richest man in America, co-authored the book together with John Huey in the end of his life while struggling with cancer. Huey, an author and journalist, has, among else, served as the editor-in-chief of Time Inc.

The structure of the book follows the life of Sam Walton in chronological order. The reader is set on a journey from Walton's early days working in a retail store, to when he started his own shop and thereafter the development of his huge legacy. Every chapter is filled with viewpoints from family members and Wal-Mart employees which gives the reader a more objective view of how things where.

Customer obsession and constant improvement are core themes when describing Wal-Mart’s strategy. Similar to the founder of Amazon, Jeff Bezos, Walton had the idea that if you always try to do a bit more for the customer then you will stay ahead of the competition. Bezos has mentioned that Sam Walton and Wal-Mart was a big inspiration for him when building Amazon. Walton was studying the competitors deeply and was in the words of the super-investor Mohnish Pabrai ”a shameless cloner” as he applied the good concepts that he learned from his competitors. A quote from the book reads: "most everything I have done I've copied from somebody else". Another quote is about the learning’s from Sol Price, another highly successful manager within retail: "I guess I've stolen - I actually prefer the word "borrowed" - as many ideas from Sol Price as from anybody else in the business". By studying others, Walton created a great corporate culture driven by incentives to his partners which led to better customer treatment. He constantly adjusted the business to what he thought was for the best. These constant adjustments were probably one of the keys for Wal-Mart to stand out from the competition in one of the most competitive industries around.

A further lesson to learn from Wal-Mart is the growth strategy the company used. The business grew in smaller towns in areas close to its distribution centers in order to benefit from economies of scale in the specific area. A less well-known and riskier aspect of the growth strategy was that it was built on debt financing. From the start of Wal-Mart until the listing in 1971 the company and its owners were saddled with debt. Since Walton used debt in order to grow the business he was relieved when he got rid of the burden when going public.

There are a lot of interesting facts in the book that are important from an investment standpoint. The reader will get a better idea of the retail industry and what it takes to become successful but especially what to look for in a manager. Walton mentions that the investors who profited most from Wal-Mart were the ones that had a long-term view and that studied the company and got familiar with the strengths and the management approach.

Even though the book is written at the very end of Sam Walton's life I don't think it shines through. Possibly, this is due to the skill of the co-author John Huey. I think all managers, investors and people in general would become better in their professions and in life by learning from Sam Walton. This book is a great place to start.

Niklas Sävås, June 30, 2018

Galloway, Scott - The Four

Portfolio/Penguin, 2017, [Business] Grade 4

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The US FAANG-stocks and Chinese BAT-stocks have driven the current growth focused stock market cycle almost from the start in 2009 and their popularity among investors doesn’t look to be fading just yet. Not all are enthralled though. Scott Galloway, a business professor at New York University and serial entrepreneur, plainly thinks that Facebook, Amazon, Apple and Google has become too big and powerful for the good of the economy. This is the story of the Four; their business models, how they became this dominant and the problems that follows from this.

In the introductory chapter Galloway lays out his thesis where a technology-optimistic society naively views big tech companies as inherently good and as a result the US government regulate the Four much more lightly than the companies they compete with, tech companies are allowed to pay very low taxes and investors supply capital to them almost for free. Big tech companies, in contrast to almost any other big company in other sectors, are seen as the good guys and given a free card to do as they please. Unfortunately, this and the ruthlessness and relentlessness of the companies has not only lead to arrogance and hubris from the side of tech companies with regards to their behavior but also to a market power that has grown so big that no one can effectively compete with them.

Then follows four chapters, each with more detail on all of the Four, or the four horsemen, as Galloway also calls them (he is a professor in marketing). The final section is five slightly unsorted chapters that slice the thesis of the book in a different way and among others go into detail on some of the sins of the companies; try to answer why their business models and products and services have such a tight grip of us as consumers; list the characteristics the companies share that have lead to their success; ask if there are other companies that could join their ranks and also a rather misplaced chapter giving students advice on how to succeed in their future work life.

I was given the book after listening to Galloway at a conference. I had actually previously refrained from buying it as its thesis, at least to some extent, plays too much on my confirmation biases. Now, I’m glad I read it. It is an easy, sometimes almost a bit lightweight, read that quickly puts the reader in the center of a very important discussion that will gain in prominence over the coming decade. The topic has clearly gained momentum during 2018. Still, Galloway isn’t accusing the companies. They are profit-maximizing entities and do what they should do, albeit with a bit too much brutal zest, and a large part of their dominance is obviously down to great products.

He’s instead partly dissatisfied with consumers but mainly with the US competition authorities that he thinks play by a pre-Internet playbook and don’t see that the monopoly power of each of these companies is similar to that of for example AT&T or Standard Oil when they were broken up in pieces. With reference to the classic Apple 1984 commercial, picturing Microsoft as the intrusive dictator, Apple and the others have simply taken the previous ruler’s place and done a much better job of controlling all our lives. Competition is broken. One oft commented issue with the book is that Galloway observes and analyzes a problem but he doesn’t present any solutions. However, in later presentations he comes to the conclusion that the Four should be broken up into twelve separate companies and that this should rejuvenate competition.

If you don’t come away terrified after reading The Four you might already be a Borg in the empire of the four horsemen.


Mats Larsson, June 25, 2018

Graham, Benjamin & Meredith, Spencer B. - The Interpretation of Financial Statements

Harper & Brothers Publishers, 1937 (2 ed.) [Equity Investing] Grade 4

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A typical way of valuing a business is with the discounted cash flow (DCF) method. Some value investors don't agree with the use of the method due to the need for forecasting uncertain future corporate prospects. Small changes in input values often result in huge swings in the estimated corporate value. Forecasting is deemed futile by investors such as Warren Buffett, Charlie Munger, Bruce Greenwald and James Montier among others. In today's world of competitive disruption there may be alternatives or complements to the DCF method with less dependency on the future that can be used. By studying the current state and the development of the balance sheet and income statement it's possible to understand the health of the business which, in turn, is essential for the firm’s future prospects.

Benjamin Graham, the father of value investing, needs no further introduction. His co-author Spencer B. Meredith was an instructor in security analysis at the New York Stock Exchange Institute together with Graham. In this book written before Graham's more influential books, Security Analysis and The Intelligent Investor, the authors describe how to understand a business and its health by studying the financial statements.

A quote from The Interpretation of Financial Statements concludes the authors’ view on forecasting: "Of course, the success of an investment depends ultimately upon future developments, and the future may never be forecast with accuracy. But if you have precise information as to a company's present financial position and its past earnings record, you are better equipped to gauge its future possibilities. And this is the essential function and value of security analysis."

The Interpretation of Financial Statements is written for those who want to understand the language of business that consists of the financial statements. In the book, the authors describe the most important constituents of balance sheets and income statements one-by-one. The text is structured in three parts. The first part introduces the reader to balance sheets and income statements. Each chapter covers one piece of a financial statement. The authors explain the item and its significance which is essential to know for the security analyst. They also describe different key ratios that are of practical use in order to distinguish if the business is in a favorable condition or in bad shape. In the second part the authors present different financial ratios while the third part is a description of financial terms and phrases.

This is a book for those who would like to understand concepts such as earnings power and book value, which is of essence in the fundamental analysis of a company. By only considering the qualitative aspects of a business the investor is at risk of missing important details that are necessary in order to set a reasonable intrinsic value range. In order to get further guidance on how to use the knowledge in practice, Graham’s Security Analysis is a great place for further study.

If I were to mention anything negative about the book it would be that the examples drawn are from a different time, meaning that they are typically limited to industrials, railroads and utilities. This is of course no criticism of the authors as the mix of listed companies was truly different in 1937. However, it's important to convert the reasoning and language to a broader set of modern businesses. Even more importantly, the financial statements were arguably more easily structured and read in the first half of the 20th century compared to today's often complex reports. This is also commented upon in the introduction.

I would like to conclude with a timeless statement from the book that summarizes the difficult challenge all investors face: "Common stock selection is a difficult art - naturally, since it offers large rewards for success. It requires a skillful mental balance between the facts of the past and the possibilities of the future."

Niklas Sävås, June 07, 2018

Stigter, Marc & Cooper, Sir Cary - Boards That Dare

Bloomsbury Business, 2018, [Business] Grade 2

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The premise of this book is that most if not all corporate boards are stodgy and complacent and due to this either don’t see - or outright reject - the requests from sustainability focused institutional owners and the purchasing demand from likeminded customers. Business leaders are said to only focus on short-term profitability and CSR has degenerated to a green washing, box-ticking exercise. Hence, the directors risk leading their companies to their demise. This creates a need for a new bread of directors that fills the governance void and also a new model go guide them.

The authors are business consultants in Australia and the UK and Sir Cary Cooper is one of the UK’s leading academics in management studies. I very much question if the above really is the status of the boards they consult to or the views held by the 61 directors interviewed for the book. To me the thesis is an overly spectacular and speculative one that misrepresents the situation. Yes, there are bad boards and some are overly stodgy. Yes, some directors are bad. Still, most boards are in my view fairly decent and there is rarely a lack of focus on sustainability issues.

This book offers one set of chapters, number 2, 3 and 4, that are well balanced and grounded in reality, flanked by chapters 1 and 5 that are sweeping, cynically un-balanced, bordering on flawed as they, in my view, label the exceptions - the bad eggs - as the majority. The middle chapters argue for more active boards and a mix change in the time spent, from compliance towards business strategy, by doubling the hours spent on the directorship. Diversity is a key requirement in composing the board and IT-competence and CSR-competence should according to the authors be added to the boards.

While much of this is good, it is also very much in vogue right now and doesn’t need much promotion as I see it. Also, of the same reason I don’t generally want to see lawyers and management consultants on boards, I don’t agree that CSR or IT-specialists should be there either. Narrow competences can be added on a consultancy basis. Although they might have specialties, directors in my view must be broad enough to have well grounded opinions on most issues. The authors’ objection to the above might be that sustainability encompasses everything in today’s world. However, if everything counts as sustainability issues then in reality nothing counts as sustainability issues.

The foundation of the authors’ view on sustainability is Michael Porter and Mark Kramer’s concept of Shared Value. Stigter and Coopter from this launch their own concept called Total Value and Care Governance. Boards that “can, know, want, are and dare” first cater to the employees, then to consumers and other stakeholders and finally to the society and the environment. By doing this they will be financially successful and consequently will also reward the shareholders. This “broadened fiduciary duty” is obviously a hugely popular notion today, implying that there are no tradeoffs in business. Optimize for all at the same time and paradise is waiting. There is no notion of how to manage compromises between conflicting goals.

Ironically, the model Stigter and Coopter present share many similarities with the shareholder value and balance scorecard models of the late 1990’s as it sees a sequential process from personnel and customers to financial results. The difference is that in the original models there was a method to allocate limited resources. Since the owners receive the present value of the future residuals after all other stakeholders have been satisfied, the owners have the incentive to balance and satisfy the interests of all stakeholders. By their pursuit to generate the highest return on capital over time societies’ resources are put to their most efficient use and this makes all of us better off.

Some passable corporate governance advice is mixed up with a light version of Porter and Kramer’s shared value concept. Adds very little.

Mats Larsson, May 27, 2018

Peterson, Jordan B. - 12 Rules for Life

allen lange, 2018, [Surrounding Knowledge] Grade 4

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According to NY Times Jordan Peterson is currently the most influential thinker on earth. This is surely an exaggeration but he is an Internet phenomenon. Instead of dwelling on Peterson as a public figure and have an opinion on whether he’s a transfobic fascist as some would say, or the savior of men as other would have it, I thought I’d take the road less traveled and simply account for the twelve rules as they read and give my take of what they mean. It will not make much of a book review but at least we will know what’s discussed.

However, it must first be understood that this isn’t the author’s self help advice on how to succeed in life – to Peterson the rules run much deeper. Some years ago the author had something of a personal crisis trying to reconcile the monstrosities performed by the Nazi and communist regimes of the twentieth century with some sort of hope for mankind. Peterson landed in the opinion that the world is a troubled place and while it is hard to know what a good life is, it is reasonably easy to know in which direction to go – and this is away from Auschwitz, Gulag and totalitarianism. The rules are steps on this path.

1.     Stand up straight with your shoulders back – How you behave effects how others treat you. A person who takes responsibility for his life, acts with self-confidence and let this show in his body language will be treated as a winner, also by the opposite sex.

2.      Treat yourself like someone you are responsible for helping – Don’t be consumed by guilt. Instead learn to be proud of yourself and respect the progress you make. If you were to coach someone to become a better person, how would you do it? Now, do it to yourself.

3.      Make friends with people who want the best for you – If a person you know only takes and never gives you cannot waste your only life on them. Walk away.

4.      Compare yourself with who you were yesterday, not to who someone else is today – Act by an inner scorecard instead of an outer.

5.      Don’t let your children do anything that makes you dislike them – Your children will have a better life if they don’t grow up dysfunctional. Be an adult, set boundaries, teach them what’s right and wrong, encourage and mentor them and discipline them if necessary. Help each other as parents as it is hard work raising kids.

6.      Set your house in perfect order before you criticize the world – Discard of any victim mentality and searches for scapegoats. Set your life straight and have the humility to not complain over others before you can govern yourself.

7.      Pursue what is meaningful (not what is expedient) – Those that can delay gratification do best in life. Most people know what is good. Set long-term goals and make the sacrifices needed to reach them.

8.      Tell the truth – or, at least don’t lie – Stand up for what you believe. It is the silent majority that paves the way for totalitarianism.

9.      Assume the person you are listening to might know something you don’t – To get to the truth we have to listen to those who hold other opinions than ours. Either you will see the issue differently and change your mind or you will become more confident in your opinion. Both are good things.

10.   Be precise in your speech – Face your personal monsters by diagnosing what they really are about. In precisely describing the bad you shine light on fears that lurk in the shadows.

11.   Do not bother children when they are skateboarding – If we overprotect our children they will grow up incapable of handling the world. This is especially destructive for boys with more innate aggressiveness that must be channeled into something constructive. If it is instead suppressed it will take nasty forms later.

12.   Pet a cat when you encounter one on the street –Appreciate the small joys of everyday life.

This somewhat odd book that draws on biology, literature, psychoanalysis, philosophy, religion and even folklore is unusual in that it salutes virtues like owning up to responsibilities. I like most of it.


Mats Larsson, May 12, 2018

Marshall, Kenneth Jeffrey - Good Stocks Cheap

McGraw Hill, 2017, [Equity Investing] Grade 4

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Value investing might be described as the practice of buying and holding stocks that according to the investor’s best judgment have a suitable probability of having a substantially higher value than current price. The insistence on such a margin of safety is in part a philosophical issue but – similar to the requirement of tilting probabilities in one’s favor – is also a very practical issue of applying a suitable and rational investment process. In Good Stocks Cheap Kenneth Jeffrey Marshall, an investor and academic who teaches value investing and asset management at the Stockholm School of Economics and at University of California, shares his personal value investing process.

Although the author covers the basics of value investing it has to be said from the outset that this is not a book for anyone seeking deeper knowledge of finer nuances on the topic. This is a book on process. And mainly the process of selecting stocks to invest in. As such, important topics worthy of entire books in themselves, such as capital allocation, insider dealings, selling positions, moats etc. are covered in one or a few pages each. The benefit of this book instead lies in how explicit it is in penciling out how to actually perform the craft of value investing. Execution matters greatly in the potential success of investing.

The title is an apt description of the content as value investing in this case refers to the currently popular quality-compounding genre, not investing in low valuation multiple, bombed out, deep value stocks. This is a Joel Greenblatt Magic Formula-type of stock selection but with a quality bent.

The author suggests a sequential process of analytical steps for a stock to pass to qualify as a portfolio holding. Firstly, by looking to a number of angles the investor must be able to say that he truly understands the business of the company. If not, he should move on to another candidate. Secondly, it must qualify as a good business. In this Marshall looks to the historical financial success of the company, the indications of whether this success will continue into the future and of how shareholder friendly the management is. After weeding out bad businesses the next needle(s) to pass is the parallel decision on if this good stock is also cheep judging from the absolute level of a number of valuation multiples and if the investor in the process of analyzing the qualities and inexpensiveness of the stock has been free from biases. If all boxes are ticked it could be warranted to allocate 10% of the portfolio to the stock. It’s quite easy to visualize what a flowchart of the process would look like - and Marshall offers his version. He subsequently presents a short chapter on idea generation that logistically perhaps should have been placed earlier in the book. Further, there is no advice on what to do during the times when no stocks qualify, as all good stocks are expensive. Is cash then the preferred option?

The text is written in an accessible language making it suitable for the novice investor, but is not at all dumbed down due to this. Writers who have taught value investing – such as Ben Graham and Bruce Greenwald – have often had the chance to refine how they explain topics to an audience and this gives great clarity to their texts - so also in this case. The one section that doesn’t come out as well is chapters 6 to 10 that gives a combination of a basic accounting course and further shows which adjustments to the accounting Marshall thinks necessary to render the financial ratios best suited for his process. This section would have benefited from incorporating a case study to be followed throughout the chapters. Instead the reader in appendices and 10-K’s online get to work with the accounting of GAP, but few readers ever read appendices or look up online annual reports in parallel to reading a book. Still, this section is already a quarter of the book – perhaps Marshall didn’t want to burden the text further?

Growth and momentum has ruled this investment cycle. Value investing isn’t chic anymore. Thus, now might be the time to catch the turning tide. This book shows one way forward.

Mats Larsson, May 6, 2018

Bevelin, Peter - Seeking Wisdom: From Darwin to Munger

Post Scriptum AB, 2007 (3rd ed.), [Surrounding Knowledge] Grade 5

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Seeking Wisdom is about the gathering of wisdom by studying the finest of what others have already figured out. The book is filled with quotes from some of the greatest thinkers in history from fields such as physics, mathematics, psychology, biology, chemistry, economics, business and investing. Charles Munger of Berkshire Hathaway is in the investing world often quoted as coming up with the concept of multidisciplinary thinking. By internalizing a range of mental models on how to think and behave, the theory is that you will make better decisions and stay out of trouble both in life and as an investor. In Seeking Wisdom Bevelin describes many of these models.

Peter Bevelin is the Swedish author and investor who wrote Seeking Wisdom in order to remember what he had learned and to transfer some of the knowledge to his children. The author has been greatly influenced by his friend Charles Munger who read and commented on the book before publication. Another friend of his, Nassim Taleb, has been quoted saying that "Peter Bevelin is one of the smartest people around". Bevelin has written three other books on related topics.

The book is structured in four parts. Part one introduces the reader to why humans make certain decisions by describing how the brain works and why it works as it does. Most of it is explained as survival instincts from having been hunter-gatherers for most of the existence. Humans are wired to seek pleasure and avoid pain. Part two describes the 28 most common psychological misjudgments that humans suffer from due to this ancient hardware of the brain. There is some overlap to Charles Munger's speech on Psychology of Human Misjudgment but the material is presented differently in the book and goes even further into detail. In part three the author presents other situations where humans suffer from misjudgments, by taking examples from physics and mathematics and linking them to subjects as investing and business. The last part gives the reader some well-needed guidelines on how to improve his or her thinking habits. You could argue that the author doesn’t add much to the content himself, but as this probably wasn’t the intention the criticism would be a bit unfair.

Apart from presenting explanations to why we think the way we do, the author describes ways to act in order to make sure that we learn. For example, by always asking the question "why?" we force ourselves to understand the meaning and not just the name. By designing checklists for our investment procedure, we may reduce the probability of making silly mistakes. By writing post mortems we can learn from our mistakes and prevent them from happening again. In order for the post mortem to be effective we need to write down our decisions from the outset and how we felt emotionally at that point. Otherwise there is a risk that we will fool ourselves and according to Richard Feynman: "the first principle is that you must not fool yourself and you are the easiest person to fool".

This book has influenced me a lot and has taken me on the path of becoming a multidisciplinary thinker. Reading it once will hopefully get you on your path of learning but this is a book to be re-read on a frequent basis as it's difficult to take in all of the condensed wisdom the first couple of times. Seeking Wisdom is possibly an even greater source for further reading due to its vast bibliography.

Peter Bevelin's aim is to put the reader on the path to multidisciplinary thinking and for me he greatly succeeds.

Niklas Sävås, May 1, 2018