Saraogi, Rahul – Investing in India

Wiley, 2014 [Equity Investing] Grade 4

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India is a country of interest to investors as it offers many of the characteristics that made the West such a fertile place for business and investing during the 20th century: young demographics, a rapid rate of urbanization and improving education. The best investors have often prospered from using a bottom-up approach, investing in stable countries with a clear rule of law, a strong financial infrastructure and with capitalism and not socialism as the ruling principle. The question is if the opportunities in India outweigh the risks for investors. Judging by the title of this book from Rahul Saraogi, Investing in India: A Value Investor's Guide to the Biggest Untapped Opportunity in the World, the answer is a clear yes!

Saraogi is a value investor who was born in India and moved to the US to study. It was at that time he became interested in economics and investing. He also became enthralled by Indian economic history and realized that both Indians and Westerners had problems with understanding India. He saw an edge that he decided to pursue. He moved back to India to become an investor and now manages Atyant Capital. Saraogi wrote the book in 2014 – a time when the Indian markets had suffered from a severe downturn.

Investing in India is structured in six chapters where the first four focus on giving the reader an understanding of India from a social, political and economic perspective. The fifth chapter is about value investing in India where the author presents examples of what businesses to avoid (those with bad governance and poor capital allocation) and what to look for. Throughout the book the author presents case studies to describe and strengthen the points made.

Some quirks that may be surprising for the reader is that Indians avoid buying property and machinery at certain times during the year due to spirituality and superstition. Another is that debts in Indian villages are not forgiven by death but is left with the heirs. Another central theme is that of the important roles of land, property rights and gold. It's not allowed to lend for land-buying, but prices are still high as it’s seen as a valuable consumption item. Gold has been a good store of value, as it often is in countries suffering from currency debasement and instability. The country imports gold worth $60 billion a year. Strong property rights are central to a free-market system but also act as a hindrance for building infrastructure, an area where India has huge needs of improvement.

India should not be seen as one country as the differences between the 28 states are huge - some states are likely to prosper in the near- and long-term while others have worse outlooks (the richest state has seven times the GDP per capita of the poorest). In terms of sectors, agriculture is the largest measured in people employed while services are largest in terms of GDP. On the macro side the country has a large current account deficit but at the same time a low level of external debt.

The Indian markets have often traded higher than the other “BRIC” countries. While Brazil, Russia and China have lots of cyclical and commodity companies, India has strong franchises which according to the author should command higher valuations. Saraogi is certainly bullish on the future of India, a view he shares with great investors such as Mohnish Pabrai and Prem Watsa. He thinks the groundwork has been laid and compares it with a bamboo plant that grows very slowly during the first four years while it develops its root system. In the fifth year it grows 80ft in 6 weeks! The future will tell if something similar can occur in India.

One should always invest within one’s circle of competence. The book is a comprehensive guide to one of the most important countries in the world and a great start for the investor who wants to know more about the ins-and-outs of investing in India. The reader will certainly get a better understanding of interesting sectors and might even pick up some stock-tips.

Niklas Sävås, December 04, 2018

Duke, Annie – Thinking in Bets

Prentice Hall Press, 2018, [Behavioral Finance] Grade 4

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If you were to analyze poker, it’s basically a game of decision making under uncertainty. Should I call? Raise? Go all in? Or maybe fold? The only thing you know for sure is the hand you are dealt. The uncertainty lies in everything else.

Poker is about making the right decisions when you don’t have all the information available. When looking at the stock markets it’s not hard to spot the similarities. The market is just a big pile of uncertainty with you stuck in the middle trying to make money.

Internet poker was a big thing when I grew up, and my enthusiasm for the sport (if it is one?) has indeed served me well. I stumbled across Annie Duke when she was interviewed on The Capital Allocators Podcast. When I heard that she was writing a book about how to approach life as a betting game, I was already sold.

This is a book about decision strategy, and Annie is a very experienced decision strategist. Even if the book is filled with anecdotes from Annie’s poker career this is far from a poker book. Instead it’s a book about making good decisions when you can’t see all the cards, both figuratively and literally. It turns out, this is a situation we find ourselves in almost all the time. When we decide to go to the movies we’re taking a bet on that the movie will be a better experience than staying home. When we order meat at a restaurant it’s a bet that it will prove a better experience than the fish. Every decision is a bet on something - we are just not used to think about decisions this way.

Duke suggests that by analyzing our decision process we can subsequently use tools that makes it easier activate system 2 (it’s time to read Daniel Kahneman’s Thinking, Fast and Slow if you for some unexplainable reason haven’t already) and think more rationally.

One interesting example of this is one about actual betting. Most people are in the habit of making statements as if they were always true. We often accept these at face value since it instinctively seems at least moderately accurate. If we instead reply with “Wanna bet?”, the mindset shifts dramatically. Now we try to think hard if the said statement is maybe 70% or 100% true. The difference is of course enormous, but without forcing ourselves to make a bet, we take mental shortcuts and jump right to the, often wrong, conclusion. By trying to ask ourselves if we would place a bet on something, we can help ourselves along the path to Kahneman’s famous system 2.

Another very helpful idea that the author taught me was the idea of setting up decision groups whose only task is to analyze and evaluate each other’s decisions. The group is in itself an interesting concept, but what its mere existence does to you is far more interesting. Before deciding, try to foresee what your decision group will make of it. What objections might they have? Which questions will they ask? What will they think about your decision? Will they approve of your action or will you walk away embarrassed? By anticipating the decision-group’s feedback before you even make up your mind in the first place, you are far more likely to make a rational decision based on facts and not gut feeling alone. You don’t even have to go to the group, as long as the group’s pressure affects your decisions.

If you’ve read a book or two on behavioral finance you will certainly feel at home with Thinking in Bets. It takes all the common concepts and tries to find a more practical approach to beating biases and poor decision-making. This is a great book for anyone; buy it for Christmas for everyone you know. It is not an investing book; it’s a book about not being a dumbass. Which for sure is a goal I have as an investor.

Olle Qvarnström, November 29, 2018

Tsoi, Tony - Living Value Investing

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Right off the bat, it would be appropriate to bring some preconditions to this review out in the open: The author of the book, Tony Tsoi, has previously worked at Value Partners, the investment boutique founded by Cheah Cheng Hye – the very person profiled in Living Value Investing. And it is obvious he holds Mr. Cheah in very high regard. Furthermore, this reviewer owns shares in Value Partners in his day job as a fund manager – in no little regard due to the appreciation of Mr. Cheah’s capabilities and the brand name Value Partners has built. So, with that out of the way: this is a fascinating rags-to-riches story, profiling a person that have built a company labelled ”The Temple of Value Investing in Asia” and been invited to hold the keynote presentation at The Ben Graham Centre as the first person from Asia to do so. But this outcome was certainly not written in the stars. It is perhaps his ability to surprise in his success that has left people around him - including the author - the most impressed. As he states early on: ”Throughout the history of Value Partners, there has never been a shortage of doubters - not even now”.

Living Value Investing was originally published in Chinese in 2016 but after some persuasion an English version came out early this year. The first half of the book is broadly organized in chronological order, starting with Cheah’s early life in a poor Malaysian rural area, through the 17 years as a journalist in both Malaysia (editor at age 19!) and for WSJ in Hong Kong, concluding with the formative period of building Value Partners. The remaining four chapters then deal with certain aspects of Value Partners, including the decision to go public, its focus on China and Cheah’s evolving role at the company he created. This last part was no walk in the park as many founders can attest to - particularly after trying to sell the company a couple of years ago, but then reversing course as the take-over price could not be agreed upon. Probably because of the ”currentness” of the situation, but also due to my appreciation of the other topics covered in the latter half of the book, I tended to like that part more than the biographical chapters. In no way should they be viewed as fly-over chapters however. The experiences Cheah made in early life has certainly had a tremendous impact on his investing beliefs and how Value Partners was built. The feeling of always being the outsider wherever he went, the lone wolf, looking in from the outside – isn’t that the perfect description of a dyed-in-wool value investor? 

One of the more fascinating discussions revolve around the future role of Hong Kong, its diminishing role since 1997 and what its competitive edge ought to be going forward. The author argues convincingly that what the island needs is not another Li Ka-shing (property and trade) but rather several new Cheah Cheng-Hye’s (financial services). A part I have re-read several times. Another topic that the author covers well is the corporate culture Cheah and the early partners have (figuratively) built into the walls of Value Partners. The pragmatic says ”performance is all that matters”, but as everybody working in the industry knows, performance is far from everything and the examples and standards you set early on impact the quality of people you attract. There is much to learn from the examples set forth in the book, despite the obvious translational differences in business conduct between East and West.

Another trait of Cheah, avidly described throughout the book, is his image as a bookworm. Almost every person interviewed brings this up. At no time is Cheah not reading something, even occasionally in the shower. To no surprise, this certainly adds to our appreciation of the man! He and VP has surely come a long way since having to sneak into an invitation-only seminar behind the back of a good friend working for Fidelity. Today, $17bn later, Cheah and Value Partners are working hard to be the ones leading the way, creating the Asian version of Fidelity. ”Today in China is similar to the US (financial markets) in the 1950s. The opportunity-set is there”.

Henrik Andersson, November 25, 2018

Wainwright, Tom – Narconomics: How to Run a Drug Cartel

Public Affairs US, 2016, [Surrounding Knowledge] Grade 3

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In the age of legalization of recreational drugs, what could be more relevant than learning about the South American cartels that completely own this market today? I know, the subject might seem a bit unorthodox for a finance book review, but bear with me.

To say that it’s impressive that this book exists is an enormous understatement. The fact that the author survived writing this makes you wonder if it’s actually true or a complete work of fiction. Tom Wainwright, the author of Narconomics: How to Run a Drug Cartel, has literally risked his life for this research. Wainwright paints a picture that the cartels are not that different from large international companies - with a little bit of torture, murder and what have you thrown into the mix.

From my experience, the world is best understood through the eyes of a textbook on economics, and Tom really proves this to be the case. Levitt and Dubner’s classic Freakonomics opened my eyes to the power of incentives and economic powers. Wainwright continues along this path and suggests that if we are to understand cartels, we must analyze them like every other structured organization. The cartels suffer the same problems as everyone else with finding recruits, keeping salaries down, keeping competition away and of course keeping prices high. Considering the hard work of finding good employees that are loyal and keep their mouths shut, it becomes increasingly important to treat your employees well. It seems somewhat unlikely that Wal-Mart would force all their employees to have facial tattoos done in order for them to never be able to change employer, but maybe the business world has a thing or two to learn about keeping employees around?

There are quite a few interesting tidbits throughout this book, many of them somewhat controversial, but nonetheless thought provoking. A specific part that stood out for me is that most of the cartels covered in the book are mono-cultural organizations with little to no diversity. According to a Dutch study on internal gang disputes, 29% of those conflicts when involving people of the same ethnicity were solved with violence, whereby the number is 53% for internal gang conflicts involving people of different ethnic background. There seems to be no studies made in “legit organizations” for this question so it’s quite hard to fact check these statements. Regardless how unpopular it would be, it tickles my curiosity to find out how an extremely homogenous organization would fare. Would they all be friends but get nothing done? Would the people eventually clash? Or would it be the most successful organization we’ve ever seen? I don’t think I will ever find the definite answer.

Academic research brought forward by Michael Mauboussin shows that there are different types of diversity; social diversity that reflects to differences in ethnicity, gender and the like, cognitive diversity that includes differences in knowledge, experience etc. and value diversity that captures differences in the perception of the group’s task or goal. To foster good decision-making you need a) relevant competences, b) high cognitive diversity to ensure that there are multiple sharp tools in the toolbox to solve problems but also c) low value diversity to make sure that people strive in the same direction. Social diversity is positively correlated to cognitive diversity and so is generally a positive. However, social diversity can also lead to some process losses as the group has more difficulties in interacting and the level of conflict therefore rises.

When peeking through the eyes of an economist, the world makes a lot of sense, and the global drug trade is no different. This might seem surprising to most people, but are we really that surprised that criminals also follow the rules of market economics? I can’t say that I am. No one is immune to the forces of the market economy. I picked up this book at the airport, and that’s kind of where it fits. It’s perfect for vacation reading. Prepare to be baffled and amused, but don’t expect to be a better person or investor.

Olle Qvarnström, November 19, 2018

Sommers, Tamler – Why Honor Matters

Basic Books, 2018 [Surrounding Knowledge] Grade 4

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In this his third book the relatively young Texan associate professor of philosophy at the University of Huston, Tamler Sommers, defines the virtue of honor, describes the pros and cons of honor cultures and claims that honor is underrated in our modern world. The author argues that the Western world has made a mistake in suppressing the concept of honor to the extent that has been done and that we need to adapt a “constrained” honor concept to live a good life. Although clearly interesting, Why Honor Matters fails to fully tie together all the loose ends.

According to the author the Western world is virtually schizophrenic when it comes to honor. The concept has little place in the discourse apart from when we horrify over the blood feuds, racism and bullying of women in honor cultures. On the other hand we admire the courageous hero of books and movies that rights the wrongs and in sports honor is still a valid concept. The first two chapters of the book define what honor is and discusses why it’s a problem that the West has abandoned the concept. Chapters three through five, drills deeper in the various aspects of honor cultures. Then “the most ambitious and […] the most important chapter” six argues for introducing so called restorable justice in the Western criminal justice system. Finally, the last chapter tries to present a picture of how the contained type of honor concept might look.

Sommers distinguishes between a Western dignity framework with its roots in the enlightenment and honor cultures – and to be clear, honor cultures could be attributed to both the populations of the Appalachian mountains and the Afghan mountains as well as the Navy SEALS, Mexican drug cartels and NHL hockey teams. Dignity is in this respect a universal unbreakable value that comes with being a human being and it is as such skeptical of narrowing forms of identifications with for example nation, class, race etc. This is because too close identification risks excluding others from the moral sphere. Honor is a much more fragile value that takes the opposite view. Giving equal moral weight to outsiders and insiders of a group is seen as immoral. While others should be treated with respect and hospitality, caring for your own is absolute priority. In a dignity culture living a moral life is a pursuit and choice of the individual while in honor cultures the individual moral is a part of a group’s norms and a moral life a necessity to be accepted by, and gain status in, the group. Dignity is independent of social structures and this has huge value in breaking free from oppressive structures. The downside is a loss of stability and structure plus of the self-respect that comes from standing up for yourself. To the author the western focus on the free will and the independence from others is too abstract where an atomization is prioritized over the meaning and solidarity that exist in honor cultures. Without the, granted not always positive, group cohesion of group norms dignity societies instead come to depend on an all powerful state penetrating deep into civil society.

Although I agree that a person to his best ability should live an honorable life of integrity, I reserve this as a choice for myself. My quarrels with the book are three. The discussion around restorative justice comes up now and again in the book and not just in chapter six. I think that it could have been better flagged that a debate on procedural structures in the US court system were such a large part of the book. Further, at times the author in my view comes a bit too romanticizing of the “honorable savage” of Jean-Jacques Rousseau. The ending chapter on how to create the contained type of honor isn’t very developed. Basically Sommers says that since honor norms are not universal they are changeable. What we need to do is to have norms that prevent violent escalation and that utilize less violent methods for standing up for oneself. Examples given are the dance-offs in Hip Hop culture, NHL norms, poetry slams and the Chicago BAM-project (Becoming a Man) - a bit slim basis for the change of western culture.

An important debate worthy of a stronger finish.


Mats Larsson, November 7, 2018

Zenger, Todd – Beyond Competitive Advantage

Harvard Business Review Press, 2016 [Business] Grade 3

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In his corporate strategy book Beyond Competitive Advantage the University of Utah business professor Todd Zenger, specialized in so called organizational design, presents a framework for companies on how to create shareholder value. The thesis is that companies too often use faulty or outdated structures to guide them in this pursuit and they should instead formulate and follow something the author calls a Corporate Theory of Value Creation. Although I don’t fully agree with all the preconditions that Zenger sets up the solutions he proposes are still largely correct.

The book is structured in three parts and seven chapters. Part one spanning the first 100 pages introduces and describes the author’s Corporate Theory and why it is needed. The other parts and the remaining 80 pages are mainly concerned with how companies – with their Corporate Theory at hand – should through organizational design, strategic focus, asset allocation, investment choices, acquisitions and divestments etc. link together the assets of a company, in a broad sense, to create value. “The leader’s task in a dynamic design is to identify and select the proper sequence of programs, initiatives or structures.”

However, to take one step back, Zenger starts by claiming that companies are too stuck in an antiquated view of strategy as formulated by Michael Porter in his classic Competitive Advantage - hence, the name of this book. What we are moving beyond is not the need to have competitive advantages as such but an old formulation of what corporate strategy to use. Porter’s approach to strategy is that a company should position itself in a valuable market niche where it through some means can have a competitive advantage and then work to fortify its moats in this market segment.

Now, the purpose of a corporation is to create shareholder value and in Zenger’s view this positioning type of strategy framework is too static to be able to create the continuous growth in value that shareholders demand. Instead the company should take a more adaptive and fluid trial-and-error approach. But without a beacon to guide these trials they risk becoming a value destroying random walk. Enter the author’s Corporate Theory of Value Creation defined as “a logic that managers repeatedly use to identify from among a vast array of possible asset, activity, and resource combinations those complementary bundles that are likely to be value crating for the firm.”

The theory that must be unique for the specific company can for example relate to an advantage in solving a set of customer problems, in exploiting a set of assets, a privileged position in gaining synergies from M&A etc. The observant reader could object that this doesn’t sound much different from the means that Porter would list in gaining a competitive advantage and they would be correct in this. However, Zenger’s Corporate Theory must also give a view on future development, on synergies between corporate activities and an insight on which assets that fit the company and by all this function as a tool to take the company forward into the future. It is a type of fact-based belief on how the company can create value that over time will help the management prioritize.

I agree on the need of a beacon and the book is not bad but it is quite lightweight, a tad ivory tower academic and there is a lot I don’t agree with. First, I don’t think companies are at all as trapped in Porter’s models that Zenger portrays. Secondly, while I agree on the corporate purpose of creating shareholder value it is a fundamental mistake to equalize this with the current share price. Further, the author advocates a corporate design oscillating between centralization and decentralization to over time optimize the combination of efficiency and innovation. I think there is an obvious risk that a firm by this never gets the compounding momentum that is needed for large-scale success.

The author in my view gives the right prescription but I don’t fully agree with all of the analysis done beforehand.

Mats Larsson, November 4 2018

Bernstein, Peter L. - Against the Gods

Wiley, 1996 [Equity Investing] Grade 5

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The sharpest minds of ancient times had a major advantage against modern thinkers. When faced with unexpected outcomes they could answer by reverting to faith or superstition. Greeks, Romans and Arabs came far in many other aspects but failed to develop the theory of probability. Instead, it was two Frenchmen, Blaise Pascal and Pierre Fermat, who made the breakthrough in the 17th century. The impact of the discovery has been massive, not only to mathematicians but also to all those who deal with matters with uncertain outcomes. In the best-selling Against the Gods the reader is taken on a remarkable journey through human history to clarify the subject of risk - which still can't be explained fully.

The author, Peter L. Bernstein was both an investor, a financial historian and prominent within academia. Having been an active investor and an economist is a feat he shares with John Maynard Keynes, an oft-cited character in Against the Gods. Bernstein published ten books and countless articles during his long career and is renowned for his supreme writing skills.

The main difficulty with investing originates from the notion that all the answers are in the past and all the questions are in the future. Many are those trying to predict the future - causing them to expose themselves to risk - or according to Bernstein "the chance of losing money". The author's main idea with the book was to explore the lessons of history to judge the current methods of handling risk. He therefore portrays those who have contributed the most to form the modern theory. This includes ancient thinkers as Aristotle and Al-Khwarizmi, later intellectuals as Pascal, Thomas Bayes and Francis Galton and modern theorists as Keynes and Daniel Kahneman. It's a remarkable history lesson.

Galton's discovery of regression to the mean during the 19th century - covered in one chapter -may be the most important for investors. It can be summed up with these timeless words from the author: "When investors overreact to new information and ignore long-term trends, regression to the mean turns the average winner into a loser and the average loser into a winner." By being contrarians, value investors have used the idea successfully over the last century. Another enticing chapter covers Amos Tversky's and Kahneman's creation of Prospect Theory. They managed to disprove that humans are the rational beings as depicted by traditional economists, by showing that people occasionally make irrational decisions. Keynes was one of the few who had earlier criticized the view of the rational man, as he viewed humans as being driven by animal spirits. Benjamin Graham was definitely another - something he is not credited for in the book. Graham also emphasized diversification as a tool for managing risk, which is not mentioned either in the chapter dealing with Harry Markowitz and his mathematical model of diversification. Overall, I think Bernstein's coverage of the 20th century gives too much credit to academia and too little to practitioners.

The main takeaway from the book is that the lessons of history support today’s preferred method of how to tackle problems involving both skill and luck. Using objective data from the past as the base rate and adjusting the probability by critical reasoning should lead to better decisions - and therefore lower risk. This is highlighted by current thought-leaders as Michael Mauboussin and Howard Marks. The best investors have a tendency to think probabilistically and relate declining prices (without impairments to the intrinsic value of the business) to improved odds. It should be a good way to approach investing for all.

The book is certainly no walk in the park as it takes a lot of effort to grasp the ideas.  It is nonetheless a great start for those who want to join Mauboussin and Marks in making better decisions. Most of all it's a very interesting book - not only for investors but for all interested in acquiring timeless wisdom. The odds are favorable that you will enjoy it.

Niklas Sävås, October 25, 2018

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