Ries, Eric - The Lean Startup

Crown Publishing Group, 2011 [Business] Grade 4

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Waste and inefficiency must be avoided in order to build a successful business. But how could it be achieved in practice? This is the problem that the author Eric Ries sets out to tackle with his book The Lean Startup. The Japanese businessmen Taiichi Ohno and Shigeo Shingo invented lean production in the 1980s. The aim was to avoid waste in Toyota’s manufacturing. The methods have been copied by many companies since. Another term frequently used in the book is “agile”, i.e. working with short production cycles using adequate tools to measure success and learn continuously.

Ries is a Silicon Valley entrepreneur. With ten years of practical experience from starting and running successful businesses he had seen what worked and what did not. Convinced that his success was due to his methods he started to blog about them in order to spread the word of his formula that he calls the lean startup methodology. That blog led to this book from 2011, with the subsequent follow up The Startup Way in 2017. Today he is an author, a venture capital adviser and deemed a thought-leader on innovation and strategy.

The Lean Startup is a practical guide mainly written for entrepreneurs and startup managers. It is structured in three parts: Vision, Steer and Accelerate. In the first part Ries presents the basics of lean and agile and his concept of validated learning. In the second part, Steer, he describes the cycle of build-measure-learn. “That didn’t work, next!” By focusing on small meaningful deliveries - minimum viable products - and working with short feedback loops, waste can be avoided. This is the main idea of Ries’ methodology, as long feedback cycles demand good forecasts and humans are terrible forecasters. If the time from start to end is too long it’s also hard to learn from mistakes and correct them in time. The last part, Accelerate, deals with how to avoid bureaucracy when growing and how a company can gain a competitive advantage and invest in order to improve it.

Chapter seven and eight are the most interesting ones for the investor. By using traditional valuation techniques based on figures from the financial statements, it’s very difficult to understand if a startup, or any company, is viable or not. The CFO of a startup needs to track metrics at a customer group, cohort, level in order to know if the incremental development creates value for the company. For the public investor - unlike the venture capitalist - these metrics are seldom available. The next best is arguably to look for developments across the customer base and to track KPIs such as the cost of acquiring a customer, customer retention and revenue per customer.

The things Ries writes about are not new. His main sources are experiences by him and other entrepreneurs as well as by thought-leaders in business, innovation and strategy such as Ohno, W. Edwards Deming, Clayton Christensen and Peter Drucker. The main feat of the author is that he has taken principles that have worked in manufacturing to the technology space and refined them to work efficiently there.

If one were to be critical, as one should always be, Ries doesn’t give the reader much proof of the success of his method. It all makes intuitive sense and having worked with both traditional and agile principles myself I agree with most of what the author says. But as no base rates for startup success is presented and compared with data for businesses employing these principles, there is room for improvement. I hope the author supplies hard facts in a later edition.

The biggest insight for me as an investor is the reminder that the most important corporate metrics to analyze are either unavailable or difficult to find for the outsider. Studying financial statements is a start but far from the end. Being an investor is like being a detective, the search for clues never ends.

This is an enjoyable read which should interest both the investor as well as anyone involved in business.

Niklas Sävås, April 22, 2019

Stone, Brad - The Everything Store

Corgi Books, 2013 [Business] Grade 4

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When Brad Stone asked Jeff Bezos about the idea of writing a book on Amazon, Bezos found it premature as a lot of history was still to be created. Observing the events after the publication in 2013 one can understand why. The company and its founder are one of the biggest success stories of the 21st century and many books are yet to be written about them. The title says a lot about the ambition of Amazon and Bezos, to become The Store for everyday purchases. They are certainly on the way.

Brad Stone is a journalist and author who focuses his writing on the technology area and frequently the major technology companies. He has written three books of which The Everything Store was his second. Stone had followed Amazon and Bezos for a long time as a reporter before deciding to write the award-winning book.

As is common with biographies the book is structured chronologically, starting with the early life of Bezos, his first jobs and the decisions that ultimately led to the formation of Amazon. Bezos had a well-paid job at a hedge fund on Wall Street and he took a leap of faith by - opposite to the advice and wishes of most of his friends and relatives – leaving the comforts to start his own business called Cadaver (later changed to Amazon). The book is as much a biography of Amazon as of Bezos, which is not strange due to his influence.

The book conveys the story that many of you will be familiar with at this time. Starting with selling books online, Amazon has moved into many new areas over the years. Some of the chapters describe the most important innovations of the company as the notion of the Everything Store, Amazon Web Services and the Kindle e-book. It also explains many of the failures, mostly related to early acquisitions (which are minor compared to the successes). Bezos’ idea is to fixate on the customers and to use the savings that Amazon realizes with increased scale to lower prices. The declining prices entice customers to buy more leading to larger scale and even lower costs in a virtuous cycle. The company has been ill seen by the financial community during large parts of its history due to the lack of (apparent) profits. With a true long-term perspective Bezos has the idea that what’s best for its customers is best for Amazon. Other stakeholders are not treated as friendly. Vendors, employees and the Government have a hard time dealing with it. In my opinion, that may be one of the tougher challenges for Amazon in the future as the best business should be the one that treats all stakeholders well.

The author pictures Bezos as a genius who sets the highest standards on himself and his employees. If the standards are not met, the stay at Amazon will be short. Considering how many leaders that have come and gone as well as the success of the company, it’s hard to argue against those points. Bezos was afraid that the book would become another one of those biographies trapped in the narrative fallacy of too much simplification and storytelling. The road to success is always bumpy and even though it’s now clear that e-commerce is a success, that was far from evident early in Amazon’s history. One could think of an alternative scenario where the development of e-commerce would have taken much longer to the detriment of Amazon. I would have appreciated such a discussion. Stone makes a few points about what is certain to happen in the future which I think could profit from a more nuanced view.

As an investor it’s great to be able to study successes and failures of businesses without having to make a judgment if the stock is interesting or not. Amazon is such a case for me. I think it’s an act of grave omission not trying to understand one of the most important companies in the world and possibly more crucially its fascinating founder. This book is a joy to read due to the simplicity of the language and the timely subject. I surely understand why it became a best seller.

Niklas Sävås, January 28, 2019

Crosby, Daniel – The Behavioral Investor

Harriman House, 2018 [Finance] Grade 4

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This is a book with great ambitions. In the first sentence Daniel Crosby says that the aim for The Behavioral Investor is to be the most comprehensive guide to the psychology of asset management ever written. Dr. Crosby, a psychologist by training, is the Chief Behavioral Officer at Brinker Capital and a leading blogger and podcaster on the subject of behavioral finance – this is his forth book on different topics in this discipline.

Some fifteen years ago I fell in love with behavioral finance as it so obviously described aspects of investing and financial markets that traditional finance and economics didn’t. Over time the interest has however started to wane since the academics in the area devoted their energy towards adding yet another insult towards the previously dominant efficient market hypothesis creating an ever growing list of interesting and quirky behavioral biases but no real practical applications for investors. According to the author “[…] all this ends today, as we will take [these biases] and speak to the particulars of what they mean in the context of making money.” I would argue that the aim of being the most comprehensive guide is reasonably well met for a book of “only” about 250 pages. With regards to fulfilling my wish of an applied behavioral finance investment method The Behavioral Investor unfortunately only gives fairly broad guidelines.

The author is well read in both academic literature and more practical investing books. Despite the author’s learnedness the language is very readable and clear as Crosby’s writing comes with a humorous and personal touch. This is a finance book without most of the technical finance jargon – although at times it instead contains some psychology terminology. Nevertheless, it’s undoubtedly a very readable book.

The book is structured in four parts with the first outlining the sociological, neurological and physiological foundations to the biases investors exhibit. Then the author summarizes the many documented psychotically based follies of investors into four primary tendencies regarding ego, conservatism, attention and emotion. Part three tries to list practical measures to overcome the previously described problems and finally the book ends with the author’s “third way” of investing (as opposed to passive investing and active investing) called rules-based behavioral investing (RBI). Hence, the first half gives a background and the second half tries to apply the learnings in real life. Throughout The Behavioral Investor Crosby discusses most of all the psychological experiments and subsequent findings that a frequent reader of behavioral finance literature will ever have heard of but without it ever getting tedious.

RBI is as the name suggests rules based with a high base allocation to equities implemented through a combination of value and momentum quant based equity portfolios and with an overlay of valuation (Tobin’s Q, CAPE etc.) and momentum (200-day or 10 month moving averages etc.) based rules for when to very occasionally lower the allocation of equities. The focus is to find a rational and evidence based methodology where the room for behavioral biases is kept to a minimum. Although this is only one of several good ways to manage money I personally think this is a great setup, but regrettably Cosby only gives a very fleeting description of what his RBI actually looks like. Further, the Achilles heal of the rational quantitative strategy is that it needs permanent money or else it will suffer redemptions at the exact wrong moment from its less than rational human investors.

If this is one of the first books you read on behavioral finance you are to be congratulated as it will surely be mind-blowing. If you have followed the area during its development, The Behavioral Investor is a very good inventory of current knowledge but it adds relatively little new. And perhaps it’s a good thing that a best selling book cannot deliver a detailed best practice behavioral finance investing method as it is then up to me to develop it myself.

Mats Larsson, December 31, 2018

Pettis, Michael – The Great Rebalancing

Princeton University Press, 2013 [Economics] Grade 4

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World trade doesn’t work as most pundits think it does. At least the author argues that the effects on national current account balances, savings ratios, investments etc. are too often poorly understood. The author Michael Pettis - formerly a banker at Bear Stearns and a trader at today’s JP Morgan - is a professor of finance at the Peking University and a well-read, prolific blogger, discussing topics like global trade and the Chinese economy. In this book Pettis tries to set the record straight and explain why trade policies, in a broad sense, was one of the major factors behind the 2009 financial crisis and what this says about the future for the Chinese economic growth model etc.

Apart from an introductory chapter and a concluding one (including some predictions about the future) the book is structured to try to explain three “confusions” in the trade debate. The first confusion has to do with the causes of trade imbalances and how these generally are the result of distorted economic policies in one or more countries (chapters 2 to 4), the second is related to the relationship between trade, the savings rate and international capital flows (chapters 5 to 7) and the final confusion is that the role of the USD as the global reserve currency is an advantage for the US (chapter 8). As I read the 2014 printing of the book it also contains an appendix with an explanation to why the imbalances discussed in the book emerged to start with. If your copy of the book contains this appendix I would advice you to start your reading with this as it provides background and further details the macro economic accounting identities that are frequently used in the book. Although several countries and regions are discussed, the symbiotic relationship between the US and China is really the key topic of the book.

You get the feel that The Great Rebalancing is written out of frustration that so few understand global trade economics. The big advantage of the book is that it looks at the economic causes and effects of trade as an interconnected international system where every country is affected by every other one through the capital and current accounts. Hence, where many economics textbooks look at theoretical examples containing only two countries Pettis discusses the real-world, complex web of relationships. Still, the book also very much feels like sitting in on a slightly repetitive academic economics course in trade theory, but instead of equations and arrows that point to chains of events everything is described in text only. It would have been more enlightening if the author had added some occasional pictures with the described equations. Hence, the best advice for getting the full benefit of this book and making reading it a valuable learning experience is to write down the equations that Pettis uses on a piece of paper and have it handy while reading the book.

Pettis views imbalances between production and consumption – or rather “underconsumption” as once discussed by Karl Marx – to be the primary source of economic instabilities and from this argues that the economic growth model of China has actually been tried several times before and as it is imbalanced it will have to reverse. In the case of Japan it reversed through a crisis while in Brazil it did so by a lost growth decade. It is this later fate the author sees for China in the end. The growth model builds on financial repression (in China’s case through low regulated interest rates), currency manipulation and a wage growth that is slower than the productivity growth. The author claims that there are only three ways that China realistically can rebalance and this is through higher unemployment, increasing debt or through wealth transfers. The best way would be to shift the economic model in a way that shifts means from the state and the corporate sector to consumers. Although this would be relatively painless the GDP-growth will have to slow substantially and it is also a policy that threatens many vested economic interests.

I’m not a good enough economist to know if Pettis is right but despite the somewhat dry writing this is an important book to have read.

Mats Larsson, December 26, 2018

Marks, Howard - Mastering the Market Cycle

Houghton Mifflin Harcourt, 2018 [Finance] Grade 4

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The holy grail of investing is market timing and its realization is about as elusive. This is a guide on how to master the financial market cycle, which is something in a way related to market timing, but still very, very, very different. The master (that word again…) corporate bond investor and investment writer Howard Marks at Oaktree Capital Management is among those whom I admire most in financial markets and his first book The Most Important Thing ranks among my top five all time investment books. In a way this is a slight problem when it comes to Mastering the Market Cycle. A classical advice to companies reporting their financials is to “under-promise and over-deliver” – the thing is that Marks’ first book drives up expectations for this one to a level it cannot fully live up to. But it’s still a really inspiring book on an important and under-discussed area that I will put to good use immediately.

A fundamental cornerstone for the author is that financial markets cannot be predicted with any practically usable precision in the short to medium term. This doesn’t mean that all market outcomes are equally probable at all times. By looking to current conditions and by this forming an opinion on where we are in the market cycle an investor, according to Marks, can tilt his portfolio to take advantage of what is more likely to happen in the years ahead. It’s both about what one thinks will happen depending on where one is and about the probability of this happening compared to other scenarios. If an investor is good at this game it should pay off in the long run and he tilts the odds for success in his favor. Prepare, don’t predict. I think he is totally spot-on in this respect.

Another key basis in mastering the cycle is to understand that things don’t just happen one thing after another in – unfortunately irregular – cyclical patterns. What happens in one stage of a market cycle is instead causing it to move on to the next stage. Cycles are chains of cause-and-effect relationships. After a pair of introductory chapters the main part of the book is devoted to describing a large set of interrelated and parallel such cycles: the economic cycle, the profit cycle, the risk attitude cycle, the credit cycle and so on. Underlying all these is the cyclical patterns in investor psychology – a topic clearly nearest to Marks’ heart. To a large extent Marks reads various psychological markers and positions himself in the cycle by these. Next comes one chapter that tries to assemble all the above cycle inputs into the full mosaic of the market cycle. The book finishes with a few concluding more practical chapters and a needlessly cut-and-paste type of summary.

It is honestly a luxury to have 50 years of hard won experience condensed in such a graspable format. Marks is a simply superb writer. Much like Warren Buffet the language can be deceptively simple, causing fairly complex issues to sound like child’s play. Make no mistake – this is investment thinking on the highest level. Still, compared to the high standards set by the author’s investment letters some passages of the book are a bit repetitive with their long and recurring chains of cause-and-effects and some newly written chapters that don’t build on previous investment letters, but are required to make an coherent story, are perhaps slightly less inspired than the others.

There are clearly others who have made contributions to the understanding of market cycles such as Hyman Minsky, various Austrian economists, the books from Marathon Asset Managed edited by Edward Chancellor plus many others. However, since Marks is so focused on reading non-fundamental and non-economic signposts I think the most complementary book might be Big Debt Crisis by the more Borg-ish Ray Dalio with his “economic machine”-concept, who obviously mostly zeros in on the central bank dominated cycle of monetary policy.

When it comes to books on market cycles this is a must read – but it could have been even better.

Mats Larsson, December 15, 2018

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

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

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

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

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