2020 Book Reviews
The following briefly outlines our investment team’s reading over the year.
A fascinating and inspirational story on how two unemployed Rhode Island School of Design grads and their tech buddy transformed the lodging industry. From its beginnings in the depths of the financial crisis, to its seven million active listings today (compared with the 1.38 million rooms at the leading hotel company Marriott International), the author digs deep into how these three men complemented each other and persevered through multiple setbacks. Perhaps most important for investors is CEO Brian Chesky’s “pathological curiosity,” which led him to devour books and seek out role models like Warren Buffett (four-hour lunch in Omaha), Disney’s Bob Iger, and Tesla’s Elon Musk. The future remains bright for Airbnb given millennial values and attitudes towards experiences and accommodations.
The Deficit Myth
by Stephanie Kelton
In case you’re looking for a book to follow Munger’s advice, “any year that passes in which you don’t destroy one of your best-loved ideas is a wasted year,” this may be the one for you. Given eight years since the inception of the 2% inflation target and a decade of unprecedented monetary policy, we have been amazed at the United States’ inability to consistently reach this achievable target. The author presents a compelling case that forced us to re-think basic assumptions about monetary sovereignty and the role of government in our financial system. The book explains in plain English how a more active fiscal policy could be helpful and eases our traditional concerns about “spending money we don’t have.” The book is timely as Modern Monetary Theory arguments increasingly seep into the broader economic discussion as the nation seeks policy tools to offset pandemic-induced economic weakness.
The River Road associates who read this book agree with Bill Gates; this was one of the best books we’ve ever read. We have read enough bull and bear stock arguments to understand that negative, critical bearish views typically sound “smarter.” Most of what we read about our economic outlook, our country, and our world is discouraging and relies on our ‘statistical obtuseness.’ It takes a special talent to present positive, optimistic data in a convincing package that leads to excitement for the future. The author traces the consistent improvements in global health, wealth, inequality, the environment, equal rights, and quality of life to the revolutionary thinkers that defined the Enlightenment in the late 18th century and led to their most famous product, the Declaration of Independence. The book may be a well-timed read given the vaccine news of last week.
The Great Crash 1929
by John Kenneth Galbraith
An entertaining introduction to the run-up of the 1920s stock market and the crash/depression that followed. The parallels with today are present, but almost certainly not predictive. The U.S. had enjoyed a 10-year bull market by 1929, a massive rise in leverage and share buybacks, and public support from leading academics (Professor Irving Fisher), industrialists (the first statement by John D. Rockefeller in decades), politicians and bankers. Investors then relied on “organized support” to keep stock prices elevated and their dreams alive, which first included the big operators like Durant, Raskob and Livermore and later the big banks like J.P. Morgan. The American entrepreneur and economist Roger Babson noted a crash was coming in September 1929 (the “Babson Break”), which began the wave of selling and the periodic rallies when investors (according to the New York Times) felt “secure in the knowledge that the most powerful banks in the country stood ready to prevent a recurrence of panic.” Unlike today, politicians, economists and bankers were then committed to a balanced budget, which meant higher taxes, less spending, and the gold standard limited the flexibility of the Federal Reserve’s monetary policy. A quick and easy read, this book may be perfect during this national lockdown.
The Great Depression: A Diary
by Benjamin Roth
Published first after the 2008 market rout, the book chronicles the diary of a Youngstown, OH middle-class attorney between 1931 and 1941. The leadership at River Road has recommended we keep a diary of events around this volatile time and this book sets a wonderful precedent for us to follow. Benjamin Roth recounts the margin-driven bubble and the Depression consequences from a middle-class professional’s point of view. He outlined the constant searching for signs of economic improvement and fears what the New Deal meant for a balanced budget and future inflation. It was his personal investigation into how to create, keep and grow wealth over a lifetime that was most illuminating. Maybe the original asset allocator, Mr. Roth learned the hazards of common stocks and real estate and the importance of government bonds and cash to maintain liquidity and practice value investing most effectively. This book highlights the value of personal reflection and commitment to continuous learning.
A nice complement to The Man Who Solved the Market, this book traces the remarkable life of the original “quant” Ed Thorp. The first part of the book describes his childhood and his love for math and science, which eventually earned him a Ph.D. in math and an MIT post. He spent the 1960s literally writing the book on how to take on the casinos (Beat the Dealer) and the market (Beat the Market). It is particularly entertaining to read about Thorp and fellow MIT professor / “father of information theory” Claude Shannon tinkering with roulette equipment in Shannon’s basement and then the game of bridge with Warren Buffett in 1968. Thorp spent the next several decades developing option pricing theory and mastering hedged strategies, including convertible and statistical arbitrage, for his Princeton Newport and Ridgeline hedged funds. The book is highly recommended for those interested in the beginnings of the quant investing revolution.
The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success
by William N. Thorndike
We try to read The Outsiders at least annually. It is our favorite, and most recommended, book on the topic of shareholder orientation. The author compares eight unique CEOs and their legendary track records with the traditional example of a successful CEO…GE’s Jack Welch. The “Outsiders” share a common philosophy that includes several similarities: a preference for cash flow over earnings, opportunistic share buybacks, decentralized operations, the thoughtful use of leverage and infrequent, but meaningful acquisitions. Despite stock performances that trounced the market and their peers, this group of extraordinary leaders were not “charismatic”, but, rather were often humble, independent, highly analytical (more engineers than MBAs) and family-oriented. We are always on the “look-out” to partner with Outsider-like CEOs.
Problems With Modern Monetary Theory
by Robert Wenzel
The team thoroughly enjoyed October’s book, The Deficit Myth, and sought out opposing viewpoints to add context. It seems that Modern Monetary Theory (MMT) advocates are winning debates (bloomberg.com; tiered subscription) and the counter-arguments we’ve found either lack persuasive evidence or debate minor points surrounding MMT doctrine. The most coherent and compelling arguments against MMT stems from the budding crypto-currency asset class and community and, in particular, bitcoin.
Most ‘Bitcoin-ers’ would point to Abba Lerner’s (whose ‘functional finance’ in 1943 preceded MMT) conversation (varoufakis.files.wordpress.com) with John Maynard Keynes at a mid-1940s Fed seminar to illustrate the dangers of MMT…
Lerner: “Mr. Keynes, why don’t we forget all this business of fiscal policy, public debt, and all those things, and have some printing presses?”
Keynes: “It’s the art of statesmanship to tell lies but they must be plausible lies.”
From legendary hedgies like Stan Druckenmiller (forbes.com) and Paul Tudor Jones (lopp.net) to institutional investors like Blackrock (markets.businessinsider.com) and MassMutual (bloomberg.com; tiered subscription), and public corporations like Square (squareup.com) and MicroStrategy (cointelegraph.com), investing in bitcoin is losing its stigma and difficulty (barrons.com) in establishing an investment. The best introductory texts for enterprising bitcoin investors include Inventing Bitcoin and The Bitcoin Standard. We’ve found value in other books on bitcoin (here, here, and here) and a book for those interested in the #2 crypto-currency Ethereum.
If you’ve ever been tempted to buy a Russian stock, please read this book first. What looks to be a mouth-watering “value,” may be cheap for a reason. The author traces his profitable adventures running a hedge fund in the first half of the book and exposing corporate and governmental corruption in Russia. His successes eventually provoke the Russian government to respond, which leads to the author’s inability to enter Russia and, tragically, to an associate’s torture and death. The second half of the book details the author’s fight for justice and the eventual passage of the Magnitsky Act in the U.S., which blocked suspected Russian human rights abusers from entering the United States. An entertaining read, though most value investors will probably find the author’s bumpy road to hedge fund success more interesting than the remainder of the book which documents his efforts to fight back against the Russians.
Renewable Energy: A Primer for the Twenty-First Century
by Bruce Usher
This book provides a great framework for understanding the current transition from fossil fuels to renewable energy by examining past energy transitions such as wood to coal and animal power to oil. The basic thesis is that energy transitions are about cost, they are slow, and they have profound effects on society. The transition to renewables for electricity generation has accelerated in recent years as wind and solar power have become considerably less expensive than fossil fuels, even without tax credits. However, renewables are still held back by the cost of battery storage, which is required to address wind and solar’s intermittency issue. Electric vehicles are approaching cost parity with internal combustion engines enabling a transition away from fossil fuels for transportation. The speed of the renewable energy transition is hard to predict, but this book is well researched and provides wonderful insight into why the transition is occurring and how it is likely to develop.
Stillness Is the Key
by Ryan Holiday
This book has the potential to make someone a better investor (and potentially lead a better life). Without a word on P/E ratios or Porter’s five forces, the author instead helps “control the urges that get other people into trouble in investing” (Warren Buffett). The book contains 34 stories that highlight the importance of stillness. From Tiger Woods’ comeback to President Kennedy during the Cuban Missile Crisis or Churchill during World War II, there are remarkable examples of individuals exhibiting calm amid unthinkable stress. It is when an investor can slow down, clear their calendars, and begin to think deeply when insights can emerge.
T. Rowe Price: The Man, The Company, and The Investment Philosophy
by Cornelius C. Bond
A modest and ethical man, T. Rowe Price Jr. would certainly be proud of the company that still bears his name. From coining the term “growth stock” in 1935, to launching his firm in 1937 and reaching the nation’s “best investor” status by the 1960s, the company now manages over $1 trillion and boasts a $27 billion market cap. Mr. Price’s approach seems commonplace today, but that’s because of his common sense approach to investing produced results that attracted followers. Mr. Price believed in doing fundamental research, focusing on companies that could double earnings in a decade, meeting with management, and then holding for 7-10+ years. All investors can benefit from learning Mr. Price’s history and investment philosophy.
COVID-19: The CIDRAP Viewpoint
by Dr. Michael Osterholm
As the renowned epidemiologist Dr. Michael Osterholm recently noted, COVID-19 is the first pandemic to become the leading cause of death in the U.S. in just six weeks since the historic and horrific 1918 influenza. Our team took some time over the past month to read Dr. Osterholm’s book along with another on the 2014 Ebola outbreak and one more on the 1918 flu. Two of the authors, Dr. Osterholm and John M. Barry, teamed up with others to publish their current thinking regarding COVID-19. We came away with a deeper understanding of viruses in general and a broader appreciation of the range of potential economic outcomes in particular.
The Great Influenza: The Story of the Deadliest Pandemic in History
by John M. Barry
In this read, the author recounts the deadliest pandemic in history with remarkable thoroughness and readability. This highly entertaining book details the history of American medicine and the tragic consequences of the common refrain… “this was influenza, only influenza.”
Picking up on John M. Barry’s “detective novel” non-fiction style, the author of this read expertly narrates the devastating 2014 Ebola outbreak in Western Africa.
Deadliest Enemy: Our War Against Killer Germs
by Michael T. Osterholm
The author caps off a remarkable career in public health with a book that summarizes the most notable infectious diseases facing the world. This 2017 book reaches its maximum effect as it portrays a hypothetical future pandemic that nearly matches today’s COVID-19 headlines.
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