2022 Book Reviews
The following briefly outlines our investment team’s reading over the year.
10 ½ Lessons from Experience: Perspectives on Fund Management
by Paul Marshall
Founder of the $55 B, United Kingdom-based global hedge fund partnership, Marshall Wace, the author has written a valuable guidebook to successful investing. The book is small and can be read in one sitting, but impressive in its reach. The author writes in a clear and concise manner and easily transitions between philosophical musings to market inefficiencies and the importance of humility and risk management. We think most investors will enjoy and gain from this book.
The Affluent Society
by John Kenneth Galbraith
We enjoyed The Great Crash 1929 so much in 2020 that we decided to read Galbraith’s other famous work, The Affluent Society. Professor Galbraith makes the ‘dull science’ anything but with his mastery of history and insightful recommendations. He traces the economics profession back to the ‘founding trinity’ of economics through Adam Smith, David Ricardo, and Thomas Malthus and clearly describes the evolution of social Darwinism on one hand and the more active Keynesian view on the other. He predicts modern monetary theory decades before it emerged in national discussion (our review) and the notion of a basic income to help solve economics’ key issues including production, inequality, and economic security. The book should help any investor think more deeply and clearly as to the role of a productive economy for an affluent society.
The American Story: Conversations with Master Historians
by David M. Rubenstein
David Rubenstein, the author and co-founder of the highly successful private equity firm Carlyle, introduces each historian and then continues with a more in-depth discussion of the person in question. It makes for an entertaining, educating, and easy read that encourages the reader to dig deeper into each of these famous subjects. From the Founding Fathers through President Reagan, the book provides a snapshot that will “whet the appetite of the reader to learn more about American history.” As David McCullough describes John Adams, we think curious investors with a “profound and very often lifelong interest in history” will prosper over time.
The Bond King: How One Man Made a Market, Built an Empire, and Lost It All
by Mary Childs
The author traces PIMCO’s history from a sleepy unit inside a large life insurance company to the world’s largest bond manager. Bill Gross revolutionized the fixed income market in the 1970s with the notion that bonds didn’t just have to sit in vaults until maturity, but could be traded effectively. The book spends considerable time digging into PIMCO’s unique and obsessive culture that led to the firm’s impressive track record. Along the way, it becomes clear that Gross eccentricities, which likely were the driving force behind the performance results, became a firm-wide issue as the team around him evolved over time and struggled to manage his unique temperament. The book is well written, easy to read and a guidebook on how not to run an asset management firm.
Capital Allocation: The Financials of a New England Textile Mill (1955 – 1985)
by Jacob McDonough
There are probably hundreds of books written about Warren Buffett. The team has read many of them, but this one sticks out as being unique. Buffett started buying Berkshire Hathaway in 1962 and took control in 1965. The author provides financial details and interesting tidbits behind some of the important early transactions that propelled the company beyond its textile mill roots. Cost-cutting, tax loss carry-forwards, share buybacks, and stock purchases all contributed to the early Berkshire transformation. The purchase of National Indemnity and See’s Candy – the combination of float, a value focus, and excellent businesses – were the key raw materials for the Berkshire compounding machine.
Capital Returns: Investing Through the Capital Cycle: A Money Manager’s Reports 2002-15
Edited by Edward Chancellor
This book, which reproduces the manager’s Global Investment Review publications, belongs on every serious value investor’s shelf. The manager, Marathon Asset Management founded in 1986 and based in London, relies on ‘capital cycle’ analysis, which argues that high returns tend to attract capital and low returns repel it. The authors urge investors to closely monitor the amount of capital entering or exiting a particular industry as a guide to future potential returns. They back up their common-sense logic and investment framework with strong academic support and clear examples. We believe value investors, especially those that consider cyclical companies, will benefit from reading this book.
The End of the World is Just the Beginning: Mapping the Collapse of Globalization
by Peter Zeihan
We have enjoyed Peter Zeihan’s very readable books in the past, and this recent addition is another worthwhile addition to his collection. His expertise lies in geopolitics and demographics and his conclusions are stark and well-supported. The author’s basic premise is that the past 75 years have been the best, and will remain the best the world has ever seen. The American-led ‘Order’ since the end of World War II is collapsing and, along with it, the benefits of globalization. From Mr. Zeihan, “The 2020s will see a collapse of consumption and production and investment and trade almost everywhere.” The reader benefits from a deep dive into the implications for inflation, energy, agriculture, manufacturing, finance, etc. The book can help investors frame and consider the beginning cracks of de-globalization that we are already witnessing.
Extraterrestrial: The First Sign of Intelligent Life Beyond Earth
by Avi Loeb
The author is the longest serving chair of Harvard’s Department of Astronomy and a noted theoretical physicist with a focus on astrophysics and cosmology. His reputation and track record make it difficult to dismiss his claims that a Hawaiian telescope spotted the first interstellar object, known as Oumuamua, ever detected in our solar system on October 19, 2017. It is clear that Loeb views science like many investors approach the stock market – as a ‘detective story’. Like any good value investor, he urges us to expand our notion of what’s possible and follow Heraclitus of Ephesus’s advice that “if you do not expect the unexpected, you will not find it.” Maybe some investors won’t appreciate the connection between space exploration and stock picking (it is a bit of a stretch), but we certainly found the author’s passion to seek out the truth as inspiring.
The Man Without a Face: The Unlikely Rise of Vladimir Putin
by Masha Gessen
Written by a Russian journalist living in Russia, the book provides valuable insights into Putin’s bloody path to absolute power in Russia. The author reviews Putin’s unlikely rise from an undistinguished KGB bureaucrat in St. Petersburg to his reign as president of the world’s largest land mass and stockpile of nuclear warheads. She details the difficulty investors like Bill Browder (we reviewed his book back in 2020) have had operating in the country. The book has aged well as it ends with the Russian invasion and annexation of Crimea in 2014 and hints at troubles to come in Ukraine, which remains an important topic for global markets today. (armscontrol.org) (bbc.com)
The Myth of Private Equity: An Inside Look at Wall Street’s Transformative Investments
by Jeffrey C. Hooke
A former investment banker himself, the author has an insider’s view of the private equity industry. Over 90% of the largest state and municipal pension plans invest in private equity and the author argues that this is a mistake. Hooke claims performance reporting is questionable, and the fees are outrageous compared with a simple, low-cost 60% / 40% index fund allocation. Academic studies suggest performance has trailed the broader public market since 2006. Like in public equity, it is difficult to determine which private equity managers will succeed in the future. We concur that today’s ultra-low rate environment has likely pushed some large investors into illiquid and expensive private equity funds, but we also think allocators with a thoughtful process can lead to investment with top quartile private equity managers. Those investments have far outpaced public markets.
The Revolution That Wasn’t: GameStop, Reddit, and the Fleecing of Small Investors
by Spencer Jakab
With the ‘meme’ stock bubble imploding, we thought it was a good time to read this recent book on the topic. The author does a nice job explaining how (e.g., crowded shorts, retail call buying, gamma squeezes) a dying, profitless company like GameStop could catapult from stock market obscurity to the top of the Russell 2000 index at its peak. Some combination of COVID-19 stay-at-home orders, ‘free’ trading at the brokerage firm Robinhood, and the growing popularity of Reddit stock forums helped fuel this meme stock boom. We appreciate the author’s attempt to focus investors away from the casino-like atmosphere of early 2021 and more on low-cost, passive investing, but we think the book could have been significantly shorter. (bloomberg.com; tiered subscription)
The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War
by Robert J. Gordon
A book praised from economic commentators ranging from Paul Krugman to Lacy Hunt is bound to be thought provoking. Written by a Northwestern economics professor, this massive book sometimes reads like an economics textbook, but it is worth the time investment. He zeroes in on the “special century” of 1870 – 1970 as unique to human history, as so many of its achievements could happen only once – from the railroad, steamship, and telegraph to electricity, gas, telephone, water and sewer utilities to x-rays, antibiotics, and cancer treatments. Since 1970, advances have typically centered around entertainment, communication, and information technology, and excluding the period between 1996 and 2004, U.S. productivity has steadily declined. The book concludes that the future growth of the U.S. standard of living is not promising.
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