Insights

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 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.

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.

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)

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.

Former U.K. star fund manager Neil Woodford built his reputation and track record on three key events: his large investment in beaten-down tobacco stocks in the late 1990s, his avoidance of the dot-com crash, and the financial meltdown in 2008 and 2009. The success clearly went to his head and his Equity Income Fund strayed into illiquid, private companies that were in sectors beyond his circle of competence. The ‘Oracle of Oxford’ had up to two-thirds of his Equity Income Fund in unlisted securities and a big weight in the biotech industry (which rarely pays any sort of a dividend). There is a lesson here for all aspiring stock-pickers: stick to your knitting and remain humble and intellectually honest throughout an investing career

Like in investing, the game of poker represents a balance between skill and luck. The author, a psychologist, approached Erik Seidel, the winner of numerous World Series of Poker bracelets, with the intent of learning the game and more about herself. The book traces her fascinating journey through the poker world and adds many investing insights along the way. Seidel is a better psychologist than mathematician and his teaching leads the author to incredible success in just one year. Konnikova stresses the world has gone overboard with the quantitative and overlooked the value of intuition.

U.K. fund manager Terry Smith has a common-sense, three-step approach to investing: 1) buy good companies, 2) don’t overpay, and 3) do nothing. It appears the approach has worked – as of 9/30/2021, the Fundsmith Equity Fund had returned +18.4% versus +12.5% for its MSCI World Index benchmark since its inception in November 2010. Smith articulates his view, through a collection of fund letters and Financial Times articles, that investing in quality companies is a more advanced version of value investing. Advantaged businesses with reinvestment opportunities should avoid dividends and only repurchase shares when they trade at a discount. The book makes his approach seem simple, though we know, through experience, that nothing in investing is easy.