Good Reading -- December 2015
Best wishes for the holidays and 2016!
Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future -- I finally got around to this book and I really liked it. I've read better written (and better edited) biographies, but this is right up there among the most interesting. Like "The Everything Store," I'm sure there are two sides to every story (and the similarities don't stop there). But I thought the author did a good job of at least trying to balance perspectives. I don't know how there could be so few end notes, no index, several typos, etc., but the incredible story makes up for the shortcomings. Highly recommended.
The best books I read this year, in no particular order:
Superforecasting: The Art and Science of Prediction -- Phil Tetlock's book, co-written with Dan Gardner, is excellent. I think this is the best book I've read this year. It is thought-provoking and relevant in a very important area, and it's also very readable. If it's not quite as good as "Thinking, Fast and Slow" it is very close. Highly recommended.
America's Bank: The Epic Struggle to Create the Federal Reserve -- A healthy dose of history to add actual context to the noisy ongoing debate about Fed policy. History wonks will love this book.
Red Notice -- Bill Browder's book is his autobiographical tale of "high finance, murder, and one man's quest for justice." A real-life Tom Clancy novel set in the business world.
Shaky Ground: The Strange Saga of the U.S. Mortgage Giants -- The combination of a fascinating subject and great writing makes for a fantastic book. It's very compact -- only 150 pages in a small format -- but it covers a lot of ground. And it is a topic with equal parts business, government, and human folly -- "a cross between Monty Python and Shakespeare" that has massive ramifications for every American.
Dealing with China: An Insider Unmasks the New Economic Superpower --Hank Paulson's book is really good. Anyone interested in China should read it even though not everyone will agree with his perspective.
Berkshire Hathaway Inc.: Celebrating 50 Years of a Profitable Partnership -- This book was published by the company and it's full of interesting historical tidbits.
Private Equity's Paper Tigers -- Roger Lowenstein with a typically trenchant look at the investment returns of private equity.
Lowenstein's take on the Woodrow Wilson issue at Princeton is here.
America's Secret Arsenal -- A look at America's cyberwarfare capabilities, with experts comparing it the nuclear arsenal in terms of importance and, decades ago, the level of secrecy surrounding it and the lack of precedent or rules for implementation. All of the subjects interviewed agreed that America has the most potent arsenal in the world, but beyond that there was little consensus.
Elon Musk and Ron Baron -- An interesting interview for anyone who liked the book mentioned above.
How Social Media Can Feed Investors' Panic: A behavioral economist discusses how to contain the herd behavior during market swings -- (WSJ $) I wish this article were longer so the author could expand on this idea. (The full academic paper is very, um, academic.) The premise that investors who are behaviorally attuned to other investors' mental states are more prone to herd behavior seems anecdotally valid to me. And I do think, again without evidence, that Twitter, message boards, and other forms of social media tend to create or at least foster conformity and groupthink. How much that actually contributes to market swings is an open question.
San Francisco Federal Credit Union unveils zero-down jumbo mortgages -- Wow. Everything old is new again. Money/nature has found a way, this time in the form of credit unions, to repeat some age-old lending mistakes. Without any sense of irony, SFFCU rolled this out as something they're doing to help their borrowers. "Citing the struggle to save money that many San Francisco residents face due to the city's skyrocketing housing costs," the new program offers 100% financing, with no requirement for mortgage insurance, on loans up to $2 million. It even has an absurd acronym: POPPYLOAN ("Proud Ownership Purchase Program for You"). Did I mention that it's an ARM? Rates reset after five years. You can't make this stuff up.
Not Sure What to Get the Book Worm on Your List? Start Here -- The best book list I've seen from -- no surprise -- Shane Parrish at Farnam Street.
The Man Who Tried to Redeem the World with Logic -- This article is an amazing look at Walter Pitts and his rise (and fall) amidst the giants of science of the 20th century, laying the foundation of computer science and artificial intelligence (among other fields) along the way.
A holiday gift of the highest order from Michael Mauboussin:
"The investment industry is filled with intelligent and hard-working professionals, but even the smartest succumb to mistakes in decision making. We have published a number of reports that describe the common mistakes investors make, as well as practical tools and techniques to manage or mitigate those mistakes. The reports seek to improve the overall quality of your decisions. Please find a list below, along with brief summaries and links. Tools for Decision Making:
Cultivating Your Judgment Skills: A Framework for Improving the Quality of Decisions: Good judgment requires understanding causality, effectively incorporating information from past events to understand present prospects, and updating probabilities based on new information. (5/7/13)
Outcome Bias and the Interpreter: How Our Minds Confuse Skill and Luck: Outcome bias occurs when people judge outcomes without considering the quality of the decision. "The interpreter" in the brain creates a cause to explain any effect. Estimate how much luck determines a result and focus on process when luck is ample. (10/15/13)
Methods to Improve Decisions: Five Common Mistakes and How to Address Them: This report describes five common mistakes that investment firms make and offers practical guidance on how to manage each of them. The solutions rely not on getting smarter but rather on fending off poor practices that you can fix. (2/24/14)
Animating Mr. Market: Adopting a Proper Psychological Attitude: We capture the Mr. Market metaphor, which is a powerful way to think about markets. To be an active investor, you must believe in market inefficiency to get opportunities and in market efficiency for those opportunities to turn into profits. (02/10/15)
IQ versus RQ: Differentiating Smarts from Decision-Making Skills: Intelligence quotient (IQ) is like the horsepower of an engine and rationality quotient (RQ) is like the output. We offer tips for improving rationality and we profile top forecasters. We also describe a calibration test that shows overconfidence. (5/12/15)
Sharpening Your Forecasting Skills: Foresight Is a Measurable Skill That You Can Cultivate: A forecasting tournament identified “superforecasters,” people who consistently make superior predictions. How they think is key: they are actively open-minded, intellectually humble, numerate, thoughtful updaters, and hard working. (9/28/15)
What’s Going On in Your Brain? Common Investor Biases and Where They Come From: We examine four situations where individuals make poor choices and review the research to show where the brain makes those decisions. In each case, we present some ideas about how to overcome the potentially suboptimal choice. (10/20/15)