Pender’s Holiday Reading List – December 2020
Investing Philosophy, Process & Best Practice
Geoff Castle – The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy, by Stephanie Kelton
Emily Wheeler – Principles For Navigating Big Debt Crises, by Ray Dalio
Parul Garg – Big Money Thinks Small: Biases, Blind Spots, and Smarter Investing, by Joel Tillinghast
Sharon Wang – The Psychology of Money: Timeless lessons on wealth, greed, and happiness, by Morgan Housel
Felix Narhi – Alchemy: The Dark Art and Curious Science of Creating Magic in Brands, Business, and Life, by Rory Sutherland
Felix Narhi – The Almanack of Naval Ravikant: A Guide to Wealth and Happiness, by Eric Jorgenson
Felix Narhi – Factfulness: Ten Reasons We’re Wrong About the World–and Why Things Are Better Than You Think, by Hans Rosling
Rolf Dekleer – Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions , by Dr. Dan Ariely
Lukasz Darowski – Atomic Habits: An Easy & Proven Way to Build Good Habits & Break Bad Ones, by James Clear
Amar Pandya – Can’t Hurt Me: Master Your Mind and Defy the Odds, by David Goggins
Victoria Zhang – Culture, Modernization, Value Investing and China, by Lu Li
Kenndal McArdle – The Master Switch: The Rise and Fall of Information Empires, Tim Wu
Tony Rautava – Remarkable Retail: How to Win & Keep Customers in the Age of Digital Disruption, by Steve Dennis
Tracy Tidy – No Rules Rules: Netflix and the Culture of Reinvention, by Reed Hastings and Erin Meyer
Don Walker – Confessions of an Old Stockbroker, by Kent W. Chauvin
Kristina Bergman – The Many Lives & Secret Sorrows of Josephine B., by Sandra Gulland
Maria Pacella – The Feather Thief: Beauty, Obsession, and the Natural History Heist of the Century, by Kirk Wallace Johnson
Confessions of an Old Stockbroker, by Kent W. Chauvin
The author of this book is a veteran stockbroker who spent 48 years managing his client’s investments. The book passes on his years of experience but not in a pretentious way. Although the topics include in-depth statistics and charts, this book is a fun read, weaving personal stories of success and failure about clients, co-workers and other money managers in the industry. It’s filled with witty quotes like “economists have predicted nine of the past six recessions”, that make you laugh out loud. His mantra seems to be to keep things simple and avoid the noise. Having survived eight major financial crashes in his career, this book imparts a lot of wisdom. Combining insights with humour makes this book a very enjoyable read.
The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy, by Stephanie Kelton
I recently read Stephanie Kelton’s The Deficit Myth which is a well-written and accessible summation of the key tenets of Modern Monetary Theory (MMT). At the heart of The Deficit Myth is the sensible idea that sovereign countries can never truly “run out of money”, because they have the power to create more. In this way the idea of comparing a household budget to a national budget breaks down. And Kelton and her MMT colleagues flip the idea of “government deficits” to “non-government surpluses” as they consider the effect of adding non-consequential national debt in the aid of spurring production and consumption in the real economy to improve outcomes for people.
The limiting factor to policy, argues Kelton, is not some arbitrary debt/gdp ratio, but rather whether excess demand is created that will show itself through real resource shortages and inflation. It’s a controversial, but persuasive, argument. The dialogue on deficits and central government debt is loaded with metaphorical waxing about “budgeting like a family” and not burdening future generations. Kelton debunks these arguments effectively. She argues, “We run our economy like a six foot tall guy who wanders around perpetually hunched over in a house with eight foot ceilings because someone told him if he stood up straight he will suffer massive head trauma.” The people steering the major world economies are beginning to think about MMT in the current context. That ultimately matters for investors because there may not be as many “shoes to drop” or the unwinding of extraordinary support, and it might mean that huge investment into efforts like decarbonization are closer than we think. I recommend picking up The Deficit Myth.
The Feather Thief: Beauty, Obsession, and the Natural History Heist of the Century, by Kirk Wallace Johnson
Fly fishing is something I have taken up recently and conveniently, is something one can do from a social distance. As I wondered how fish flies made of feathers came to be so beautiful and bizarre, a friend of mine recommended this book. While on a fly-fishing trip in 2011, the author came to learn about a major theft of feather specimens from a museum in 2009. While researching this caper, Johnson brings to life the long, sordid, dramatic history of the feather – from when it was arguably more valuable than gold, to the travels and collection by famous naturalist Alfred Russel Wallace, to the strangest heist of perhaps one of the greatest and most sacred collections remaining. As rich, colourful and extraordinary as a feather can be, so is this true-life adventure. This story also demonstrates how extreme obsessions with exquisite things created in nature can be. A wonderfully written historical escape to read curled up next to a fire on a cold winter night.
Principles For Navigating Big Debt Crises, by Ray Dalio
Ray Dalio, founder of Bridgewater Associates and the author of the better known Principles: Life and Work, believes that many things happen repeatedly through time and by studying the patterns that consistently emerge, principles can be developed for dealing effectively with these events. This three-part book provides an in-depth framework for dealing specifically with debt crises. It was this type of template that Bridgewater used to put together a set of principles that allowed them to navigate the 2008 financial crisis better than many others.
Part 1 outlines the archetypal big debt cycle based on Dalio’s examination of 48 debt cycles. At a very high level he says – “if you understand the game of Monopoly, you can pretty well understand how credit cycles work on the level of the whole economy” – early in the game “property is king” versus later in the game, when cash has been spent on properties leaving little available to pay rent, “cash is king”. In part 1, we discover one of Dalio’s motives for writing this book which involves his belief that the biggest risk during these periods does not derive from the debts themselves but from the potential of policy makers to take inappropriate actions due to a lack of knowledge or authority, and that their success in addressing these issues lies in pulling the levers available to them appropriately.
Part 2 provides detailed case studies of 3 significant debt crises. First – the iconic hyperinflation in Germany that followed the end of World War I and ultimately resulted in a currency devaluation so significant that the entire stock of German currency in 1913 would get you one loaf of rye bread by 1923. The second and third examples look at the Great Depression in the US from 1928- 1937 and the financial crisis of 2008. Although these two periods shared many similarities, a key difference, the author suggests, is the speed with which policy makers reacted in 2008 and the likelihood of this period being even less painful if they had reacted sooner.
The final portion of the book goes through each of the 48 debt crises examined at a simplified level with the intent of illustrating how important patterns emerge. This book takes a deep dive into a number of historically significant periods that were sprawling in terms detail and nuance, and distills them down to provide a thorough and practical reference.
Books that bring unique perspectives, challenge your existing worldview in a constructive way and are entertaining as well are rare gems. This book hits all three. Sutherland calls upon thirty years of fieldwork from one of the world’s leading advertising agencies to provide a whole new way of looking at work, business and life in general. It is disorienting at times. Many of the conclusions, theories and thought experiments in this book will appear absurd, shocking and even impossible. Yet, it often works. (When reading some passages, I was reminded of a friend’s amusing problem-solving philosophy, “if it’s stupid and it works, it’s not stupid”.) The book serves as a persuasive rebuttal to those who view the world strictly through the lens of rationality and hard facts. The author argues that you can improve your thinking a great deal if you occasionally try to abandon artificial certainty and learn to think ambiguously about the peculiarities of human psychology. Alchemy, or an imaginative, out-of-the-box approach, may not turn lead into gold, but it occasionally works when human affairs are involved. Be open to magic.
A favourite passage:
“To solve logic-proof problems requires intelligent, logical people to admit the possibility they might be wrong about something, but these people’s minds are often most resistant to change – perhaps because their status is deeply entwined with their capacity for reason. Highly educated people don’t merely use logic; it is part of their identity. When I told one economist that you can often increase the sales of a product by increasing its price, the reaction was one not of curiosity, but of anger.”
The Almanack of Naval Ravikant: A Guide to Wealth and Happiness, by Eric Jorgenson
Naval is the founder of Angellist, Epinions, and Vast.com. He is an angel investor in Twitter, Uber, Yammer and others. With more than a million followers on Twitter, Naval is well regarded for his thoughts on startups, investing, crypto, wealth and happiness. Compiled by Eric Jorgenson as a passion project, this book is a collection of Naval’s wisdom and perspectives from the last ten years, shared as a curation of his most insightful interviews and poignant reflections. The book is divided into two parts; the first on building wealth and judgment, and the second on happiness. The book summarizes a number of useful mental models. I found his mental models on the three types of leverage and four types of luck interesting, particularly as useful signposts for the digital age. But there are plenty of other insights and wisdom in this book. Naval insists on playing long-term games with long-term people because he believes all returns in life, whether in wealth, relationships or knowledge, come from compound interest.
Some favourite passages:
“A happy person isn’t someone who’s happy all the time. It’s someone who effortlessly interprets events in such a way that they don’t lose their innate peace.”
“The best jobs are neither decreed nor degreed. They are creative expressions of continuous learners in free markets.”
This is a terrific book on the theme of fact-based optimism, something most of us could use a bit more of these days. Many people look around the world and believe things are getting worse every year. It is easy to be discouraged. If you find yourself in this camp, this book could be a tonic, even required reading. Of course, not everything is improving. And this book was written a few years before the global pandemic started. Nevertheless, Rosling writes convincingly that most things in the world are better than people commonly believe. Bad things, like plane crashes, child labour and ozone depletion are decreasing. And good things, like the overall participation of girls in schools, child cancer survival rates and harvest yields are increasing. The author asserts that we are largely ignorant of the secret miracle of human progress due to personal bias, worldviews informed by outdated facts and media bias. Rosling outlines ten rules of thumb that can help us get out of our respective bubbles and increase our “factfulness”. In the end, it is a message of hope. We should all strive to see the world as it really is. Afterall, a fact-based worldview is more useful for navigating life. It is also a more relaxed mindset because it creates less stress and hopelessness than the distorted dramatic worldview. Bill Gates called it one of the most important books he has ever read and an indispensable guide to thinking clearly about the world. This message is more important than ever in 2020.
A favourite passage:
“Factfulness is… recognizing when we get negative news, and remembering that information about bad events is much more likely to reach us. When things are getting better we often don’t hear about them. This gives us a systemically too-negative impression of the world around us, which is very stressful.”
Big Money Thinks Small: Biases, Blind Spots, and Smarter Investing, by Joel Tillinghast
Joel Tillinghast’s Big Money Thinks Small is an investment book focused mainly on value investment. In this book, Tillinghast has restated all value investment characteristics through his 36 years of investment experience. Some of interesting thought processes, which easily apply to my world of fixed income, were how the author categorized action, excitement, fun, comfort and popularity into the Hidden Cost of an investment, whereas he places patience, boredom, worry, courage and pain into a Shadow Income category. In another part of the book he talks about “Noise”, the idea that when you start building up an investment thesis around some information, social media and news networks explicitly tries to feed you content you like. To avoid those “Confirmation Biases” one needs to ignore the noise in order to assess whether the underlying investment can still make money or not.
In the middle of the book, Tillinghast highlights how to avoid “Misplaced Anchoring”, whereby an investor anchors their stock thesis to a previous high, very attractive previous valuation multiple or the wrong reference point in the company’s history. In fixed income when one is dealing with stressed or distressed investments, the previous company history might not be useful or relevant. Not all turnaround stories are successful and it usually takes a very highly skilled operator to drive the process. In the same context, the author also points out the emotional aspect of an investment. The degree of emotion is inversely proportionate to one’s knowledge. He says, “The less you know, the hotter you get” and therefore emotion should not guide investment decisions.
As a fixed income investor, my biggest take away from this book is the author’s analysis of the enterprise value of a company using reverse discounted cash flow models. Currently most popular companies have a maximum value attached, “Terminal Value”. To calculate terminal value, one must make a lot of assumptions around the company’s strategy and growth prospects to at least 10 years out. The author suggests that one way to be conservative in your thesis is to assume terminal value as zero. That rules out the obsolescence of the company’s product and really allows you to focus on the company’s ability to generate free cash flow. That’s all that matters to me.
Overall, the book is very interesting and very easy to read. Tillinghast shares his experiences and thought processes through various examples in the simplest way possible.
Remarkable Retail is self-described as “helping organizations understand and respond to retail disruption by creating customer-centric, memorable and profitable growth strategies”.
Investors are providing a vast operating cash runway to digital disrupters who are delivering incredible value to consumers and, as a result, are experiencing outsized revenue growth. Steve Dennis describes how this is not an e-commerce versus brick and mortar shift, but rather a focus on the creation of a highly customer relevant and remarkable value proposition—and executing it well from the customer’s perspective, which is channel and platform agnostic. The author discusses how for most retailers, legacy or disruptive, a physical store strategy remains an essential part of creating a remarkable, sustainable business. He highlights data showing that premier digital brands are adding physical assets which, when well-integrated, have important advantages in competing with online only players.
Digital disruption is transforming most sectors of retail so profoundly that brands and retailers are being pushed to become more risk tolerant and respond in radical ways. The author describes how consumers see and engage with brands on a horizontal level, but retailers too often think and organize themselves vertically. He points out that retailers draw channel distinctions which detract from taking a customer-centric view, such as reporting sales for e-commerce and physical retail as two separate figures.
This book encourages organizations to do the hard work to identify and execute on opportunities that are unique for their given business and to develop their own remarkable path forward. Steve Dennis sets out eight essential requirements for a remarkable consumer experience and builds on that with strategies on how to provide a memorable and radical experience that establishes new key differentiators.
If you enjoyed reading Thinking, Fast and Slow by Daniel Kahneman or Nudge by Richard Thaler and Cass Sunstein, Predictably Irrational is for you. Like Kahneman and Thaler, Ariely is a behavioral economist. Unlike traditional economists, behavioural economists don’t assume that people are rational in how they make small and big decisions. Rather, behavioral economists study what people actually do when they buy or sell investments, change jobs, choose a romantic partner and make other real life decisions. The book, a New York Times bestseller, answers questions like:
- “Why do our headaches persist after we take a one-cent aspirin but disappear when we take a fifty-cent aspirin?”
- “Why do we splurge on a lavish meal but cut coupons to save twenty-five cents on a can of soup?”
No Rules Rules: Netflix and the Culture of Reinvention, by Reed Hastings and Erin Meyer
In No Rules Rules, Reed Hastings, together with business school professor, Erin Meyer, share the secrets that have created the radically unique culture of Netflix – “high talent, constant candor, top pay and no rules”.
In order to fully appreciate the corporate culture at Netflix, the reader has to “connect all ten dots”. The first dot, Hastings explains, is the most critical dot for the foundation of the whole Netflix story: Talent density – Netflix is staffed with the highest-performing employees on the market. The second principle is candor – he encourages loads of candid and frequent feedback with positive intent. Talented individuals have a lot to learn from one another and the more feedback they receive, the more they will learn and the more accountable they will become to one other. Once you have built this foundation, you can then begin to remove some of the controls that can stifle growth, innovation and speed. Further by removing these controls, a culture of freedom and responsibility create a virtuous cycle. Rather than being beholden to strict policies, employees are empowered to “Act in Netflix’s best interest”.
On transparency Hastings explains that opening up company secrets and sharing sensitive information has become the biggest way to show our employees that we trust them to act responsibly. This high level of organizational transparency further leads to “dispersed decision-making”; everyone has the information they need to make decisions and have been empowered to do so. The more people are given control over their own project, the more ownership they feel, and the more motivated they are to do their best work.
No Rules Rules is a fascinating read about the culture that created the tremendous success story of Netflix.
There are a couple of books that have had a significant impact on my life, and this is definitely one of them. I have struggled in the past with keeping good habits and breaking bad ones. What I learned by reading this book was that the problem was not with me, but with the approach I was taking to change my behaviour. In this book the author provides a proven system that can improve your life by making small changes that, when combined, can have a big impact. I have applied the concept of “aggregations of marginal gains” to time management and have seen significant results. I will continue to apply the topics covered to any area of my life that I would like to improve.
Can’t Hurt Me: Master Your Mind and Defy the Odds, by David Goggins
I first heard about David Goggins a few years ago when he was a guest or topic of discussion on several podcasts I was following. He’s had an incredible journey of self-transformation and hearing how he became the best version of himself was infectious and inspiring to anyone who heard from him or about him. Can’t Hurt Me is part autobiography and part self-help book, with Goggins sharing his astonishing story of how he overcame a lifetime of struggle and hardships to transform himself through discipline, perseverance and hard work. Self described as depressed, unhealthy and without a future, Goggins pushed himself to become the only person in the history of the US Armed Forces to complete elite training as a Navy SEAL, Army Ranger and Air Force Tactical Air Controller. He is also an outstanding endurance athlete having competed in over 60 ultramarathons, triathlons and ultra-triathlons, and having previously held Guinness World Records for his endurance triumphs.
The book discusses Goggins’ philosophy of holding yourself accountable to the highest standard everyday, maximizing your potential and expanding your self-imposed mental constraints. A great concept Goggins discusses in the book is callusing your mind or building up protection by repetition. By pushing yourself out of your comfort zone and experiencing new situations both physically and psychologically, you can callus your mind of the feelings of self-doubt, negative thinking and anxiety which cause most people to fail. This view of making yourself stronger by doing things that make you feel uncomfortable until they become comfortable, and then pushing yourself again is how you expand your comfort zone. This concept can be applied to a variety of aspects of life, including improving your thinking by constantly challenging your preconceived understanding and beliefs to ensure you have the highest conviction in your views.
David Goggins’ story presents a path that anyone can follow, to push past pain, eliminate fear and reach your full potential.
I came to know Morgan Housel through his blog posts on the Collaborative Fund website. I really like his way of thinking and style of writing. He has quickly become one of my favorite finance writers. The beauty of the book is that it’s short, written in simple, straightforward language that is easy to understand whether you have a background in finance or not. The lessons from the stories shared by the author are so powerful that they make you take a long, hard pause, and start to think about your behavior, your choices and your relationship with money. Room for error (margin of safety), flexibility, financial independence are important themes discussed in the book. The world is complex, humans are complicated, finance is not all about excel spreadsheets and dealing with money is hard. I sincerely hope you get a chance to read this book, learn from it and do well with your money. That you are able to “do what you want, when you want, with who you want, for as long as you want”. After all, as the author writes, “Money’s greatest intrinsic value – and this can’t be overstated- is its ability to give you control of your time”.
Lu Li, founder of Himalaya Capital and author of Culture, Modernization, Value Investing and China, is regarded as the “Warren Buffett of China” by Charlie Munger. Munger has commented on many occasions that there are lots of unusual opportunities in China, compared to the over-subscribed, highly competitive American market, and the first rule of fishing has always been to fish where the fish are. Li might be the best person to comment on the topic of China, since he understands both Chinese and western cultures and, as an investor, has spent many years working in and researching both North American and Chinese markets. In the first half of the book, Li provides valuable insights on the evolution of human society, the history of modernization and the role of China in this progress from cultural, political and geographical perspectives. He also shares his views on the future of China and China’s impact on the western world. The second part of the book is about value investing and its feasibility in China. The two parts of the book are beautifully connected by the common theme of the important role compounding has played in modernization and in value investing. Modernization is fundamentally the result of sustainable knowledge compounding, and value investing relies on long term compounded returns. He also expands on several other key topics, including fiduciary duty, circle of competence and sell discipline. The most intriguing part of reading this book was to gain an understanding of one of the most essential characteristics of a successful investor – having curiosity and thinking independently. Unfortunately, this book is only available in Chinese, but you may be interested in hear Li discussing his approach to value investing here.
Published in 2010, The Master Switch has been on my reading list for quite some time, but I was compelled to pick it up given the current “big tech” landscape. Tim Wu is a professor at Columbia Law School and is known for coining the term network neutrality1 and his extensive contributions to antitrust legislation. The Master Switch chronicles the history of media and communication in the US, diving deep into the innovations that propelled radio, telephone, movies, television and, finally, the internet. Tim Wu outlines the cyclical nature of consolidation within the media and communications industry: disruptive innovation gets consolidated rather quickly (usually with government support) only to be unbundled by the next wave of innovation, followed again by consolidation. When written in 2010, the internet still seemed relatively open and many argued that the very structure of the internet itself would limit the consolidation cycles of decades past. However, fast forward to today and tech CEOs are being summoned to Washington to defend the vast power their companies wield over US citizens. Before reading the book, this regulatory scrutiny seemed ad hoc and outcomes completely unpredictable. But by learning about the history of past consolidation cycles and the antitrust movements that naturally followed, I feel more informed (slightly) about the possibilities the future may hold.
1 Network Neutrality is the principle that Internet service providers (ISPs) must treat all Internet communications equally, and not discriminate or charge differently based on user, content, website, platform etc.
The Many Lives & Secret Sorrows of Josephine B. by Sandra Gulland
Relearning history from different perspectives is one of the great joys of historical fiction. In The Many Lives and Secret Sorrows of Josephine Bonaparte, you learn about the inner workings and gentle influences of French society during the French Revolution. Josephine’s story is framed in her humble beginnings on Martinique and difficult rise to being one of the most influential members of French society. This story is a hard look at soft power.