Here’s what’s on the reading list of some of our Investment Team, along with their notes.
“Warren Buffett credits many of his great money decisions to his voracious reading habit. He … estimates he spends as much as 80 percent of his day reading.” He says, “Read 500 pages … every day. That’s how knowledge works. It builds up, like compound interest.” 1
At Pender, we’re passionate about investing, but we’re also passionate about reading and we are already anticipating the chance to kick back over the holidays with a good book.
When picking out my Christmas reading, I like to focus on books that are both entertaining and help me to view companies in a different light.
One of the key parts of our investment strategy is to avoid potentially big mistakes. The best way we have found to avoid mistakes is to identify them by learning from others and the mistakes that led to spectacular blow ups.
Another key part of our investment strategy, especially in small cap, is to find those technology opportunities that are potentially addressing big markets and have long runways. If you invest in those kinds of companies, then the chance of hitting a big home run, like QHR or TIO Networks, increases dramatically. With an eye to identifying these trends early we do a lot of scientific reading.
The third part is that a robust investment process is driven by the strength of our decision making. To which end we spend a lot of time trying to become better thinkers. I’m excited at the prospect of reading this book as it is written by one of my favourite authors and covers one of my favourite subjects. Thinking, Fast and Slow is one of the best books ever written on behavioural finance and holds some key takeaways that we apply to our process. So reading a book that brings to life the collaboration between its author Dr. Daniel Kahneman and his research partner, Dr. Amos Tversky, and how they came up with their theory is truly intriguing to me.
Johann Rupert, the founder of Richemont, one the world’s largest ultra-luxury groups, recently took a 12 month sabbatical to travel and to read about 50 books. He came back from his break with a fresh perspective (and a potentially worrisome new world view). These are two of the books he highly recommends. Both have had a huge impact on his thinking and have influenced how he has subsequently positioned his company. He believes the upcoming impact from artificial intelligence will be very disruptive with broad economic and social consequences as machines increasingly take over the tasks that currently provide employment to millions of workers. As the leader of a company that generally caters ultra-luxury goods to the 1% of the 1%, he is increasingly worried about the growing and unfair “wealth gap”. This may partly explain and add fuel to the fire of the recent populist political movements around the globe. As the saying goes, forewarned is forearmed.
Both value and momentum investment strategies have shown rigour and withstood the test of time as factors for market outperformance. And both are considered anomalies to the strong form of the efficient market hypothesis – if markets were truly efficient, why do these strategies beat passive strategies over time? We are disciples of the value camp and are particularly influenced by the variation practiced so successfully by Buffett and Munger. Importantly, such value strategies fit well into our world view. However, momentum strategies have also proven to work and we believe curious and thoughtful investors should always be looking to add new tools and methodologies to their knowledge base to improve their process (and ultimately, their results). In many respects, we believe one of our strategies in seeking compounders (“buy low and let grow”) combines the both value and momentum strategies. To quote the book’s authors, “Buy cheap; buy strong, hold’em long”.
Finally, to lighten up the pace, I am looking forward to a travelogue book which looks into the funnier side of life in Scandinavia. I was born in Canada, but am of Finnish descent and have long been active in Vancouver’s Scandinavian community. A fellow Finnish-Canadian recommended this book recently after I expressed bemusement about some of the customs, beliefs and habits of my fellow Scandinavians: Swedes, Danes, Norwegians and Icelanders. No doubt, this book will shed some light on the subject and also uncover what quirks and baffling behaviours outsiders notice about us Finns – I am pretty sure the Finnish “wife carrying contest” will not be the only curiosity! One reviewer wrote, it’s “Bill Bryson goes to Scandinavia”. In other words, one should expect many laugh-out-loud moments.
Interesting book by Fred Reichheld of consulting firm Bain & Company. He quantifies the impact of customer and employee retention in case studies of several businesses. A great eye opener on the profitability gains that accrue from building and retaining long term business relationships.
Dacher Keltner’s study of factors that cause the growth or decline in individual influence. Particularly interesting is his study of the bad behaviour patterns that often arise hand-in-hand with individual success.
A very popular recent book by Angela Duckworth on the importance of perseverance as a factor in predicting long term success. Duckworth argues, convincingly, that having grit – a tendency to pursue goals consistently and doggedly – is at least as important as talent in explaining long term high performance.
What excites me about this book is that one of the authors, Brian Christian is well versed in several different disciplines: Computer science, philosophy and poetry. As our world is inherently complex and non-linear I subscribe to the belief that when making decisions one must create a multi-disciplined latticework and avoid a one-size-fits-all approach. I am hoping that this book will broaden my own latticework of rules and theories and, in turn, help me to make better decisions both professionally and personally.
Makers and Takers: The Rise of Finance and the Fall of American Business
, Rana Foroohar
I was saving this for the holidays but cracked it open earlier than planned. A key concept is there are two types of businesses: Makers are those businesses that innovate in the hope of creating better products and/or services for their customers; Takers are those business that are intermediaries and mainly deal in financial engineering to make a profit. Rana Fooroohar, a Time Magazine economic columnist and editor, makes a strong case that the Takers (at 20%+ of US GDP profits) are doing little to grease the system and are instead a hindrance to the US economy. While I do not agree with some of the over simplification of complex issues, I do believe that the general concept is valid. At Pender we love backing founders who are innovative Makers, and we aim to avoid companies that, all-too-often become short sighted in order to please “The Street” and markets. This book enhanced my belief that it is our job, as long term investors, to provide patient capital to those contrarian management teams who actually see the forest, not just the trees.
This book has been on my reading list for way too long. Many of those I respect and admire have recommended this book as the single most influential business book they have read. I am excited about any book that claims to trim the fat on the subject of business strategy, an often unnecessarily overly-complicated subject. A 1999 times article gave the author, Bruce Greenwald, the title “The Guru to Wall Street Gurus”, a title that is hard to deny, given the enduring importance of this book and its high acclaim.
1 CNBC.com, Warren Buffett’s reading routine could make you smarter, science suggests, Marguerite Ward, November 16, 2016.