Category Archives: Featured

The Books I Read in 2011

Following on from 2009 book recommendations and 2010 book recommendations, the books I read in 2011 included the following :

Business

In The Plex: How Google Thinks, Works, and Shapes Our Lives  by Steven Levy – Excellent book that analyses the history of Google. Interviews with key staff and analysis of some of their greatest innovations. Read it.

The Most Important Thing: Uncommon Sense for the Thoughtful Investor (Columbia Business School Publishing) by Howard Marks – Nice book on value investing strategies and how you need to think on higher levels than the masses to profit.

This Time Is Different: Eight Centuries of Financial Folly  by Carmen M. Reinhart, Kenneth Rogoff – Whilst this isn’t easy reading, and I am still only 70% through it, there are some valuable lessons within.

Barbarians at the Gate: The Fall of RJR Nabisco by Bryan Burrough and John Helyar – I remember enjoying this book but not huge amounts of it have stayed with me.

When Genius Failed: The Rise and Fall of Long-Term Capital Management by Roger Lowenstein – Excellent book on how some very smart people miscalculated some very big bets on fixed income arbitrage.

The 100 Best Business Books of All Time: What They Say, Why They Matter, and How They Can Help You by Jack Covert and Todd Sattersten – Strangely enough, I really enjoyed this. Little snippets of business wisdom here and there.

The First 90 Days: Critical Success Strategies for New Leaders at All Levels by Michael Watkins – Read 50% of this. Some good ideas in there but it didn’t hold my attention.

Thinking about Thinking

Thinking, Fast and Slow by Daniel Kahneman – Like an almanac of behavioural economics / irrational decision making experiments. Read it.

The Blank Slate: The Modern Denial of Human Nature by Steven Pinker – Only 20% through this one.

The Denial of Death by Ernest Becker – This is an interesting read. It is a cross between psychoanalysis and existentialist though about how the ways we think (or don’t think) about death influence our minds and our society.

Religion for Atheists: A Non-believer’s Guide to the Uses of Religion by Alain de Botton – 50% through this. Nice concept – take the best bits of religion and leave the rest.

Fiction

An Ideal Husband by Oscar Wilde – Enjoyed it.

The Importance of Being Earnest by Oscar Wilde – Awesome.

Of Love and Other Demons (Vintage International) by Gabriel Garcia Marquez – Very good.

The Essential Homer: Selections from the Iliad and the Odyssey by Stanley Lombardo – Only 20% through this.

Self Control, Motivation and Why Bronze is better than Silver [Startuponomics 2011]

The second talk at Startuponomics was made by Dan Ariely and it concerned the problem of self control and how to go about motivating oneself better. A summary of the first talk is here – What Can Jam Teach you about Choice.

clocky alarm clock - Motivating?

He discussed people always wanting something in principle but typically not wanting to act to get that something right now. There are many things in life where we are designed not to care about the right things. Typically long term decisions, decisions far in the future, decisions that take alot of time, decisions that have high complexity and decisions that we don’t have much impact over in the short term.

He discussed his own personal problem of liver cirrhosis which required him to take a painful dose of medicine regularly for 18 months. He went about motivating himself to take the injections on time by pairing the taking of the medication with watching his favourite movies. He calls this principle reward substitution.

Would you prefer a half box chocolate now or a full box in a week? Most people say a half box now. Yet phrase it as a half box in a year or a half box in a 1 year and a week, and people switch their preferences.

Part of the success of the Toyato Prius over its competition was due to how it looked. It looked distinctly different. It gave people ego utility. People were able to signal to others that they cared about the environment whereas this was not possible with other cars as they looked the same. This illustrates that making some things visible can improve behaviour. It shows that finding other types of motivations can make a difference.

Find other types of motivations. We care about competition, completion, image, accomplishment. These things motivate. Money, Guilt, Shame, Social proof, Ego.

Thinking about the global warming problem. It is a very hard problem to solve. This is because it is far in the future, it is uncertain, it will likely not ultimately affect us,   it requries a change in entrenched behaviours and individually we can have very little impact on it.

Study – How do you go about getting patients that have had a 2nd stroke to take their medication? Apparently informing them that they have a high chance of death if they don’t take it is not enough. Some ideas are to notify kids if you don’t take it or give a reward if you take the medication. Sometimes a gift is more motivating than cash of the same value. You could also make something disappear if they stop using it, eg mobile phone not working. You could use fear of dying. you could create social connection to other people taking the medication. You could show a picture of someone getting fed today in a poor country if you take your pill (and not give the idea that they child will not be fed if you don’t). What worked best was letting people participate in a lottery related to the taking of their pill. On the first day they didnt take it, they were informed that they had won the lottery. They were then informed they wouldn’t be awarded the prize as they had not taken their pill. Taking the medication increased significantly.

Think about how long we need to sustain the motivation and what happens if we stop.

There is a point where giving money makes people moitvated (e.g. giving $1000 to floss your teeth, flossing would increase for most people).

A 1/1000 chance to win a thousand dollars is felt as more motivating than the same $1 value of the chance.

Regret is the emotion where you imagine another state of your life.

Study – Gold, bronze, silver example at the olympics. Gold and bronze are observed as the happiest. Why? Silver imagines themselves in the gold state and bronze is just happy to have avoided 4th.

Self control contracts are powerful. Ulysses and the sirens example. He knew he would be tempted so he tied himself to the ship.

Study – Rats were trained to press two buttons. One was the press a green lever and get a pellet of food. Another lever was to wait ten seconds and get ten pellets of food. Rats often chose the instant gratification of the first lever. But when a no temptation lever was added which disabled the green lever, some rats were able to press it. Implication is that imposing self control contracts can be powerful.

Examples of innovated product design using these principles – We are a different person at night compared with 6am in the morning regarding aiming to go for a morning run. the product called Clocky (hard to find alarm, have to find it to turn it off). Alarm clock connected to bank account and charity you hate. Imagine a website that is connected to your parents that tells them if you are watching porn.

People need red buttons. Need to encourage self control.

Not always about habit, it is about what decisions we can make that are sustainable.

Dieting vs no smoking example. Need different motivations for different goals.

Contract example of sending letter to mum about heroin use. You agree to send your parents a letter, write the letter and give it to a company that is bound to send it if you fail a drug test at any time in the future (tests are random). This idea was stopped as it created violations of human rights but it was also effective.

Why Facebook and Linked In IPOs Might Scare Users

For some reason, I think I felt comfortable that my personal data was controlled by a small collection of private companies. Facebook, Google, Linked In are the big three that come to mind.

Linked in header image

Google has been public for several years and knows alot about me. And you. What web sites you browse, what you write in your emails, your preferences, your phone number, your personal details. The fact that they also know this about the rest of the world for some reason gave me comfort.

The fact that they also had hundreds of millions and now billions in search revenue also made me feel good. Would they bother jeopardising that in order to sell my data to people? I doubt it but maybe.

I’m also generally not too worried about it which helps.

That said, Linked In’s IPO and Facebook’s coming IPO have got me thinking. Linked In’s first day multiple of 300-600 times earnings implies that public shareholders either plan on making a lot more money than they currently are from these companies or that they love losing buckets of cash in the near term. Or that they’re speculating it will go up more like in the 1998-2001 internet boom.

What i’m wondering is what are they going to have to do to raise earnings in the manner they’ll need to to justify their valuation? Surely they’ll have to start making some decent money somehow?

Will Linked In start calling me and offering me jobs? Will Linked In or a post IPO Facebook sell my data to companies to advertise to me? I was less worried about these things with their private company CEOs at the healm and a smaller group of VC investors and rich Goldman Sachs clients as shareholders. But trading at multiple hundreds times current earnings, I’m not so sure. The profit growth has to come from somewhere.

With the post IPO Google, I not only didn’t think about much about this but I effectively didnt’ have a choice unless I wanted learn Chinese and try out Baidu.

With Facebook and Linked In I do have a choice. I guess less so with Facebook because it is a great tool for staying in touch with people. Linked In, however, I would happily ditch in a heartbeat if the concerns above worried me.

Luckily, they don’t worry me too much so i’m unlikely to leave these sites.

But I imagine there are millions of people out there that these concerns do worry. Will people use these sites the same way now that they’re publically owned? Should they? Will they do things differently? Are Linked In and Facebook less valuable as public companies at such high valuations?

Either way, Goldman Sachs who has already unloaded its Linked In shares and the pre IPO shareholders look likely to profit.

Users of Facebook and Linked in? I wonder.

Michael Lewitt Video on the US Government Stimulus

HCM Market Letter author Michael Lewitt comments on the US Government stimulus efforts.

I’ve been reading Michael’s articles for about 3 years and it is good to see him finally getting some more publicity as a result of publishing his new book The Death of Capital.

Other Comments from the December market letter include:

  1. Bad policy in the US will ensure the that boom and bust cycle will continue
  2. The US economy showing signs of improvement but not as much as might be expected following a recession. The data is also not as positive as it is being seen by the markets
  3. Europe (and the Euro) is in trouble with Spain Portugal, Greece, Ireland Belgium and Italy the most vulnerable
  4. China boom to end at some point unless “they are unlike every other growing economy in the history of the world” –  People trusting numbers coming out from China are not wise.
  5. He also gives a range of investment recommendations at the end of the article that are worth reading.

Michael Burry’s 4 Must Read Investing Books

The Big Short by Michael Lewis featured the stories of the first individuals to bet against the US housing market before the 07/08 financial crisis. Michael Burry was said to be the first to do so.

Not only was Michael (Mike) Burry said to have been one of the first to do so, he was also one of the most dogmatic in his approach.

Michael Burry - Scion Capital - The Big Short
Michael Burry's 4 must read investment books

Originally a doctor, Michael Burry spent countless hours learning to be a stock market investor by writing a stock market blog and investing himself  throughout the late 90’s and early 00’s. By the end of decade, he would be the instigator of billions of dollars of bets against the US housing market.

An intriguing character in the book who also turned an original $100,000 in his Scion Capital hedge fund into hundreds of millions, I spent some time trying to find excerpts from his early blog and forum posts.

One of the excerpts (including the 4 books he recommends to all those new to investing) is below:

Re: books

To get started, I’d suggest the following four books:

If you read these books thoroughly and in that order and never touch another book, you’ll have all you need to know. Another book you might want to consider is Value Investing made easy by Janet Lowe – a quick read. I have a fairly extensive listing of books on my site, with my reviews of them, and links to purchase them at amazon [Michael Burry’s site no longer live].

My problem is I’ve read way too much. One book stated, “If you’re not a voracious reader, you’ll probably never be a great investor.” But sometimes I wish I had a more focused knowledge base so that my investment strategy wouldn’t get all cluttered up.

Re: Security Analysis (Graham and Dodd) you can get a lot of the same info in a more accessible format elsewhere, but everyone says that Buffett’s favorite version is the 1951 edition. Yes there are differences, and the current version has a lot of non-Graham like stuff in it.

Good Investing,Mike

For a full list of his comments and posts, you can visit this Michael Burry profile on Silicon Investor.