Archive for the 'Book Reviews' Category
Tuesday, May 21st, 2013
Designer Stefan Sagmeister did another TEDtalk titled Happiness by design where he shared the list below of “Things I have learned in my life so far” (which later became a book of typographic artwork). I found them worthy of writing down.
- Complaining is silly. Either act or forget.
- Thinking life will be better in the future is stupid. I have to live now.
- Being not truthful works against me.
- Helping other people helps me.
- Organizing a charity group is surprisingly easy.
- Everything I do always comes back to me.
- Drugs feel great in the beginning and become a drag later on.
- Over time I get used to everything and start taking it for granted.
- Money does not make me happy.
- Traveling alone is helpful for a new perspective on life.
- Assuming is stifling.
- Keeping a diary supports my personal development.
- Trying to look good limits my life.
- Worrying solves nothing.
- Material luxuries are best enjoyed in small doses.
- Having guts always works out for me.
Monday, March 11th, 2013
Stumbling on Happiness by Daniel Gilbert is in many ways like other popular behavioral psychology books. It’s a New York Times bestseller. It tends to list a lot of ways that humans behave irrationally or incorrectly as shown by academic studies. The writing is casual and accessible. It even has blurbs by other very popular authors like Steven Levitt, Malcolm Gladwell, and Daniel Kahneman.
This book was actually published back in 2007, but I came across a cheap used copy recently and bought it because it had “happiness” in the title. I was interested to see these behavioral quirks applied to happiness instead of the usual economics and money. Here are my notes.
What makes humans different than all other animals? Gilbert posits that humans are the only animals to think about the future. Some animals may do things by instinct like squirrels hiding nuts, but you’ll only find humans getting excited about planning their summer vacation, or fretting about being broke in their old age. I’ve never thought of it that way.
Using our imagination. How do we find out what will make us happy in the future? We use our imagination. But in a nutshell, our imagination isn’t very good.
To start, we don’t remember the past very well. We tend to leave some stuff out and also to fill in other details, all without knowing it. (This can’t be good for eyewitness testimony.) We think something is worth a lot more on the open market if we’ve owned it before (books, cars, stock shares, etc.)
Imagining the future is even worse. We believe that we’d be completely depressed if we were part of a conjoined twin, but actually most conjoined twins are quite happy and have no desire to be split up. The same holds true of many disabled individuals. Here’s another example. Would you rather have $20 in 365 days or $19 in 364 days? Most people choose the $20. But 364 days later, if given the choice again, much more people would choose $19 today vs. $20 tomorrow. The pain of waiting one-day is always the same, it just seems different depending on how your imagination looks at it.
Gilbert also points out that the data we have suggests that having children actually doesn’t bring happiness. Figure 23 in the book (see below) combines data from four different studies that show that marital satisfaction drops after birth and only increases again when the child leaves home. He says that society needs us to believe children bring happiness or else there would be no society. Hmm… I don’t know about this one.
The book ends a bit flat, as the conclusion is that the only way to know if something will make us happy in the future is to ask someone else experiencing the exact same thing right now. The problem is that as humans, we tend to think we’re snowflakes and that possibly can’t be true. (Except it does tend to be true, especially when you ask enough people.) Even the author admits that this is unsatisfying. Other than that, the best we can do is to simply acknowledge that our imaginations are imperfect.
Sunday, February 17th, 2013
The book A Beach Less Traveled sounded like just the thing to read during a winter weekend… an American couple shares about their true story of going from “corporate chaos” to living in a tropical paradise where they run a small perfume shop. I love travel non-fiction, especially the work of authors like Peter Mayle and Bill Bryson. So accepted a free review copy of this book, hoping to be re-energized in my ongoing quest for financial freedom.
We meet the Berglunds, a very hardworking and reasonably successful couple living in the US. He was a lawyer, a lobbyist, and a trade association executive. His wife ran a small bed and breakfast. During their vacation travels, they fell in love with the small Caribbean island of St. Martin. They drew up a 10-year plan to create a perfumery and move there, as Berglund enjoyed chemistry as a hobby. Over the next 15 years, they saved up the million dollars that was necessary to make their goal happen – create and test their fragrances, buy a property for their store, buy inventory, market to tourists, etc.
It takes a skilled writer to weave all of this into an inspiring story. Unfortunately, the reading was much more dry. Things cost more than expected. Don’t they always? I was hoping for some examples of creative frugality, but nothing especially interesting popped up. Buying property on a small island that happens to be a overseas collectivity of France? Slow. Plus you’re a US citizen? Even slower. House repair? Takes a while. Phone repair? I get it. Island life is slow. Now, perhaps this is a good lesson for someone actually thinking about moving to the island, but I was left wanting for a charismatic character, a humorous story, or that “oooo-I-wish-I-could-do-that-too” feeling.
I also couldn’t help but be slightly annoyed when they talked about “living like a local”, but kept throwing out excuses about how they live in the French (and French-speaking) side of St. Martin but refused to learn French. That doesn’t sound like living like a local to me. If this is your new home, why not learn the language?
The Berglunds sound like nice, energetic people and I’m very happy they achieved their personal goals. They should be proud of themselves. I hope they are profitable in their new business as I believe they do need it to succeed. (They were not financially independent first.) I’m afraid I just didn’t find any inspiration in the book. The takeaway lesson seemed to be that if you really want it bad enough and save up a million dollars first over 10-15 years, you too can own a small business on a Caribbean island.
Thursday, February 7th, 2013
In a sea of new books, Pound Foolish: Exposing the Dark Side of the Personal Finance Industry managed to catch my eye. What personal finance geek wouldn’t want to read a snarky book that promises to bash Suze Orman, Robert Kiyosaki, David Bach, Jim Cramer, and Dave Ramsey? Does that count as Schadenfreude?
The problem with personal finance magazine writers and newspaper columnists. To start, the author, Helaine Olen admits that most personal finance columnists (including herself) start out knowing nothing about personal finance and are usually just freelance writers looking for any job. New York Times columnist and financial planner Carl Richards bought a house with a negative-amortization loan (not just interest-only, the loan balance actually increases each month…) and recently did a “strategic default” (walked away from his mortgage) after the home value dropped. Another NYT columnist Joe Nocera recently admitted that at 60 years old, he’s nowhere near retirement… his most recent move was to take out money from his 401(k) to remodel his house. I think this is actually an important lesson – the vanilla advice in the media is often just rehashed from elsewhere.
The problem with our money gurus. Personal finance itself is very simple. Spend less, earn more, invest for the long-term. It’s also boring. Therefore, you need people with charisma, salesmanship, and usually a gimmick to draw people in. Suze Orman is new-agey “people first, then money”. Kiyosaki and his fictional Rich Dad is “buy assets, not liabilities”. Bach is “automatic savings + latte factor”. Ramsey is “pay cash, debt is evil”. The book investigates and unearths the skeletons and inconsistencies of each of these gurus. The most important point to remember is that these people got rich by selling you books on how to be rich, not by actually getting rich themselves first! Dave Ramsey declared bankruptcy before becoming a money guru, even though now he tells people to not be a deadbeat and pay their bills.
Read the rest of this entry…
Sunday, January 27th, 2013
Viktor Frankl was a respected doctor and therapist before he became a concentration camp prisoner during the Holocaust. After somehow surviving the unthinkable only to find that he had lost both his parents and his pregnant wife, he wrote the book Man’s Search for Meaning.
I’ve visited the Dachau concentration camp, but reading this book was so much more vivid. You’re not just sent somewhere to die. You’re forced to relocate to a “labor camp”, and so you pack up your entire life into a few bags. Your bags are confiscated, so you hide some photos or jewelry in your clothes. You are stripped completely naked, and given a dead man’s rags to wear. You don’t even have a name anymore, you’re just a number (Frankl was 119104). And this is before the coming years of physical and mental torture.
With this background, Frankl introduces logotherapy, a form of existentialism that says that humans are driven not by the pursuit of pleasure (Freud) or the pursuit of power (Adler), but the pursuit of meaning. There are three ways to achieve meaning:
- Creating a work or doing a deed,
- Experiencing something or encountering someone (love),
- By taking a proper attitude when faced with unavoidable suffering
This last part is hard to explain unless you read the book, but the unavoidable part should be emphasized. We’re not talking about “pain is good”. In my mind, I think of it as maintaining honor and self-respect no matter what. Frankl writes:
Everything can be taken from a man but one thing, the last of the human freedoms — to choose one’s attitude in any given set of circumstances, to choose one’s own way.
He also quotes Nietzsche, “He who has a Why to live for can bear almost any How.”
How does this relate to personal finance and the pursuit of financial freedom? I think of it in two ways. First, in terms of yourself. We are all attracted to material things like houses, cars, clothes, and I’d include money. Imagine if all that was taken away. You’d still have your body, your mind, your unique meaning and purpose in the world. We should develop those things. The things you’ve learned, your memories, your experiences, your skills, all those can’t be taken away. All the good deeds that you have already accomplished, those also can never be taken away.
Second, it relates to motivation. Why do you want more money? Why do you want financial freedom? Is it enough to just want to avoid work? Maybe your goal is to spend time with your loved ones. Maybe you want to create beautiful art. Maybe you want to build an orphanage in Cambodia. Maybe you just want to try every ramen restaurant in Japan.
I have some meanings that I am pursuing, but I’m still searching for others.
Monday, January 21st, 2013
I have a goal this year to read and review more books, ideally a book per week on average. Recently, I’ve been into reading biographical books about interesting people pursuing their passions. Feel free to send me some suggestions.
Tina Fey’s Bossypants seemed like a funny auto-biography about someone who grew up in a “normal” working-class family and took a little while to become a respected writer, actor, producer, and comedian. Wealthy, too: Fey reportedly makes $500,000 per episode of 30 Rock and has an estimated net worth of $45 million. I should add that I have never seen a full episode of 30 Rock, although I have seen some SNL Weekend Updates, all the Sarah Palin skits, and a few of her movies.
The book was definitely Tiny-Fey-style funny and a quick read, but it wasn’t very revealing. I should have known, as the book is crosslisted under both “Humor & Entertainment” and “Biographies & Memoirs”. Indeed, I get the impression that she’s actually quite a private person and is reluctant to share anything truly intimate. She considered herself an ugly, unpopular nerd in high school. Well, that applies a lot of people. She worked a menial job at the YMCA while supporting her improv education. Eh, okay. Besides the funny bits, here are my highlighted quotes:
On being a leader:
It is an impressively arrogant move to conclude that just because you don’t like something, it is empirically not good. I don’t like Chinese food, but I don’t write articles trying to prove it doesn’t exist.
When faced with sexism or ageism or lookism or even really aggressive Buddhism, ask yourself the following question: “Is this person in between me and what I want to do?” If the answer is no, ignore it and move on. Your energy is better used doing your work and outpacing people that way.
Read the rest of this entry…
Thursday, August 2nd, 2012
I’m about halfway into a review copy of the book Get Rich with Dividends by Marc Lichtenfeld. Although there is more hype than I usually like – “easy 12% returns!” – I am learning things about dividend stock investing.
There is a handy chart in the book that compares a variety of stock lists that track companies with histories of consistently raising their dividends with no cuts. They are included below, along with a brief description and links to the full lists. Some of these have corresponding ETFs, but many of the smaller-cap companies are not covered by ETFs or fund managers and may be good targets for individual investors. Good reference.
||Provider, Full List
|S&P 500 Dividend Aristocrats
||Standard and Poor’s
- Annual dividend raised 25+ years in a row.
- Part of the S&P 500.
- Liquidity requirements.
||DRiP Resource Center
- Annual dividend raised 25 years in a row.
- No size restriction, or liquidity requirements.
- Aristocrats are a subset of Champions.
- Annual dividend raised 10+ years in a row.
- Liquidity requirements.
- Several versions of index.
||DRiP Resource Center (included in Champions spreadsheet)
- Annual dividend raised 10-25 years in a row.
- No size restriction, or liquidity requirements.
- Achievers are a subset of Contenders.
||DRiP Resource Center (included in Champions spreadsheet)
- Annual dividend raised 5-9 years in a row.
- No size restriction, or liquidity requirements.
Wednesday, August 1st, 2012
Writer Tim Harford recently published a newly revised edition of his book The Undercover Economist. I read the first edition in 2009 and definitely enjoyed how it explained economics using everyday occurrences. I wrote about two memorable examples: price targeting and coffee shops, and the efficient market hypothesis and supermarket lines.
According to Harford himself, the biggest change in the new edition is a new chapter about eggs, probabilities, and the financial crisis (naturally). As a favor to those of us who already have the first edition, he has kindly put the new chapter as a free PDF download. I’ve read it already and it was worth the time spent even though the subject has already been covered extensively.
Hat tip to MR. Harford also has a handy website that republishes the articles he writes for The Financial Times.
Wednesday, May 16th, 2012
Updated. I bought the original version with my own money, but then got offered a review copy of the newly released The Most Important Thing Illuminated which contains the same material but with additional commentary from respected investors Christopher Davis (David Funds), Joel Greenblatt (Gotham Capital), Paul Johnson (Nicusa Capital), and Seth Klarman (Baupost Group) as well as an extra chapter from Howard Marks. Most serious investors will recognize these names. The original is great, but if you’re willing to spend a bit more money (eBook is $9.99), this new version does have a little more meat to it. I’ve updated this review to include the new chapter.
If you wrote a book about investing and wanted some big-name endorsements, you couldn’t do much better than this – The Most Important Thing: Uncommon Sense for the Thoughtful Investor by Howard Marks has recommendations from Warren Buffett, Jeremy Grantham, Jack Bogle, Joel Greenblatt, and Seth Klarman.
Howard Marks is already famous around many investment circles for his Client Memos as the chairman and cofounder of Oaktree Capital Management, although not as well-known as Buffett’s shareholder letters. This book is basically a distillation of those memos into book form. Here are my personal notes.
Marks is an active investor, and this book is about successfully generate excess turns (alpha). Some people seem to think that “efficient markets” is black and white – either you believe in the Easter Bunny or you don’t. Market prices are completely perfect or investing is purely skill. This book helps you view market efficiency as a continuum. Beating the market by trading large-cap common stocks which are following by thousands of professionals is exceedingly hard. Oaktree Capital chooses to focus on what he perceives as less efficient markets – things like convertible securities and high-yield debt from distressed companies (“junk bonds”).
Developing your own investment philosophy
I enjoyed this quote:
Where does an investment philosophy come from? The one thing I’m sure of is that no one arrives on the doorstep of an investment career with his or her philosophy fully formed. A philosophy has to be the sum of many ideas accumulated over a long period of time from a variety of sources. One cannot develop an effective philosophy without having been exposed to life’s lessons
Quality vs. Price
The title of the book is a bit misleading, as there is no single “most important thing”. Basically each chapter is an expansion of one or more of his memos and it titled “The Most Important Thing is… XXX”. However, an overarching theme of the book is about risk control. I’ve already written about higher risk vs. higher investment return.
A related idea is that people tend to think of investments only in terms of quality. Strong companies vs. struggling companies. Highly-rated bonds vs. Lower-rated bonds. Strong developed countries vs. Weaker emerging countries. But what’s important is the price. A high-quality company can be a high-risk or low-risk investment, depending on what price you pay for it. A junk bond can be a high-risk or low-risk investment, depending on what price you pay for it.
Marks strongly believes in the recurrence of cycles. One side of the pendulum occurs when people seems think that there are minimal risks, either because of recent history or some new invention that eliminates risk (CDOs?). Often, the only worry remaining is that we’ll miss out on the opportunity for great returns. The other side of the pendulum is when uncertainty is everywhere. Here, people say things like “I’m staying out of the market until the dust settles.” This reminded me of a chart I pulled out a lot during the housing bubble:
If you’re going to pick a time to invest, it’s better when people are scared, because at least they are properly considering all the potential risks. It should be scary and uncomfortable. He reminds you, as Charlie Munger says, “It’s not supposed to be easy.” If you wait until the dust has settled, there won’t be great prices anymore.
Illuminated-only Bonus Chapter: Reasonable Expectations
This is good reminder about having a clear goal as to what you want to achieve with your portfolio, but also to keep that goal within reason:
The key questions are what your return goal is, how much risk you can tolerate, and how much liquidity you’re likely to require in the interim.
Extraordinary skill is rare. When someone else promises returns “too good to be true”, the next question to ask is “why me?” If they found a can’t miss investment opportunity, why are they sharing this with you? If some talking head on TV makes a bold prediction, why aren’t they busy betting their net worth on the outcome? With today’s complex derivatives and betting markets, they should be rich and sunning themselves on a yacht instead.
Even though I am primarily a low-cost, buy, hold, & rebalance type of investor, I felt this book still provided me with new information for my own evolving investing philosophy. Creating alpha is not easy, and most people who try to do so consistently fail, so you should be very careful and realistic when assessing your own skills. I’ll be sure to read his future memos. Thankfully, they can be found at the Oaktree Capital website, free and available to all.
Monday, March 12th, 2012
Charlie Munger is best known as the long-time friend and business partner of Warren Buffett, and officially as the Vice-Chairman of Berkshire Hathaway. Even though he is Buffett’s partner in investing, Munger is different in that he does not enjoy the spotlight as much and is rather more blunt and cranky. For some reason that just makes me like him more.
Ever since I read more about him in the Buffett biography The Snowball, I have wanted to learn more about him via the book Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger, which is mostly a collection of his speeches but also includes some of his own personal notes and reflections from his peers and family. From the website:
For the first time ever, the wit and wisdom of Charlie Munger is available in a single volume: all his talks, lectures and public commentary. And, it has been written and compiled with both Charlie Munger and Warren Buffett’s encouragement and cooperation. So pull up your favorite reading chair and enjoy the unique humor, wit and insight that Charlie Munger brings to the world of business, investing and life itself.
The first thing you should know about this book is that it is not meant to be an investing How-To book. Yes, there is a lot of investing advice in it, but the book is more about how to live a successful and fulfilling life more than the accumulation of money. Munger puts more emphasis on integrity and how to think correctly than how to calculate a company’s return on capital.
One of the reasons that Buffett and Munger appeal to me is that their primary motivation for doing what they do is not simply to be rich, it is to to be independent. Here’s a quote from Buffett on why he wanted to make money: Read the rest of this entry…
Wednesday, February 1st, 2012
I enjoy reading older books about early retirement; I seek to learn from their experiences, but I also look for ways in that their perspective is colored by their own time period. For instance, a book written in the 80s1 – an era of high inflation – would likely assumed that interest rates would be moderately high forever, at least in the 5% range. The tendency to extend recent trends into the future is unavoidable, and something you should consider when reading or making forecasts today.
This is a review of How To Retire Early and Live Well With Less Than A Million Dollars by Gillette Edmunds, a book published in 2000 that was recommended to me by a reader. Edmunds was a former tax attorney and financial journalist who retired in 1981 at age 29.
Unreasonably High Expected Returns
Remember that for both the 1980s and the 1990s, the average annualized total return of the S&P 500 for both decades was around 18% a year. Imagine two decades of such returns, all before the dot-com bust and the housing bust. Edmunds retiring in 1981 turned out to be some of the luckiest timing possible. As a result, a major criticism of this book is the continued expectation of high stock returns going forward. The quoted excerpts below are taken verbatim from the book:
- Can you retire today? His answer is that “most middle-class Americans, including me, could live comfortably on the investment returns from $500,000.” Perhaps, but with currently-accepted safe withdrawal rates of 3-4%, this would only create $15,000 to $20,000 a year in income. Instead, the book promotes withdrawals rate of 8-10%, which would have left many nest eggs completely wiped out from 2000 to 2010.
- “An average, educated, experienced investor can reasonably expect to make 10% a year for life.”
- “Anyone should be able to produce a 7.75% return.”
I bet these assumptions sounded reasonable, perhaps even conservative, in 2000 but they are just bad jokes today.
Owning Non-Correlated Asset Classes
Edmunds tells us not to time the markets, ride out temporary market drops, and to maintain low investment costs. He advises you to hold a variety of “non-correlated” asset classes such as:
- Real Estate
- Foreign Stocks
- US Large Stocks
- US Small Stocks
- Emerging Markets Stocks
Edmunds believes that these asset classes are on different business cycles. When one is going up, the other is going down. However, I don’t like the term “non-correlated”, as very few asset classes have negative correlations these days. Low or minimally correlated is a better term. As we saw in the recent financial crisis, when the poo hits the fan correlations can go back to 1 (everything goes down together). However, I agree with the general asset allocation advice of holding different asset classes with minimal correlations. He counts as an early proponent of not holding too much in US stocks (no more than 1/3rd of total portfolio), and an equal amount in foreign stocks (also use for 1/3rd of your portfolio).
I did have an issue with the lack of supporting evidence as to why these assets and not others, as we only get weak arguments like “after owning bonds for about five years, I realized that a portfolio of five different high-return asset classes that excluded bonds had both high predictability and high returns”. I’m sorry, but making a conclusion to stop holding bonds after 5 years of data is just plain bad advice and makes him come off as egotistical.
He ends the book with a philosophical epilogue with the usual “money isn’t everything, enjoy life with family and friends” material. I don’t mean to belittle the importance of this factor, just that I didn’t really learn anything new from it. He does come off as well-intentioned and talks about the effect of his divorce. Despite its flaws, I found this book worth the read as it encompasses the overall philosophy of one person who had been successfully retired for 20 years. Just remember he had a very strong tailwind of high returns, and adjust your own expectations accordingly.
Other “early retirement” books that I’ve reviewed:
Monday, January 16th, 2012
I’ve read parts of The Big Short by Michael Lewis before, but finally re-read the entire thing over the weekend. If you are unfamiliar with this bestseller, it tells the story of the housing bubble through the viewpoint of investors who saw the crisis coming and bet big money on the collapse of subprime mortgages. Lewis portrays these guys as almost heroes, courageous individuals from smaller hedge funds that went against the commonly-held beliefs of the big firms on Wall Street.
Instead of writing the 8,449th review of this book, my question was – what are these characters betting against now? Now, this doesn’t necessarily mean I think they’ll be right, but I’m still curious.
Michael Burry, Scion Capital
Burry no longer accepts money from outside investors (he doesn’t need to), but still invests at Scion Capital using his own money. He doesn’t write a blog or release his recent letters to shareholders to the public, except for a few old ones. He did make a April 2011 lecture at his alma mater Vanderbilt University entitled Missteps to Mayhem where he sees continued problems with the government printing too much money and not tackling our current fiscal problems.
The government’s borrowing of money for the purpose of injecting cash into society, bailing out banks, brokers, and consumers, is a short-sighted, easy decision for a population that has not yet learned that short-sighted and easy strategies are the route to long-term ruin.
He ends his speech with the ominous advice “All that said, I might suggest opening a retail banking account in Canada.” I’m not even sure that’s possible to do as a U.S. citizen… is it?
From this complete transcript of a September 2010 interview with Bloomberg, he states that he believes that “productive agricultural land with water on site is — will be very valuable in the future”, he is bullish on gold due to currency debasement, but he doesn’t have a good feel for the timing of things as it could take a while to play out.
Steve Eisman, FrontPoint Partners
Eisman left FrontPoint in June 2011 and is reported to start his own hedge fund Emrys Partners in 2012. He has gotten the most publicity in recent years for shorting the stocks of certain for-profit colleges taking advantage of easy credit from government student loans. Basically, people who can’t get into traditional colleges are pitched a great future and convinced to take out large amounts of debt that they can’t pay back, all so these pseudo-accredited colleges can profit. Sound familiar? From a 2010 conference speech:
Until recently, I thought that there would never again be an opportunity to be involved with an industry as socially destructive and morally bankrupt as the subprime mortgage industry. I was wrong. The for-profit education industry has proven equal to the task. [...] This is similar to the subprime mortgage sector in that the subprime originators bore far less risk than the investors in their mortgage paper.
I also looked for information on Charles Ledley and James Mai of Cornwall Capital, but really didn’t come up with much. They have a website, but there is nothing to see for the public.