Omnivore’s Dilemma: Economics of Farming and Why Food Marketing Is Everywhere

I’d like to make a habit of reading a book every other week in 2014. My first book is The Omnivore’s Dilemma: A Natural History of Four Meals by Michael Pollan. This 2006 NYT bestseller has already been well-discussed, but I saw it at my library’s donated book sale and wanted to read it for myself.

Instead of a regular review, I just wanted to share one financial concept inside about the special economics of food. We all learned in school that as prices go down, demand should go up. As demand goes up, the price tends to rebound until an equilibrium is found. But this doesn’t work for food producers:

The growth of the American food industry will always bump up against this troublesome biological fact: Try as we might, each of us can only eat about fifteen hundred pounds of food a year. Unlike many other products – CDs, say, or shoes – there’s a natural limit to how much food we each can consume without exploding. What this means for the food industry is that its natural rate of growth is somewhere around 1 percent per year – 1 percent being the annual growth rate of American population. The problem is that Wall Street won’t tolerate such an anemic rate of growth.

This leaves companies like General Mills and McDonald’s with two options if they hope to grow faster than the population: figure out how to get people to spend more money for the same three-quarters of a ton of food, or entice them to actually eat more than that. The two strategies are not mutually exclusive, of course, and the food industry energetically pursues them both at the same time.”

If farmers have a great year, they can actually make less money as prices plummet after product floods the market (due to our finite stomachs). Let’s look deeper into those two alternatives:

Convince people to spend more for the same amount of food. This is behind why everything is processed to the point of ultimate convenience with sleek packaging. Any cooking beyond using the microwave has been removed. Everything is in single-serving packages. Every new diet comes with its own line of ready-to-eat stuff in a box. Surprise, everything also gets more expensive! I just noticed that gluten-free pasta costs roughly 3 times as much as traditional pasta. Even terms like “organic” and “free-range” are twisted by marketing and may not mean what you think.

Convince people to eat more food. What we consider an acceptable portion size has increased over the years. From 1982 to 2002, the average pizza slice grew 70 percent in calories. Even the surface area of the average dinner plate expanded by 36 percent between 1960 and 2007 (source). Think of the “Upgrade” or “Combo” feature of many fast food menus. Why just order a sandwich and drink water, when for a little more you can get fries and a soda? Once you order the combo, why not “upgrade” to even larger fries and larger soda for just 50 cents?

This is why we are surrounded by food branding and food marketing. To fight back, we should buy food as close to their whole “raw material” state as possible in order to avoid the middleman (processing). Even though it does take more time, this makes the food we eat both healthier and cheaper overall.

Cooked: A Book About Why You Should… Cook

Consider the following questions that you may have asked yourself recently:

  • What can you do to consume fewer calories while eating healthier food?
  • How do you get your family to spend more time together, talk, and connect?
  • How do you get the public to care more about what they are eating, which in turns forces the food corporations to improve their standards?
  • What can modern super-specialized citizens do to feel more in touch with nature and self-sufficient?
  • How can you save some money?

I’m sure the title has given it away by now, but the answer is to cook! Specifically, cook at home for yourself and your family, as close to from scratch as possible. At least, that’s the lesson from the book Cooked: A Natural History of Transformation by Michael Pollan. A previous post expanded on the health benefits of cooking at home, and the book examines cooking as broken down into the four elements: Fire (BBQ), Water (Braises), Air (Bread), and Earth (Brewing).

Indeed, why is it that we seem more obsessed by food than ever (Food Network, Cooking Channel, Yelp, Food Bloggers Everywhere) at the exact same time that fewer and fewer people actually know how to cook? The food industry is betting that the current generation of kids will have hardly any idea of how to cook even basic dishes, as it means even more $$$ for them! A quote from consumer researcher Harry Balzer:

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Shareholder Yield: Better Stock Screening Metric Than Dividend Yield?

I’ve read a few books about dividend investing and remain interested in the idea, although I’m not confident enough (yet?) to allocate my portfolio that way. Portfolio manager and writer Mebane Faber has a short book called Shareholder Yield: A Better Approach to Dividend Investing that offers another tweak on dividend investing strategy.

(As tweeted earlier, the Kindle eBook version is free until the end of Monday, which was a good promo as it got me to I read it. That, and it was only 55 pages.)

The book starts with an overview of history and academic research. First, a little over half the total return of the US stock market since 1871 is due to dividends. The smaller half is price appreciation, which when people talk about the S&P 500 index is all price appreciation. Second, stocks with higher dividends have had a higher historical return than stocks with little or no dividends.

So dividends are good, but they aren’t the entire picture. There are five ways for management to deploy the free cash flow generated by the company:

  1. Invest in existing operations,
  2. Acquire other businesses,
  3. Pay down debt,
  4. Repurchase stock (reducing outstanding shares), and
  5. Distribute cash to shareholders.

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Cooked: The Health Argument For Cooking At Home

I’m roughly halfway through Cooked: A Natural History of Transformation by Michael Pollan. Although the book covers a variety of topics ranging from chemistry to religion to anthropology, the overarching theme is examining the practice of cooking meals for yourself (and your family).

Cooking food has become one of our most outsourced tasks. Everyone is busy. But is letting huge for-profit corporations prepare what we eat really worth the time savings if it costs us our health? Consider what studies have found:

  • When we cook meals ourselves, we eat less than when we outsource to frozen meals or restaurants.
  • Obesity rates are inversely correlated with the amount of time spent on food preparation.
  • Regular cooking is correlated with superior health and longevity.
  • Poor women who routinely cooked tended to have a more healthy diet than richer women who did not.

In the book, food industry expert Harry Balzer (who knows exactly how often we actually eat out, not just how much we admit to… which is a lot!) put forth some insightful diet advice:

Cook it yourself. Eat anything you want – just as long as you’re willing to cook it yourself.

Essentially, eating unhealthily these days is mostly the byproduct of eating out, including meals-in-a-box and frozen dinners.

There are many other potential benefits of cooking for ourselves, stay tuned for a full review. Together, I’m hoping they’ll convince me to start cooking regularly again!

Book Review: Damn Right! Biography of Charlie Munger

I recently finished reading the biography of Charles Munger done by Janet Lowe, Damn Right! Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger, originally published in 2000. The book did a pretty good job of filling in details about his childhood and family history, although much of it was pieced together from existing speeches, books, and articles about Warren Buffett and Munger. (Although if you haven’t read any of that other stuff, you wouldn’t notice.) In any case, I still found many passages worth highlighting and saving:

On learning business skills from playing poker:

“Playing poker in the Army and as a young lawyer honed my business skills. What you have to learn is to fold early when the odds are against you, or if you have a big edge, back it heavily because you don’t get a big edge often. Opportunity comes, but it doesn’t come often, so seize it when it does come.”

On the merits of buying and holding onto investments for the long haul:

There are huge advantages for an individual to get into a position where you make a few great investments and just sit back and wait: You’re paying less to brokers. You’re listening to less nonsense. And if it works, the governmental tax system gives you an extra 1, 2 or 3 percentage points per annum compounded.

And you think that most of you are going to get that much advantage by hiring investment counselors and paying them 1% to run around, incurring a lot of taxes on your behalf? Lots of luck.

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Ugly Americans Book: Eight Rules of Carney

I’ve been falling behind on my book reviews. Here’s an older book I found that made for good airplane reading – Ugly Americans: The True Story of the Ivy League Cowboys Who Raided the Asian Markets for Millions by Ben Mezrich. The book is supposedly based on the true story of young, male hedge fund traders during the mid-1990s Asian stock market boom who take big risks, make big money, meet beautiful women, don’t care about ethics… and after all that testosterone there’s the usual bit of self-reflection at the end. A major part of the plot even managed to involve boring ole’ index funds! :)

One of the main characters was head trader Dean Carney, who had his “8 Rules of Carney”:

  1. Never get into something you can’t get out by the closing bell. Every trade you make, you’re looking for the exit point. Always keep your eye on the exit point.
  2. Don’t ever take anything at face value. Because face value is the biggest lie of any market. Nothing is ever priced at its true worth. The key is to figure out the real, intrinsic value — and get it for much, much less.
  3. On minute, you have your feet on the ground and you’re moving forward. The next minute, the ground is gone and you’re falling. The key is to never land. Keep it in the air as long as you f—ing can.
  4. You walk into a room with a grenade, and your best-case scenario is walking back out still holding that grenade. Your worst-case scenario is that the grenade explodes, blowing you into little bloody pieces. The moral of the story: don’t make bets with no upside.
  5. Don’t overthink. If it looks like a duck and quacks like a duck — it’s a duck.
  6. Fear is the greatest motivator. Motivation is what it takes to find profit.
  7. The first place to look for a solution is within the problem itself.
  8. The ends justify the means, but there’s only one end that really matters. Ending up on a beach with a bottle of champagne.

Mezrich also wrote about the MIT Blackjack team in the NYT Bestseller Bringing Down the House, which was recently made into the movie 21 with Kevin Spacey. If you enjoy financial thrillers, both these books are fun page-turners.

Stefan Sagmeister: Things I Have Learned

Designer Stefan Sagmeister did another TEDtalk titled Happiness by design where the best part was when he shared the list below of “Things I have learned in my life so far” (which later became a book of typographic artwork).

  • 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.

Stumbling On Happiness by Dan Gilbert – Book Review

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.

A Beach Less Traveled: From Corporate Job to Flip Flop Perfumer – Book Review

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.

Pound Foolish: Everything That’s Wrong With The Personal Finance Industry

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.

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Book Review: Man’s Search for Meaning by Viktor Frankl

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:

  1. Creating a work or doing a deed,
  2. Experiencing something or encountering someone (love),
  3. 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.

Book Review: Bossypants Memoir by Tina Fey

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.

On discrimination:

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.

On teamwork:
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