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The fat tail
05/26/09 Permlink | Books
"In their entertaining new book, The Fat Tail, Eurasia Group investment strategists Ian Bremmer and Preston Keat observe that while banks likely spent $8 billion on credit-risk software in 2008, most spent 'far less energy on the assessment and management of political risk.' It's easy to make the argument that banks and businesses of all stripes ignore risk of the policy variety at their peril."



More articles on the same topic . . .

Put cheapness first
02/24/13 Permlink | Value Investing Stingy Investing Books
"EBIT/EV alone outperformed the magic formula's combination of ratios. Investors would have been better off simply looking for cheap stocks and not paying any attention to quality."

Taleb mishandles fragility
11/28/12 Permlink | Books
"Another key to understanding Taleb is that he has a French post-modern tendency to write to impress rather than explain. He provides hundreds of loosely related anecdotes, reminding me of the Talmud quote that 'when a debater's point is not impressive, he brings forth many arguments.'"

You can't trust airport security
09/08/12 Permlink | Books
"When the plumber knocks at your door, why do you let him in? He's probably bigger and stronger than you. And he has a wrench. He could easily kill you and steal your money and your stuff, which would certainly be a better deal for him than receiving a moderate payment and having to fix your toilet. But you trust that he won't; and trust, that mysterious and invaluable substance, is the subject of Bruce Schneier's ambitious "Liars and Outliers: Enabling the Trust That Society Needs to Survive," which starts with the homely parable of the plumber and builds into a treatise on every aspect of trust, from marital fidelity to transnational terrorism."

David and Goliath
07/10/12 Permlink | Books
"What should the strategy of the weak be when facing the strong? Does being an underdog - whether as a team a country or an individual - help foster creativity?"

Figuring it out
07/07/12 Permlink | Graham Value Investing Books
"Before Benjamin Graham started to work on Wall Street, investment analysis was a hit-and-miss affair, focusing more on recent price movements than on the merits of individual companies. Graham, a brilliant mathematician, took the process to a much higher level."

The real genius of Steve Jobs
11/12/11 Permlink | Books
"One of the great puzzles of the industrial revolution is why it began in England. Why not France, or Germany? Many reasons have been offered. Britain had plentiful supplies of coal, for instance. It had a good patent system in place. It had relatively high labor costs, which encouraged the search for labor-saving innovations. In an article published earlier this year, however, the economists Ralf Meisenzahl and Joel Mokyr focus on a different explanation: the role of Britain's human-capital advantage - in particular, on a group they call "tweakers." They believe that Britain dominated the industrial revolution because it had a far larger population of skilled engineers and artisans than its competitors: resourceful and creative men who took the signature inventions of the industrial age and tweaked them - refined and perfected them, and made them work."

Why chasing success makes us happy
08/04/11 Permlink | Books
"As he researched his subject, exploring economics, neuroscience and evolutionary biology, Buchholtz became convinced that much of the modern happiness project was a crock - not just unhelpful economically, but unhealthy and unnatural."

Super Rich
02/07/11 Permlink | Books
"In both authors' works, it's difficult to find concrete business lessons. And perhaps that's the point. For example, writes Chopra: 'Your body is a constant projection of you in the world. Every cell eavesdrops on your thoughts.' The author views our metabolisms as chat rooms, with epidermal cells listening in to what's going on in the cranium. If you don't understand what he means, your foot can explain it to you."

Jim Otar's Christmas freebie
12/16/10 Permlink | Books
"I'd be happy to make the green edition of my book 'Unveiling the Retirement Myth - Advanced Retirement Planning based on Market History', a textbook on non-Gaussian approach to retirement planning, to your readers for a limited time, from now until January 2nd."

It's Not Rocket Science
12/02/10 Permlink | Books
"We've compiled four years of Tom's articles and blogs into a new book titled It's Not Rocket Science: Plain-English Advice for Managing Your Investments. The pieces are short narratives that reinforce some of the basic, yet most important, principles of investing."

The Rational Optimist
11/29/10 Permlink | Books
"Today's Outside the Box is two essays, by Matt Ridley and Bill Gates, from the Review section of the WSJ. Ridley has written a book called The Rational Optimist... Bill Gates writes a longer essay to say why he thinks Ridley has some things wrong, while overall giving the book high marks. This is one of the more thought-provoking exchanges I have read in a while."

The Non-Economist's Economist
10/05/10 Permlink | Books
"Now comes the test of whether his popular writings will endure longer than the memory of his celebrity and the pleasure of his prose. 'The Great Crash' has a fighting chance, because of its very lack of analytical pretense. 'History that reads like a poem,' raved Mark Van Doren in his review of the 1929 book. Or, he might have judged, that eats like whipped cream.But the other books in this volume seem destined for only that kind of immortality conferred on amusing period pieces. When, for example, Galbraith complains in 'The Affluent Society' that governments can't borrow enough, or that the Federal Reserve is powerless to resist inflation, you wonder what country he was writing about, or even what planet he was living on."

Michael Eisner on Teamwork
09/26/10 Permlink | Books
"Eisner slips into the realm of the absurd when he proposes that more successful partnerships might be an antidote to the virus of executive greed that led, he boldly asserts, to the recent financial crisis.For anyone who remembers the hundreds of millions in stock options that Eisner garnered during his tenure at Disney, when he was one of the highest-paid executives in the world, this insight is the most hilarious punch line of all. Particularly, it so happens, as Eisner is said to be a candidate to take over the Tribune Co. If Wells were alive, let's hope he'd lean forward and suggest gently to Eisner that he's making a fool of himself. Though all evidence indicates that their beautiful partnership would never have survived if Wells did anything of the kind."

The elements of investing
08/29/10 Permlink | Indexing Books
"The Elements of Investing.written by former Vanguard board members Charles Ellis and Burton G. Malkiel.distills investing into five fundamental principles: save, index, diversify, avoid blunders, and keep it simple. Simply visit the publisher's website and download your copy today."

The original captain of industry
08/03/10 Permlink | Books
"Lipton's story starts out as a period piece but turns out to be completely contemporary. Unfortunately, The Great Lipton lived in an age before The Apprentice, when there were few options for a flamboyant CEO outside the C-suite. Without him, though, there might never have been such a show."

Into thin error
07/16/10 Permlink | Books
"I sought Viesturs out because I was curious about the kind of attitude you develop toward error when a single mistake can easily cost you your life. I also wanted to test a hypothesis that I call "the paradox of error": If your goal is to avoid making mistakes, then you must constantly assume that you are about to make one. That's why fields like aviation and medicine have, at their best, a productive obsession with error. It turns out the same goes for mountaineering - or, at least, mountaineering as practiced by Viesturs. He's totally comfortable with being wrong, he says; the important thing is that, "if you goof up, it's in the right direction.""

The zeroes
07/16/10 Permlink | Books
"Lane believed he would make his own fortune by giving luxury advertisers a forum to reach this small but growing mob of ultrarich arrivistes. Unfortunately he chose a medium that would prove to be a surefire prophylactic against profits. Despite zealously attempting to sell out, Lane couldn't make a buck. When stock markets collapsed in 2008, so did his publishing empire."

On business competition
07/10/10 Permlink | Management Books
"'A funny thing happens when you begin to capture competitive differences on paper', says Harvard Professor Youngme Moon in her book Different, 'there is a natural inclination for folks in the competitive set to focus on eliminating differences rather than accentuating them.'"

The confidence game
07/05/10 Permlink | Books
"There really are loans that so safe that they can be written with a zero-loss standard and levered 150 times - but they are only that safe if you have removed the possibility of fraud - and you can only really do that by getting your fingers dirty. You cannot do that with a mathematical model."

Hyperbolic Geometry defeats Nazi Spoons
03/26/10 Permlink | Fun Books
"Worm hunters, Nazi spoons and homicidal robots were crushed in one of Britain.s quirkiest literary contests, as a book that uses crochet to introduce non-Euclidean geometry won the annual Diagram Prize for Oddest Book Title."

Gary Gorton vs. Michael Lewis
03/22/10 Permlink | Books
"The basic idea is that the repo market had developed as an independent source of funds, and when some AAA rated mortgaged backed securities started to fall in price, this tainted all AAA securities, especially asset backed paper. AAA securities have a 0.01% default rate, so from a bayesian perspective, when you see a default here the probability is not that one was very unfortunate, but rather, the rating was wrong. Perhaps all ratings are wrong?!. Everyone was scrambling to understand these securities work to assess how much they are worth, and found them insanely complicated, so people naturally assumed the root cause could be anything related to 'debt', derivatives, rated securities, was complicated, etc. Everything was painted by the same brush, as when one bad cow tainted with e. coli causes a wholesale destruction of all beef products sold in the US, because one can't be sure. A run on the repo market was a classic bank run, causing the banking system to be insolvent, and lending to sharply contract."

Michael Lewis on Charlie Rose
03/17/10 Permlink | Books
"An hour with Michael Lewis, author of 'The Big Short'"

Quantifying qualitative factors
02/23/10 Permlink | Books
"I've just finished Ian Ayres's book Super Crunchers, which I found via Andrew McAfee's Harvard Business Review blog post, The Future of Decision Making: Less Intuition, More Evidence (discussed in Intuition and the quantitative value investor). Super Crunchers is a more full version of James Montier's 2006 research report, Painting By Numbers: An Ode To Quant, providing several more anecdotes in support of Montier's thesis that simple statistical models outperform the best judgements of experts."

Money for nothing
01/18/10 Permlink | Books
"I'm not even Andrew Ross Sorkin, the superstar financial writer at the New York Times. The advance for my new book wasn't in the millions of dollars. It wasn't even in the high six figures. Instead, we're talking more the, um, low five figures. After you deduct my agent's commission and the costs involved in research and writing, my take was in the very low five figures. This is, I'm sorry to say, more typical for authors. Indeed, most writers don't get published at all. Only giants like Sorkin or Palin command the great publishing sums. It raises a question that financial writers, for obvious questions, rarely ask: Should you really take financial advice from someone foolish enough to write for a living?"

Hoisington Q4 letter
01/18/10 Permlink | Markets Books
"In 2009, the book This Time is Different.Eight Centuries of Financial Folly, by Reinhart and Rogoff, shed new light on the role of debt by compiling a database that looked at financial crises in 66 countries over a period of 800 years. The main standard in explaining more than 250 crises studied is whether debt is excessive relative to national income, even though idiosyncrasies apply in each case. They reiterate that this old rule (excessive debt) continues to apply, and this time is not different."

Improve results with checklists
01/06/10 Permlink | Books
"What's a low-tech way to improve the performance of everyone from doctors to investors to airline pilots? According to Atul Gawande, it's the humble checklist."

Money for nothing
01/05/10 Permlink | Books
"Should you really take financial advice from someone foolish enough to write for a living? Run the numbers. If a typical author earns, say, $3 per book sold and the book sells 20,000 copies, then that's $60,000 in gross income -- before costs. But that may be for a year's work. We're talking maybe $30 an hour."

What matters now
12/14/09 Permlink | Books
"Here are more than seventy big thinkers, each sharing an idea for you to think about as we head into the new year. From bestselling author Elizabeth Gilbert to brilliant tech thinker Kevin Kelly, from publisher Tim O'Reilly to radio host Dave Ramsey, there are some important people riffing about important ideas here. The ebook includes Tom Peters, Jackie Huba and Jason Fried, along with Gina Trapani, Bill Taylor and Alan Webber. Here's the deal: it's free."

Malcolm Gladwell, eclectic detective
11/14/09 Permlink | Books
"Readers have much to learn from Gladwell the journalist and essayist. But when it comes to Gladwell the social scientist, they should watch out for those igon values."

Where SuperFreakonomics falls down
10/28/09 Permlink | Books
"Almost everybody has had the experience of wondering if the problem with one's car is really as serious as the auto mechanic says - or if the mechanic is blowing it up to charge more. In our dealings with the body shop, as in many other situations, we are at what the experts would call a humongous informational disadvantage. We are always conscious of the possibility of getting charged way too much. And we sometimes are - but rarely do we run into the perfectly unscrupulous tradesman who rips us off as badly as we fear he can. Car repair isn't one of the professions that Steven D. Levitt and Stephen Dubner look at in their best-selling Freakonomics or their new SuperFreakonomics. But it's an example that's familiar to everyone and useful in thinking about questions like 'How do we know when we're getting a fair deal?' or 'How likely are we to be misled in our dealings?' or (for those who are, like me, clueless about cars), 'Why don't we get ripped off all the time?'"

Praise for Peter Bernstein
06/18/09 Permlink | Markets Books
"Peter Bernstein aimed for large targets, and gave broad and convincing evidence of how markets worked. He only erred in letting Modern Portfolio Theory and Keynesianism affect him. With that, I hail Peter Bernstein, regretting his demise. He will be missed, as few of us had such global vision of markets as he had."

Risk-management pioneer
06/14/09 Permlink | Markets Books
"Investing has yielded a few stars so famous they are known by first name. Warren Buffett is one. Peter L. Bernstein -- the economist, investment consultant and prolific author who died on June 5 at 90 -- was another."

The master of money
05/18/09 Permlink | Value Investing Buffett Books
"There is now a long shelf of books about Warren Buffett, but this is the first time he has gone to any trouble to add to it. Reportedly Buffett now regrets his decision--he has apparently put some fresh distance between himself and his official biographer. If so, it's not hard to see why. Alice Schroeder is a former Morgan Stanley research analyst, able to understand and to explain Buffett's money-making, but she declined to confine herself to the business at hand. She has sought to describe Buffett's psychological landscape as clearly as his financial one. For the reader, the results are pretty terrific--there are not a lot of 838-page narratives that leave you wanting more--but for Buffett they are no doubt upsetting."

Findependence day
12/01/08 Permlink | Thrift Books
"The protagonists grapple with two key concepts - financial independence and guerrilla frugality. Financial independence (the book's title is a contraction of the term) refers to the goal for most of us: the day on which our assets are large enough to cover our living expenses and we don't have to work for a living anymore. ... Guerrilla frugality is the key means to achieve the end, financial independence."

James Grant pops Greenspan's bubbles
11/24/08 Permlink | Grant Books
"Such proofs of Grant's foresight -- the power of mind over mania -- fill his new anthology, 'Mr. Market Miscalculates,' a bracing tonic as U.S. equities suffer what may prove their worst year since 1931. We've all met Mr. Market. He's the manic-depressive business partner invented by value investor Benjamin Graham. When the sun is shining, he urges you to sell him your share of the business. When night falls, he begs you to buy him out. Price is no object. Grant's omnibus offers a blow-by-blow account of one man's battle with this crank, from dot-com binge to mortgage meltdown."

The backstory on the Buffett book
08/25/08 Permlink | Buffett Books
"One of the most anticipated books of the fall is "The Snowball: Warren Buffett and the Business of Life." The title's publisher, Bantam, paid $7.2 million for the North American rights and expects to sell more than 1 million hardcover copies of "The Snowball," which is due out Sept. 29. Few investors have generated as much sustained public interest as Mr. Buffett, one of the world's richest men, with a fortune estimated as high as $62 billion. R.R. Bowker's Books in Print says there are an estimated 60 titles in print about him, with more than a dozen new ones on tap this year. Now Bantam is about to find out whether there's a limit to Buffetmania."

Two years inside the cauldron of capitalism
08/19/08 Permlink | Education Books
"The weirdest and creepiest episode is when a student writes to the entire school, confessing to a 'regrettable property-damage incident', a gorgeous euphemism for urinating against a neighbouring student's door. 'His behaviour had made him realise he still had work to do figuring out exactly who he was.' Ye-es . . . or maybe he should just resolve not to pee against people.s doors in future. Even more creepily, Delves Broughton finds that he no longer responds to such tosh with a healthy snort of laughter. 'It was serious, right? Leadership. Core values. Transformation. Being true to oneself.' It takes his wife - his American wife - to inject some common sense. 'These people are freaks..'"

The new economics and the pursuit of happiness
07/01/08 Permlink | Academia Behaviour Books
"The revolution begun by Kahneman and Tversky is now some three decades old, and it is generating excitement well beyond the borders of academe--and so this is a good time to examine whether it has lived up to its promise. Bruno S. Frey's Happiness and Dan Ariely's Predictably Irrational together offer a fine occasion to begin such a reckoning. Not all the revolutionaries in economics are discussed by Frey; the media star Levitt does not even make an appearance. Ariely, who teaches at MIT, helps to fill in the picture. Like Levitt, he has climbed the best-seller list with some of the most counterintuitive findings of behavioral economics. One is dry and humorless, the other is sprightly and inviting, but between them these books offer an overview of what this new economics is all about, and enable us to evaluate whether it is as innovative as its adherents claim."

Are your stocks protected by moats?
05/29/08 Permlink | Stingy Investing Buffett Books
"Thanks to The Rothery Report's Norman Rothery - with whom I had the pleasure of dining this week - I came across a copy of a book that is focused on the topic of economic moats. It's called The Little Book That Builds Wealth (Wiley, 2008), by Pat Dorsey, who is the director of equity research at Morningstar Inc. Morningstar is famous for its mutual fund ratings, but also rates individual stocks using an 'economic moat' rating system. The book divulges most of its approach to this system and makes for a fascinating read."

Fooling some of the people all of the time
04/24/08 Permlink | Books
"Now Mr. Einhorn has written a book. But instead of packaging the real or contrived "secrets" to his success - as cliche would have it - he has tried to do something less triumphant and far gutsier. In "Fooling Some of the People All of the Time," he turns the spotlight on a single, stubborn investment play that never made much money for him but created six years of headaches."

Taleb outsells Greenspan
03/30/08 Permlink | Markets Derivatives Disaster Books
"On a freezing day in March 2007, Nassim Taleb walked into a conference room at Morgan Stanley's Manhattan offices on 47th Street and Broadway to address a group of the firm's risk managers. His message: Your models don't work. Using a whiteboard to scribble out his calculations, Taleb, now 48, began one of his rants, this time against stress tests -- Wall Street lingo for examining how a market rout will play out. Stress tests are inherently risky because they ignore rare but potentially devastating events, Taleb said. 'Past shortfall doesn't predict future shortfall,' the options trader turned best-selling author recalls telling the assembled group of about 40. The risk managers, part of a tribe of mathematical model makers known in the finance world as quants, stared back at him blankly, and a debate ensued, according to people who were there. Only six months later, Morgan Stanley experienced its own rout. The world's second-biggest mergers adviser announced in December that it had written down its subprime-related holdings by $9.4 billion after the firm's traders misjudged how fast and far prices of the debt would fall. Their risk management had failed."

Six books you need to make money
07/17/07 Permlink | Books
"Knowing how to invest is a life skill that can pay off big. If you're just getting into the game though, learning how to play the markets to your advantage can be complicated. The books below tell you what you need to know to make money, without a lot of financial terminology. They're not your typical textbooks - they're as fun as they are informative, and must reads for anyone interested in business and investing."

What else is new?
06/21/07 Permlink | Books
"Old technologies persist; they even flourish. In that sense, they're as much a part of the present as recently invented technologies. It is said that we live in a "new economy," yet, of the world's top thirty companies (by revenue), only three are mainly in the business of high tech - General Electric (No. 11), Siemens (No. 22), and I.B.M. (No. 29) - and all three go back more than a century. The heights of the early-twenty-first-century corporate world are still occupied - as they have long been - by petroleum companies (Exxon Mobil, Royal Dutch Shell, and B.P., Nos. 1, 3, and 4), retailing (Wal-Mart, No. 2), automobiles (General Motors, No. 5), and finance (I.N.G. and Citigroup, Nos. 13 and 14). No Hewlett-Packard (No. 33); no Microsoft (No. 140); no Merck (No. 289)."

Everybody's an expert
03/07/07 Permlink | Books
"People who are not experts in the psychology of expertise are likely (I predict) to find Tetlock's results a surprise and a matter for concern. For psychologists, though, nothing could be less surprising. 'Expert Political Judgment' is just one of more than a hundred studies that have pitted experts against statistical or actuarial formulas, and in almost all of those studies the people either do no better than the formulas or do worse. In one study, college counsellors were given information about a group of high-school students and asked to predict their freshman grades in college. The counsellors had access to test scores, grades, the results of personality and vocational tests, and personal statements from the students, whom they were also permitted to interview. Predictions that were produced by a formula using just test scores and grades were more accurate. There are also many studies showing that expertise and experience do not make someone a better reader of the evidence. In one, data from a test used to diagnose brain damage were given to a group of clinical psychologists and their secretaries. The psychologists' diagnoses were no better than the secretaries'."

A devilish delusion
03/01/07 Permlink | Books
"In 1982, the Academy Award for Best Costume Design went to a film called Chariots of Fire, the story of a couple of upper-class Brits as they trained for and competed in the 1924 Paris Olympics. (You had to be there.) The movie was the year's big hit; it won a slew of awards, including Best Picture. Have you seen Chariots of Fire? It's about track and field; the actors basically spend the bulk of the movie running around in their underwear. Bam - give'em the costumes Oscar!"

Extraordinary Popular Delusions
01/31/07 Permlink | Books
"Among the bubbles described by Mackay is the Dutch tulip mania of the early seventeenth century. According to Mackay, during this bubble, speculators from all walks of life bought and sold tulip bulbs and even futures contracts on them. Allegedly, some tulip bulb varieties briefly became the most expensive objects in the world, until the bubble burst in 1637. Other bubbles described by Mackay are the South Sea Company bubble of 1711.1720, and the Mississippi Company bubble of 1719.1720." [Note that the books themselves can now be downloaded for free.]

The Holocaust's Unsettled Accounts
02/19/03 Permlink | Books
"Not even that lesson, though, could have adequately prepared Eizenstat for the controversies that surfaced in his new assignment. His work would lead to a reckoning of the economic and financial crimes of World War II, expose the myth of Switzerland's wartime neutrality, and foster an increase in anti-Semitism in Europe."

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