Enough by John C. Bogle

  Some of my expectations which I had before reading the book were met. As a founder of Vanguard company John C. Bogle allocated significant part of the book describing advantages of the mutual funds and greed of the active managers.

The book is intentionally simplified, there are no numbers, calculations or anything else. Its targeting emotions.

There is an interesting statement on the greed: “… the rampant greed that threatens to overwhelm our financial system and corporate world runs deeper than money.  Not knowing what enough us subverts our professional values. It makes salespersons of those who should be fiduciaries of the investments entrusted to them.  It turns a system that should be built on trust into one with counting as its foundation.  Worse, this confusion about enough leads us astray in our larger lives. We chase false rabbits of success; we too often bow down at the altar of the transitory and finally meaningless and fail to cherish what is beyond calculation, indeed eternal”.  

 

With internet at our fingers, waiting online to serve us, we are surrounded by information, but increasingly cut off from knowledge. Facts (or, more often, factoids) are everywhere.  Wisdom, the kind of wisdom that was rife seventy – one hundred years ago is in short supply. Soon we shall know everything that does not count and nothing that does. 

 

Leadership and values

A difference between a leader and a manager? Managers task is to do things right,  then as leaders, whose task is to do the right thing. 

Enough wealth

I was recently thinking about the comments made around my family budget, savings. While having an aspiration to get a higher salary is admirable and needs to be one of the focus areas. It is not within immediate reach, not a guaranteed outcome.

Efficiency and savings rate is largely in my current control today. Things that are in your control and have the highest likelihood of working can make the biggest difference over time. 

This reminds me of Jeff Bezos’ interview:

“…I very frequently get the question: “What’s going to change in the next 10 years?” That’s a very interesting question.

I almost never get the question: “What’s not going to change in the next 10 years?” And I submit to you that that second question is actually the more important of the two.

You can build a business strategy around the things that are stable in time. In our retail business, we know that customers want low prices, and I know that’s going to be true 10 years from now. They want fast delivery; they want vast selection. It’s impossible to imagine a future 10 years from now where a customer comes up and says, “Jeff I love Amazon, I just wish the prices were a little higher.” Or, “I love Amazon, I just wish you’d deliver a little slower.” Impossible.

So we know the energy we put into these things today will still be paying off dividends for our customers 10 years from now. When you have something that you know is true, even over the long term, you can afford to put a lot of energy into it.” 

The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron

In line with my annual financial independence goals for this year I pressed on with the reading list. “the smartest Guys in the room” is about rise and fall of Wall street  darling an  American corporation called “Enron”, which took down auditing company “Arthur Andersen”.

      At its peak Enron shares were worth $90.75 and on December 2, 2001 (when it filled for bankruptcy) were trading at $0.26 . The company was chasing dream of deregulation through the vast network of political donations (former Secretary of State Heinz Alfred Kissinger (naturalized USA citizen as of 1943, son to German Jews) served as advisor, along with  James Baker  and many others).

       Here is some interesting quotations from the book: “…When people describe Skilling they don’t just use the word “smart”; they use phrases like “incandescently brilliant” or “the smartest person I ever met”…He could instantly simplify highly complex issues into a sparkling, compelling image.

…Skilling also had tendency to oversimplify, and he largely disregarded – indeed, he had an active distaste for – messy details involved in executing a plan. What thrilled Skilling, always, was the intellectually purity of an idea, not the translation of that idea into reality.

Principles of Corporate Finance by Brealey Myers and Allen

As part of my continuous commitment to develop in-depth knowledge I started going through “Principles of Corporate Finance” by Brealey Myers and Allen 11^th edition (ISBN-13 978-0-0771-5156-0).

This will take a while as the book is over 800 pages long and has plenty of problems sets, at the end of every chapter, which I am committed to solve. The interesting questions, worth discussion or an additional attention will be posted here.

To check myself I also bought  Solutions Manual for Principles of Corporate Finance (Eleventh edition) prepared by Peter Crabb (ISBN 978-0-07-750247-8).

All solutions described here are by no means complete or correct. So any use will be at your own risk, although I would appreciate alternative solutions or discussion on the subject.

The Undercover Economist strikes back by Tim Harford

            I recently finished reading “The Undercover economist strikes back” by an English writer Tim Harford. Tim has an education in economics from Oxford University.  Although not very well known outside England is quite popular in it, mainly as a columnist for Financial Times newspaper.

          Aim of the book was to bring macroeconomics a little bit closer to a non-economist in an entertaining fashion.  The book is written like a dialogue between the writer and reader, based on real life examples.  The way topics are presented it has a lot of similarities with  “Irrational Exuberance” by Robert J. Shiller.

          Modern economy for general public is increasingly focusing on psychology, how people react and behave. As example acceptance of the wages falling in real terms, while growing in nominal ones – “money illusion”.  Tom continues on about Bank of England commenting: “ Public trust in the pound is now maintained by the operation of monetary policy”, apparently with a totally straight face.   This basically means that most of modern currencies worth something as long as people believe in it.

          The worrying fact is being a influential economist in his own country the author is advocating having inflation at about 4%, this would help to maintain nominal growth of salaries about zero.

The most important thing

         I started catching up on the financial independence reading and Howard Marks wrote the  first book I would like to recommend to you, as worth reading. Howard is current chairman and co-founder of Oaktree Capital Management.

Admittedly, as many other books on financial topics the book is about philosophy and mindset rather than analytical process. There is no surefire recipe for investment success or step-by-step instructions.

         The book helps to understand an investor concept of the risk and tolerance to it. I have to confess that prior reading it I never thought of it that way.

As an example, I liked an analogy an analogy about professional tennis, as a “winner’s game”, in which match goes to the player who’s able to hit most winners: fast-paced, well-placed shots that an opponent can’t return. Given anything other than an outright winner by an opponent, professional tennis players can make the shot they want almost all the time: hard or soft, deep or short, left or right, flat or with spin. Professional players aren’t troubled by the things that make the game challenging for amateurs: bad bounces; wind; sun in the eyes, limitations on speed, stamina and skill; or an opponent’s efforts to put the ball beyond reach.  The pros can get to most shots their opponents hit and do what they want with the ball almost all the time.

          The tennis the rest of us play is a “loser’s game”, with the match going to the player who hits the fewest losers.  The winner just keeps the ball in play until the loser hits it into the net or off the court. In other words, in amateur tennis, points are not won; they lost.

The same goes with the investing – we could not possibly predict future but need to cater for various scenarios and  avoid losing money in the bad times. Controlling the risk in your portfolio is a very important and worth-while pursuit. The fruits, however, come only in the form of losses that don’t happen.