Reading List – May 2014

I’ve started a monthly reading list to share the best books that I’ve ever read. For the first few months I will also post the lists here to give you a sense for what they look like. If you’d like to receive these monthly recommendations, sign up for the reading list here. Also, if you have any favorite books, please send them my way. I’m always on the lookout for hidden gems.

This month, I’ve included four books. The first three are money/market focused, and the last is just an incredible book.  

Saving Capitalism From Short-Termism: How to Build Long-Term Value and Take Back Our Financial Future by Alfred Rappaport

Rappaport is an under-appreciated writer.  I discovered him through Michael Mauboussin, who lists Rappaport as an important influence. Mauboussin and Rappaport co-authored another book together called Expectations Investing. Saving Capitalism from Short-Termism explores the many problems that result from short-term thinking. I spend a chapter in my book on the same topic, which was in part inspired by this great book.

Here’s a passage on short-term thinking:

“The practice has persisted over the entire span of human history, from ancient days, when people didn’t live long enough to worry about the long term and focused on immediate needs, such as hunger, to today’s craving for instant gratification in the face of damaging long-term consequences. Drug abuse, overeating, smoking, and spending rather than saving are vestiges of that ancient attitude.” 

The Most Important Thing: Uncommon Sense for the Thoughtful Investor by Howard Marks

“To boil it all down to just one sentence, I’d say the necessary condition for the existence of bargains is that perception has to be considerably worse than reality.” 

Howard Marks rivals Warren Buffett when it comes to quality shareholder letters. This book is the best of those letters and ideas weaved together into a brilliant narrative.  One of my favorite books on value/distressed investing.

Here is a good passage:

“Unlike market darlings, the orphan asset is ignored or scorned. To the extent it’s mentioned at all by the media and at cocktail parties, it’s in unflattering terms. • Usually its price has been falling, making the first-level thinker ask, “Who would want to own that?” (It bears repeating that most investors extrapolate past performance, expecting the continuation of trends rather than the far-more-dependable regression to the mean. First-level thinkers tend to view past price weakness as worrisome, not as a sign that the asset has gotten cheaper.) • As a result, a bargain asset tends to be one that’s highly unpopular. Capital stays away from it or flees, and no one can think of a reason to own it.”

The History of Money by Jack Weatherford

Ever since finding this book, I’ve been fascinated with the history of money.  Weatherford’s book is my favorite on the subject, because it is equally entertaining and informative. Money is arguably our most important invention, and it has changed a lot over the centuries. This is a great story that will make you think about your money and its future.  Weatherford’s book on Genghis Kahn is also fantastic.

“Humans have found many ways to bring order to the phenomenological flow of existence, and money is one of the most important. Money is strictly a human invention in that it is itself a metaphor; it stands for something else. It allows humans to structure life in incredibly complex ways that were not available to them before the invention of money. This metaphorical quality gives it a focal role in the organization of meaning in life. Money represents an infinitely expandable way of structuring value and social relationships—personal, political, and religious as well as commercial and economic.”

Boyd: The Fighter Pilot Who Changed the Art of War by Robert Coram

This guy was incredible in three different ways. First, he was the best fighter pilot in the Air Force. He was nicknamed “40-second Boyd” because it never took him more than 40 seconds to defeat someone in the air. Second, he was a remarkable thinker.  He created a formula (E-M theory) that was the basis for designing new planes (the F-15 and F-16 being the two main ones) and for evaluating the performance of any fighter plane in the air. He also revolutionized military tactics, both in the air and on the ground.  Some refer to him as the most important military strategist since Sun Tzu.  His ideas were put to use by the Marines in the Gulf War and resulted in a lopsided victory for the United States. Third, he was a fighter.  He didn’t give a crap about money or rank. He told his acolytes that in life you could be somebody, or you could do something. Doers don’t rise in the ranks or get the accolades, but they make a difference in the world. Boyd was a doer.

Here is a great passage about Boyd, the civil rights activist:

One day in 1957 a new instructor came to the FWS: First Lieutenant Oscar T. Brooks. He was black. The next Friday rolled around and by midmorning Boyd’s staff was preparing to leave for the drive down Las Vegas Boulevard to the Sahara. Spradling pulled Boyd aside, nodded toward Lieutenant Brooks, who was standing across the room, and said, “John, is this a good idea?” “Is what a good idea?” “Taking Oscar to the Sahara. They will throw us out if Oscar goes. He’s going to be embarrassed.” Boyd turned to Spradling and his voice was low and urgent and intense. “Sprad, goddammit, he’s going. We’re going down there as a group and if they kick us out they’ll have to kick out the whole base. They’ll have to kick out the fucking U.S. Air Force.”