Insights

The book has two parts. The first half is essentially an update of the concepts of Moats and Porter’s 5 Forces with the idea of Power that the author defines as a set of conditions that gives companies the ability to generate sustained differential returns. He defines the 7 Powers and separates the benefits and barriers attributed to each Power along with examples. The second half of the book focuses on the source of Power, how the Powers are attained, and when in the lifecycle of an industry/business the Power can be gained or lost. As a Stanford economist and former Bain consultant, the author presents a good balance of theory and real-world examples.

The book is the result of an accomplished asset manager’s internal review of some of its biggest winners. The authors do an excellent job of presenting the substance of their investment approach. Most managers proclaim the importance of strong cash flows, returns, and management, but then a quick glance at their holdings and there seems to be a disconnect. The strength of this book is in the many stock examples, which bring to life their disciplined and patient approach. As value investors, we appreciated their thoughtful views on the limits of valuation and quantitative data.

As our country currently deals with the deflationary impact of the pandemic, this book explores how the country dealt with the last deflationary shock – the Great Depression. The author reviews the usual suspects, including the tariffs, the taxes, and the misguided Federal Reserve as contributors to the epic collapse, but she also investigates new ground. Many today urge the federal government to enact more forceful fiscal policies to deal with the shock and even experiment with modern monetary theory, which argues that deficits don’t matter. This book would advise caution as it was exactly these types of New Deal programs that resulted in business confusion and inaction, which prolonged the economic suffering. The original Forgotten Man was not FDR’s poor man, old man or labor group, etc., but, rather, the ‘victim of the reformer, social speculator…’

Written by a French priest and author in 1928, this book joined Dale Carnegie’s self-help books on the U.S. bestseller lists in the 1930s. Mr. Dinmet writes beautifully about the inevitable decline into conformity that most of us follow as we leave childhood and higher education. He instructs us to quit “thinking about thinking” and lays out methods to accomplish original and creative thought. With time and dedication, we can all hone the “art of thinking” and work towards becoming a better investor (and, perhaps, a better person).

The team thoroughly enjoyed October’s book, The Deficit Myth, and sought out opposing viewpoints to add context. It seems that Modern Monetary Theory (MMT) advocates are winning debates (bloomberg.com; tiered subscription) and the counter-arguments we’ve found either lack persuasive evidence or debate minor points surrounding MMT doctrine. The most coherent and compelling arguments against MMT stems from the budding crypto-currency asset class and community and, in particular, bitcoin.

Most ‘Bitcoin-ers’ would point to Abba Lerner’s (whose ‘functional finance’ in 1943 preceded MMT) conversation (varoufakis.files.wordpress.com) with John Maynard Keynes at a mid-1940s Fed seminar to illustrate the dangers of MMT…

Lerner: “Mr. Keynes, why don’t we forget all this business of fiscal policy, public debt, and all those things, and have some printing presses?”

Keynes: “It’s the art of statesmanship to tell lies but they must be plausible lies.”

From legendary hedgies like Stan Druckenmiller (forbes.com) and Paul Tudor Jones (lopp.net) to institutional investors like Blackrock (markets.businessinsider.com) and MassMutual (bloomberg.com; tiered subscription), and public corporations like Square (squareup.com) and MicroStrategy (cointelegraph.com), investing in bitcoin is losing its stigma and difficulty (barrons.com) in establishing an investment. The best introductory texts for enterprising bitcoin investors include Inventing Bitcoin and The Bitcoin Standard. We’ve found value in other books on bitcoin (here, here, and here) and a book for those interested in the #2 crypto-currency Ethereum.

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The River Road associates who read this book agree with Bill Gates; this was one of the best books we’ve ever read. We have read enough bull and bear stock arguments to understand that negative, critical bearish views typically sound “smarter.” Most of what we read about our economic outlook, our country, and our world is discouraging and relies on our ‘statistical obtuseness.’ It takes a special talent to present positive, optimistic data in a convincing package that leads to excitement for the future. The author traces the consistent improvements in global health, wealth, inequality, the environment, equal rights, and quality of life to the revolutionary thinkers that defined the Enlightenment in the late 18^th century and led to their most famous product, the Declaration of Independence. The book may be a well-timed read given the vaccine news of last week.

In case you’re looking for a book to follow Munger’s advice, “any year that passes in which you don’t destroy one of your best-loved ideas is a wasted year,” this may be the one for you. Given eight years since the inception of the 2% inflation target and a decade of unprecedented monetary policy, we have been amazed at the United States’ inability to consistently reach this achievable target. The author presents a compelling case that forced us to re-think basic assumptions about monetary sovereignty and the role of government in our financial system. The book explains in plain English how a more active fiscal policy could be helpful and eases our traditional concerns about “spending money we don’t have.” The book is timely as Modern Monetary Theory arguments increasingly seep into the broader economic discussion as the nation seeks policy tools to offset pandemic-induced economic weakness.

This book has the potential to make someone a better investor (and potentially lead a better life). Without a word on P/E ratios or Porter’s five forces, the author instead helps “control the urges that get other people into trouble in investing” (Warren Buffett). The book contains 34 stories that highlight the importance of stillness. From Tiger Woods’ comeback to President Kennedy during the Cuban Missile Crisis or Churchill during World War II, there are remarkable examples of individuals exhibiting calm amid unthinkable stress. It is when an investor can slow down, clear their calendars, and begin to think deeply when insights can emerge.