A few days ago, @mysandz asked me for a list of my favorite books. As I started thinking about that, I realised there are at least two different categories.
In one category are books which I really enjoyed reading. These could be works of fiction or even non-fiction that taught me something. The other category of books actually changed my world-view or my behavior. This thread has the list of books in that second category.
I'm going to try and club books together based on themes. It's possible there were better books I read on the subject. But it is in the nature of reading that the first good book that exposes you to an idea leaves the deepest impact. This list is of books that did that for me.
1. The Road Ahead by @BillGates. IIRC, this was the first non-fiction book I read. Maybe back in '97 or '98. Completely blew my mind. I was about 14 years old and already a programming nerd. But this book excited me about what I was doing and what was coming.
2. PowerShift by Alvin Toffler. I actually read War and Anti-War first, in preparation for a debate in school - something about war and weapons. Instead of helping me out, my dad just handed me the book. I was all of 15. I read that and followed it up with PowerShift.
PowerShift really opened my eyes to the wider world. While The Road Ahead was almost purely about technology, PowerShift was about how technology was changing the balance of power in every relationship in the world.
Alvin Toffler had a deep enough impact on me that the first company I started was called Third Wave Solutions (named after another one of his books) and the second one is called Tofler.
3. Another formative book I read early was Dale Carnegie's How To Win Friends and Influence People. Cheesy as it sounds, I still think this is the finest of self-help books out there. I think I did learn some things from it.
One gem I never forget - "Remember that a person's name is to that person, the sweetest and most important sound in any language". I like to tell people that you do 20% of what Dale Carnegie tells you in this book, and your life will be transformed.
By the time I graduated from engineering college in 2007, I was convinced that technology and freely functioning markets can solve all the problems in the world. But then I joined a hedge fund and began reading about economics.
By the time I graduated from engineering college in 2007, I was convinced that technology and freely functioning markets can solve all the problems in the world. But then I joined a hedge fund and began reading about economics.
4. That's when I ended up reading Making Globalization Work by @JosephEStiglitz . I'm not quite sure but I think it was recommended by my then boss, David Wichs. This book shattered my illusions about free markets being a panacea.
This book (and a few others I read around the same time) made me understand the importance of the guiding hand of policy. It didn't make me a fan of Big Government. But certainly convinced me of the importance of a thoughtful one - both at a national and international levels.
5. There were others I read around that time Hayek's Road to Serfdom and Bertrand Russell's Proposed Roads to Freedom. I don't remember specifics from the book, but I came to understand that democracy is not the only way to organize society.
If that sounds crazy, remember this is Bertrand Russell. The idea is not as obnoxious as it sounds to our (post-?)modern selves. It opened me up to nuance about socio-political organization and the role of Government.
6. This is a good place to plug in Yes Minister and Yes Prime Minister by Jonathan Lynn and Antony Jay. Despite being fiction, it is a riveting view into the day to day of a modern day Government. It is fantastic satire, and perhaps that's why, bitingly honest.
Apart from the humour, my takeaway from this series is an understanding of what keeps so much from happening in Government. What the motives are for each player. Even Margaret Thatcher has acknowledged, it is fairly accurate.
7. Meanwhile, we were in 2010-11, and the world seemed to be a chaotic place. It seemed certain (as it probably does to many right now) that humanity is eventually doomed. It was then that I stumbled across a life-changing book for me - @mattwridley's The Rational Optimist.
This book transformed my view of our future, and of our past. Despite all the problems we see around us, the world is immeasurably better than it has ever been in the past. And it has consistently gotten better. It inspired me to believe that mankind triumphs...
...that we cannot extrapolate problems and assume that humanity will sit idle watching everything go to hell. Of course, nothing happens automatically, but to assume nothing ever will is wrong. We have always acted in the past.
8. A strong complement to The Rational Optimist is Robert Wright's non-zero. It was an idea I already understood vaguely. But this book drove the idea home. That progress comes from the non-zero-sumness of ideas and knowledge.
9. Close at its heels came @EricBeinhocker's The Origin of Wealth. Built on some fantastic work done at the Santa Fe Institute, this book demonstrates how macroeconomic phenomena arise from microeconomic interactions.
Whether it is the power law distribution of wealth in society, or the demand-supply equilibria. It taught me to think in terms of emergent phenomena, and to always think critically about the underlying first principles that lead to outcomes we see in the world.
10. Another dimension that a couple of books really touched me on was morality and ethics. The first is, again, Robert Wright's The Moral Animal. It outlines reasons for how morality in society might be an consequence of biology and evolution.
Even though one may not agree with all the conclusions there, and even though he may not even be completely right in his analysis, the book gave me a new perspective about morality being an evolving phenomenon, with many sources of influence.
On a related note is Radhakrishnan's The Hindu View of Life. This was a short and easy read. But it made me much more comfortable with my identity as a Hindu. The simplicity of the view is in such stark contrast to the noise around this topic in society. It is a great anchor.
11. And when it comes to mind-altering, one cannot miss @kahneman_daniel and Amos Tversky's Thinking Fast and Slow. An excruciating read, especially if you think as you read, there is no end of lessons one takes away from here. Enough has been said about this everywhere.
12. But a related book that I absolutely also loved was @CassSunstein and @R_Thaler's Nudge. It took some of the ideas from Fast and Slow and showed you how they could be made real. To have real impact in the world. Cognitive biases applied to design. Brilliant.
13. And speaking of design, you cannot miss Don Norman's The Design of Everyday Things. Blew my mind and changed forever how I think about design. I see it everywhere now. How good design communicates with the user...
..well-designed objects (and software) beckon a user to do what they were designed to do. I began to appreciate what good and bad design is. What is the purpose of design. I thought of design simply as appearance and aesthetics. This book changed all that for me.
14. Getting to the end for now. @JamesClear's Atomic Habits was an eye-opener. There are others in this category but somehow this one resonated. We've all heard the cliches - 1% everyday and whatnot. But this book drove it home, and with concrete ideas.
Ideas on how to get going. Ideas on how to build those habits. Little tricks like habit stacking, for example. I can't say I've made a wholesale change to my life yet. But I've learned so many tricks to improve my habits when I want to. Powerful.
15. And finally, @AnnieDuke's Thinking in Bets. The power of process, etc. But to me, the most important point was about thinking clearly about odds. And the most powerful idea - Resulting. Convinces you about why prudent behavior is always warranted...
...even when others seem to be getting away with imprudent behavior. Even if things don't go wrong with imprudent behavior, you're still losing. You just don't know it yet.
And that's a wrap. There's another category of books I really love. Another time.
Over the last few years, quantitative value investing has been denigrated relentlessly. The main criticism is that in an intangibles-heavy world, using book value as a measure of a company's worth is misguided. That is true! But these criticisms make one flawed assumption.
They assume that quant practitioners build value portfolios they way Fama and French first described them in 1992. No actual portfolios today hold stocks simply because of low p/b ratio. Why? Because accounting rules don't correctly capture the value of intellectual property.
Consider this. Facebook's 2020 balance sheet shows intangible assets of just $623 million. This is after FB spent a staggering $40+ billion on R&D in the last 3 years. Surely, FB's intangible assets are considerably higher than the listed $623 million.
Investors talk a lot about their investment process. Some of them are very good. But few ever break down their investment process into what I think are five major steps. As an investor, it is worth articulating what your process is for each of those five steps.
An investment starts with "idea generation". Where do you get your ideas from? Screens...magazine articles...cloning? There are many possible sources and you don't have to choose just one. Having a well-defined list helps focus and also tracking where your best ideas come from.
The next step is "analysis". It can range from checking technical indicators to a feet-on-the-ground scuttlebutt process. This depends on what kind of investor you are. But define exactly what you do, and what you look at. It helps avoid biases and mistakes due to missed steps.
Of late, there has been a lot of chatter that "value" is making a comeback after a decade of underperformance. While this is broadly true, there is a large amount of nuance that such a statement glosses over.
In most circumstances, it doesn't matter. But if you are a quant investor, or an investor in a quant fund, understanding these nuances matters a lot. After all, not all large cap funds are the same. Why should all value strategies be the same?
The textbook definition of value in the quant sense is the p/b ratio. Fama and French, the duo that proposed this idea, sorted the investment universe based on price to book. Roughly speaking, 1/3rd of the stocks with the lowest p/b ratios were considered value stocks.
Finally finished reading Kochland by @CLeonardNews. Took me 2 weeks to get through it but totally unputdownable. If I'd realised it was a 700 page tome before I picked it up, I might have shied away. Thank God I didn't.
1/n
For one thing, it's brilliantly written. There's an excellent balance between giving us details about the various characters' history and sticking to the main points. This is in contrast to Ron Chernow - a brilliant writer in his own right. 2/n
More importantly though, it has incredible detail about so many things that have happened both in in American politics as well as American business. From a far clearer explanation of what happened during the California electricity... 3/n
After having read so much about how Amazon does not really lose money but constantly grows without reporting too much of a profit, I decided to finally take a dive into its financials over the last 15 years. In only about 20 minutes, my mind is already blown. 1/n #amazon
I started at 2003. Their financial statements start with cash flows. I'm not sure if that's the US GAAP convention but if it isn't, right out of the gate it says something about management's priorities. 2/n
In 2003, Amazon reported a net income of $35m. But operating cash flows of an incredible $392m. Two important bits stand out for me in there. Stock based comp. of $87.7m and an increase in accounts payables of $167m. That's ~$254m of cash you get to expense. 3/n