“In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time – none, zero. You’d be amazed at how much Warren reads – at how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.” — Berkshire Hathaway Vice-Chairman Charlie Munger
The holiday season is a good time to revisit books that have been read during the past year and plan reading lists for 2011. The eleven selections listed below are mostly recent books focusing on finance, economics, and business topics but not all were published during 2010. The reality is that many worthy books are written each year that cannot be read due to time constraints, and this has been particularly true as the avalanche of financial crisis books came to market over the past two years. However, in other cases, we simply overlook “must read” books for years or decades. Hopefully this list will provide at least a few ideas for your 2011 reading list.
If you only read one book on the financial crisis, the default pick should be Andrew Ross Sorkin’s Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System–and Themselves. We reviewed the book in early January and still regard it as the best single volume on the crisis published up to this point. It is obvious that Mr. Sorkin had access to many of the principal figures in the crisis, some speaking on record and others on background. Through this story, we see the all too human failings that led to the most serious financial crisis since the 1930s.
While those responsible for the financial crisis have been vilified to no end, and rightly so, many have also mistakenly accused investors who profited from the financial crisis of taking action that worsened the overall outcome. In The Big Short: Inside the Doomsday Machine, Michael Lewis spins a riveting tale of investors who are hardly “household names” but had the foresight to recognize the crisis and profit from it. We reviewed the book in more detail in May.
Roger Lowenstein may have been a bit late to the party when he published his book on the financial crisis last spring, but this was likely due to his belief that the story is still being written. The End of Wall Street, which we reviewed in June, provides a compact account of the crisis and taps numerous sources, but we do not benefit from as many of the candid personal anecdotes that can be found in Mr. Sorkin’s book. However, the book is a worthy choice and matches the excellent quality of Mr. Lowenstein’s previous books.
Finance and Investing
Atul Gawande’s The Checklist Manifesto is not, strictly speaking, a book on investing but the simple and common sense principles he proposes have broad implications for better decision making. We commented on how some of the principles may be applied to investing in an article earlier this year. The potential for checklists has been highlighted by many investors, most notably by Mohnish Pabrai. The fact that something so simple can have major impacts on outcomes in so many fields will surprise most readers.
Few investors have been the subject of as many books as Warren Buffett while remaining fundamentally misunderstood by most investors. As Prem Jain points out in Buffett Beyond Value, Warren Buffett’s record has been built on finding investments that offer strong downside protection while also promising high levels of growth over time. This is a major deviation from classic “cigar butt” investing and will surprise many readers. We reviewed the book and interviewed the author earlier this year.
Behavioral finance seeks to combine elements of traditional academic finance with psychology in an attempt to acknowledge the role of imperfect human behavior in financial markets. Professor Meir Statman is a pioneer in the field and his new book, What Investors Really Want, should be required reading for all investors. While acknowledging the ability of some investors to beat the market, Prof. Statman suggests that individual investors honestly assess whether they possess such abilities and to consider the merits of index funds if they do not. Prof. Statman wrote a guest article for The Rational Walk last week. If nothing else, the book will help investors honestly assess their own motivations and abilities to determine whether “seeking alpha” is realistic.
Business and Economics
Few countries are as demonized as China, but it is both unproductive and defeatist to view China’s rise as a sure sign of America’s decline. While not all readers will agree with Zachary Karabell’s conclusions in Superfusion, nearly everyone should find his perspective illuminating. We reviewed the book in February and found the notion of “Chimerica” compelling. The concept of America and China fusing into a unified “economy” is not conventional but, if correct, could change many conclusions regarding investment and government policy.
The pace of change in Silicon Valley has been reinforced this year as many Google employees reportedly defected to Facebook now that Google is part of the “establishment”. Whether this is a fair assessment or not, anyone interested in business can’t help but be fascinated with Google. Richard Brandt takes us behind the scenes in Inside Larry & Sergey’s Brain. We reviewed the book in February and found it somewhat more compelling than Ken Auletta’s much more widely known Googled: The End of the World as We Know It, which we reviewed in 2009. Both are recommended.
Matt Ridley’s latest book, The Rational Optimist, has attracted some controversy and may irritate some readers when topics such as climate change are covered, but most readers will find the book’s melding of science and economics fascinating. The role of trade in expanding economic prosperity in the ancient world is covered in some detail. While Malthusians will consider Mr. Ridley’s optimism to be nothing more than the false hopes of viewing the world through rose colored glasses, his outlook is at least more pleasant than most alternatives. We reviewed the book in July.
Biography and Memoirs
Charlie Munger is a proponent of “making friends with the eminent dead”. While he remains a controversial figure, John D. Rockefeller Sr. is one of the most important individuals in American business history and his life should be studied by anyone interested in business and investing. Titan, Ron Chernow’s masterful biography, takes us through the immense changes that occurred during Rockefeller’s nearly 100 year lifetime. While the book’s length may intimidate some readers, Mr. Chernow’s account reads much more like a sweeping novel than a dry biography.
Love him or hate him, and there is seldom a middle ground, George W. Bush’s presidency spanned years that will be carefully scrutinized by economists and historians for decades to come. In Decision Points, Mr. Bush takes us through the process he used to make key decisions during his life, focusing on his years in the White House. The final chapter of the book covers the financial crisis. Although the coverage of the crisis is not deep, it is interesting to see how Mr. Bush attempted to reconcile his free market views with the unprecedented government interventions that took place in the final year of his presidency. In the book, Mr. Bush recalled that “If we’re really looking at another Great Depression, you can be damn sure I’m going to be Roosevelt, not Hoover.” Based on his late 2008 interventions, Mr. Bush took an activist role opposed by many conservatives and we are still years away from being in a position to make a definitive judgment on the outcome. Of course, we will never know the scenario that would have played out in the absence of Mr. Bush’s interventions.
For additional book recommendations, please see our “Gift Guide for Investors“, originally published during the 2009 holiday season.