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At NAOS Asset Management we find books, audiobooks & podcasts to be great learning tools across a wide array of topics, issues, and opinions.
With information everywhere, we thought we'd put together a short list of some of the most interesting business, investing related books we’ve read throughout 2023. If you’re looking to relax with a book over the holiday period, there should be something below for you to enjoy!
“In my whole life, I have known no wise people who didn't read all the time.” - Charlie Munger
Michael Batnick's Big Mistakes provides an insightful look into the colossal blunders made by legendary figures such as Warren Buffett, Bill Ackman, Jesse Livermore, and John Paulson. This book sheds light on their worst investment decisions and the valuable lessons they learned from these missteps.
While majority of investment books focus on the success stories of professionals, Batnick focuses solely on the mistakes diving into key examples, whether it's Warren Buffett's ill-fated foray into the airline industry or Bill Ackman's infamous Herbalife short. Batnick demonstrates that even the brightest minds can make big mistakes.
"Big Mistakes" is not merely a catalogue of financial failures but a guide to becoming a wiser and more effective investor. It teaches us that mistakes are an integral part of the journey to financial success, provided we are willing to learn from them.
Favourite quotes from the book:
• “Don’t confuse brains with a bull market. The idea that we confuse our ability to select above average stocks in a market that lifts all boats is so pervasive that there is a name for it. Attribution bias.” - Humphrey Neill
• “Ideas are part of who we are they become like possessions. Especially publicly. I mean flip flopping is a bad word. I love changing my mind.” - Daniel Kahneman
• “The stocks market is the only market where things go on sale and all the customers run out the store.” - Cullen Roche
Not only is LeBron James one of the greatest basketball players of all time, but he is also one of the most high-profile financial figures on Earth. There are plenty of books regarding what LeBron has done on the court however this book focuses on the off-court business career of King James.
As a high-profile athlete, the opportunity to leverage your personal brand can create substantial wealth. Athletes signing marketing/sponsorship deals with the likes of (e.g.) Nike, Adidas, Oakley or Red Bull is a tried and tested model however some athletes look to do it differently. Whilst LeBron does indeed have a now ‘lifetime’ deal with Nike, did you know he has helped to build a very substantial media production house, marketing agency, school, pizza restaurant chain, bike company, has Warren Buffett as a mentor/friend and is also a part owner of English Premier League team Liverpool F.C.
The business principals of LeBron James which resonate with us include:
• He focuses on having long term partnerships & investments.
• He takes a skin in the game approach preferring equity holding in companies vs. higher cash payments.
• Concentrates on opportunities where he can provide value add by being a partner not just a marketing tool.
• Compounds his time, effort, and financial input by combining with like-minded people to generate outsized returns over time.
• Learns from his mistakes.
• Remains disciplined to his business principals.
His business career has not all been a success. There have been some major mistakes along the way. This book by American sportswriter Brian Windhorst does a great job analysing many of the individual deals that have been made over the past 20 years.
Manias, Panics, and Crashes by Robert Solow is a captivating exploration of financial crises and the impact on economies around the globe. Solow's insightful analysis delves into historical events, from the Tulip Mania to the 2008 global financial crisis.
While the book can be somewhat dry at times diving deep into economic theory, Solow does weave in several anecdotes to lighten the complex concepts, making it easier to comprehend. However, it’s not just economic theory, Solow sheds light on the behavioural aspect of financial markets and the contribution they have during the crisis’ before turning to key moments where some events could have been avoided through quick and decisive action.
The book won’t be for everyone, but it does provide timeless lessons about the cyclical nature of financial markets and the necessity of prudent regulation.
Key quotes:
• “Nearly every banking crisis in the last thirty years has been associated with a decline in cross border investment inflows that led to a decline in the price of a country’s currency. Every country that experienced a banking crisis had previously experienced an economic boom. These booms morphed into busts when the investment inflows slowed.”
• “Virtually every banking crisis has followed two, three or more years when the rates of growth of the borrowers indebtedness exceeded 20 percent a year – rates of growth that were too high to be sustainable for an extended period.”
• “Water flows downhill in response to gravity, investment flows across national borders toward higher anticipated rates of return. Perhaps there are example where the “law of gravity” has been repealed or suspended and water flows uphill. His business career has not all been a success.”
If it wasn’t for PayPal then you would not have seen the birth of companies such as Tesla, SpaceX, LinkedIn, and YouTube… just to name a few. The simple thesis for this book by Jimmy Soni was that so many of the PayPal alumni (also known as the “PayPal Mafia”) have gone on to do incredible things, so let’s go back to the start of where it all began.
PayPal, the ubiquitous online payments system with a now ~A$100bn market cap, was born through the year 2000 merger of two competing (X.com and Confinity) Silicon Valley companies who were forging the concept of user-friendly payments via email. This concept saw substantial uptake among eBay users. It went public through an IPO in 2002 and was subsequently purchased by eBay in what is regarded as one of the greatest acquisitions in corporate history.
This book recounts the early years of PayPal with fantastic detail. We learn about the individuals who were instrumental in building the company, their backgrounds, recollections, and opinions of the events that transpired. It was a high tempo journey with plenty of action including boardroom coups, big egos, fraudulent occurrences, technology issues, corporate activity, competitor agitation, and… a very lucky Elon Musk & Peter Theil who had a very serious car crash one day. PayPal almost came unstuck on many occasions, even before you consider the Dotcom bubble busting in 2000.
Amidst the chaos was a hardworking and innovative culture that did not break. Reading this book, you can get a sense of how the PayPal Mafia became destined for greatness. An entertaining read but one in which investors can also gain a sense of what it takes to create a truly outstanding business. We at NAOS have the mindset that companies are living, breathing things, and investing requires an understanding of that concept. This is even true for the most successful of companies led by the most outstanding minds. The PayPal story epitomises that.
The Art of Thinking Clearly by Rolf Dobelli is more of an encyclopaedia than an actual book as it is a collection of short explanations, 3 pages each, covering cognitive biases and failures that cloud our judgment and hinder clear thinking.
Dobelli, a Swiss entrepreneur and writer, covers 99 biases, each by drawing on a wide range of stories and anecdotes while providing practical tools to improve one’s decision-making process. He provides concepts in an engaging but also thought-provoking manner to illustrate various effects.
While the book might not be for all, as at times it can be repetitive, Dobelli covers a wide range of biases from the most common being confirmation bias, hindsight bias to anchoring and selection bias to less known including social comparison bias and false consensus effect. For anyone looking to sharpen their thinking skills and avoid a few common pitfalls, this is worth the investment.
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This book is a terrific read, taking readers behind the scenes of the decisions by the Federal Reserve throughout the pandemic. It is difficult to understand the mechanics of how these decisions are made, so it is interesting once broken down into simpler terms, including the context and key players.
Some interesting passages from the book include:
• President Trump to Powell regarding Germany's thoughts on the U.S. Federal Reserve’s Policies:
“They think it’s so funny that you don’t understand any of this, how they’re picking our pockets because of you, and they tell me this personally” - President Donald Trump
• Mid Pandemic Risks:
“Why don’t you tell me what’s plausible, what’s the real worst case?” - Jay Powell
“Well, Jay, if we become Italy, and we shut down the entire economy, then this will be a bigger hit than the Great Depression” - Vice Chair Richard Clarida
• Role of the Fed:
“There are two sides to Powell’s job. One could fairly be described as boring – regulating banks and the supply of credit to keep the economy growing steadily…Setting the price of money influences the prices Americans pay on their credit-card balances, their car loans, their mortgages. The other side of his job is harder to quantify maintaining confidence in the financial system. In a few hours on that Monday, investors had erased the Dow’s gains for the year to date.”
Wirecard AG. Even if you do recall reading about this German payments processor in financial newspapers a few years ago, you won’t know the full story. Dan McCrum is an investigative journalist at the Financial Times and this book is his words based on his own experiences in the crazy world of Wirecard AG.
A casual conversation with a high profile Australian-based fund manager peaked McCrum’s interest in this exciting fintech. From there McCrum’s quest to uncovering one of the great modern day financial scandals is certainly a volatile one. It involved colleagues, hedge fund managers, shady characters, underworld figures, lawyers, media outlets and of course significant retaliation from Wirecard AG itself.
The tentacles of Wirecard AG spanned all corners of the globe so getting a comprehensive understanding on this business was near impossible for all stakeholders. What was once a €24bn company (about 1/3 the size of Enron at its peak) has had a spectacular fall from grace. Without McCrum’s investigative efforts, who knows how big Wirecard AG would be today…
This is an interesting and extended history of the Coca Cola company, detailing everything from its origin, business model, bottler relationships, and later its use in World Wars and battles with Pepsi. The book goes into detail about the famous Coca-Cola marketing, centred on an association with joy, a magic ingredient formula and a mystique around various benefits as an “elixir of life - a nerve tonic to cure the ills of man”.
Over the decades Coca-Cola's branding appeared on billboards, several incarnations over decades in Times Square, lead Olympic sponsorships, World Cup finals in almost every sport and is the most widely placed product in the history of the Movie industry.
Some other interesting elements of the Coca-Cola story:
• Up/downstream partners did well
“everyone who touched {Coke} became wealthy, including bottlers, stockholders, wholesaling jobbers and those who provided trucks, bottles, pallets, dispensers and so on. Of course, such success fostered gratitude and devotion”
• Affordability
“From 1886 until the 1950s, Coca-Cola sold for a nickel (five cents) a drink… it remains relatively inexpensive around the world... an “affordable luxury” Coca-Cola has usually survived and even thrived during hard economic times”
• Low Production Cost
“Coca-Cola has always cost only a fraction of a cent per drink to produce... like most patent medicines of its time, it wasn’t a capital-intensive product: its manufacture was neither difficult nor laborious”
At the end of the book, its author Mark Pendegrast gives an interesting anecdote about publishing the bona fide famous formula and explicit instructions on how to directly manufacture it. Speaking to a Coca-Cola representative, asking what would happen if he handed over the formula:
He grinned.
Mark, let’s say this is your lucky day and that I happened to have a copy of that formula right here on my desk”.
Handing Mark a phantom document
“There you go. Now what are you going do with it?”
“Well, I’d put it in my book”.
“And”
“Somebody might decide to go into business in competition with Coca-Cola”.
“Fine. Now what? What are they going to charge for it? How are they going to distribute it? How are they going to advertise it? See what I am driving at? We’ve spent over a hundred years and untold amounts of money building the equity of that brand name. Without our economies of scale and our incredible marketing system, whoever tried to duplicate our product would get nowhere, and they’d have to charge too much. Why would anyone go out of their way to buy Yum-Yum, which is really just like Coca-Cola but costs more, when they can buy the Real Thing anywhere in the world?
“I couldn’t think of a thing to say”.
“I would recommend Sapiens to anyone who's interested in the history and future of our species” – Bill Gates
A book that is highly recommended by some of the most high-profile founder/CEOs and investors globally, is a fascinating look back at how and why we ended up being the dominant species on Planet Earth.
It is far more than just a history lesson into our earliest days, rather it places emphasis on the how and why of certain important decisions, influences, effects & technological improvements that have occurred (and others that didn’t) which created perpetual ramifications for us all. No doubt there are elements of the investing concept of ‘Random Walk Theory’ that have resulted in modern day human society.
What can investors take away from this book? It is certainly not your traditional book on investing, with plenty of content not related to the topic at all. However, the earliest days of financial markets are covered off in this book and they show parallels to today’s markets when it comes to investor mentality.
From the Mississippi Bubble through to the GFC and even the 2022 tech bubble crash, one thing that appears to stand the test time throughout history is the impact of investor psychology in the formation of asset bubbles. The reminder of the impact of human influence may prove a useful mental note for current and future volatile investing periods.
“Most disconcerting was Microsoft’s awakening to the power of search …. If Allchin’s [Microsoft Windows Group VP] vision included integrating search into the new version of Windows Microsoft was soon to release, it could eliminate the need to launch a browser and go to Google to search. Given the number of Windows users worldwide, our traffic could drop in a hurry. Without traffic, we would show fewer ads and make less money. Way less money”.
In the context of today’s search engine and AI wars, this book is a very interesting read on the strategy behind Google and how quickly things change in their industry. The book is written by Douglass Edwards, a founding employee of Google who joined the company in 1999, going on to become its Director of Consumer Marketing and Brand Management, before leaving in 2005.
Some interesting passages from the book include:
• Larry Page
“Larry Page [Google Co-Founder], more than anyone I ever met, hated systems that ate hours and produced suboptimal results. His burning passion was to help the world stop wasting his time”.
• Microsoft
“Our big issues barely grazed the electrified moral fence of our “don’t be evil” credo: develop the best search technology, sell lots of ads, avoid getting killed by Microsoft”.
“’We will buy you’ – was Microsoft’s ploy when it came to start-ups that threatened them, or ‘we will bury you’. Google was not for sale. Nor would Google be foolish enough to partner with Microsoft, exposing our technology to them in ways that would “harvest” it and use it against us”.
• Search Engine
“The cost per query is really too low. Given the revenue we have, we should be able to do much more. Spending money to improve search quality would create a perceptible gap between Google’s results and those of our competitors”.
As the above quotes illustrate, the book goes through how quickly market conditions changed for Google in the early 2000 years and is definitely a great read.
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