O’Sullivan, The Levelling

To understand the title of Michael O’Sullivan’s book, you must go back to 1647 England and the Putney Debates. A year after King Charles I lost the English Civil War to forces led by Oliver Cromwell, people met to debate the future constitution of England. The Levellers—ordinary people, including some women—were the largest group involved in those debates, crafting arguments for equality and constitutional democracy. “Their achievement was to set out a contract between the people and those who represented and governed them. Today there is little sense that such a contract is in place.”

O’Sullivan, who taught economics at Princeton University and is now the chief investment officer at Credit Suisse, recognizes four challenges facing us today: political discontent, economic growth, world financial risk and debt levels, and geopolitical change. In The Levelling: What’s Next After Globalization (PublicAffairs/Hachette, 2019) he analyzes these challenges and looks for a way forward, calling on the Levellers for inspiration.

Globalization, O’Sullivan believes, is giving way to “a more fractured, multipolar world,” dominated by three Orwellian regions: Oceania (the United States and possibly the United Kingdom), Eurasia (the European Union plus Turkey, eastern Europe, and Israel), and Eastasia (China-centric Asia). As a consequence, many of the institutions set up in the twentieth century, such as the World Bank, IMF, WTO, and NATO, may become defunct. This process of geopolitical change “will involve a decades-long process of … levelling out of power and wealth between countries.” And “it will provoke a swell of nationalism, regionalism, and friction and in turn a great swirling competition of ideas.” It will see the rise of new political parties as well as new rules for the way finance functions.

One indication that globalization is waning is trade. After rebounding from the relative lows of the global financial crisis to the level previously reached in 2008-2009, “from 2016 to today and in the context of an upturn in broad economic activity, the openness of the world economy (ratio of trade to GDP) has fallen sharply,” back down to its 2011 level. Moreover, trade liberalization has been declining since 2009, and protectionism is on the rise. The United States leads in trade-protectionist measures, followed by Russia and India.

The beneficiaries of globalization have largely been the lower to middle classes in emerging countries and the wealthier classes in the developed world. This disparity is reflected in a World Economic Forum survey finding that over 70% of respondents in the Philippines, Vietnam, India, and Thailand thought globalization was a force for good, as opposed to only 40% in the U.S. and France. Although inequality in the world’s larger economies has not risen significantly in recent years, “it has been persistently high. This persistence is perhaps the key link to sociopolitical tension in that continued inequality conditions people’s long-term expectations of the world around them. The political consequence is that people form a view that the system is against them and vote against the system.”

To my admittedly prejudiced mind, O’Sullivan is at his most interesting when discussing world economies and financial markets. He offers up a plethora of data to support his view that we are seeing the beginning of a paradigm shift in the world economy. And, unlike most authors, he proposes a possible road map so that our future doesn’t become “a grisly repeat of 1913, the last time globalization came to an end.”

The Levelling is a thoughtful, well-reasoned book that tackles seemingly intractable problems and offers concrete, if often politically difficult, solutions. It’s a must-read for macro investors and public policy makers. It’s also an important book for those who complain about, for instance, government, big banks, inequality, and the state of the world in general but have no meaningful framework in which to ground their complaints.

Clifton & Harter, It’s the Manager

From Gallup, based on its gargantuan global study of the future of work (37.2 million people surveyed), comes It’s the Manager by Jim Clifton, Gallup chairman and CEO, and Jim Harter, chief scientist, Workplace for Gallup. The subtitle says it all: “Gallup finds that the quality of managers and team leaders is the single biggest factor in your organization’s long-term success.” And so, in 52 chapters and five appendices, intended as a reference book, “not meant to be read cover to cover on a plane ride from Chicago to Los Angeles,” CEOs, CHROs, and managers can learn how to maximize human potential, which is now the primary purpose of all organizations.

Let me start with the first, nearly 100-page appendix, which describes the 34 CliftonStrengths themes. In the back of the book is a package with a unique access code the reader can use to take the CliftonStrengths assessment. The idea is to learn what your strengths are so you can lead with those strengths. Among the 34 strength themes are (without respect for parallel grammatical construction): achiever, activator, adaptability, analytical, arranger, belief, command, communication, competition, connectedness, consistency, and context. The list ends with woo.

The book covers a range of topics, from organizational culture to coaching to the future of work. Under the heading of the future of work the authors deal with such issues as diversity and inclusion, the gender gap, flextime, gig workers, and artificial intelligence.

It’s the Manager doesn’t break a lot of new ground. What it does is to provide a vast empirical underpinning for many of the management theories that have gained traction recently.

Pieri, How We Make Stuff Now

Jules Pieri, the cofounder and CEO of The Grommet, a product launch platform, has written an advice manual for Maker-entrepreneurs, How We Make Stuff Now: Turn Ideas into Products That Build Successful Businesses (McGraw-Hill, 2019). This book should be read by two sorts of people: those who want to become Maker-entrepreneurs and those who love gadgets. I most definitely do not fall into the first category, but I found the case studies in this book fascinating. It’s amazing how many “great idea” products exist. I have no idea whether most of the products profiled here actually work (I looked at Amazon reviews for a few of them and found a lot of dissatisfied customers), but they were intriguing nonetheless.

For those who have a product they’d like to bring to market, Pieri’s book seems incredibly useful. She covers everything from design to funding, manufacturing to packaging, logistics to inventory management. By the way, as far as retail distribution outlets go, Pieri warns Makers to “be very careful about Amazon.” Why? You may never see much volume (Amazon is a site for commodity shopping, serving up the products people are searching for—and, by definition, they are not searching for unknown products), you give it your data, you will expose yourself to counterfeiters and copycats (among whom might be Amazon itself, which uses its data to direct its private label business), you give Amazon control over your pricing, and you have to deal with Amazon chargebacks.

How We Make Stuff Now is both inspiring and daunting. I tip my hat to all those Makers who have gone from idea to successful business. It’s no mean feat.

Griffiths, The Creative Thinking Handbook

The Creative Thinking Handbook: Your Step-by-Step Guide to Problem Solving in Business by Chris Griffiths with Melina Costi (Kogan Page, 2019) starts with the bold statement that knowledge is no longer power. So much for you, Francis Bacon (or perhaps Thomas Hobbes) and, much earlier, Imam Ali. Creativity is the new power. The author defines creativity as “the incubator and cultivator of new ideas, which are born from existing knowledge and combined to form a new neural pathway in the brain, leading to a personal original thought.”

Griffiths’ book is divided into three parts: common thinking errors, finding solutions, and “the end of the beginning.”

Common thinking errors are selective thinking, reactive thinking, and assumptive thinking. These are more or less self-explanatory.

The heart of the book is the second part, where the author introduces his Solution Finder. It is based on four simple steps: understanding (define the challenge), ideation (generate ideas), analysis (evaluate ideas), and direction (implement the solution).

Let’s look briefly at ways of generating ideas. (Griffiths focuses on group settings, but with some modifications these methods can be applied to individual idea generation as well.) First, we have the classic rules for brainstorming: go for quantity, welcome wild and unusual ideas, postpone judgment, and combine and build on ideas. Then there is the ideation toolkit, whose tools include the reverse brainstorm canvas, metaphoric thinking canvas, and combinational creativity canvas. With reverse brainstorming, you state the reverse of your problem or challenge, brainstorm ideas to solve the reversed problem, and flip your reversed solutions. In the metaphoric thinking model, you reframe the problem using a metaphor (e.g., “I want more customers” becomes “How to catch a fish”), solve the metaphor (e.g., use correct bait, watch fishing shows on TV), and then map each key idea that you generated to solve the metaphor back to the original problem. The last model, the combinational, starts with sensible ideas, moves on to non-sensible ideas, and then tries to mix and match the sensible and the non-sensible to produce “ideas that are new, functional and unexpected.”

Of course, creative problem-solving endeavors are useless or worse if there is no follow-through. “Persistence is the fuel needed to build upon your best ideas and navigate the highs and lows that accompany implementation. Welcome to the unglamorous side of the creative process!”

Murphy, Way of the Trader

It’s been a while since a mainstream publisher released a book on trading, especially trading with a human face. Ian Murphy’s Way of the Trader: A Complete Guide to the Art of Financial Trading (Harriman House, 2019) is a welcome addition to the literature. Not only does it offer sound advice, but it does so in a way that does credit to the Irish tradition of great storytelling.

As an active member of SpikeTrade.com, a group of traders led by Alexander Elder and Kerry Lovvorn, Murphy reprises some of the themes in Elder’s works. One is the critical importance of keeping good records. For instance, in delineating some of the differences between traders and gamblers, Murphy writes: “Honest and accurate records are what separate trading from gambling. The floor of a bookmaker’s office is littered with crumpled papers, each one cast aside by an unlucky punter. Every piece of paper is a written record of a financial transaction. This carpet of losses is conveniently trampled underfoot, allowing the customers to ignore the reality of their situation. But the bookmaker doesn’t throw away his records. That in itself speaks volumes.”

The book’s chapter titles show its breadth of coverage: “Is Trading a Job or a Business?,” “A Trader and The Market,” “The Preservation of Capital,” “Keeping It Simple,” “Trend Following, Swing Trading and Day Trading,” “The Attributes Which Support a Successful Trader,” “The Path of a Successful Trader’s Career,” “The Psychological Tools of a Successful Trader,” “A Look at the Records a Trader Should Keep,” “A Comprehensive Pre-Trading Checklist,” “Selecting Which Stocks to Trade Using Filters,” “An Introduction to Technical Indicators and Orders,” and, finally, three trading strategies: “The Tidal Strategy,” “The Wilde Strategy,” and “The Help-Up Strategy.”

Among the book’s nuggets of wisdom, here are a random few.

“Some people believe 10,000 hours spent on a topic makes them an expert. That’s not the case in the market. Sooner or later, ‘trading experts’ become complacent and predictable, and that’s when the market snaps them back to reality. The renowned Japanese teacher Shunryu Suzuki-Roshi tells us: ‘In the beginner’s mind there are many possibilities. In the expert’s mind, there are few.’ Anything is possible in the market and every day is essentially the first day—therefore a true market expert always sees themselves as a beginner.” This advice is akin to Jeff Bezos’s passion that Amazon remain a “day one” company.

“Trying to trade someone else’s ideas is like trying to comb our hair while looking at their reflection. Ultimately, we are our own opponent when we trade, so mimicking the actions of others is pointless.”

“For many of us, our smartphone has become a digital pacifier which we instinctively reach for when an anxious thought arises. We don’t need to know every market event as it happens, just as we don’t need to constantly monitor our pulse to know we are still alive. If we’re continually checking the market it can feel like we’re truly on top of things, but we’re just subjecting ourselves to a deluge of distraction and frustration. Considering the temperament of the market, do we really want her whispering in our ear 24/7? Traders need to be smarter than their phone and put a limit on their market interaction.”

Murphy’s book has value both for the beginning trader and the more experienced trader with a day-one mindset. As a bonus, it’s fun to read.

Desai, How Finance Works

If you are a burgeoning equity analyst or a self-directed fundamental investor, you will be confronted with reams of corporate financial data, from EBITDA to net present value. Even if you know how to calculate financial formulas, do you know what they are telling you? Can you put them into an appropriate context? Can you use them to make informed decisions?

How Finance Works: The HBR Guide to Thinking Smart about the Numbers (Harvard Business Review Press, 2019) emerged from Mihir A. Desai’s efforts to teach finance to MBA students, law students, executives, and undergraduates at Harvard. It is itself a wonderfully smart introduction to finance, with the only two prerequisites to the book being curiosity and perseverance. It comes complete with tables, figures, and graphs. It also features boxed reflections and analyses from the author and real-world perspectives from two CFOs, two investors, and an equity research analyst. And, of course, there are lots of relevant case studies.

In six chapters Desai covers financial analysis, the finance perspective, the financial ecosystem, creating and measuring value, the art and science of valuation, and capital allocation. At the end of each chapter is a 10-question quiz, with answers at the back of the book.

Any active investor who wants to do more than throw darts at a list of stocks or look at squiggles on stock price charts should read Desai’s book. It’s a gem.

Karlgaard, Late Bloomers

In a world that fixates on the achievements of the young, we tend to push our kids too hard and to write off anyone who hasn’t hit his or her stride by some fixed age. To help counter this trend, Rich Karlgaard, the publisher of Forbes magazine who himself took quite a while to find his calling, has written Late Bloomers: The Power of Patience in a World Obsessed with Early Achievement (Currency/Penguin Random House).

The book is part critique, part inspiring stories. Karlgaard takes aim at the ubiquitous tests of intellectual potential, where “success today is represented by the high-IQ, high-SAT wunderkind test takers beloved of Bill Gates and other IQ farms like Goldman Sachs, Google, and Amazon.” Admittedly, high test scores often appear to be predictive of worldly success. After all, Bill Gates, Larry Page, Sergey Brin, Jeff Bezos, Mark Zuckerberg, and Steve Wozniak all scored 800 on the math SAT. But, Karlgaard argues, “this pressure for high test scores and early achievement has created its own perversities” and cites the case of Elizabeth Holmes of Theranos. Moreover, it tends to discard as less talented or lazy those young people who have abilities that can’t be measured by a standardized test.

Although Karlgaard focuses on late bloomers, much of his work has universal applicability. He describes the sometimes destructive power of social norms, the pitfalls of perseverance (sometimes quitting is the right decision), and the positive potential of self-doubt (turn it into information and motivation).

Karlgaard concludes that “blooming has no deadline. Our future story is written in pencil, not carved in stone. … Research supports the idea that as we lose some capabilities, we gain others that far outweigh what is lost. Therefore the question we should be asking ourselves is not, what can we accomplish in spite of our nature and life experiences? Instead it should be, what can we accomplish because of them?”