A load of crap from an idle brain

Finally, i finished reading this book.  Have been reading it on and off for the past 6 odd months.  In the meanwhile have finished reading a few others too.  Odd, because the book is a very good read and written with lots of historical references.  For someone who loves to know the Roman, Greek, French, British and American history, this book is a treasure trove.

The authors of this book are Bill Bonner & Addison Wiggin who have been writing the free daily newsletter, The Daily Reckoning for more than 10 years now. The newsletter covers a lot about the daily economy, world politics, investment strategies, gold, stock market etc.  Bonner is also the founder and president of Agora Publishing.

The authors believe that the America of today has left the values of its founding fathers far behind and has become an imperial power instead of being a country.  Bonner also believes that the end of America is also coming soon.  The author talks about the dollar crisis, the coming end of the US economy. He writes about how successive US governments have gone to war and wasted all resources, the decoupling of the dollar to the gold standard, the federal reserve under Alan Greenspan with his inflationary policies totally wrecked the US economy.

Quoting from Amazon,

Bonner and Wiggin view ancient Rome as the classical model of empire. Running an empire was an expensive business; the folks in the homeland needed to be mollified with government handouts (bread and circuses), while a large military had to be maintained in the frontier. Rome used its military power to exact tribute from neighboring states; it was a protection racket, no different from the Mafia. Nevertheless, this scheme generally kept the central state solvent and the territories at peace. The United States is also an empire, Bonner and Wiggin maintain, but it does not follow the classical model. It placates its citizens with massive distributions of government largess while using its powerful military to exert influence and keep peace abroad. However, “[i]nstead of getting paid for providing protection, the United States is on the receiving end of loans from its tributary states and trading partners ” (p. 77). This is how the United States became the Empire of Debt.

Empire of Debt: The Rise of an Epic Financial Crisis
Authors – Bill Bonner & Addison Wiggin
Pages – 384
Publisher – Wiley

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The author has perfected a formula that he has used to beat the market consistently and earn more returns than what the index has provided. He calls it the Magic Formula Investing.  The formula is explained in the book in relatively easy language.  According to Greenblatt what you need to be concerned is just 2 things about a company:

• A company’s earnings yield

• Return on capital

The rationale is straightforward: buy shares in good businesses, measured by returns on capital, only when they’re available at bargain prices, defined as a high earnings yield.

The magic formula looks for companies that have the best combination of earnings yield and return on capital, with each input weighed equally. An outstanding company with an expensive stock ranked, say, first for return on capital but 1,999th on earnings yield, would have the same combined ranking of 2,000 as a low return on capital company within expensively priced shares, ranking 1,999th in return on capital but first on earnings yield.

Using this approach to create a regularly updated portfolio of about 30 stocks with the highest combined rankings, Mr Greenblatt tested his formula between 1988 and 2004. The results were remarkable: with only one down year, the magic portfolio would have returned 30.8 per cent a year, against a 12.4 percent annual return for the S&P 500. Rather than using the latest 12 months’ earnings to calculate earnings yield and return on capital, Mr Greenblatt and his analysts try to improve on the rote application of this formula by using earnings estimates in a “normal” year, one in which nothing unusual is happening within the  company, its industry or the overall economy.

source: Amazon

The Little Book That Beats The Market
Author – Joel Greenblatt
Pages – 176
Publisher – Wiley

I first saw this book in a bookshop in India. Didnt buy it then as i found the price a bit too high for my pocket.  Also i hadnt read any reviews of the book and i didnt want to spend so much money on a book that i didnt know much about.

Recently i managed to lay my hands on the book and it turned out to be a breezy read.  Mohnish Pabrai of Pabrai Funds who is the author of this book writes about the Dhandho way of doing business.  To do this he quotes examples of the Patels own the majority  of motels in the US, about Richard Branson’s way of doing business and also Laxmi Mittal who owns the Arcelor-Mittal group of steel companies.

According to Pabrai before buying into a company or before buying the stocks of a company, the investor needs to do the following checks

1. Is it a business I understand very well—squarely within my circle of competence?
2 . Do I know the intrinsic value of the business today and, with a high degree of confidence, how it is likely to change over the next few years?
3 . Is the business priced at a large discount to its intrinsic value today and in two to three years? Over 50 percent?
4 . Would I be willing to invest a large part of my net worth into this business?
5 . Is the downside minimal?
6 . Does the business have a moat?
7 . Is it run by able and honest managers?

The mantra always is “few bets, big bets, infrequent bets”—all placed when the odds are overwhelmingly in your favor.

The Dhandho Investor – The Low Risk Value Method to High Returns
Author – Mohnish Pabrai
Pages – 209
Publisher – John Wiley & Sons

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Finished reading 3 books actually.  2 of them are pretty small and I could finish them in2 days each.

1. Games Indians Play – Why We are The Way We Are

If you are someone who easily gets offended by criticism, this book is surely not for you.  If you are someone who believes in chest thumping patriotism, the kinds we find in Sunny Deol – Anil Sharma movies or the kind of person who likes to forward chain mails which proclaim that 35% of employees working in NASA, Microsoft etc are Indians, then this book is not for you either.

Games Indians Play is a hard hitting look at the way we Indians manipulate our way around the system, looks at reasons why our cities are dirty, creaking, why our roads are full of potholes, why our system, law and order machinery is corrupt, why we keep raking up examples of our thousand year old culture and morals, but are the worst behaved, immoral and culture-less people around.

The author, V Raghunathan uses game theory to explain the ills of India, as to why we are free loaders, corrupt and do not stand up to our rights etc.

Though the author goes great lengths to analyse the problems facing India, he doesnt suggest ideas or solutions to mitigate the problem.  That i believe is the only negative point about the book.

A few comments on the book that i found at Amazon website reinforce the author’s point of view

“It’s a very interesting book and does a great job of explaining some of the bizzare things that go on in India and why people say “it’s like that only”. As an Indian living in US for two decades, I can relate to author’s observations about Indian and western societies. I have been puzzled by some of those things over the years but couldn’t figure out why it was so.

And to Mr. Raghunathan: Lots of Indians/asians in US don’t behave much differently. Just go to any temple and you can see a pile of shoes/chappals on the floor right next to empty shoe shelves & just below the sign “please don’t leave your shoes on the floor”. Or visit any south asian grocery store and you can tell instantly if they sell “paans” by looking at stains all over the parking lot.”

“As an expat currently living in India, this book affirmed what I’ve found difficult and perplexing about living in New Delhi. The constant helplessness, petty jealousies and a sense that some of the observed poverty is just another one of India’s treasured rackets (an alternative route for their bizarre and seemingly increasing corruption) is overwhelming and frustrating to watch on a day-to-day basis. I enjoyed this book immensely as it helped me to understand the behavior I see around me, why it continues without change (or question) and in the end, why and how others perceive their continued benefit from this seemingly irrational paradigm (from a Western view point).

Listening to Indians and the media in India, there is a view that Westerners are selfish, lack connected communities and have no “family values” or “morals” (whatever this means by whomever defines it). It’s almost as if Indians have it reversed from Westerners. In particular, Americans who value personal independence coupled with a sense of civic duty and responsibility to others whereas Indians emphasize family and communal relationships to guide their behavior and actions but do not necessarily extend their concerns outside their immediate circle.”

“The author postulates that it is ‘Supreme Selfishness’ which drives every Indian. The author then creates models of everyday situations using principles of Game Theory to explore how Indians react to such situations given that they are driven by ‘Supreme Selfishness’. For example, the author uses Prisoner’s Dilemma to model the common situation every Indian faces while emptying his trash can every morning – should I empty the bin on the road or should I have to walk two hundred feet to the nearest municipal waste bin?”

Games Indians Play
Author – V Raghunathan
Pages – 170
Publisher – Penguin Books

2. Germany – Cultures of the World

I have a good collection of the Lonely Planet series.  But they are books for the hardcore traveler.  Though i love to travel; finances, time and other considerations deny me that pleasure.  I love reading up on the countries, their cultures, people, society, food etc, but i find the Lonely Planet series of books too bulky to read and i find its a book good for people who like to micro-manage their travels.  As for me, i like to take the leisure way out and i just like to do a broad research of the place before i travel.

Europe is a dream destination for me.  Germany is one of my most admired countries and i happened to chance at this book in the library.  Its small, concise and covers all aspects of the country just the way i love it.  The book covers the geography, government, culture, food, people, cities, environment, politics, history etc in a precise manner.

3. Hiroshima – Story of the First Atom Bomb

Its a pretty small book, mostly for kids which traces the dropping of the first atom bomb on Hiroshima.  Capturing mostly pictures of both before and after of the destruction and a few explanations about the bomb, the politics behind it.  The book is mostly about Manhattan project, nuclear theory, progress of World War II, Truman’s decision to use the bomb, the mission of Enola Gay, results of the Hiroshima explosion and the subsequent use of the bomb on Nagasaki.

Above picture source: Amazon & Nowpublic

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The book goes into the details of how much it has cost the United States to go to the war in Iraq and Afghanistan.  The book also explores if the war was necessary; could it have been avoided; could the money invested in the war have been better invested in some other productive activity etc.

Also the author tries to explore if the main reason of the US going to war in Iraq was to get cheaper oil? And if it was the reason, then the US failed miserably.  Also its agenda of foisting its belief of democracy on the middle east has come apart.

Neither is the world any safer.  We are much more under attack from the jehadi groups. Looking at the attempts at hijacking planes, and attempted bombings of the countries, its only safe to say that there hasn’t been a worse foreign policy than what was pursued under the Presidency of George Bush.

Readers may be surprised to learn just how difficult it was for Nobel Prize-winning economist Stiglitz and Kennedy School of Government professor Bilmes to dig up the actual and projected costs of the Iraq War for this thorough piece of accounting. Using “emergency” funds to pay for most of the war, the authors show that the White House has kept even Congress and the Comptroller General from getting a clear idea on the war’s true costs. Other expenses are simply overlooked, one of the largest of which is the $600 billion going toward current and future health care for veterans. These numbers reveal stark truths: improvements in battlefield medicine have prevented many deaths, but seven soldiers are injured for every one that dies (in WWII, this ratio was 1.6 to one). Figuring in macroeconomic costs and interest-the war has been funded with much borrowed money-the cost rises to $4.5 trillion; add Afghanistan, and the bill tops $7 trillion. This shocking expose, capped with 18 proposals for reform, is a must-read for anyone who wants to understand how the war was financed, as well as what it means for troops on the ground and the nation’s future.

The book written by none other than Nobel prize winner for Economics, Joseph Stiglitz goes deep into how the US govt repeatedly fudged accounts, gave out wrong assumptions and projections of money to be spent on the war.  The Defense department according to Stiglitz is one of the most opaque organization in the US govt with no proper audit in place or specification of the money being spent.

According to the most conservative calculations by Stiglitz, the US govt has spent more than 3 trillion dollars on the war in Iraq and Afghanistan.  This when then book came out last year or the year before.  Billions more have flown down the drain.  Some more estimates peg the money spent at almost 4-5 trillion dollars.  All these money could have been invested in the US economy itself and the world wouldn’t have had this economic recession.

The book gets a bit bogged down into the numbers, but is a shocking read at the policy mishaps under the Republican regime.

The Three Trillion Dollar War
Authors – Joseph E Stiglitz & Linda Blimes
Pages – 336
Publisher – WW Norton & Company

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We are already 6 days into the new year.  I dont see much changes happening around and wonder why people blew up so much money boozing, eating, partying away and on firecrackers to bring in the new year.  The first day of the new year was the same.  The sun rose in the east, it felt like just another day. Anyway, if you ask an economist, they will say that its all these foolish spending that fuels the economy.

Generally, when asked for resolutions, i always maintain that “my resolution for this year is to have no resolutions“.  But then i make my secret list every year and work on them.  At the end of the year, i do an analysis to see if things went according to plan or not.  I hardly manage to accomplish around 20-30% of my targets every year and i realise that its a pathetic performance.

This year’s targets are also ambitious (as always).  Not sure if i can make any significant dent in it, but lets see.

Reading a lot is one of the priority this year and am simultaneously reading 2 books, not to mention magazines and other work relate books that i read.

Hope to be much more regular in blogging this year.  Hope the stock markets remain depressed all through the year and give me option to buy lots of good stock at cheaper prices.  Since my investments are for the longer term, i dont mind a few more years of depression / recession.

Its only when there is blood on the streets that you manage to find the best companies to buy.

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Picked this book at the library just for the heck of it and it really turned out to be a racy read.  Andy Hayman, Asst Commisioner at the Scotland Yard was in overall command of the counter terrorism offensive at the time of the bombings in the bus and train tunnels in London.

He writes about the way the police along with the MI5, MI6, and various other investigative agencies put the pieces together in the biggest manhunt ever undertaken in the UK to catch the culprits involved in the mayhem.

Andy also goes about his frustration with the inefficient policing and investigative system; the self centered politician who wants his 2 minutes of fame; the ego clashes within the police department which are neatly exploited by the terrorists etc.

Assistant Commissioner Andy Hayman, CBE, QPM, was in overall command of the UK’s national counter-terrorism offensive, at the centre of every major terrorist investigation – overt and covert – of the past five years. He handled the Metropolitan Police’s response to 7/7 and dealt with the politically explosive murder of the Russian dissident Alexander Litvinenko.

Based at New Scotland Yard, in charge of thousands of Special Branch and counter-terrorism officers in the UK and across the globe, deciding strategy, working directly with the Prime Minister with a budget of GBP500 million, Hayman is able to give unprecedented insight into key top-level crisis meetings he attended with intelligence chiefs and political leaders worldwide. In an inspirational and at times heart-breaking account, he describes how he led a dedicated team of men and women, committed to protecting the UK from dangerous enemies. Hayman lived through the pain and soul-searching when terrorists did succeed – and the pride when intelligence officers prevented attacks.

Andy Hayman leaves no holds barred in his analysis of the way law enforcers tackle terrorism. He outlines his radical blueprint for the future to protect the public, in the run-up to the 2012 Olympic Games and beyond. If you thought you knew the stories behind the news, you’ll realise you didn’t until you read this book.

The Terrorist Hunters
Authors – Andy Hayman & Margaret Gilmore
Pages – 352
Publisher – Bantam Press

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Am on a reading spree these days.  Actually started reading this book almost a month ago.  Considering the speed at which i read, its a miracle that i managed to wrap it up around 30-40 days.

The book is by legendary investor, Peter Lynch.  Its actually a book for beginners to investing.  Peter writes about the importance of investing early in life, and he puts forth his case of why equities are the place to invest in.  He is more bullish on investing in Equities than Gold, Real Estate, Bonds, Mutual Funds and other investments.

According to Wikipedia, Peter Lynch is currently a research consultant at Fidelity Investments and has a net worth of US$ 352 million.  His other two books, One up on Wall Street and Beating the street are considered must reads for anyone interested in investing.

The book is all about basics of investments and business.  And if you are interested in reading about the origin of business in the US, the reason for America to go the capitalist way, the earliest billionaires in the country…it makes for a fascinating reading.

Though the book is completely based on the American business and economy, the book does give you a lot of much needed information of how to go about investing, how to read the balance sheet, the basis of investments etc in a very easy to read manner.

If you want to inculcate the habit of investments and savings in your kids life while they are young, this should be one of the earliest books for them to be introduced to.  Its a good book for grown ups too who want to enter into the world of savings and investing.

One of the best managers in the history of mutual funds, Lynch is certainly the person to help people choose the right stocks and understand the market. More so than One Up on Wall Street or Beating the Street, this Lynch book is for beginning investors of all ages. Lynch and coauthor John Rothchild are family men who are worried that teenagers aren’t learning enough about the importance of American companies in improving lives and creating wealth. Lynch questions why students are taught that Hamlet was a tragic hero and Napoleon was a great general, but they don’t know that Sam Walton founded Wal-Mart. In fact, Lynch’s grasp of the past is one of the strengths of the book. One of the best chapters is “A Short History of Capitalism,” a witty and homespun look at characters like Karl Marx, the Communist who believed capitalism was doomed, and the robber barons, the shrewd railroad magnates of the late 19th century who amassed huge fortunes by manipulating the markets.

Unlike the robber barons, beginning investors, Lynch says, should stick to the basics: get in the habit of saving and investing and putting aside a certain amount every month; develop a strong stomach because the stock market is going to fall and there’s no way to anticipate it; do a little homework so you can understand the reasons to own a particular stock; and buy shares in solid companies and don’t let go of them without a good reason.

Peter Lynch – Learn to Earn: A beginner’s guide to the basics of investing and business.
Authors – Peter Lynch & John Rothchild
Pages – 270
Publisher – Simon & Schuster

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