Below are books that I’ve recently read related to investing, markets, economic history, and/or financial planning. Perhaps you can add one or more to your own reading list.
Battlegrounds, by H.R. McMaster. You might wonder why a book written by a retired lieutenant general would make this list. One word: risk. As a financial advisor, I must always be attuned to risks that could cause investment values to decline. It’s difficult – nay impossible – to craft investment strategies around terrorism, war, and U.S. involvement in foreign conflicts. But I believe it’s best to have a good assessment of our relative power in the world and the risks we face. It’s unfortunate that people like the author don’t run for high office in the U.S. His book was a terse, clear-eyed, sober view of the key problem areas in the world written from a non-political point of view. His logic was persuasive and penetrating. He served in the Middle East and taught military history at the United States Military Academy. These experiences allowed him to provide a rich, powerful assessment of the origin and nature of the problems we face and how to approach them.
Leave Me Alone and I’ll Make You Rich – How the Bourgeois Deal Enriched the World, Deirdre Nansen McCloskey and Art Carden. I cannot stress the importance of the ideas in this book with enough conviction, especially to young people in a world whereby socialism is again gaining a sick sort of attraction. The economic systems of the West have lifted billions out of poverty – extreme poverty might be completely eradicated by 2030. The writing in this book was a bit too cute for my tastes, but the ideas are powerful and appear in many circles if you look for them – they date back to Adam Smith’s writings in the late 1700s. Essentially, it was human liberty which took root in northwestern Europe in the 16th and 17th century that led to a “Great Enrichment” that continues to this day. The tide turned when the merchant (i.e., the bourgeoisie) became a respected citizen in Dutch and English societies. I will quote from the introduction because I can’t say it any better:
Humans are not angels. The trick is to frame a government for nonangels…It had better be small, because any government tends to corrupt. Power is the ability to physically coerce people to do things they can’t be persuaded to do voluntarily, such as paying taxes or getting inoculations or serving on the eastern front. Big governments exercise more power over more people…We believe, and so should you, that the more involuntary masters the citizens have, the worse they do…The disagreements along the spectrum are merely about whom to push around with government-sanctioned coercion.
When people were liberated (i.e., received liberty!) 350 years ago to offer their values, talents, and ideas to the world, then prosperity took hold and began to lift the world out of a wretched, miserable poverty. Hence, this is why our economic system is the most moral economic system ever devised.
Enlightenment Now!, The Case for Reason, Science, Humanism and Progress, Stephen Pinker. This book sat on my shelf for two years before I finally tackled Mr. Pinker’s 453-page epic work on human progress since the Enlightenment – in particular the last 250 years. Mr. Pinker takes the reader through every relevant metric on the stunning advancement of human progress and why it will continue. Poverty, disease, violent crime, pollution, war, premature death along with many other scourges on the planet are solidly retreating. Mr. Pinker’s mind is something to behold – he is an intellectual of the highest degree. The book is a bit dense in the beginning and towards the end. But stick with it – his message will reaffirm your faith in the human spirit and progress. This faith is important, in my opinion, for you to be the best investor you can be. His argument for humanism – while denigrating religion – might turn off some readers, but you can easily overlook this. It is well worth the read.
The Cure That Works, Sean Masaki Flynn. This book is a stunner on how the U.S. health care system could deliver better quality at – according to the author’s research – a quarter of the price. That’s right – at 25% of the current cost. Sound impossible? Then please read the book. Singapore is doing it with ideas mainly developed here in the U.S. It’s not a stretch once you understand how Singapore runs their system. In a nutshell, Singapore requires all citizens to maintain – and fund – a health savings account along with a high-deductible plan with a co-insurance requirement. Nothing is ever 100% covered. The consumer is ALWAYS incentivized to shop for health care services. The system also provides incentives to stay healthy by charging less for the insurance while also providing generous subsidies to the poor. But the magic is that ALL Singaporean citizens shop for health care services because they are strongly incentivized to do so – it’s THEIR money they’re spending. Nothing is “free” like you hear when a Medicare commercial runs here in the U.S. – or when you hit your deductible under a traditional health care policy. Inadequate funding of health savings accounts in the U.S. has been a big roadblock to their widespread acceptance. But the Singaporean government has an answer: the government requires that their citizens fund these accounts. We do essentially the same thing with Social Security and Medicare, so why not these accounts? In addition, the government deposits funds into their citizens’ accounts when the government runs a surplus (which can be done when you’re not tied down by expensive entitlement programs). The government also deposits $3,000 into the account of each newborn baby! The numbers and potential savings in the U.S. are staggering. This is a must read if you want to understand how we can improve the cost and quality of health care in the U.S. Otherwise, the alternatives are continuing down our unsustainable path or to begin rationing care like Canada and Europe.
Countdown 1945, Chris Wallace. Countdown 1945 is the story of the Manhattan Project that aimed to develop a nuclear weapon and end World War II. Admittedly, this is not a book on investing or financial planning. It was, however, a fascinating read with a parallel to today’s Operation Warp Speed, which is the current public-private partnership aiming to deliver 300 million doses of Covid-19 vaccine by the end of 2020. When the U.S. is faced with grave danger, our people have a way to rising to the occasion. Our unique ability to succeed seems to be getting lost in today’s media hysterics and bitter politics. Harry Truman was at the time a rather pedestrian pick for Vice President in the 1944 election. And shortly after taking office, Roosevelt died thrusting Truman into the Presidency. Truman was unaware of the Manhattan Project and was quickly faced with a most vexing choice of whether to usher in the age of nuclear weapons by dropping the new bombs on Japan. Chris Wallace takes us through the lives and personalities of the soldiers, politicians, engineers, and a Japanese girl (who is still alive) and her family. The girl lived through Hiroshima and is alive today. It was a monumental success story – yet a grotesque and cynical story of how depraved humanity can be. It’s difficult to know how war is ever glorified when you really read about it. Truman’s generals were forecasting up to one million American casualties should the U.S. invade Japan. There were deep moral misgivings among many of those working on the Manhattan Project, but there were simply no easy answers. Chris Wallace takes us through the final days, hours and minutes of suspense as hell was unleashed on earth.
Big Business, Tyler Cohen. It seems rather fashionable to despise big business these days in America, especially among young people. That’s not necessarily anything new, but it seems to have taken on a more visceral tone in recent years. Mr. Cohen argues quite the opposite: that we don’t love business enough. He concedes that not all is perfect, but that it’s the humans working in the businesses, not the business form itself, that leads to problems. It’s an interesting book full of myth-busting facts about big business. I certainly found some of my own biases exposed and challenged – and I’m a huge fan of capitalism! He takes on the following controversial topics and argues: CEO pay is justified, Wall Street plays a very beneficial role in the economy, why our biggest companies do not have monopoly power – competition is alive and well, and how big business doesn’t have much power over government (I could find a couple of points to disagree with here, but I digress). He also says that businesses are great for workers, too: they provide jobs (a major source of satisfaction and social standing), many of our social connections, and of course, our compensation and other benefits. In summary, it was an interesting read and counters the media narrative that big business is harmful or even evil. The only place the book got a little, shall we say, strange was the last chapter on how we “anthropomorphize” corporations – we think of them as people. He contends this is not an appropriate way to think of business and leads us to think negatively about businesses. You can probably safely skip the last chapter. But on balance, I would highly recommend the book.
Mastering the Market Cycle, Howard Marks. Mr. Marks probably could have written this as a 60-page primer instead of a 315-page book – too much repetition for my tastes. However, every investor should embrace the concepts that Mr. Marks sets forth. As an advisor, I am always reminding clients that the secret to investing is keeping emotions out of investment decisions – this is when people tend to misbehave and make mistakes. Fear of loss and fear of missing out can be powerful emotions. Mr. Marks comes at it a little differently, but it’s the same theme. Mr. Marks counsels that emotions can cause you to overpay for an investment in buoyant markets– or cause you to miss opportunities in despondent markets. Every investor can improve if he or she focuses on where we are in any given market cycle and asks: “How much optimism or fear is priced into this investment?” He suggests investors focus on the underlying “secular trend” and not the oscillations around this trend. Changes in productivity and birth rates (that drive GDP) happen gradually, but psychology can cause markets to move quickly. These quick market movements oftentimes knock investors from their strategy. He suggests that investors have the fortitude to go against the crowd and spot the unloved opportunities. Sometimes, the smart investor must be willing to be wrong…for a long time.
The Land of Free Enterprise, Benjamin C. Waterhouse. This is a good book for someone who wants a primer on the history of business in the United States from the late 1700’s to the present. For me, a couple of points stood out. First, globalization of world economies was in full swing in the late 1800’s into the early 20th century. “Corporations operated and financial institutions invested across national and imperial boundaries at a rate, if we hold global economic output constant, not seen again until 2004.” World War I ended globalization, and it wasn’t until after WW II that we embarked on a process of globalization again. Second, I came away with a greater appreciation of the economic role slavery played in the business development of the south. Cotton became a huge international business in the 1800’s, and the south used slave labor to make it run. As the author notes, “By the eve of the Civil War, historians estimate that the total cash value of the 4 million slaves in the American South was $3.5 billion in 1860 money…$13.8 trillion today.” That’s an overwhelming number, especially for the population back then. Given the enormous value of slave labor, it makes more sense why the country had to fight a bitter war to end this heinous practice.
Modern Money Theory, L. Randall Wray. Over the last several months, I keep reading about “Modern Monetary Theory” (MMT), so I had to find out what the buzz is about. MMT apparently is the imprimatur for expensive government projects, such as the “Green New Deal.” However, this “primer” by Professor Wray does not sanction endless spending, as it seems some of our politicians are hoping. He fully admits that too much spending by government can lead to inflation and/or a devaluation of the currency (though he argues that these are relatively rare events that were caused by unique circumstances). Professor Wray argues that a sovereign government that allows its currency to float (not pegged to another currency or commodity), like the U.S., can spend a great deal of money in its own currency – greater than is oftentimes realized – before inflation and currency devaluations take place. Proponents of MMT cite Japan as an example. The book is quite dense in places, but there are certainly many interesting and helpful concepts that he explains. For me, the idea of “sound money” backed by some extent to gold has been attractive, but this book has caused me to think a little further on that. He provides a brief history of commodity-based money and the problems associated with it. The U.S. “fiat” money system does not have any commodity or other value behind it, but Professor Wray argues that our system works because taxes drive the system. In other words, you need the currency – the U.S. dollar – to pay your taxes…or else. Therefore, people demand the currency, and the currency is accepted, precisely because it’s needed to pay taxes.
Predicting the Markets, Ed Yardeni. Clocking in at 546 pages, this book is not for the reader who simply wants the highlights. Mr. Yardeni is one of the most respected names in the investment world, and his book lays out his methodology and resources that he uses to generate his insights and to advise institutional clients. Speaking for myself, it was mostly a fascinating read with some good historical context (especially around the so-called Great Recession). Mr. Yardeni is a sober voice who is bullish on the future for investors. The book is dense in places. But if you can hang in there, it’s worth the read.