Below are books that I’ve recently read related to investing, the economy, and/or financial planning. Perhaps you can add one to your own reading list.
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.
It’s Better than it Looks, Gregg Easterbrook. Mr. Easterbrook comes off as unabashed, unapologetic optimist. My kind of guy! We are constantly bombarded with negative images and stories in the media. Bad news sells because it happens fast while good news happens slow. Mr. Easterbrook tackles a variety of thorny issues and lays out a compelling case why the world isn’t going to hell like it so oftentimes feels. In fact, things are actually quite good compared to this past. Do we have problems? Yes, of course, but the human race has risen to the challenge time and again despite setbacks. I would highly recommend this one.
Capitalism, Eamonn Butler. Socialist ideas seem to be gaining in popularity, especially among young people. I suppose this makes sense when you consider a Millennial generation that has mostly grown up with the so-called Great Recession and its aftereffects. This includes excessive student loan debt. But like a lot of seemingly good ideas, socialism make sense until you think about it. Government policies have been a central cause of the student loan mess, so we might be careful what we wish for. And as Margaret Thatcher said, “The problem with socialism is that you eventually run out of other people’s money.” I laughed at the author’s analogy of a family camping trip whereby everyone acts with “virtue and public spirit towards an agreed purpose, focusing on the good of everyone”…until you invite strangers into your vacation. Modern-day capitalism has been watered down with excessive regulation. Yes, regulation is necessary and beneficial to a point, but given government’s overreach and excessive power, businesses and other interests find themselves lobbying government for favors (aka cronyism and rent-seeking). Adam Smith is surely turning in his grave. Socialism requires force to sustain itself. Capitalism doesn’t. Capitalism isn’t the only economic system, but it is the only moral economic system.
Fed Up, Danielle DiMartino Booth. This book provides a rather interesting look at the insular nature of the Federal Reserve System from an insider who made a name for herself at the Dallas Fed. People generally don’t think about interest rates too much – other than “what’s my monthly payment?” But the short-term interest rate set by the Fed is arguably the most important price in an economy. Mrs. DeMartino Booth offers a tough critique of the Fed’s hubristic culture and self-absorbed processes. The people inside our Federal Reserve are extremely well-educated, but most of them haven’t run a business, invented anything, or taken any business risk. Yet, it’s the most powerful institution in the world.
Red Notice, Bill Browder. While not technically a book on investing, the economy or financial planning, I am including it because it sheds light on how corrupt Russia remains in the Putin era – plus, it was a thrilling true-story read! Bill Browder was a hedge-fund manager who moved to Russia to take advantage of investment opportunities as the Soviet Union was crumbling but had to flee Russia while his lawyer, Sergei Magnitsky, was tortured and eventually murdered inside Russia. Mr. Browder’s efforts to get to the truth of Russian corruption eventually led to the passing of the Magnitsky Act, which punishes foreign officials seen as human rights offenders by freezing their assets and banning them from entering the U.S. It was a fascinating read.
Any opinions are those of Kirsch Wealth Advisors, and not necessarily those of LPL Financial. LPL Financial is not affiliated with and does not endorse the services or opinions of the various listed publications. These materials are being provided for information purposes only. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.