I really enjoyed Morgan Housel’s new book The Psychology of Money. I’ve read his articles and blog posts for several years and the book is a rounded summary of his approach.
His starting point is that money is a very odd thing. While we try to make it ‘scientific’ in the investment world and in mainstream economics, it’s really much more complex than any one theory or model can cope with. There’s a lot of Daniel Kahneman’s influence in the book as well as nuggets from the most prominent proponents of value investing.
For me the best chapter is “When You’ll Believe Anything” about the hold that stories have on the way we think about economic decisions.
“When we think about the growth of economies, businesses, investments and careers, we tend to think about tangible things – how much stuff do we have and what are we capable of? But stories are, by far, the most powerful force in the economy. They are the fuel that can let the tangible parts of the economy work and the brake that holds our capabilities back.”
I’d like to see him go more into the psychology of impact investing – how does the social or environmental impact of the money you invest make a difference to decision making. He’s very well positioned to do that as his day job these days is with Collaborative Fund.
I think it does make a difference. My experience is that impact investors tend to be more long term and less shaken by short term shocks. There’s less gambling in the impact investment world and I think that’s partly to do with the aims of the investors.
Every now and then a book comes along at just the right time. Impact by Sir Ronald Cohen is one of those books. It was written before Covid (there’s an inserted page at the beginning that references as much) but everything that has happened in 2020 just goes to strengthen the argument.
Ronnie starts by telling a little of the history of impact investing – how it had many beginnings but really gathered momentum after the term was coined at a meeting in 2008. But part of the story is also about ‘social investing’ – a term that goes back to the 90s – and ‘ESG investing’ which really started back in the 80s with activist investors attempting to get funds to divest from stocks that they felt were harmful to the planet or whose ethics they disagreed with. Sir Ronnie has been involved in many aspects of this history from helping to create the first social impact bond to chairing government task forces on the topic and as founding chair of Big Society Capital. He’s certainly made his mark on many of the important building blocks of the impact investing world.
But I think it’s the logic and argument of the book that really resonates right now. Lots of people feel that our current form of capitalism is destroying itself and that the relationship between government, finance and social and environmental progress needs to change.
For investors the idea of measuring returns is obvious. From ancient times, the idea of lending or investing capital in order to gain a return has been one of the foundations of our economic system. Businesses raise money, put it to work, and then pay back their investors with a return.
In the 20th century, the concept of risk became much better understood – how can we measure the risk to the return that is being promised by taking into account volatility, political issues and so on. The financial services industry got better and better at measuring the risks of various types of investment so helping them to make better decisions.
In the 21st century, Cohen argues, impact will be added to the equation. All investment decisions will take into account return, risk and impact. He argues that technology has enabled us to calculate and assess all of these much more accurately and impact is in many ways easier to measure than risk.
I was lucky enough to interview Ronnie a couple of weeks ago for our Practical Optimist newsletter. You can see that interview below.
Bad Blood is a fantastic book and an amazing journalistic feat. The drama is still playing out as I write this with the main characters facing criminal charges and likely to stand trial this year. Like Enron: the Smartest Guys in the Room it’s a brilliant set of lessons about how a company can be rotten but the system of investors and regulators forget to trust their sense of smell. And like the Enron book (in that case Bethany McLean who wrote an article in Fortune magazine posing a simple question — how, exactly, does Enron make its money?), John Carreyrou helped uncover the scandal — he’s part of the story, which makes it an even better tale.
It’s particularly interesting to me because in one version of the story Theranos could have been an amazing tech for good impact investment. It made me wonder how we would have reacted at BGV — would we have spotted the fake?
Theranos was founded in 2003 by 19-year-old college dropout Elizabeth Holmes. Her dream was to revolutionise medical diagnostics by creating a simple, cost effective way for people to get their blood tested from a tiny sample. If she had achieved that, it would indeed have had a huge positive impact on the world. The trouble is that it’s a very hard thing to do.
Holmes was joined at the helm of the company by Sunny Balwani, who made some money in the first dot-com boom and was also her boyfriend. Bad Blood is littered with examples of them making terrible mistakes and hiding information from people (including that they were a couple). Their paranoia was extraordinary — to the extent of fitting bullet proof glass in Holmes’ office and having people trailed when they left the company. What they were covering up for was that the technology they promised didn’t work.
In the business it’s known as ‘fake it til you make it’ and all tech startups do it to a degree. You often have to convince investors that what you’re going to do will be revolutionary before you’ve actually built it (after all you need their money to build the thing). One famous example is the video that the Dropbox founders created to judge whether or not it was worth building the software in the first place. But raising peoples’ hopes of better document synching is one thing — raising the hope of quick, painless diagnosis of diseases is another. Richard Waters is great on the subject in this FT piece.
All the signs were there with Theranos. But hindsight is a wonderful thing and there were many investors, customers and journalists who were duped. Holmes and Balwani got plenty of things wrong but it was the system that allowed them to gamble with peoples’ lives that was really rotten — and it still is.
It’s a strange story when Rupert Murdoch comes out of it pretty well. Despite losing the whole $120 million he’d invested he refused Holmes’ attempts to spike the story at the Wall Street Journal which he owned.
One aspect of the story makes me think we wouldn’t have fallen for it at BGV is that most of the investors seem to have made their decisions based on who else was involved. A classic case of groupthink. We’re always the first investor so don’t have the ‘luxury’ of seeing who else is investing. We also don’t invest very much to start off with so we get to work with teams (usually in very close proximity) before we decide to invest larger amounts. I’d like to think we would have worked out that the Emperor wore no clothes in this case. And finally we’re very sceptical of ventures that insist on secrecy — we think there’s an important link between true tech for good and openness and transparency.
Believe it or not, I was a teenage heavy metal fan. Growing up in the Midlands I had the albums, the posters and the t-shirts, but never the long hair and tight trousers — I don’t think I could have pulled those off. It’s weird looking back and realising that all the music was on cassette and vinyl. It makes me feel very old.
Anyway, one of my favourite bands was Iron Maiden and I’ve just finished lead singer Bruce Dickinson’s autobiography ‘What does this button do?’ which is a lot of fun. I’ve been listening to the audiobook (which Bruce narrates himself) on long drives and on the bus and tube when I’ve had a chance. There have been many moments when I’ve struggled not to laugh out loud and I think my fellow passengers have wondered what was going on.
Alongside the Spinal Tap style antics that I think every band of the era went through, the thing that comes through is the incredible work ethic in the band and constant experimentation. The characters are just fantastic, co-manager Rod Smallwood comes out of the book very well and sounds like a bit of a legend. Metal is a peculiarly British thing. Its origins are in the Midlands in the 60s and 70s but it went on to influence the whole British music scene and had a huge effect on the US as well. This radio documentary is ace if you ever want to know more.
While there’s a lot about the band in there, most of the book is about the things Dickinson has done outside music. He’s kept himself busy to say the least. He’s been a world class fencer and created a best selling beer for example but his real passion is flying. He started out flying small single propellor planes and over time became a qualified airline captain. Most recently flying the band and all their gear around the world on tour in a Boeing 747. There are long passages about why he loves it as well as a few terrifying near misses.
Dickinson makes an unusual decision for an autobiography to not even mention any relationships or kids. There’s an afterword that explains why but you do notice it. It’s almost a work memoir rather than a life memoir. I’ve seen other reviews that criticise the book for that — saying it feels like he’s hiding the real him — and I do agree. Nevertheless it’s a fantastic book and well worth a read — not just for teenage metal fans.
As I write this it’s unclear whether the current British Government will survive. Amidst the chaos, spare a thought for the civil servants who have to keep the show on the road. They’re incredibly important.
For a description of why their expertise matters, read Michael Lewis’s new book The Fifth Risk. It’s terrifying. There’s no other word for it. It examines what’s been happening in the transition from the Obama to Trump administrations.
Lewis interviews people who worked in three of the most ‘boring’ and misunderstood government departments — Energy, Agriculture and Commerce. Actually those departments are responsible for nuclear safety, the US food supply and predicting the weather — including tornados. Without their expertise and knowledge, the US would be an extremely dangerous place.
You could sum up his conclusion on the machinery of government as ‘I think you’ll find it’s more complicated than that’. It takes dedicated, intelligent, experienced people to make things work. The implications of the complete failure of Trump’s people to understand this are scary but perhaps the worst is the nuclear threat. That’s where the title of the book comes from. The first four risks rattled off by the person who used to run nuclear safety are fairly obvious — a dirty bomb, a broken arrow and so on. But the fifth risk is ‘project management’. There is no evidence that the Trump team understands that and good people further down the organisation are leaving in their droves.
Fortunately, we have far fewer political appointments in the UK so the majority of the machinery of Government remains when you have a change of political leadership. I know ‘experts’ are out of favour at the moment, but I for one am very glad they exist.
The Third Plate by Dan Barber really got me thinking. Barber is the world renowned chef behind two amazing restaurants: Blue Hill in Manhattan and Blue Hill at Stone Barns in New York state. I haven’t been to either but after reading the book would love to. Barber also features in the first series of Chef’s Table on Netflix which is about him as a chef. The book is about a much bigger topic — the future of food.
The ‘third plate’ in book’s title is the imaginary plate of food that Barber would serve as ‘the future’ in a menu of the past, present and future of our food system. He has studied the history of farming and our diets in incredible detail, and the book catalogues all the problems it has created. He does this from the perspective of a chef who sees how it plays out in the taste of ingredients and not from an environmentalist’s point of view. His view is we’ve created an agricultural system where crops don’t taste nice, make us unhealthy and in the long run destroy the soil they’re grown in.
Barber stands out as a chef because of his relationship with the farmers who grow the ingredients for the restaurants. He’s a keen advocate of the farm to fork movement and the book describes his adventures learning about extraordinary farmers around the world. The sections in Spain where he learns about ethical foie gras and some amazing techniques for farming fish are particularly good. It’s not as simple as a transition to organic agriculture because none of our systems are set up to deal with that. It’s also very possible to grow organic mono-crops which don’t do much to help the land or the taste and health benefits of food.
You can tell a lot about a society from its food and thinking about the future through the medium of what we’ll eat and how we’ll grow it is an interesting exercise. It’s an area we’re super interested in investing in at BGV. It’s the intersection of technological and natural that interests us.
Transportation costs and labour shortages could drive agriculture closer to cities. Some people call this urban farming, others vertical farming (because if you do it in built up areas, the logical thing is to build farms upwards rather than sideways — we’ll measure farms in stories, not hectares). We’ve already invested in LettUs Grow in this area.
We’ll see huge leaps forward in understanding the microbiome of soil and plants in the coming years. We’re interested in technologies that will make this easier and more useful.
We’re also interested in technology that supports rewilding as agriculture reduces as a percentage of land use. We need to be prepared for this because it’s not just a case of leaving land to nature. We’ll need to be careful that we rewild properly — the chances of invasive species wrecking areas of land is pretty high.
The Third Plate is an excellent book. Well worth a read if you care about the food that you eat and where that might come from in the future.
I’ve read a lot of new books this year but haven’t got round to writing up little reviews of them like I was doing last year. So I thought I might try and catch-up with posts about the standouts over the next few months.
The grime scene started in Bow, a mile or so away from where I live in East London. You can see the ‘three flats’ in the photo on the cover of the book from our window. The book is the story of grime from about 2003 through to the current day.
The headlines would have you believe that grime was just about gangs, guns and knives but it was also a creative outpouring about how badly politicians and the people who ran London at the time misjudged the impact of their policies on the lives of poor people (particularly poor black people) in East London. People in the grime scene were persecuted by the police, the city and politicians — in a way that was only thinly veiled racism.
The music was (and is) incredibly claustrophobic. Lots of the early lyrics focused on a few square miles around Roman Road and Bow. Dan Hancox contrasts it with the expansive, epic ‘Empire State of Mind’ by Jay-Z about New York which is full of wealth, bling and private jets. Grime is about what it feels like to have no hope of escape and Hancox thinks Dizzee Rascal called his album ‘Boy in Da Corner’ because he felt trapped. The urban music scenes in the US and UK scenes were very different. These days people from both scenes are multi-millionaires but the music came from very different places.
I remember going to grime nights in Shoreditch in 2005/6 and having no idea what was going on. Ten years later and some of the people who were there are some of the most successful artists in the UK music industry. Not only have they become successful themselves but they’ve changed the way the music industry is organised. Grime was about being an outsider and independent which meant that it took them ages to actually break through — as Hancox points out, grime wasn’t really commercially successful until 2016 (except for a few artists who had to morph their style to get mainstream acceptance). Now the independence that grime artists hung on to is much more the norm. The music industry has been transformed.
The book is a fantastic story of some of the people who hung on in there for over a decade while the music they loved gradually gained acceptance. Take Wiley who is interviewed throughout the book — you get the feeling he believed it it would be big from one day. He was always building up people, and helping out younger artists. There’s a hint of satisfaction in the later interviews with him, that a bunch of poor black teenagers from an estate in East London made their mark. You can’t help but root for him. Against the mainstream, against discrimination, against politics, against the police, their message finally made it — like he always knew it would.
There’s some great science fiction around at the moment. I’m not sure what’s going on but something about the present is inspiring great writing about the future. One of the best books I’ve read this year is Seveneves by Neal Stephenson — minor plot spoilers ahead so beware.
The novel starts with the Moon blowing up. It does so in a fairly matter of fact way — one minute it’s there and the next something (we never find out what) has caused it to disintegrate into many smaller parts. It takes a short while for scientists to realise that this is very bad for Earth dwellers and will eventually lead to so many pieces of rock entering the Earth’s atmosphere that the surface of the planet will become a firey mess and uninhabitable for thousands of years. The novel is the story of how human beings try to survive.
Weighing in at 880 pages, it’s hardly a short story and Stephenson manages to use that to give the most plausible version of life in space that I’ve read. There’s no warp speed or magic device for creating gravity. Food is scarce and death is random and frequent. The ‘Seven Eves’ of the title are the only survivors (down from seven billion) capable of reproduction five years after the surface of the Earth has become uninhabitable. Ingenuity is all that the human race has on its side. Robotics become one of the most invaluable technologies and in the end, other than physics, the thing that threatens humans more than anything is our inability to agree on anything.
It’s not perfect and some of the characters are a bit one-dimensional (the young Hillary Clinton like US President I found difficult to believe), but it’s an amazing piece of writing that draws you into a version of the future I think we do need to understand.
based on Diane Coyle’s recommendation. Like Diane, I sped through the book in a couple of sittings and thoroughly enjoyed it. It’s a wonderful, authentic, honest story about how Guy unlearned some of the unfortunate things an elite formal education can instill in you and then learned some new, more positive approaches to living life and doing business. These were mainly inspired by Warren Buffett but the book is full of all kinds of useful references to books and people that helped Guy think things through along the way.
I’m spending a lot of time at the moment thinking about the kind of investor I want to be and I learned a huge amount from the book. There are a couple of things that are different for me though — firstly, I’ve taken to investing because I want to help new things into the world — usually startups. Hence you could never really call what we do at BGV ‘value investing’ which is entirely focussed on businesses that have been around for a while and have safe, predictable cashflows. And secondly I want to help those ventures to have a positive social impact — Guy has mainly surrounded himself by people who see a disctinction between their day jobs backing businesses that act ethically but are also profitable (fundamentally they aren’t out to change the world for the better) and charities that ‘do good’. I see much less of a distinction and want to try to support ventures that do both.
It’s a great book for anybody who is interested in having a happier, more fulfilling work life and bravo to Guy for the honesty and openness he shows throughout.