Shoe dogs and sweatshops

I finished listening to the audiobook of Phil Knight’s autobiography Shoe Dog over the weekend. Knight is the co-founder of Nike and was in charge there for 40 years. It’s an amazing book — possibly one of the best business books I’ve ever read — there were so many moments when it could all have gone wrong and the key characters are amazing. I would love to find out more about Jeff Johnson who comes across as the creative genius of the bunch. He was employee number 1 and creator of the early shoes as well as the person who came up with the name Nike (the company was previously called Blue Ribband). These days Johnson apparently lives in the countryside with a giant library that he keeps open 24 hours for anybody to use. Knight — by his own admission — was a terrible manager in his early days but over time he grew as a CEO because he focused on culture rather than trying to manage everything himself.

Reading the book also took me back to my past and made me think about how much business has moved on in the last twenty years. When I was at university I was a campaigner. I was a member of People & Planet and was actively involved in campaigning about all kinds of environmental and human rights issues from supermarket policies towards Fairtrade, through to the university pension fund’s policies on ethical investment. Nike of course also came in for lots of flack from campaigners in the late 1990s and in the final chapter of the book Knight says the ‘sweatshop’ campaign was one of the most significant events in his career.

He took the allegations incredibly personally and reading the book and hearing the story of Nike you can tell why. Nike wasn’t just business for him or for the other key people in the company — it was their identity, their outlet, their personal mission to try and make a mark on the world. So when people started attacking the company he took it as a huge criticism of him as a person. He didn’t react well and now realises that his response — which was to become incredibly defensive — was the wrong one.

Eventually Nike took it as a lesson. They are now much more overt about trying to be a positive force in the world. As a publicly listed consumer-facing company they realised that to survive long term you need to acknowledge and address issues like that. Their supply chain still isn’t perfect but it is much better than it used to be. I think these days their big issue is how entwined they are in the grey areas of professional sport caused by the huge sums of money involved. Knight is out of the picture but it will be interesting to see how the culture he created deals with that.

Blockchain for good?

I decided it was time to read a bit more about blockchain. First of all I went back to the original article about bitcoin written by the mystical Satoshi Nakamoto back in 2008. It’s a pretty easy read with only a smidgen of maths and you can see why it has spawned so much thinking and activity. While generally understated, it makes some big claims and has all the dog-whistle phrases for the crypto-anarchists and techno-libertarians out there.

But to go a bit deeper, I settled in with Don and Alex Tapscott’s book The Blockchain Revolution and overall I would say it’s a very good introduction. Alongside reading some more technical articles on the web and trying out some of the software for myself (it had moved on quite a bit from when I last tried it in 2013), it gave me a better idea of the potential for blockchain and what the pitfalls might be.

The book is fairly breathless on the opportunities. It runs through hundreds of potential applications — some of which exist and some of which are just on the drawing board at the moment. These range from land registries to international remittance platforms alongside banking and smart contracts. All fascinating stuff and a lot of the proposed applications land firmly in the tech for good camp.

But when I’ve then talked to people who know a lot more about these things than me, most have reservations. There are still huge barriers to adoption and blockchain becoming a truly trusted platform. The main one from the point of view of ‘blockchain for good’ is the fact that humans are involved along the way. Blockchain is a very clever technology but that doesn’t change the fact that things often need to be verified in the real world and the technology can’t yet do that in an unhackable way.

And that’s where I end up on blockchain. Lots of opportunity but it’s never going to do away with the need for institutions or understanding how real people think and behave — indeed, to argue that it will feels dangerous to me.

The Undoing Project

Amos Tversky and Danny Kahneman (image from this article in the New Yorker)

The Undoing Project by Michael Lewis is the story of Amos Tversky and Daniel Kahneman, the two Israeli psychologists who created a whole new discipline — behavioural economics — and in doing so, changed the way we think about thinking.

The book starts in a strange place — with a basketball game and links the reason for Lewis writing the book back to a previous best-seller of his — Moneyball. That was all about the use of statistics in baseball by the Oakland A’s coach Billy Bean who beat the system by choosing to look at things that the big teams missed when making his draft picks or transfers from other teams. He looked for value rather than assuming that because somebody was a big hitter they would be the best player. It worked of course and now the rest of sport has cottoned on to it — ‘moneyball’ is the dominant approach in a lot of professional sport. When Lewis was reading the reviews of the book somebody said that the book was great but that it was something that was already known in psychology and economics because of the work of Kahneman and Tversky. Lewis had never heard of them but soon started to find out more.

Tversky died in 1996 well before Lewis started writing the book but Kahneman took part in interviews as did many of their collaborators over the years. The key to the story though is something Lewis never saw, the relationship between the two men and that’s what the book is about. Lewis tries to get to the core of why these two people were able to question so much that had gone unquestioned before. Both admitted that it wasn’t something they would have come up with on their own but they were an unlikely couple save for the fact that they were both Israeli psychologists and bumped into each other at the University of Michigan in the 1960s.

The book does explain most of their work but you can get that from Kahneman’s excellent summary Thinking Fast and Slow. What it tries to dig deeper into the creative partnership and how it worked. Strangely an academic interviewed them both about it in the 1970s as part of a book about creative double-acts. Tversky and Kahneman claimed they didn’t know themselves but admitted there was a hint of competition about it. Ultimately they fell out over the way that the profile and plaudits were shared. Tversky’s outgoing personality meant that he was the most in demand and Kahneman felt slighted by that. In the end it was Tversky’s illness and impending death at the age of 59 that brought them back together.

It is an amazing story but one you wouldn’t think could make a good book (or a movie, although you can bet after Moneyball and The Long Short there will be one), but it does. It’s a wonderful exploration of the relationship between two incredible people and how that relationship changed the world.

What really lives in your lower intestine?

I surprised myself by really enjoying Gut by Giulia Enders. I’m generally fairly squeamish about all things medical but I I’m glad I picked this one up. It’s full of interesting stuff from the emerging science of our digestive systems. There are some great sections about what actually happens in all the processes we don’t like to talk about and Enders has a lovely turn of phrase, writing that the movements involved in burping or breaking wind “are as delicate and complex as those of a ballerina”.

Gut bacteria are such an interesting area and we barely understand anything that goes on in there. For a long while we thought that there were very few types of bacteria but it turned out that there were many other types but they just didn’t survive when they were cultured outside the body. We’ve probably still only just started to scratch the surface of the types of creatures that are in there and we know even less what they do.

Gut science has also taught us a bit about human history. By looking at the strain of Helicobacter Pylori in our stomachs we can see where people in particular countries came from. So when the strain in the stomachs of pacific islanders was found to be the same as those from latin america it proved that they’d come that way round. The scientists who proved that there was a bug capable of living in stomach acid did so by drinking the stomach contents people with ulcers and making themselves ill. They won the Nobel prize for medicine 20 years later.

One of the lovely things about the book is Ender’s absolute fascination with her subject. She’s a young doctor who has specialised in gut research but she writes so well (and not without humour). The book was written in German so some credit should go to the translator as well because it’s a fantastic read.

We focus so much on heart health and brain health but actually gut health is just as important. There’s pretty good evidence that it can be linked to depression, heart disease and many other things. I think we’ll see it develop as an area pretty rapidly over the next few years as the tools to decode the composition of the bacteria and other critters in our intestines start to be understood.

Surely you’re joking, Mr Feynman!

Life lessons from a physics great

I think I was 17 or 18 when I read ‘Surely you’re joking’ for the first time. We had an amazing physics teacher at sixth form called George Andronov who introduced us to all sorts of popular books about physics including Flatland by Edwin Abbott and the Mr Tompkins books by George Gamov as well as Richard Feynman.

I recognised Feynman from the Challenger disaster. I think probably not directly from when it happened (I would have been too young) but from a Horizon documentary several years later — perhaps even a repeat. I remembered the way he showed what had probably happened in a press conference in a way that anybody could understand — just one example of his skills as a communicator as well as a great physicist.

When I got to university I did ok in the first year of undergraduate physics but I really started to struggle in the second year when physics became much more mathematical. It was the Feynman lectures that got me through. I couldn’t afford a copy but there were plenty in the library and I’d sit there in the gaps between our lectures trying to really understand what was going on by reading up on how Feynman explained things.

But physics was just part of Feynman’s life. ‘Surely you’re joking’ is a collection of reminiscences of how the physics came to happen rather than the physics itself. There are so many amazing stories of how he didn’t take the conventional path — how he was able to choose to do things in unusual ways because of his brilliance. He was almost always in demand but would never really play up to what was expected of him.

Feynman’s approach was really forged when he was sent to Los Alamos (pretty willingly given what he and all the other scientists at the time thought Hitler’s Germany might be capable of) and as a 21 year old found his mathematical approach was useful. Some of my favourite bits are about that time when everybody in the science world came together to achieve something extraordinary in just a few short years. Feynman’s boss — Robert Oppenheimer — was perhaps one of the greatest managers and technical leaders of all time. What’s most interesting of course is that they found out fairly quickly that they’d been sold a lie by the military and in turn by the politicians. Feynman found he regretted a lot later on. Oppenheimer was pilloried by the McCarthyite idiots as a communist for the fact that he went public about his regrets and his criticisms of the politicians of the time. He’s best know for his deliberate citation of the Bhagavad Gita, “I am become death, destroyer of worlds”. They were momentous times and perhaps tell us something about how science and technology should respond to the momentous times we find ourselves in politically today.

What shocked me reading ‘Surely you’re joking’ for a second time was how much of a dinosaur Feynman comes across as being. His attitude to women seems pre-historic these days and some of the arrogance comes across as really old-fashioned. I have no doubt that he was an amazing person to hang out with at the time but I think these days he’d just be an inappropriate bore. It only slightly detracts from the book though — it’s still a wonderful read.

The Long and the Short of the pensions business

The Long and the Short of It is John Kay’s attempt to defog the world of professional investment for people who might as well manage their money themselves. Because BGV is an ‘alternative investment fund’ I work in the finance industry (I’m regulated by the lovely FCA) but there are many things about other parts of the money business that I don’t know about. The technicalities of government bonds or ETFs are a long way from what we do at BGV.

It’s a fantastic book. John tries to dispel as much jargon as possible (high net worth individuals = rich people) and helps you to understand the motivations of many of the money managers in the system. He also helps you understand what risk really means in terms of losing your money. There are also some useful rules of thumb for your personal finances and retirement. I don’t really ever imagine retiring in the way that the baby boomers have but I still know that I need to plan for the future.

It’s been interesting to watch the current pension reforms working their way through the system in the UK. Overall I agree with the change that means people now opt out rather than opting in. In a few years time it will make a huge difference to the fund management business because there will be so much more money that needs to find a home. The UK already has the second highest amount of pension assets and that’s expected to grow further.

If all goes to plan, many people will have some security about the future that they’ve never had before. I wonder whether it will make working for an organisation rather than being self-employed much more appealing and have a big effect on the gig economy. From a public policy perspective it makes sense to build more support for people from companies as long as it’s really well regulated and fits with the way that small companies work.

That’s where my worry comes in. We’ve just gone through ‘auto-enrolment’ at BGV and some of the processes just don’t make sense. The standard of the information that’s being offered both by the Government and the pension companies is awful — full of jargon and bureaucracy rather than making it clear what the risks and benefits are. Really they should get people to read John Kay’s book.

Wind, Sand, Stars, Meditations and Superforecasting

Quite a combination…

I’ve just about been keeping up my book per week resolution but I haven’t quite managed to keep up writing about them. So here goes — a few notes about each of the last three books I’ve read.

The first was Wind, Sand and Stars by Antoine de Saint-Exupéry (yes, also the author of The Little Prince). Written in the 1930s it tells of the early days of aviation. I chose it because it came up when I searched for books about Patagonia — where we were heading on holiday. The author was stationed here as a station manager for Aeropostale in the late 1920s. I’m writing this looking out over the sea and the mountains a couple of hundred kilometres from his base. He probably flew over the small town we’re staying in many times.

I love flying but I also love that it’s the safest form of transport. It wasn’t always like that. In the days of Aeropostale hundreds of pilots and crew were lost just trying to find their way along new routes. In South America they had to find their way through the Andes with no pressurisation of the cabin or even heaters. They had no real navigation aids other than a compass. Descending into the cloud could be disastrous. You didn’t know whether there was clear air or a rocky mountain just below.

But those pioneer pilots changed the world. They connected places like Punto Arenas to the outside world. Messages and people could get here from Europe in a few days rather than the weeks or months they would take by sea. It’s an amazing book. I loved it.

Next up was Meditations by Marcus Aurelius which I also liked. It’s one of the three main books people point you to to learn about stoicism. Instinctively I’m attracted to it as a way of thinking. It’s not a rip-roaring read and is perhaps better suited to dipping in and out rather than reading cover to cover. It’s thought that Aurelius didn’t write it for others to read at all — it was simply a kind of notebook diary in which he jotted down thoughts about philosophy. My only criticism of stoicism is that as well as helping you weather the bad times it flattens some of the highs of the good times — I prefer to celebrate those.

Finally I read Superforecasting which is such a good book. Through their Good Judgement Project, Philip Tetlock and the team proved that ‘ordinary’ people could out-predict all of the so-called experts in prediction who dominate our news media as talking heads or columnists. They then set about learning how the superforecasters worked and seeing whether it was a process that others could learn. The book is full of useful tips based on real stories and data from the research. The authors are also self-aware enough to point out the limitations to their findings — in particular superforecasters’ ability to predict ‘unknown unknowns’ or ‘black swans’ as Nassim Taleb would call them.

Prediction is something that you have to do as an investor and I’d read a lot about avoiding cognitive biases but Superforecasting gave me lots of extra insights and techniques. Thoroughly recommended.

Charlie Munger: The Complete Investor

AKA the gateway drug for more expensive Charlie Munger books

I was going to read Poor Charlie’s Almanack last week but balked at the price of nearly £90. According to one reviewer this may make me a poor investment decision-maker but we’ll come back to that later. Instead I read Charlie Munger: The Complete Investor by Tren Griffin on the basis that it was 10% of the price and I reckoned must contain 10% of the wisdom. Surely even Charlie would think that was a bargain?

Value investing has always fascinated me. I’ve read a lot about Ben Graham, Warren Buffett and Berkshire Hathaway but I’d never really read much specifically about Charlie Munger, Buffett’s ‘partner’ and Vice-Chairman of the company. Their straightforward, common sense approach to investment and way of doing business that values honesty, loyalty and growth over the long term has certainly influenced the way I do things.

(As an aside I think they’ve had massive blind spots because they haven’t thought about the future in any great detail — they famously ignore any projections or forecasts. It always amazes me they didn’t spot their investments were in part causing climate change or inequality for example. I think it has something to do with the psychological refusal to make any predictions about the way decisions will play out into the future.)

The way Munger has studied his own decision making is pretty impressive as well as all the time he’s set aside for studying other peoples’. The book is based on extracts from speeches, articles and interviews with Munger and outlines his various mental models and rules for making decisions.

The starting point of his approach is that the shortcut to being smart is often simply not to be stupid. Knowing what you don’t know is sometimes far more useful that being brilliant. This is a big part of what is perhaps the most important first filter for investments at Berkshire Hathaway. When assessing whether you can estimate the intrinsic value of an investment you should be able to very quickly put it in a basket for ‘yes’, ‘no’ or ‘too tough’ and unless you have a special insight, put it in the ‘too tough’ basket and move onto something where that’s inside your ‘circle of competence’.

Fundamentals of Graham investing

Both Buffett and Munger describe themselves as ‘disciples’ of the Ben Graham approach to investing. In this book Munger describes that approach as having four tenets:

Treat shares as proportional ownership of a business (not just pieces of paper or numbers in a spreadsheet) because that’s what they are.
Only buy when you have a significant ‘margin of safety’ on price so you know that you’re getting a good price compared to the price that others might pay.
Mr Market should be your servant not your master. Treat it as having a split personality — something that sometimes offers you lots of money for what you have (a bull market) and occasionally offers you something you want very cheaply (a bear market).
Apply the three rules above with consistency and discipline. This rule is the hardest of the four.

Know your own biases

A lot of the book focuses on Munger’s diagnosis and awareness of common psychological biases, including his own. Munger talked about these in a lecture he gave at Harvard back in 1995 outlining ‘18 causes of human misjudgement’ which you can read about here but the book does an excellent job of setting them out and collecting further Munger quotes from elsewhere.

Moats

Finally, the book has an interesting section on another important element of the Berkshire Hathaway investment strategy — this is the concept of the ‘moat’ that an individual company has to defend it from competition or somebody else try to do the same thing. Moats come in five forms:

Supply side economies of scale — you have access to more of the thing that you’re selling than anyone else.
Demand side economies of scale (Network effects) — your product or service becomes more valuable as more people use it.
Brand — you have developed a story and reputation that means people are willing to pay significantly more for your product than others.
Regulation — you’ve learned to understand regulation so well that it actually serves as a barrier to entry/moat for their competitors.
Patents or protected intellectual property — you’re able to fend off competition because you’ve legally protected your innovation.

Overall, I really enjoyed the book. Munger’s a great person to learn about and I’ve taken the plunge and I ordered a second hand copy of Poor Charlie’s Almanac.

Seveneves

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.