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Book Review: The 4 Percent Universe


The 4 Percent Universe: Dark Matter, Dark Energy, and the Race to Discover the Rest of Reality

It has been a while since I’ve posted a book review to this blog, but after finishing a couple new books this past weekend, I thought a few readers might be interested in this one.

The 4 Percent Universe is a fairly typical “popular” physics book, namely one of the dozen or so books that gets published every year to try and simplify modern physics for the casual reader.  Originally, I picked this book up based on a Wall Street Journal review that recommended it as an up-to-date assessment of current theory around dark matter and dark energy.

For those of you who haven’t followed the progress on these topics over the past two decades, dark matter is a the common term given to the matter in the universe that we can detect due to gravitational effect, but can’t see based on any traditional form of observation.  Dark matter, as it turns out, does not emit or react to photons, which are the basis of most forms of astronomic observation.  Dark energy is the term given for the incredibly large volume of energy that has been calculated to exist in our universe, but that once again we haven’t been able to measure.  Both are fascinating outcomes of the development of mathematical theories around cosmology that predict facets of our universe that have not yet been measured or observed.  The “4%” in the book title refers to the fact that only about 4% of our universe is actually the traditional forms of matter and energy that most of humanity assumed was “everything” through the 20th century.

What makes this book different than most is the style of writing.  Instead of a chapter-by-chapter introduction and explanation of concepts, the entire book is presented as narrative, literally walking through the individual stories of the researchers and scientists who played different roles in discovering relevant theories and concepts.  As a result, it’s a much deeper look into the politics and competitiveness between scientists and academics of different disciplines (math, physics, astronomy, cosmology), as well as the bare knuckles process of research, peer-review, and all-too-common resistance to data and/or theories that don’t conform to existing cannon.

Personally, I found the first 150 pages or so fairly boring – too far in the past for me to really engage on the play-by-play discoveries that led to an acceptance of cosmology, big bang theory, and inflation.  These are topics that Stephen Hawking covered fairly well in his books.  However, the last half of the book really drew me in, as the narrative really took over in presenting the mounting evidence for dark energy, with explanations of key experiments and theories in the past decade (as recently as 2007/2008).

As a result, I definitely recommend this book to those who fashion themselves “physics hobbyists”, or those who wish to remain up-to-date on modern cosmology.

Book Review: How Starbucks Saved My Life: A Son of Privilege Learns to Live Like Everyone Else

This past weekend, I had the chance to finish off three books that have been on my short list for a while. This post is a review of a fun one, How Starbucks Saved My Life: A Son of Privilege Learns to Live Like Everyone Else.

Overall, while it has its faults, in many ways I gave this book my second highest form of praise: I’ve already loaned it out to two people.

I’ve actually realized that with books, for me, they end up falling in one of the following categories (from lowest to highest):

  • 1 star: This is a book so poor I basically decline to finish it. Since I tend to read almost compulsively, it really takes a terrible book to lose me like this.
  • 2 stars: This is a book that I finish, but poor enough that I find that I’m not proud that I’ve read it. It gets hidden away on a low shelf, or packed away, or donated. I have no interest in reading this book again.
  • 3 stars: This is a good book, and I’m happy to have it around to remind myself that I’ve read it. I tend to publicly display it on my bookshelves, although it’s unlikely I’ll ever read it again.
  • 4 stars: This is a great book – so good that I actually find myself recommending it to friends with similar interests. I not only display it on my shelves, but I’ll actually actively loan it out to encourage others to enjoy it as well. Sometimes I will buy multiple copies as gifts for friends.
  • 5 stars: This is a truly great book that actually connects with me. I can tell when a book is this good because I find myself coming back to it and reading it again, either in parts or in its entirety. Not many books fall into this category for me, but the ones that do are close to my heart.

This book was 4 stars for me… I doubt I’ll read it again, but I enjoyed it enough to recommend and loan it to friends.
So what did I like about this book?

A few things really.   First, I actually enjoyed the character (the author).  He offered me a legitimate insight into an anachronistic personality type – the Upper East Side aristocrat, raised in enough privilege to be completely divorced most of his life from feelings of economic insecurity.  I might be biased here, since growing up on the west coast leaves me less tolerant of this type of character.  Still, it’s fascinating to hear from someone who grew up meeting the truly famous and powerful, went to Yale and got a job purely on connections through Skull & Bones, and then had a full, successful career without ever really learning math or how to handle money.  There is definitely some form of schadenfreude here.

Second, despite the heavy-handed repetition, I enjoyed the basic epiphany of the journey – the realization that a supportive, friendly environment can in fact be a part of a great company and workday.  Starbucks clearly comes from the west coast, modern style of company, but there is some delight in his simple realization that Starbucks offers health insurance, stock options, and a respectful & enthusiastic culture for its employees (nee, partners).

Third, I thought there were some genuine personal economic insights here.   You can be rich and “successful” your whole life, but without some attention to personal finance, you can find yourself in significant financial trouble in your later years.   In this book, the author is laid off in his 50s, does some lightweight consulting for a while, and finds himself almost broke in his 60s.  The additional fact that he has an affair which leads to an expensive divorce at this late stage is worth noting as well.  There are very, very few people who are truly wealthy enough to be able to ignore the realities of managing your money.

Lastly, I enjoyed a much more subtle point in the story.  It’s the fact that, in the end, happiness in retirement has a lot to do with the availability of social interaction.  For many lucky people, this comes from family & friends.  In this case, the author has alienated much of his family, and as a result, he only discovers this fact through Starbucks.  Truth be told, there is something meaningful about the idea that, even in “retirement”, it might be extremely rewarding to be in a job where your day-to-day involves friendly & respectful interaction with new people, regular customers, and a dedicated service team.  The job offers him more than money, more than health insurance.  It offers him goals, tasks, social interaction, and comraderie.  It offers him purpose, and that is often underestimated in the most common misperceptions about what is important in retirement.

What I didn’t like

This book will be tough to take it you react negatively to an overdose of corporate culture speech and repetition.  The author talks about “partners” and “guests” and “respect” almost relentlessly.  He also glosses over the details of anything negative – his entire affair, divorce, and illegitimate child get mere paragraphs.  Cleaning the bathrooms at Starbucks get pages.  This is book is mostly about his experience at Starbucks, and you could get jaded to it if you believe that this book is largely company propoganda.

Conclusion

The great thing about this book is that it largely doesn’t overstay its welcome.  It’s short and sweet.  An easy evening read – small pages, large font.

I particularly recommend it for people of a few disparate types of interest:

  • Personal finance & retirement
  • Starbucks fans
  • People in this age group (50+) who can empathize with the rise of uncertainty and change in the labor markets for professionals

If you do read it, let me know what you think here in the comments.  The links above will take you directly to Amazon, and the copy of the book that I ordered.

A Kindle Program I Could Get Behind

John likes his Kindle. I love to read. I feel like I should be more excited about it, but I’m not.

I think the problem is that I’m emotionally attached to my library. I surround myself with my books. They remind me of what I’ve read, and even in some cases, who I was when I read them.

Unfortunately, while I’d love to flip through some of them more frequently, the physical form gets in the way. I know I would love to have all my books in electronic form, the same way that I have my CD library now on my iPod, or my DVD library on my AppleTV/Mac Mini.

I caught this article today about the Kindle, and I decided to put out there a plea for a program that Amazon could put on that would immediately convert me over:

Let me send you my books. Yes, my physical books. When I send you them, give me download access to the e-book form, for my Kindle. Let me trade you my paper for electrons, in high quality form.

Take my books, and either sell them through your marketplace, or donate them to libraries and schools. Spread them to others so they can enjoy them.

If I could get my existing library converted over to a form for the Kindle, I’d gladly give you my future purchases. I can rip a CD. I can even rip a DVD. But I can’t rip my books.

I’m guessing the royalties for the book publishers will be a problem. But likely not insurmountable. After all, there is some money on the table here, since the books can be converted into some small amount of dollars. And think of the marketing data you’d have on me once you knew in detail the hundreds of books I already own.

Just a thought.

Isaac Asimov on Wikipedia

How can you not get lost in Wikipedia sometimes?

Here is their post on my favorite author, Isaac Asimov.

I’m still waiting for the conversion to the World Season Calendar, with its 91-day months and its special “Year Day” and “Leap Day”.

The Lessons of Long Term Capital Management (LTCM) and the Volatility of August 2007

I’ve been thinking a bit more about the volatility in the financial markets over the past two weeks, and I’m uncharacteristically concerned.

Normally, this would be about the time that I would write a post repeating some of my favorite personal investment staples, like:

  • Don’t try to time the market
  • Diversify your assets across multiple types of countries and classes
  • Invest for the long term

And so forth.

Something is bothering me, though, despite the fact that I am personally following all of the above guidelines (and more) with my personal investments.

I’m worried that we haven’t internalized the warning of the Long Term Capital Management bail-out in 1998.  Like the World Trade Center bombing in 1993, we may be unprepared for what that failure really signified.

As usual, Wikipedia has all the good detail on what happened with Long Term Capital Management.  A hedge fund made up of literal Nobel Laureates and masters of financial risk, it utilized incredible financial leverage to take what should have been extremely low-to-no-risk opportunities and turn them into phenomenal investment gains.  Unfortunately, in August 1998, some of those low-to-no-risk opportunities went in historically unpredictable ways, and Alan Greenspan had to orchestrate a multi-billion-dollar bailout from some of the large New York investment banks.

At the time, it wasn’t completely obvious to most people, even those who follow the markets, what the significance of an explosion of an single hedge fund really was.  In the following weeks, months, and years, it became clear that something was fundamentally troubling about what had happened.  This quote comes from Wikipedia:

The profits from LTCM’s trading strategies were generally not correlated with each other and thus normally LTCM’s highly leveraged portfolio benefited from diversification. However, the general flight to liquidity in the late summer of 1998 led to a marketwide repricing of all risk leading these positions to all move in the same direction. As the correlation of LTCM’s positions increased, the diversified aspect of LTCM’s portfolio vanished and large losses to its equity value occurred. Thus the primary lesson of 1998 and the collapse of LTCM for Value at Risk (VaR) users is not a liquidity one, but more fundamentally that the underlying Covariance matrix used in VaR analysis is not static but changes over time.

Despite being a regular reader of the Wall Street Journal, New York Times, and the occasional Economist, I didn’t really understand what had happened until I read When Genius Failed, by Roger Lowenstein (one of the books I recommend in my personal finance education series).   If you haven’t read it, I highly recommend it now.

What Lowenstein explained and what I hadn’t originally appreciated is that the fundamental problem with Long Term Capital Management is a fundamental problem surrounding all of our modern portfolio theory, whether you are a small investor like me or the largest endowment.

The problem has to do with asset diversification and how it is practiced.

Portfolio diversification has become the basis of all modern investment management.  The idea is to diversify your investments across asset classes with different risk factors and returns, ensuring the highest reward for the lowest risk.

For most investors, this was as simple as the traditional mix of stocks, bonds and cash.  But that changed in the late 1990s.

In the late 1990s, all of a sudden, everyone wanted to be David Swensen.  David Swensen was the manager who guided the multi-billion dollar Yale endowment to phenomenal returns from the 1980s through the 2000s.  He even wrote a book.

David made these phenomenal gains by eschewing most traditional types of assets (public stocks & bonds).  Instead, he invested in hedge funds, arbitrage, private equity, venture capital, real assets, and others).  What David realized early was that you could think of many types of invesments as asset classes, and find great investment returns in non-traditional classes with risks that were not correlated to the public stock market.

This decade has seen an amazing boom in investment tolerance for non-traditonal asset classes.  People freely talk about how different new investment assets have a “low correlation” to the stock market.  Real estate, commodities, rare coins, art, collectibles, long/short funds, you name it.   As a result, across the world, trillions of dollars are now factored into different asset classes, prudently distributed to minimize risk and maximize reward.

This would all be fine except for one thing.  And it’s the one thing that more than anything led to LTCM’s demise.

That one thing is that all of these great measures of risk are based on historical records.  And as all mutual fund prospectus readers know, “past history is not necessarily indicative of future performance.”

You see, you can take two things that historically have not been correlated.  Asset A & Asset B.  But the minute that an investor owns both A & B, there is now a correlation that didn’t exist historically.  The investor is that correlation.

If Asset A goes down, and the investor needs to sell something, they may now turn to Asset B for liquidity.  And that means selling pressure for Asset B, based on nothing but the asset price of Asset A.  Voila, correlation.

All of those historical models don’t apply once investor behavior starts changing in mass.  Maybe stocks & gold never traded together historically because the type of investor who bought gold just wasn’t the same type who bought stocks.  But now, in the modern world of portfolio theory, everyone has balance.  Everyone has a little of everything.

OK, ok.  Not everyone.  But I’m worried that enough major players do that we have created historical correlation that didn’t previously exist.  That correlation is risk, and it’s risk that is not built into the models of all of these portfolios.

What’s worse, those historical models lead investors to believe that they have less risk on their books than they do have, which leads rational investors to introduce leverage into their portfolios.  That means when the risk shows it’s ugly head, the results get magnified by the leverage of loans.

That’s what happened to LTCM.  Their models were excellent, but they were based on historical correlation.  The minute some of their investments turned the wrong way, their incredible leverage forced pressure in previously uncorrelated investments.  What’s worse, other investors, smelling the “blood in the water”, discovered this new-found correlation, and pressed trades against them.

So, this scares me a lot, at least intellectually.  There are very good reasons why major investors like hedge funds and other asset managers can’t share their up-to-the-minute holdings.  That means, however, that no one really understands this type of “co-investment risk” that is building in mass across the markets.  Unfortunately, the only way I can imagine to properly handle this risk would be to have a universal monitoring set up to accurately reflect this new type of correlation from mass “co-investment” across assets.

I’m still being a prudent investor.  I still diversify my portfolio for retirement across different assets.  Domestic & International, Large caps and small caps, stocks, real estate, commodities… even a long/short ETF.  I don’t think I’ve sold anything based on short term movements of the markets.  I’m sticking to my long term plans.

But I’m a little worried now.  Intellectually, it seems like the capital markets have potentially a major risk/reward pricing problem in them right now.  And these things tend not to resolve themselves quietly.

Let me know what you think.

BTW Many thanks to Igor, for asking me over dinner last week what I thought of the market volatility, and leading me to think more deeply about it.

Repeat After Me… I Will Not Read Harry Potter Spoilers…

Just one more day until Harry Potter and the Deathly Hallows is out. The original post on the book is still this blog’s most viewed page, and is soaring in page views daily.

I’ve had my pre-order in with Amazon for over three months… and yet I am still considering going down to Borders at midnight on Friday. Yes, it’s a sickness.

The net is full of leaked pages, scanned images, quotes and comments.

Repeat after me:

“I will not read Harry Potter and the Deathly Hallows Spoilers…”

:)

Update (7/21/2007): Still waiting for the mail man with my Amazon order… so … hard … to …. resist … Wikpedia summary

Update (7/21/2007):  Got the special edition in the mail just a half-hour after the last update.  About 150 pages into the book …

Harry Potter 5: The Order of the Phoenix… Tuesday Night!

In a bizarre twist, I have been given tickets to the opening of Harry Potter and the Order of the Phoenix on Tuesday night, midnight, July 10th.

I don’t think I’ve seen a movie this late since I became a father, but I’m going to try.

I’ll post here a movie review on Wednesday.

Should be fun.

The Bookmakers Have Spoken: Harry Potter Will Die in Book 7

Don’t shoot the messenger.

Caught this post today on Paul Kedrosky’s blog and on Marginal Revolution. It included this quote from a Bloomberg piece on a bookmaker has stopped taking bets on Harry Potter dying. Apparently, all the money was going towards him dying – no one would take the other side of the bet.

William Hill Plc, a London-based bookmaker, is so sure of Harry’s demise that it stopped accepting wagers and shifted betting to the possible killers. Lord Voldemort, who murdered Potter’s parents, is the most likely villain, at 2-1 odds, followed by Professor Snape, one of his teachers, at 5-2.

“Every penny was on Harry dying, and it became untenable,” said Rupert Adams, a William Hill spokesman. “People are obsessed about this book.”

“Harry Potter and the Deathly Hallows,” from Bloomsbury Publishing Plc, goes on sale July 21 with a retail price of 17.99 pounds ($35.50). It’s published in the U.S. by Scholastic Corp. for $34.99. Advance orders put the book at the top of online bookseller Amazon.com Inc.’s U.K. best-seller list eight hours after Rowling announced the title Dec. 21.

Rowling, 41, caused a stir among Potter fans when she said two characters will die in the new book. The six earlier novels about Harry’s adventures at Hogwart’s School of Witchcraft and Wizardry have sold more than 300 million copies, earning Rowling a 545 million-pound fortune and making her wealthier than Queen Elizabeth II, according to the U.K.’s Sunday Times Rich List. “

This is a pretty typical PR piece, but interesting nonetheless. I am a huge fan of betting & futures markets as excellent barometers and predictors based on the “wisdom of crowds”, to the limits of that wisdom, of course.

You have to wonder… assuming that JK Rowling has know the fate of Harry since Book 1, then it might be fair to assume that despite her best intentions, she has leaked very minor, subtle clues subconsciously into what she has and hasn’t written into the first six books.  It’s possible that, when exposed to millions of human minds, those subtle clues would lead to a consensus view on the matter that might be accurate.

Or, the perverse type of person who would bet on Harry Potter just happens to have a bias towards a gory end for the boy wizard.

You decide.  :)

Harry Potter, Book 7: Harry Potter & The Deathly Hallows Cover Art

It’s a little obsessive, I know, but some big news this week on the Harry Potter front. I’ve noticed that interest in my previous posts on Harry Potter & The Deathly Hallows has been getting more traffic lately, so you know something is up.

This week they presented… the book cover art. Yes, believe it or not, that is big news in the world of Harry Potter.

Here is the UK version of the cover:

Here is the American version:

Well, I’ll give them some real marketing credit – as an American I can firmly say I prefer the American cover to the incredibly cartoonish and bizarre UK cover.

Release date is still set for July 21st. You can pre-order the book here.

As usual, Wikipedia has more information on this book than anyone.

If you want to see the longest comment thread ever on my blog, check out the original Harry Potter & The Deathly Hallows post from last year.

On my trips to Orange County & Germany, I re-read Books 5 & 6 cover to cover. I’ll be posting book reviews for them when I have time – the second reading was definitely better in many ways than the first.

Books: The Little Book That Beats The Market, by Joel Greenblatt


One of the great things about travel is that it usually offers me free time to catch up on some reading. On my recent trips to Orange County and Berlin (not in the same weekend), I’ve managed to knock a few more off my reading list. As a result, I’m going to try another book review here on the blog for good measure. Let me know what you think.

The Little Book That Beats The Market by Joel Greenblatt

Overall Rating: Definitely worth the quick read. While the schtick got tiring after a while, the author is clearly intelligent and educated, and the content well thought out. Surprisingly, I found the most interesting part of the book not the “magic formula” itself, but the implicit structure the author put in place to try and help the average investor be successful with the strategy over the long term.

Synoposis: This book is an extremely quick read.  Joel Greenblatt is the founder and managing partner of Gotham Capital and currently teaches at Columbia Business School, so he’s definitely educated in both theoretical and practical aspects of finance.  This book is written in extremely simple and plain language, and he clearly goes out of his way to make it folksy and fun.  I think I finished it in under an hour, appendix included.

Greenblatt’s points are pretty simple:

  • The idea that the market is truly efficient is something that only makes sense in theory.  In practice, you can definitely beat the market.
  • The key to beating the market is to buy above-average companies at below-average prices.  Rinse, wash, repeat.
  • The “magic formula” is an updated method, similar in concept to those outlined by Benjamin Graham (one of my must-read investing books).  The formula is as follows:
    1. Every year, begin with a list of the 3500 largest companies that are publicly traded
    2. Rank them 1-3500 based on their return on invested capital (ROIC).  This tells you how good a business they are, as defined by taking invested money and turning it into more money.
    3. Rank them a second time based on their earnings yield, basically the percent of their stock price you get back every year in their earnings.  This tells you roughly how expensive they are per-dollar of earnings
    4. Add the scores from the two lists together, and then invest in the top 20-30 companies based on the combined score.  Voila, a list of “above average” companies at “below average” prices.
  • This formula will not outperform the market every year.  You have to stick to this formula for at least three years if you want a high probability of beating the market average.

Greenblatt has done his homework, using a detailed 17-year history of stock prices to ensure that this formula, based on information actually available at the time, would have outperformed the market handily.  In fact, he goes to some trouble to explain some other variants of the formula.  The one I outlined above returned an average of 30.8% per year.  That’s compared to a 12.4% return for the S&P 500 over the same period, and a 12.3% return for an even investment in all 3500 companies.

I’m guessing that part got your attention.

When I began investing in the mid-1990s, there was a lot of excitement about the Dogs of the Dow strategy.  It basically said, take the Dow 30 stocks, rank them by dividend yield, and buy the 10 cheapest every year.  The Motley Fool took this one step further, and published their own variant called the Foolish Four, based on a similar concept, with some more gaming around the picks.  I actually bought two of those books – I still have them on my shelf, and I actually invested an IRA according to the Foolish Four for 5 years.  (It beat the market during that period, by the way).

If you think about it, all these strategies say: “buy great companies at cheap prices”.  Now, I think Greenblatt’s formula is much more compelling:  ROIC is a much better measure of a “great company” than being in the Dow 30.  And earnings yield is more compelling to me than dividend yield, since a lot of great growth companies don’t pay out dividends proportionally to slow-growth companies.

However, I stopped investing according to the Foolish Four in 2001 largely because of an insight into a common flaw with all of these strategies – data mining.  It turns out that statistically, if you data mine enough for a “winning formula”, odds are that you’ll find some.  I won’t go into the details here, but it is possible using advanced statistics to estimate the likelihood of finding a “winning formula” through data mining.  So, even when you find one, you have to evaluate it’s results against the fundamental odds that if you look at any pattern of data, there will be “winning”  patterns to a certain degree.

In the case of the Foolish Four, to their credit, the Motley Fool published this analysis, and stopped recommending this approach in late 2000.

So, what makes this magic formula different?

First, Greenblatt is clearly more deeply educated about finance than the Motley Fool, thank goodness.  In his appendix, he runs through six or seven of the common flaws with strategies like these, and explains why this approach is still valid.

One of the most compelling pieces of additional analysis he provides is the fact that this formula seems to actually generate linearly predictive results.  In other words, if you take the top 10% of companies ranked by this formula, then the next 10%, then the next, each decile of companies outperforms the groups below it.

That type of consistency is rare for most quantitative approaches to ranking stocks, and is a good sign that this formula may be useful.

In fact, Greenblatt runs through almost all of the critiques I would expect in his appendix.  The only one he doesn’t address, which to me is extremely important, is the time period bias.  Greenblatt has only tested this approach over 17 years of data.  That means he basically just looked at 1988+.  Given that he includes the longest bull market in history, and then a period of outperformance by value over growth, my guess is that there is significant bias in these results.

Still, my guess is that this formula will still generate outperformance over time.  The best thing about this book is that Greenblatt spends a lot of time explaining that in any one year, this formula can and will underperform the market from time to time.  In fact, he advocates a minimum of a three-year window to evaluate its performance.

I think this is great advice, but likely doesn’t even go far enough.  The stock market, in general, is a long term investment.  Investors consistently buy high and sell low, not because they are stupid, but because in the short term, we rationalize investing in the winners (which are bid up because they are popular), and we rationalize selling the losers (which are low because they are not popular).

Buying high and selling low is a very bad investment strategy.

I’m going to check out Greenblatt’s website, and investigate the analysis for this approach further.  In the meantime, I do recommend this book to people who like value investing, or who are thinking about investing in individual stocks.

eBay Express & Half.com: Half Listings on eBay Express

In the interest of full disclosure, please note that as a member of the eBay Express team, I am unabashedly biased.

I don’t normally post about eBay Express here on my personal blog, but I’m just too excited about this launch not to say something here.

That’s right, starting this week, Half.com sellers can easily sign up to have their qualifying listings show up on eBay Express, for free.  All they have to do is click a checkbox and fill in the PayPal account that they want eBay Express sales to be paid into, and they are done.  eBay does the rest.

For more detailed information about the program, and the special promotion of 50% off all final value fees for Half listing sales on eBay Express from April 1 – June 30, visit this page.

This effort has been more than a year in the making, and I want to give special kudos to the team that has worked tirelessly to help bring this great new opportunity to Half.com sellers and eBay Express buyers.

I personally buy & sell on both Half.com and eBay Express, so it’s particularly exciting for me to see this launch.

Book Review: Empire, by Orson Scott Card

Does the idea of a book about a near future American civil war between conservatives and liberals sound interesting to you? Complete, of course, with a George Soros-clone turned militant leader, and mechanical robots policing New York and EMP laser weapons taking down F-16s?

Before I get into reviewing this book, let me just say that I’ve been an Orson Scott Card fan since I was 12. I’ve read almost every book he has published, even the way-far-out-there LDS material. Ender’s Game is one of my favorite books of all time.

This book, unfortunately, left a bad taste in my mouth, the same way that all of Michael Crighton’s books have since somewhere around Disclosure. It’s blunt, predictable, and seems written more for screenplay or a video game than as a full fledged novel.

There have been a lot of flame wars about this novel online, mostly from people who haven’t read the full book. Orson Scott Card has, for the past decade, developed a habit of sharing early chapters of books, for free, online, to solicit opinion and feedback from his fans. I think it’s safe to say that most science fiction fans, who skew to the left, didn’t take to kindly to a world where a “Progressive Restoration” raised its own army to “liberate” New York from the false US Government in power since 2000.

You can check out the fun at Amazon.com, in their book reviews. Liberal blogs like Lean Left skewer Card for his conservative mentality, although it turns out he’s a registered Democrat (My favorite part of that one is the fact that the author had not actually read the book. Sigh.) Here is a Podcast of an interview with Orson Scott Card. More interesting, here is an interview with Card about the state of video games on Wired.

Back to the book.

There are some redeeming elements worth noting.

First, maybe I’m just in a “Rome” state of mind these days, thanks to the HBO series, but I liked the idea that the United States of America is not currently comparable to the end days of the Roman Empire. Instead, the book posits that America today is like the last days of the Roman republic, in the immediate years before Octavian rose to power, quelled civil discontent, and established an Imperial line as Augustus Caeser.

Second, most critics haven’t read Orson Scott Card’s afterward to the novel, which really seems to make a heartfelt entreaty to move past the currrently hyper-partisan atmosphere. There is no doubt that Card skews conservative, but he states that there are dangerous extremists on both the left and the right, and that too many issues have been arbitrarily grouped together (abortion & global warming?) in order to villify and divide people as “red” or “blue”. This book is a clumsy expression of these sentiments, meant to highlight the dangers of such radical polarization, but it seems earnest.

As a side note, Card begins each chapter with quotes from one of his characters, a historian turned proto-dictator. Some of them are pretty neat:

If you always behave rationally, then reason becomes the leash by which your enemy pulls you. Yet if you knowingly make irrational decisions, have you not betrayed your own ability?

It is possible to be too much smarter than your opponent. If you give him credit for more subtlety than he has, he can achieve tactical surprise by doing the obvious.

In war planning, you must anticipate the actions of the enemy. Be careful lest your preventative measures teach the enemy which of his possible actions you most fear.

My prediction? Card uses these to write the next great trendy business leadership book, based on these pseudo-Sun-Tzu dictates… :)

In all seriousness, Orson Scott Card’s novels have become caricatures of his original style. Maybe it’s the price of success and insolation, maybe it’s just lowest common denominator publishing. I don’t know. I’m not unhappy that I read this book, but it felt about as deep and impactful as a reality show… within weeks I expect that I’ll have forgotten most of it.

Summary: If you like Orson Scott Card, reading this book isn’t worse than reading any of his other most recent novels. But you’d probably be better off going back and re-reading Ender’s Game again.

Personal Finance Education Series: (2) Recommended Books

I’ve read quite a few books on the topics of economics, finance & investing, but I thought it might be good to capture here my recommended books for someone who wants to get started learning more about personal finance & investing.

There are, of course, a lot of great books out there, but there is an endless supply of terrible ones. In general, you want to avoid the trendy, get-rich-quick, fashionable finance books, and instead focus on the ones that can give you the basic foundations to make your own judgements about personal finance & investing decisions. Once you have the basics down, then you can start absorbing the constant barrage of “flavor of the month” financial advice and investing books.

I’m going to run through these in roughly the order that I would recommend. I have a lot more on my shelf, but these are the books that in reflection really changed they way that I look at investing.

1. The Wall Street Journal Guide to Understanding Money & Investing
This book looks quite plain, and it’s only about 100 pages or so. But this book has a clear, visual and concise explanation of almost every important personal finance topic, everything from the basics of money and currency all the way to understanding stock options and derivatives. The great thing about this book is that it also can serve as a simple reference – a mini-encyclopedia of money & investing. The book is structured into easy to digest 2-page sections, and I highly recommend it as a basic entry into money & investing. Yes, I guarantee you that you already know some of the material covered in this book. But I also guarantee that you will learn something from it as well.


2. The Millionaire Next Door
Normally, this book would fall into my “trendy” disclaimer, but I do recommend that people read this book. True, it has chapters that are needlessly dry, reciting endless statistics about the habits and averages among the population of millionaires that were studied to make this book. But the most important thing is that this book emphasizes that a high income does not guarantee wealth, and that being wealthy is living below your means and the long term accumulation of assets. This book shatters a lot of myths that people have about the average millionaire in the United States, and it really highlights the basics of a healthy financial life.


3. A Random Walk Down Wall Street
Our first entry into the world of investing. This book is the absolute must-read to understand the predominant financial theory of the past thirty years: the stock market is efficient, and that efforts to beat the market, either through fundamental or technical analysis are futile. Personally, I believe that markets are not completely efficient due to the lack of rationality of either individuals or crowds. However, understanding efficient market theory is the cornerstone to understanding modern markets, so this book is basically a must-read. If it doesn’t convince you, at minimum, it will leave you with a strong bias against any “easy” way to make money off the stock market.


4. The Essays of Warren Buffett
Now that you’ve internalized efficient market theory, it’s time to listen to the words of probably the single greatest investor of the past fifty years, Warren Buffett. This book is a collection of his annual letters to shareholders. (In fact, you can now get all of his letters from 1977+ online!) Warren Buffett epitomizes why value investing works – his deep understanding of the finances of operating businesses allows him to selectively invest when he sees people selling dollar bills for fifty cents, to borrow a phrase. As a businessman myself, I also deeply appreciate the clarity of Buffett’s insights into what a financially outstanding business looks like, from a capital perspective, and his perspective on what makes a great manager and allocator of capital. I’ve read this collection at least three times.


5. Common Stocks & Uncommon Profits
Warren Buffett comes from the school of value investing, but his methodology and thinking has changed over the years to incorporate more flexible concepts of value than just book value or dividends. In this book, Philip Fisher explains the real fundamental basis for “growth stock” investing – recognizing that in some cases, the dominant factor for successful investing can be finding companies with outstanding growth potential. This may seem obvious to those of you out there who follow the technology industry, but I found this book crucial for my internal rationalization of the logic of both value and growth investing.


6. The Intelligent Investor
Warren Buffett stands on the shoulders of giants, and Ben Graham is the historical giant of value investing. This is the book that Buffett recommends to every investor, and it is fascinating from both a historical as well as financial perspective. When you read this book, you are stepping back in time, to a world before the Great Depression, when common stocks were still relatively new, and people bought them purely based on popularity, growth, or immediate payout. Graham was the one who first evangelized the idea that by looking at the core financials of a company – the assets and the dividends, you can make an informed judgement of the company’s value and the value of the stock.


7. Devil Take the Hindmost
This is not a personal finance book – it’s a history book. This book walks through almost all of the great financial bubbles since the 17th century. Fantastic for perspective on how markets get carried away. For me, the insight from this book was that there is a repeated theme in the history of bubbles. The combination of a new technology with a new innovation in finance leads to a combination of new capital and optimism that leads to an incredible rush and explosion of investment. This book will change your mind about how rational markets really are when crowds get a bit too excited.


8. When Genius Failed
Another history book, and a modern one at that. This is the story of the blow-up of Long Term Capital Management, the single most lauded hedge fund of the late 1990s. For those who have gotten deeply into the math and statistics behind the market, this book should be a wake up call. Any investment strategy can be broken, and any model based on the past will not predict the future once people in the market adapt to that new knowledge. There is a huge insight in this book that may seem esoteric, but it’s likely the biggest new insight into markets of the last decade: When you are a big enough investor, your own investment in the market creates a new correlation between investments that didn’t previously exist – the fact that you own all of them. Similar to quantum mechanics, the investor affects the markets they invest in. This simple truth explains why LTCM fell, and why there is a limit to strategies based on historical analysis of assets.


9. Against The Gods
This is one of my favorite books, bar none. It’s a stretch to say it’s about personal finance, but for me, it was a game changer. This is a history book, specifically about the history of the mathematics of statistics. It’s very interesting to note that just a few hundred years ago, no one understand the math of probability, and yet this is the branch of mathematics that dominates all modern science. Statistics is extremely counter-intuitive. Our brains are hard-wired to get it wrong. By walking through the history of how this branch of mathematics developed, I found I developed a new understanding of statistics, and a better sense of intuition around it.

Harry Potter and the Deathly Hallows (Book 7) Release Date: July 21, 2007

Right now, my original post on Harry Potter and the Deathly Hollows (yes, mis-spelled) is driving about one half of all traffic to my blog. Amazing.

Well, more Harry Potter news today.

Two versions.  Standard & Deluxe.

They have announced the ship date: July 21st, 2007.

Harry Potter and the Deathly Hallows by J.K. Rowling, the seventh and final book in the best-selling series, has been scheduled for release at 12:01 a.m. on July 21, 2007, it was announced today by Scholastic, the global children’s publishing, education and media company.

I can’t even really imagine how incredibly large the hoopla will be around the event. In fact, hoopla is not the right word. (Is it even really a word?) Celebration. Chaos. Pandemonium.

This is bigger news than the announcement that the actor who plays Harry Potter in the movies, Daniel Radcliffe, is going to be appearing naked in the revival of the play Equus in London starting February 27th. Yes, you read that right.

You can already pre-order the book. Borders is actually running a “Severus Snape: Friend or Foe” campaign to drum up excitement (like they need to).

The movie for Harry Potter 5, The Order of the Phoenix, opens the week before, on July 13th.

Pandemonium.

The Benefits of Misspelling on eBay & Blogs

It has been a funny couple of days for my blog.

Remember the incredible volume of page views I saw when I posted my theories on the likely ending to the new series, Battlestar Galactica?  Well, let me tell you, posting the expected title of the new Harry Potter book has spiked my blog again to one of the fastest growing.

Interestingly, I found out, after about 1,000 page views and a dozen comments, that I had gotten the title wrong.   I had posted the title as “Harry Potter and the Deathly Hollows” instead of the correct title, “Hallows”.

Apparently, however, it is a common mistake.  So common, in fact, that the original news story that I had quoted had also made it.

In fact, it has been so common that literally thousands of people have been typing “Harry Potter Hallows” into Google & Yahoo, and my blog has reaped the benefit.   No doubt, the post is popular because it reflects, through indexing, a common mistake that people make.  The competition for the misspelled version is less, and my post is right there, indexed perfectly for it.

Misspelling has to be one of the most common “predictably wrong” things that people do in the modern world of internet search.  And yet, despite years of technology and focus on the area, it still can be an incredible source of value.

On eBay, for example, it has been a long-standing trick of experienced buyers to search for common mis-spellings of their favorite items.   Since most buyers don’t search for the mis-spellings, they often find great deals from unwitting sellers who don’t realize their mistake.

Similarly, I’ve seen eBay sellers take advantage of common mis-spellings by offering listings that feature mis-spelled words in their titles!  Less competition, since most sellers spell their titles correctly.

Of course, eBay is always working to upgrade its search engine with common mis-spellings, since its goal is to make the marketplace as efficient as possible.

Still, new mis-spellings crop up all the time.  In the blogging world, it looks like I inadvertantly contributed to a new problem, and reaped an unfair reward.

I have now updated my blog to include the correct spelling and a note, but I notice that my blog article URL is permanently indexed to the wrong spelling.

Oh well.  It’s always fun to have your blog page views look like this:

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