Best Books of 2016

As is tradition around these parts, here’s a wrap up of the year’s reading/listening history (about 1/3 of my “reading” these days is via audio books in the car):

2009 2010 2011 2012 2013 2014 2015 2016
Biography 1 3 2 3 2
Fantasy 1 3 5 2 2 2 2
Fiction 3 5 3 4 2 3 1 5
Historical fiction 3
Non-fiction 5 7 4 6 4 18 10 12
Sci-fi 7 3 6 7 1 6 8 5
YA 1 5 1 1 2 1
Grand Total 18 26 21 23 11 29 25 24

And here are my awards for the best things I read/listened to this year.

Best Fiction: Seveneves – very unique apocalypse scenario, extrapolated out very far in very detailed fashion.  The politics pre- and post- “white sky” seemed all too-real.

Best Nonfiction: Thinking, Fast and Slow – reveals some “secrets” of psychology that may be vulnerable to “hacking” (in ourselves or others; in good and bad ways).

Runner-up awards to Apollo and Empire of the Summer Moon for some really interesting history.

 

“A Christmas Carol” by Charles Dickens

carol

Despite “A Muppet Christmas Carol” being my favorite holiday movie, I have never actually read the book, until now.  The classic story is pretty familiar of course, thanks to the Muppets and other adaptations.

A few new things I noticed in the book:

  • In Christmas Past, when Scrooge is a boy left alone at school over the Christmas holiday (because of a strict father?  Because the next Christmas his sister Fan takes him home saying “father is much kinder now”), his only companions are his books.  He is (metaphorically) visited by some of his favorites, including Ali Baba and Robinson Crusoe.
  • There’s a passage in Christmas Present where the spirit expresses disgust with those who would deprive the poor “of their means of dining every seventh day”.  Huh?  Doing a bit of googling, it seems that there was a political tussle going on in England in 1843 when the book was published, where lawmakers were trying to close a loophole in the law that forbade bakers baking bread on the sabbath.  Instead, the bakers had been lending out their ovens for the use of the poor to cook their meals.  Ovens were not a commonplace item in every home, particularly not in the homes of the poor.  Dickens is making commentary on the cold-hearted self-righteousness of rich politicians and the like who are trying to get the poor to abide by their own conception of the law of the sabbath, even when that means they cannot eat a proper meal.
  • In Christmas Future, Tiny Tim’s death has happened very recently indeed.  In the movie versions, when Bob comes home from the churchyard and comments how nice and green the location looks, I always assumed that Tim was already dead and buried.  Apparently, the first part is correct but not the second.  A little while after Bob comes in and makes that comment, he goes upstairs to spend a little time and kiss the cheek of dead Tiny Tim, laid out on a bed. Eww.

“One Up on Wall Street” by Peter Lynch

one_up_wall_street

Peter Lynch is famous for heading up the Fidelity Magellan fund during the eighties, when he averaged +29% annual returns.  Just lucky?  Maybe!  But in this book he shares his secrets of stock picking anyway.  He is a fundamentalist, long stock only investor – serious about buying pieces of good companies at deal prices, betting that the market will eventually realize what gems the companies really are.  The specific examples in the book are quite dated, but the principles hopefully are sound.

  • First, a knock against index funds.  Lynch says that the index funds’ gains are usually propped up by a small number of stocks in the index. I wonder if this is still true?  He says to look at the advance/decline numbers (number of stocks rising vs those falling) and you can see this.
  • “To me, an investment is simply a gamble in which you’ve managed to tilt the odds in your favor.”  Lynch puts his success ratio at around 60%, but some of these were “tenbaggers” (increased 10x in stock price) or better.  The trick is to realize companies which are in a good position before the market at large realizes it too.  Because when it does, that is when stocks shoot up.  He even goes as far as to recommend dull-sounding companies in dull industries, which have little or no institutional ownership or analyst coverage.
  • Be aware of companies growing – new products or entering new markets.  Put these companies on radar screen, then check fundamentals next.
  • Search for companies or industries with large earnings growth as % of market
  • Slow growers, medium growth, fast growth, cyclical (vulnerable in recession), turnaround, asset plays (holds assets land etc which aren’t yet reflected in share price).  Important for knowing how much profit to take.  Slow – moves @ GDP growth, medium – 25%/yr, fast – sky’s the limit.
  •  Simplicity is a virtue: “When somebody says, ‘Any idiot could run this joint,’ that’s a plus as far as I’m concerned, because sooner or later any idiot probably is going to be running it.”
  • Insider buying is a strong indicator that things are looking up.  Many reasons for selling but only one for buying – believe stock is going up
  • Prefer companies that buyback stock rather than make dubious acquisitions.  (“diworseification”)
  • Don’t buy anything without earnings.
  • Don’t buy company too dependent on a single customer
  • Use p/e to classify companies – higher p/e than average indicates sentiment of faster earnings growth
  • Increase Earnings – reduce costs, raise prices, expand to new markets, sell more in old markets, revitalize or sell losing operation
  • Balance sheet: (cash + marketable securities – long term debt) / total shares outstanding =  available cash per share.  If available cash per share is close to the share price, then the stock is probably a great deal.  (Don’t count other “assets” since their stated book value is probably much higher than they could ever be sold off for). Also check balance sheet for: decreasing debt, decreasing # of shares, increasing cash.  P/e should be roughly equal to earnings growth rate.  If lower p/e than % earnings growth, good.  Also compare long term debt to total stockholder equity.  Want equity >> debt to ensure low bankruptcy risk.
  • Three phases: startup, expansion, saturation.  Want to get stocks out of risky startup phase but still in expansion.
  • Make yourself write short paragraph on each buy decision – what is the compelling story that is making you buy this company?
  • Don’t sell when stock goes up or down some set percentage; sell if you think the company’s “story” has changed.  Simple sell test – “Would I buy this stock again right now?” (per all the rules) If not, sell.
  • Some typical “story-changers” that indicate it is time to sell: no insider buying during past year, slowing earnings growth rate, p/e much higher (50%) than industry average
  • “It can’t possibly go lower!”. Oh yes it can.  Beware stocks in free fall.
  • Don’t mess with options or futures.  Ought to be outlawed.  Very expensive since they expire; you don’t own the companies.

“Sleeping Giants” by Slyvain Neuvel

sleeping_giants_cover

A number of giant robot pieces of extremely advanced, extraterrestrial design are discovered and assembled in secret.  It’s a superweapon ala Mechwarrior, cool!  Needs two pilots inside, one for the arms and one for the legs.  A linguist is also on the team, since they need to decipher the console controls.  Oh no!  Love triangle between girl pilot, boy pilot and boy linguist!!

Kind of interesting story at the beginning, but didn’t really go anywhere.  The style is unique – told entirely via “interview records” from some secretive, supra-national, illuminati-esque narrator who is the one calling (most of) the shots.

“How to Fail at Almost Everything and Still Win Big” by Scott Adams

adams_win

Scott Adams, the creator of Dilbert and a vigorous blogger, shares some of the secrets to his success – and they are actually ones you can use.  I think a lot of times when we look at how successful people achieved great things, it is hard to say whether their actions really did cause their success, or if they were just lucky.  A bit of survivorship bias, since we don’t examine the much greater multitude of people who tried and failed nearly as much.

Adams’ success tips are shared around the story of his overcoming spasmodic dysphonia – his brain basically “forgot” how to control his vocal chords.  Quite a rare condition.

Here’s the main points I got from the book:

  • “Goals are for losers.  Systems are for winners.”  When we make goals (eg. lose 20 lbs), we are in a constant state of failure, which is demoralizing, until we (maybe) achieve the goal.  Then we are left rudderless and often revert back to our prior state.  Instead, we should develop systems (eg. exercise everyday and never eat fast food).
    • Furthermore, everyone has only a limited willpower pool so we must set up our systems such that we aren’t forcing ourselves to “go along” – need to make healthy and good choices fun and rewarding in their own right.
      • I like the idea of using our own laziness in our favor.  I might copy his example of keeping a bunch of healthy snacks on hand, prepped and ready (carrot sticks and celery in water, berries, apples, bananas, peanuts) so I go for them rather than other unhealthy snacks.
    • Another system – always be looking for your next, better job.
  • Make choices that maximize your personal energy.  Especially good diet and exercise.  Get your health right, acquire key skills, obtain a flexible schedule = happiness.
  • Learn from failures.  Before going into a new venture, make sure it would at least provide new learning or connections, even if it fails completely.
  • Look for patterns of success and try them out on yourself.
  • Every new skill you learn doubles your chance of overall success.  Good + good in two complementary skills >> excellent in just one.
    • Public speaking
    • Business writing
    • Psychology of persuasion
    • Social skills
      • I like the idea of the “conversation stack” Adams shared from the Dale Carnegie school.  To make small talk with strangers, start with these questions and keep going until you hit something mutually interesting to talk about.
        • “What’s your name?”
        • “Are you from around here?”
        • “Do you have a family?”
        • “What do you do for a living?”
        • “Do you travel much?”
        • “Do you have any hobbies?”
      • Another nice conversation hack: “Is there anything you can do for me?”
    • Voice technique
    • Basic accounting
  • Sometimes you just need to be lucky.  But you should always set yourself up to take advantage of opportunities when they come.

“41: A Portrait of My Father” by George W. Bush

41_bush
In the intro, George W. writes that he heard David Mccollough lament that John Quincy Adams never wrote a bio of his father.  So George W. sets out to rectify that here.  It’s a pretty personal account of George H.W.’s life.  Kind of funny how W. brings up parallels to his own presidency time and again – very different from a typical bio where the author keeps out of it.

George H. W. Bush is a great example of leadership and decency that I wish we had more of in our country today.

A few stories from the book stick in my mind.  As a torpedo bomber pilot in the Navy, Bush was on a mission to attack Chichi Jima when his plane was hit by flak.  He managed to bailout, but got injured in the process.  Luckily some other plane dropped a raft and he madly paddled away from the nearby island.  Some Japanese ships tried to get at him, but they backed off after being strafed by other Navy planes.  Finally, a US submarine rescued Bush.  Some of the Japanese later said how they marveled at all those resources being directed to save a single pilot.

Second is the tragedy of losing daughter Robin at age 3 to leukemia.  I can’t imagine how this must make a parent feel.

Finally, there is the pain of loss in 1992.  George seems to have a bit of a grudge against Ross Perot even now – the split vote was probably the reason for Bush’s loss.

“A Random Walk Down Wall Street” by Burton G. Malkiel

random_walk

Here’s the secret to making money in the stock market: buy low-cost index funds which cover the whole market.  There, not so hard, right?  Burton Malkiel has been espousing this for 40 years, when the first edition of this book was published and index funds didn’t even exist yet.  The data, as he presents in the book, shows him out well.  Sure, some years some active fund managers score big, but they are no more likely than any other manager to outperform the market the following year(s).  The only consistent winner is a properly-weighted portfolio of index funds.

That said, Malkiel gives lots of bits of advice on manual methods of picking stocks.  After all, if you see a $100 bill on the street, don’t be like the finance professor who said “it must not be real; otherwise someone would have already picked it up.”  Really you should respond “I must pick it up quickly, otherwise someone else will come and pick it up very soon.”  There still are market inefficiencies to be exploited … it is just very hard to do so consistently.  Keep your core in index funds, but keep a small pool of funds ready to pick up the $100 bills when you find them…

Stock Picking

As far as stock picking goes, Malkiel sees all technical indicators as junk.  Well, besides maybe some short term value to a relative strength strategy.  But…if any indicator really did work well, the discoverer is surely not telling anyone about it.  Too many people doing the same thing would change the market dynamics such that the indicator no longer works.

Fundamental analysis doesn’t bear much fruit either.  And we must avoid bubbles, even though they are hard to spot.  Here’s a tip: be very wary of buying into something touted as “the future” if it isn’t making solid profits now.

Malkiel does give a “secret formula” for picking stocks late in the book:  Long-run equity return = Initial dividend yield + growth rate (of earnings and dividends combined).  The trick is knowing what the expected growth rate will be.  The typical stand-in here is the P/E ratio — if it is high, then this (might) signify the expectation of growth.  But then again, value investors like to buy low P/E stocks…

There is a pretty strong correlation of overall market P/E ratio to forthcoming returns.  The lower the P/E ratio of the market, the higher the returns.  Based on historical data, a market P/E ratio of < 10.6 has yielded on average 16.4% returns over the next decade while a P/E ratio of > 25.1 yields on average 3.7% returns over the next decade.  The returns vs. P/E curve is generally linear between these two points.  (Malkiel’s chart on pg. 347)  As of this writing, current market P/E is 24.89…we are unfortunately in for a decade or so of single digit returns.  (Note: MMM has this point covered as well.)

Smart Beta

There are a couple of strategies that Malkiel mentions may have some potential to beating the market.  Maybe.  (He’s is oh so careful about admitting that anything could ever beat the market long-term!)

1) Value wins.  Tilt towards low price-earnings ratios.  VVIAX

2) Tilt towards smaller cap companies – they have more room to grow.  (IWM – Russell 2000; or IWN, DFSVX – combo of 1 & 2)

3) Momentum and reversion to the mean (AMOMX)

4) Low volatility bought on margin (SPLV)

And a final bit of advice: buy closed-end funds which are selling at discount vs NAV.  The WSJ maintains a listing where they already have the discount computed.

Diversification

There’s a chart on almost the final page of the book which kind of blew me away.  The 2000’s decade is called the “lost decade” because overall market returns ended up pretty much where they started.  But … a diversified portfolio of 5 different funds (using the “age 55” mix), rather than just total market, was up ~100%.

diversification

(Note: Malkiel gives the exact same weights for International and Emerging Markets, so on this plot they are right on top of each other.)

In an individual stock portfolio, diversification is also very important in lowering risk.  The beneficial effect seems to diminish after about 50 stocks or so.  Should also make sure to get about 20% exposure to international stocks.

“Waypoint Kangaroo” by Curtis C. Chen

kangaroo

A pretty fun, light read after John C. Wright.

Kangaroo (secret agent code name) has a superpower: he can open a portal to another universe, which is completely empty.  Makes it perfect for storing or smuggling stuff!  He is also employed by a sort-of future CIA.  A few hundred years or so into the future, colonized Mars has recently become independent following a brutal war with Earth.  Now, Kangaroo is on a (Disney-esque) cruise ship bound for Mars, ostensibly on vacation, albeit one forced on him by his boss.

It turns out that there is something sinister afoot.  A few murders, a hijacking, and a threat to re-ignite the Mars-Earth war keep the story moving at a pretty good clip.  Lots of humorous dialog.

My gripes (which are pretty modest) are 1) the stolen items out of cargo didn’t really need to be in the story and 2) the love interest fell for Kangaroo rather quickly – I kept thinking that she would turn out to be some bad guy trying the seduction angle on our hero, but nope.  She just falls in love at the drop of a hat, I guess.

“The Golden Age Trilogy” by John C. Wright

golden_age

This is probably the most far-out, wildest sci-fi future history I’ve ever read.  The singularity has occurred, and then some.  It is many, many thousands of years in the future and people are pretty much immortal.  Minds may be transferred with total accuracy between biological brains and machines.  It’s hard to tell (for me; it’s a plot point in the book though that they are very different) where AI ends and humanity begins.  There are a multitude of body types and even mind types; these are the new “races.”  Invariants are totally logical, with a brain structure prohibiting anything else.  On the opposite end, Warlocks are totally intuitive and spontaneous.  There are large group-minds, which are throngs of people all joined together somehow into a single conciousness.  There are Neptunians, which are big blue blobs that hang out in the atmosphere or out in the Kuiper belt.

Somewhat in charge of everything are the Sophotechs, incredibly advanced AI’s which guard over humanity.  (At least, the ones who get mention in the book seem to care about us.  Towards the end of the story, we realize that Saturn has been colonized by a huge number of Sophotechs doing who knows what.)

Fortunately for the reader, Phaeton is a member of the Silver-Gray school, which idolizes 19th century Britain as the epitomy of culture.  Therefore a lot of his actions contain a familiar-enough reference frame for us poor, primitive readers.  He has a pretty cool origin: he originally was a character in a simulation where he was a conquering warrior from a distant colony who destroyed the Earth.  Somehow during the simulation he became self-aware (hey it can happen…?) and thus it would have been a crime to allow him to be deleted when the sim ended.  So he got downloaded into a body and voila, new person.  The simulation’s author, Helion, is therefore Phaeton’s father.

Helion is a Peer, one of the most powerful people in the system.  He built a Solar Array to tame and control solar flares for useful purposes.  Another Peer, Gannis, ignited Jupiter as a sort of second Sun and built a supercollider surrounding it, which allows the creation of exotic materials.  Another Peer invented the technology which permits mind transfers and therefore functional immortality.  These Peers are Big Stuff.  Then there is Atkins, the only soldier left in a society that has evolved beyond physical wars.  He’s kind of melancholy but at the same time wields the entire military arsenal of thousands of years and thousands of armies.  (Although most of the “fights” in the book are handled in a split-second by dueling computer viruses or nanomachines.)  Not one to mess around with.

Alright, so that’s a bit on the world building.  Quite a complex society and difficult to grasp for us in the 21st century.  Now the story.  In the first book, Phaeton realizes he is missing memories and sets off to recover them.  These lost memories are about his constructing a giant starship, the Phoenix Exultant, in order to begin colonizing the galaxy.  The College of Horators, loosely the government, (the Sophotechs are in charge of the law and order type stuff) feel this is a bad idea, since some future colony may turn on its mother system.  (Like the simulation which gave birth to Phaeton.)  But Phaeton realizes that staying put in one system is a gradual death sentence; humanity must spread out, grow, and even be tested in order to meet its potential.  (This line of thinking kind of reminded me of End of Eternity.)

In the second book, Phaeton gets exiled and has to make a comeback.  The beginning of the book where he wanders the strange new Earth was much like the first part and I enjoyed it, but then there was kind of a strange change in style/tone.  I kind of lost track of the plot, and some of the situations and dialog became more slapsticky which was kind of jarring.

Then in the third book, Phaeton has to face an invader from an older colony.  Hmmm maybe those Horators’ fears were well placed.  A long time ago, there was an expedition to Cygnus X1 which flourished for a time, but then seemed to destroy itself with great suffering.  Turns out a rogue Sophotech-like being, the Nothing, from this “Silent Oecumene” is now poking about the Golden Oecumene.  (That’s what the solar system/humanity is called.  “oecumene (UK; Greek: οἰκουμένη, oikouménē, lit. “inhabited”) was an ancient Greek term for the known world, the inhabited world”  Betcha didn’t know that.)

Ok, on to the third book… Lots of philosophy here.  To defeat the bad guy super mind AI, Phaeton must …convince it that morality is absolute, not relative.  Not exactly the set up for an action-packed swashbuckler.  Throughout the third book, it is also hard to know who is lying – they catch the “big bad guy” about three times; each time it turns out he wasn’t really the big bad guy and there is someone else out there.  But along the way they believe most of the previous big baddie’s story, even though they realize he was a fraud.  Not sure why they thought they could trust anything he had said.  It’s hard to follow the jumbled plot and philosophy in the third book; I’m not even sure what evil deed the Nothing was planning to do.

If you can’t tell, I really enjoyed the first book, kind of the second, and not really the third.  Overall, I liked the world building, but the plot not so much.

“The Richest Man in Babylon” by George S. Clason

richest_man_babylon

Series of stories from ancient Babylon that teach by example how to get out of debt and/or make a lasting fortune.  The secret, which Clason practically beats over the reader’s head: save 10% of your income and live off the rest.  (If in debt, set aside an additional 20% to pay off creditors and live off 70% – yeah it might hurt, but you got yourself into this hole, so you can dig yourself out…)

Then safely invest that 10% with people who know what they are doing.  No risky speculation here.

Kind of interesting how characters in the stories are all kind of related somehow.  Eg. in one story, a guy name Bob learns the secrets of wealth, and then in the next story someone else talks about how rich Bob is and discovers the secret too.

Kind of amazing this book was written in 1926, if not before.