J.D. Roth’s Your Money: the missing manual was chosen, because it seemed humbler (and correspondingly less hyperbolic) than other personal-finance books on the shelves.  One highlight of the book was the discussion about the hedonic treadmill, which explains why — unless you start off in abject poverty — more money doesn’t tend to make you happier.  It was refreshing to see this covered in a personal finance book, given that the book’s reading demographic probably consists of people who think having more money will, indeed, make them happier.    Another was the suggestion to make budgets simple enough that they can be followed — this spoke to me, as my own budgeting efforts have usually failed because they were so ambitiously detailed, they got too cumbersome to track.

As always, if you enjoyed the summary, please consider supporting the author by purchasing a copy of the book. 

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Your Money - the missing manual

It was also recommended by a colleague who found the book useful on her return from maternity leave on a part-time basis.  Her limited availability meant she had to find a role which didn’t build directly on her career to that point, so the lattice metaphor may have helped in showing that a career move couldn’t just be “up” or “down” but sideways as well.

As a soon-to-be-father, it was surprising to find that the authors’ research found more men reporting work-life conflict than women — perhaps because companies have come to accomodate mothers’ scheduling needs, but have not yet come to appreciate the impacts of children on fathers’ availability.  Some of the book’s conclusions seemed to overreach as well, as captured in the “side notes” at the end of each chapter summary. 

As always, if you enjoyed the summary, please consider supporting the authors by purchasing a copy of the book. 

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The Corporate Lattice (summary)

Stephen Few’s Show Me The Numbers was chosen after a review of reviews (a meta-review?) on Amazon, which seemed to suggest that Edward Tufte (the giant of the field) might not be the best read for business-centric readers tied to Microsoft Excel.  Key points that stood out from the rest of the text included the “4 chunk rule” (describing the maximum limit of themes or aggregations of data people can process at a time) and the fact that when it comes to graphs, it’s the shape of the data that counts.  Not the particular values.  (If the values are critical… the data should be presented as a table!)

This review is the first (thus far at least) to be summarized in two files — a Word document and a PowerPoint slide deck — due to the benefit not just of explaining what the text was saying, but showing it visually as well.

As always, if you find the review to be useful, please consider supporting the author by purchasing the book. 

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Show Me The Numbers (summary)

Show Me The Numbers (PPT)

Now that the Globe and Mail’s GlobeInvestor site has mutual fund performance data for calendar 2010, I decided to check in on ubiquitous business-channel commentator and investment guru Dennis Gartman’s performance this year.  As you may recall, his ETF (exchange traded fund — basically, a mutual fund that trades as a stock) did rather poorly last year.  Outperformed by 98.3% of mutual funds (!) in calendar 2009, I calculated his SAT-equivalent score to be 288.

This is based on the assumption that SAT scores follow a normal distribution, and are scored such that the median (50th percentile) scores 500, with each standard deviation representing 100 points.  As such, scoring in this system would look like:

• 99.8th percentile: 800    (top 0.2%)
• 98th percentile:    700    (top 2%)
• 84th percentile:    600    (top 16%)
• 50th percentile:    500
• 16th percentile:    400    (bottom 16%)
•   2nd percentile:   300    (bottom 2%)
•   0th percentile:    200    (bottom 0.2%)

The good news is that Dennis did much better than last year; indeed, his shareholders actually made money! 

The bad news is that his 3.8% return for shareholders put him in the 18th percentile.  That is, 82% of mutual funds beat him.  (9452 of the 11577 GlobeInvestor tracked.) 

As such, his SAT-equivalent score for 2010 is…  410.
 

At this time I should note that investments are a poor reflection of a person’s financial prowess — last I checked, Mr. Gartman convinces people to pay $400/month for his advice, despite his track record!  Clearly, he’s got amazing skills.  Or at least, chutzpah.  …can you imagine how much he’d charge if he actually outperformed the market? 

Further context:

- half of all mutual funds tracked by GlobeInvestor gained 8% or more in 2010 (SAT-equivalent of 500).

- the Toronto Stock Exchange Index gained 14.2%, which would’ve placed it among the top 16% of mutual funds (1810 / 11577).  This is consistent with the rule-of-thumb that only 20% of mutual funds beat the index in any given year.

- because his ETF started at $10 in 2009 and stood at about $9.33 at end-2010, Gartman’s investors lost about 7% in a two-year period during which the TSX index rose 46% (from 9234 to 13530; and that doesn’t include dividends).  So over the past two years, the Gartman portfolio has underperformed the index by 50%!  Though a pecuniary pundit of Mr. Gartman’s self-assurance would surely dismiss that as a temporary underperformance of “only” 50%. 

Having authored some epic reports and PowerPoint slide decks in my time, the prospect of condensing findings into a single – albeit large – sheet of paper, immediately piqued my interest.  It also brought to mind the quotation by Antoine de Saint-Exupery:

Perfection is achieved, not when there is noting more to add, but when there is nothing more to take away.
 

Consider that it’s standard form to report out insights in essay format, with complete sentences; this is as inefficient as incandescent lighting.  In Edison’s invention, only a few percent of the energy output is light (the rest is waste heat).  In a technical report I’d be surprised if more than 20% of the words relate to the discoveries; I’d bet most of the words are “filler” required to make the communication of information, conform to grammatical rules. 

While Understanding A3 Thinking did cover the guidelines Toyota uses for A3 reports (e.g. emphasizing visual methods, instead of verbal methods, for explanation) it suggested the overarching value was to ingrain rigorous problem-solving discipline in the employees.  Over the course of the problem-solving, engineers submit A3’s to their supervisors and other senior staff, who provide guidance and suggestions, both on problem-solving approach and data presentation. 

As such, by the time an A3 report is finished, it will have gone through extensive “peer review” (or “superiors’ review”) which helps improve the quality of the findings, the presentation, and the problem-solving skills of the author — who may in turn pass these best practises to future junior employees.
As always, if you enjoy the book summary, please consider supporting the authors by purchasing a copy. 

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Understanding A3 Thinking - summary

Anyways, here’s the 27th book we covered in the work business book club: Financial Intelligence.  It was chosen because of the feeling that a little financial literacy could probably go a long way for engineers and other technical types.  The fact that the question “what’s EBITDA?” recurs in all of our business-update meetings also played a role. 

One of the books requiring a longer summary (which clocks in at 12 pages!) the biggest takeaway for the reviewer was that accounting is an exact science… based on rough assumptions.  I didn’t appreciate the challenges involved in trying to represent a company’s financial situation, when any number of line items may need:

• to be amortized / depreciated (e.g. capital costs for equipment, where you might need to estimate how long equipment will last before obsolescence)
• to be matched with corresponding revenues or expenses  (e.g. travelling and other costs for salespeople should be reported only when a sale is actually made, or the customer definitely spurns you)

As always, if you find the summary useful, please consider supporting the authors by purchasing the book. 

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Financial Intelligence - summary

While stuck, iPodless, in a near-interminable supermarket lineup the other week, I swallowed my dignity and perused the celebrity magazines near the cash register.  And you know what?  They’re actually pretty good!  While I’m veering into fiction, the fashionista in line behind me complimented me on my Vibram Five Finger shoes — the first footwear I ever bought to make a fashion misstatement.  I’m planning to take casual Fridays to the next level. 

To my delighted surprise, tucked in the magazine racks behind the thick foliage of the celebrity jungle, there was a recent edition of National Geographic.  Flipping through its edifying contents, I noticed a blurb on wonderful compounds found in pomegranate rinds (peels). 

Like most fruit, pomegranates contain “miraculous” compounds — because it’s a cruel cruel world out there, and humans aren’t the only ones who could use the protective help of antioxidants.  The extra polyphenols you get from drinking green tea, for example, come from the fact that you’re drinking the entire tea leaf, instead of the chemical mixture that leaches out in boiling water.  (An antioxidant that easily leaches out in water isn’t much use to a leaf or a fruit — rain would wash away the protectant!)

The fact that these guys were looking at pomegranates, though, makes me suspect the “Pomegranate Princess” somehow facilitated or drummed up the support for the research.  It seems her current goal in life is to ubiquitize that particular fruit, known in French as “grenades”.  (Yep, grenades.)

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In prior decades, the folks behind Pom Wonderful brought us:
 - the Franklin Mint (mail-order “limited edition porcelain collectibles” limited to the number of folks who purchased them), and
 - Fiji Water (water from Fiji in bottles from China, sold in North America)

Pomegranates are their latest brainstorm, presumably because they own a large pomegranate orchard.  They decided to invest money to figure out how to position pomegranites as the latest “superfood”, as the excerpt below shows.

To date, the Resnicks have spent $23 million looking at the effects of the pomegranate on conditions ranging from diabetes to erectile dysfunction, and have earmarked $7 million for future clinical trials.

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Heck, if you spent $30 million, you could come up with a medical benefit for smoking!  As it so happens, Wikipedia lists the benefits of smoking as including protection against ulcerative colitis, and delayed onset of Parkinson’s.  Which, in light of that whole emphysema-stroke-heart-attack-and-cancer thing, is about as silly as arguing war is good ’cause it stimulates the economy.  But there you go…      

It looks like the Democrats are going to get clobbered in next week’s tomorrow’s today’s US elections.  Economic malaise tends to do this to governing parties, which is one reason currency devaluation is the policy-du-jour: if country A can make its currency cheaper, it becomes more competitive and can export goods (and unemployment!) to countries B, C and D, whose currencies remain more expensive.  It’s this kind of race to the bottom which has given gold aficionados their current decade in the sun.  Of course, though Hemingway never lived to write about it, the sun also sets… 

The Tea Party’s emergence has been an interesting but predictable phenomenon.  The stagnation in American incomes for the past generation has finally hit a boiling point (what took so long?).  Increased prosperity has largely been confined to the top 1% — and even then mainly the top 0.1% — of income earners in the population; those nice folks whose job titles begin with “Chief” and end with “Officer”. 

In many cases, union-busting concessions levied in the name of improving competitiveness went straight into C-suite compensation: “trickle-up economics”, as it were.  I don’t have the American numbers handy, but here are some Canadian ones.  Perhaps one day, left-leaning parties will realize that they’ll get more support if they confine talk of tax increases to the very, very topmost folks.  Noblesse oblige, and all that.

The anti-government stance of the — ugh — “Teabaggers” contrasts spectacularly with the strikers in France.  The French were striking over a government plan to increase in the retirement age (from 60 to 62), to address pension costs.  In other words, they were striking for more government (services, spending and so forth).  Meanwhile, in the US, the Tea Party is agitating for less government!  [A friend later linked me to this Economist article discussing much the same thing.  Clearly, fools seldom differ.  ;) ]

One wonders if this different outlook comes from the two countries’ respective revolutions.  In France, the French aristocracy was overthrown by the downtrodden masses, whereas in America, the British nobility was overthrown by a homegrown one.  This is a simplification, but is reflected in the voting rights that resulted: every man in France had the right to vote as of 1792.  (Revolutions, counter-revolutions, empires and monarchies made this a bit dicey for a few decades…    )  In the US, until about 1840, you couldn’t vote unless you were a property-owning white guy.  So it was really a democracy of the rich.  Not unlike today, really…    The rest of the XY club got to vote one Civil War later, vote-suppression campaigns notwithstanding.  To give the US some credit, women’s suffrage arrived there in 1920, beating France by a quarter-century.

The Tea Party’s anti-government stance traces back to heavy funders the billionaire plutocrat Koch brothers, who have that libertarian streak common to the ultra-wealthy, and the clueless rubes who believe they’ll join those ranks if only [X] gets out of their way.  The brothers Koch, building on decades of conservative dogma, have cunningly equated [X] to government; and specifically, a government that gave tax cuts to the bottom 98% of the population as one of its first orders of business.

As a quick recap, libertarians want minimal state interference in their daily lives.  Most oppose motorcycle helmet laws as unnecessarily restrictive, but the hardliners — the few, the lucky few, that band of brothers — are still fighting… seat belts.  And income tax.  And public schools!  Mind you, all groups have their flaky enthusiasts. 

Libertarianism has cast a large shadow over the American experience, and can be argued (weakly or strongly, you decide ) to be responsible for two standout features of American society: its litigiousness and its religiousness.  This is ironic, because lawsuits are about the only thing that can cut the ultra-wealthy down to size… and because the only things libertarians abhor more than government services, are religious services.  (Pun intended.)  If you think governments want to impose codes of conduct… 

Putting my “Freakonomics” hat on, the litigious aspect of American society comes out of rational self-interest.  If someone gets hurt — at work, in traffic, or elsewhere — and there’s a 1% chance a million-dollar complication will result later in life, very different results occur if you’re part of a universal healthcare system or not.  In the former case, you won’t pay anything out-of-pocket: you’ll be subsidized by your fellow citizens.  Unless there’s a matter of punishing gross negligence, you don’t have an incentive to sue.  Besides, litigation is time-consuming, expensive, and stressful.

But in the latter case, medical complications could very well bankrupt you.  (Medical costs are perennially the leading cause of bankruptcy in the US.)  As such, litigation becomes a matter of self-preservation.  Instead of one out of a hundred victims receiving a million dollars of medical intervention at some point in the future, all hundred will be in the courts to get the money that could save them from bankruptcy, up-front.  That’s a hundred million dollars cash; an enormous drag on the system.  All thanks to the paradigm shift from a country of millions, to millions of fiefdoms of one. 

In recent centuries, the welfare state (in rich countries) has expanded into roles religious communities have traditionally paid — caring for the ill and infirm, minding children, and so forth.  The reason churches and temples provided these services instead of business people, is that it’s tough to profit from these activities.  (The current setup in most places, where houses of worship can provide such services alongside the public sector, is probably a good thing all in all, because a little competition keeps everyone honest.)  In the US, though, the paucity of public social spending means religious communities have retained a tremendous influence; they’re the only groups who will consistently provide the social services non-multimillionaires will depend on at one point or another in their hopefully-long lives!  As such, being part of a faith community is a matter of rational self-interest for the average American; in addition to the spiritual nourishment these hopefully provide, they offer support and a safety net when there’s no publicly-funded game in town. 

Getting to Yes was chosen as the book club’s 26th volume because it deals with negotiations, which, like it or not, play a pivotal role in business.  It was expected that book club members’ careers would benefit from knowing a bit about negotiating, whether they were arranging supplier pricing, defining multi-firm partnerships, or in particular, agitating for higher pay & benefits. 

The book’s emphatic message that negotiators should focus on interests instead of positions, was probably the main takeaway — the one-sentence summary.  One book club member did offer that the BATNA concept was most pivotal in their own supplier dealings.  In short, he found it difficult working with suppliers who had a strong BATNA (Best Alternative To Negotiated Agreement)… because the status quo worked well enough for them; they had no driving incentive to negotiate a new arrangement.

As always, if you enjoy the book summary, please consider supporting the authors by purchasing a copy of the book. 

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Getting to Yes (summary)