Author: John Brooks
Recommended by: Warren Buffett via Bill Gates
Date read: 18-03-2021
Tags: #business #economy
My rating: 3 out of 5
Recommended by both Bill Gates and Warren Buffett as the best business book they’ve read. The chapters in this book are like little case studies, highlighting various aspects of the business world. I thought some were interesting, while others were more descriptive than insightful.
Highlights and notes
1 The Fluctuation
In the stock market, however, as de la Vega points out, “the news [as such] is often of little value;” in the short run, the mood of the investors is what counts.
A margin call is a demand for additional collateral from a customer who has borrowed money from his broker to buy stocks and whose stocks are now worth barely enough to cover the loan
Exchange officials were necessarily pondering the problem of Monday’s and Tuesday’s scandalously laggard ticker, which everyone agreed had been at the very heart of—if not, indeed, the cause of—the most nearly catastrophic technical snarl in history.
2 The Fate of the Edsel
Fascinating case study of the introduction of a new car, the Edsel. My takeaway in brief:
- All the resof arch in the world won’t guarantee success
- Bad timing can disrupt the best laid plans
3 The Federal Income Tax
there is a respectable economic theory that supports a complete exemption of capital gains from income tax, the argument being that whereas wages and dividends or interest from investments are fruits of the capital tree, and are therefore taxable income, capital gains represent the growth of the tree itself, and are therefore not income at all.
HYPOCRITICALLY egalitarian on the surface and systematically oligarchic underneath, unconscionably complicated, whimsically discriminatory, specious in its reasoning, pettifogging in its language, demoralizing to charity, an enemy of discourse, a promoter of shop talk, a squanderer of talent, a rock of support to the property owner but a weighty onus to the underpaid, an inconstant friend to the artist and scholar—if the national mirror-image is all these things, it has its good points as well.
4 A Reasonable Amount of Time
It is the Commission’s position that even after corporate information has been published in the news media, insiders, are still under a duty to refrain from securities transactions until there had elapsed a reasonable amount of time in which the securities industry, the shareholders, and the investing public can evaluate the development and make informed investment decisions … Insiders must wait at least until the information is likely to have reached the average investor who follows the market and he has had some opportunity to consider it.”
M – Very interesting questions posed in this chapter:
- When doesi nformation become “material” inside information
- When is news public enough to warrant trading by insiders, such that it can no longer be classified as insider trading?
The Appeals Court found that the original November drill hole had provided material evidence of a valuable ore deposit, and that therefore Fogarty, Mollison, Darke, Holyk, and all other insiders who had bought Texas Gulf stock or calls on it during the winter were guilty of violations of the law; that the gloomy April 12th press release had been ambiguous and perhaps misleading; and that Coates had improperly and illegally jumped the gun in placing his orders right after the April 16th press conference.
5 Xerox Xerox Xerox Xerox
In a society that sociologists are forever characterizing as “mass,” the notion of making one-of-a-kind things into many-of-a-kind things showed signs of becoming a real compulsion.
What was needed for the compulsion to flower into a mania was a technological breakthrough, and the breakthrough came at the turn of the decade with the advent of a machine that worked on a new principle, known as xerography, and was able to make dry, good-quality, permanent copies on ordinary paper with a minimum of trouble.
THUS baldly outlined, the story of Xerox has an old-fashioned, even a nineteenth-century, ring—the lonely inventor in his crude laboratory, the small, family-oriented company, the initial setbacks, the reliance on the patent system, the resort to classical Greek for a trade name, the eventual triumph gloriously vindicating the free-enterprise system.
McLuhan, for one, was convinced that all efforts to preserve the old forms of author protection represent backward thinking and are doomed to failure (or, anyway, he was convinced the day he wrote his American Scholar article). “There is no possible protection from technology except by technology,” he wrote. “When you create a new environment with one phase of technology, you have to create an anti-environment with the next.”
M – Reminds me of DRM
Xerography had practically no foundation in previous scientific work. Chet put together a rather odd lot of phenomena, each of which was obscure in itself and none of which had previously been related in anyone’s thinking. The result was the biggest thing in imaging since the coming of photography itself. Furthermore, he did it entirely without the help of a favorable scientific climate.
6 Making the Customers Whole
Interesting story about who is responsible when clients of large brokers go into debt because of a fluke.
7 The Impacted Philosophers
The general thesis is clear enough; namely, that everything would be all right, first, if they could get through to each other within their own organizations, and, second, if they, or their organizations, could get through to everybody else.
a breakdown in intramural communication so drastic as to make the building of the Tower of Babel seem a triumph of organizational rapport.
Paxton explained to the Subcommittee that his thinking on the subject had been influenced not directly by Adam Smith but, rather, by way of a former G.E. boss he had worked under—the late Gerard Swope. Swope, Paxton testified, had always believed firmly that the ultimate goal of business was to produce more goods for more people at lower cost.
8 The Last Great Corner
bulls, who want the price of a stock to go up, and bears, who want it to go down
The situation would be set up when a group of bears would go on a well-organized spree of short selling, and would often help their cause along by spreading rumors that the company back of the stock in question was on its last legs. This operation was called a bear raid.
The bulls’ most formidable—but, of course, riskiest—counter-move was to try for a corner. Only a stock that many traders were selling short could be cornered; a stock that was in the throes of a real bear raid was ideal. In the latter situation, the would-be cornerer would attempt to buy up the investment houses’ floating supply of the stock and enough of the privately held shares to freeze out the bears; if the attempt succeeded, when he called for the short sellers to make good the stock they had borrowed, they could buy it from no one but him. And they would have to buy it at any price he chose to ask, their only alternatives—at least theoretically—being to go into bankruptcy or to jail for failure to meet their obligations.
In U.S. stock markets, only an accidental corner (or near-corner, like the Bruce one) is now possible; Clarence Saunders was the last intentional player of the game.
M – Interesting to see stocks like $GME and $AMC prove this thesis wrong.
In 1923, an era when a grocery store meant clerks in white aprons and often a thumb on the scale, this method was described by the New York Times with astonishment: “The customer in a Piggly Wiggly Store rambles down aisle after aisle, on both sides of which are shelves. The customer collects his purchases and pays as he goes out.” Although Saunders did not know it, he had invented the supermarket.
9 A Second Sort of Life
M – Character study of David E. Lillienthal, state legislator-turned-business man
10 Stockholder season: annual meetings and corporate power
M – Description of several stockholder annual meetings
11 One free bite: a man, his knowledge, and his job
M – Examination of the extent to which employees should be barred from working at competing companies to safeguard company secrets
12 In defense of sterling: the bankers, the pound, and the dollar
M – Examination of the role of central banks in preventing a currency crisis.