2024 Book Review
Hi everyone,
It’s already the end of the year and I haven’t done one of these in a while. So I thought I’d do a quick recap of the finance and investing books I read this year.
Hopefully one of these piques your interest to read over the holidays.
Title: The Smartest Guys In The Room: The Amazing Rise and Scandalous Fall of Enron
Author: Bethany McLean and Peter Elkind
Rating: 9 / 10
Recommended: Yes
Thoughts: This is one of the classics that I had never gotten around to reading before. I was familiar with Enron and its collapse (as it was occurring just as I had started to invest). But this book is a real deep dive into Enron, everyone that was involved, and everything that led up to its collapse.
I learned a lot about the company. Especially what it was up to in the 1990s (which was before my time investing). I also didn’t realize how much it was caught up in the dotcom bubble because I always (previously) viewed it as an energy company.
The most surprising was the number of similarities between Enron and Tesla (or that could be my own biases). The constant need to meet Wall Street targets and grow at any cost always comes to an ugly end. My biggest criticism of the book is its sometimes plodding nature as it would often dive into the smallest of minutia.
Overall a fantastic book about what is now (quickly) becoming a bygone era.
Title: The Prize – The Epic Quest For Oil, Money & Power
Author: Daniel Yergin
Rating: 9.5 / 10
Recommended: Yes* (if you're interested in the history of the oil and gas industry)
Thoughts: Daniel Yergin’s magnum opus is a fantastic book detailing the history of the oil and gas industry from its very infancy in Pennsylvania up until the end of the first Gulf War in the early 1990s (there is a brief updated epilogue covering the rise of China and the 2008 GFC). At almost 800 pages long, it’s a dense and intimidating book and not for the faint-hearted.
I enjoyed the book and hope that he will provide an updated version that covers the last 30 years (although that would likely require splitting the book up into two or three volumes). It’s fascinating too how much the world has changed since the 1850s, and yet how little has changed at the same time. The same grievances: such as the Middle Eastern / OPEC countries believing they aren’t getting the full value for the oil & gas exports. US wildcatters who only know “drill baby drill” always complaining about foreigners suppressing the price of oil. The same geopolitical fault lines and hot spots (such as the Gulf of Aden) remain the same even 100 years later.
My only real complaint was that the timeline sometimes became a bit confusing. Dr. Yergin would tell the story of a certain region or company over the span of a couple of years (sometimes up to a decade). And then often step back in time to tell another story that was happening in parallel.
A minor complaint that I had was that the names of some of the companies would change but he didn’t even mention even in passing. All of a sudden they would have a new name with no explanation. For instance, Standard Oil of New Jersey was rebranded as Exxon, but he never wrote about when and why this occurred. The same thing happened with the Anglo-Persian Oil Company which was rebranded as BP (or British Petroleum).
One of the most interesting aspects of the book was the role of Saudi Arabia, which has always tried to take a pragmatic long-term view of oil. Trying to make sure oil prices weren’t too high, but also weren’t too low, with the occasional “sweating” or “ouching” to remind everyone who’s boss.
The world continues, global oil demand continues to grow and the wild booms and busts are unlikely to go away either. This decade, we seem likely to see continued demand growth (particularly from the Indian subcontinent, SE Asia, and Africa), but when we reach peak oil demand remains the (multi) trillion-dollar question.
Title: The Trading Game – A Confession
Author: Gary Stevenson
Rating: 6 / 10
Recommended: No
Thoughts: This is a new book that came highly recommended about the life of STIR (short-term interest rate trader) Gary Stevenson and his time at Citi. It’s a strange book because the first half I really enjoyed (and would give it a 9.5/10). But the second half of the book I did not like (and would give it a rating of 2.5/10). So that’s how I got to a 6 rating.
The book takes us through Gary’s life from a very poor East London upbringing to the London School of Economics and then to Citi’s STIR trading desk. He’s a brilliant trader (or so he claims) and ends up trading over $1 trillion of EUR swaps and making himself millions. But his run is very brief, and the second half details his complete mental breakdown (the only way I can describe it).
He becomes very bitter, antagonistic, and all-around miserable. He never really explains why either (at least to me) as he’s fulfilling his dreams and making more money than he could ever fathom. But he doesn’t spend any of it and doesn’t seem to be able to set any boundaries.
The last part of the book details his battles with Citi for his desire to quit but also keep his deferred compensation. The last part of the book feels very rushed and abbreviated. And he doesn’t provide any real update on what he’s done since leaving Citi for the last ~10 years.
He’s also gone about marketing himself as the “greatest trader ever” which has led to a lot of derision and laughs (even from his former co-workers). A bold claim and not worth reading about.
Title: The Best Way To Rob A Bank Is To Own One
Author: William K. Black
Rating: 9 / 10
Recommended: Yes*
Thoughts: This is one of famed short seller Jim Chanos’ favorite books so I decided to give it a read. It dives into the Savings and Loan (S&L) crisis during the 1980s and all of the rampant fraud that went on (and thousands ended up going to jail over).
Another book I enjoyed the book but there’s the caveat that the author (who was at the center of the crisis) is a lawyer and regulator. So the book is incredibly detailed and well researched, but oftentimes very plodding. The book is roughly 330 pages long which doesn’t seem that bad. But the type is very small and the book is densely packed with details.
Dr. Black pulls no punches in this book (including other regulators, bureaucrats, and politicians) which makes the book all the better. In the end, I’m not sure any lessons were learned because the GFC occurred less than 20 years later and many of the same problems resurface.
All around good book and it’s strange how little the S&L crisis is discussed nowadays (compared to other periods of rampant fraud and regulatory failure).
Title: Capital Returns: Investing Through The Capital Cycle – A Money Manager’s Reports, 2002 – 15
Author: Edward Chancellor
Rating: 8 / 10
Recommended: Yes
Thoughts: Another good book. The book is a collection of snippets of Marathon Asset Management research reports that they send to clients. The book was published in 2015 and all of the stories are from 2002 to 2015 so it’s a bit dated. But they’re fun to read and then look up the stocks and themes they discuss in each to see how their forecasts panned out.
They call themselves “Capital Cycle Investors”. They study where capital is going and where it isn’t. While it’s hard (some would say impossible) to estimate future demand, finding industries that are capital-scarce generally leads to positive outcomes (and vice versa avoiding industries that are experiencing very high levels of capital inflows).
I’ve never thought hard about the “capital cycle” and instead focused on trying to find undervalued companies. But it makes a lot of sense and can see good overlap.
Right now it seems pretty obvious which industries are “suffering” from excessive capital inflows (US in general, US technology, “AI” themes, renewables, EVs) and which industries are seeing scarce capital (energy but particularly coal, precious metal miners, emerging markets) and then there’s a lot of stuff in between (base metals are mixed, real estate is all over the place).
But checking with friends in the industry, their returns are more mixed. And the last 10 years haven’t been so great. It would also be nice to get some updates on the 2015 to 2024 and how both some of their predictions and investment ideas worked out.
Title: Advanced Portfolio Management – A Quant’s Guide For Fundamental Investors
Author: Guiseppe A. Paleologo
Rating: 9.5 / 10
Recommended: Yes* (but not recommended for non-practitioners)
Thoughts: This book is written by Gappy who’s worked at all of the major pod shops (Millenium, Citadel, Hudson River Trading, and soon Balyasny) and does a great job explaining at a high level how they work and how you too can implement so of their best practices.
It goes over factor exposures and factor returns, risk management, leverage, stop-losses, etc. This book is tailored to fundamental investors looking to improve their portfolio management and risk management. This book is not for people who don’t work in the investment industry.
Overall I really enjoyed the book (probably my co-favorite along with Dr. Yergin’s book) and it’s given me a lot to think about. My biggest criticism of the book is that applying a lot of the lessons in the book is difficult.
Factors, which are a majority of the book, are not easily accessible to a retail investor. Basic factor services like BARRA cost over USD$60k a year. Some individuals are putting together free open-source versions but they’re still very much in the early stages and not user-friendly.
I’m not sure if it will make me a better investor, but going forward I’m going to try and be a better risk manager at least.
Title: No Trade Is Free – Changing Course, Taking on China, and Helping America’s Workers
Author: Robert Lighthizer
Rating: 8.5 / 10
Recommended: Yes
Thoughts: Robert Lighthizer was Trump’s US Trade Representative (USTR) during his first term from 2016 to 2020. The book is part biography, part history of the United States’ trading relationship and beliefs around trade since the 1970s, and part insight into how he (and Trump) view the world of trade.
His background is that of a lawyer. He got his start working for US Senator Bob Dole (who headed the Committee on Finance). From there he became Deputy US Trade Representative during the Regan administration (at the ripe age of 36) for two years. After that, he spent 30 years working as a trade litigation lawyer representing US companies (and workers). That was until Donald Trump won the presidency and wanted him to be his trade representative.
So the book is written by a lawyer, which means it can often be plodding and very detailed at times. But I learned a lot. For instance, Donald Trump has been thinking (and talking) about US trade since the 1980s. So when he decided to make trade a centerpiece of both his campaign and presidency, this wasn’t a spur-of-the-moment decision.
The book is 330 pages long and it mostly deals with the United States’ trade relationship with China (and a little bit with Mexico). Trump and Lighthizer’s drastic 180 change in trade policy might go down as one of the most consequential changes of the last 20 years.
The China dealings were interesting given how much back and forth there was. The Chinese negotiators liked to keep as little written down and things as vague as possible. So they were quite surprised when Bob wasn’t the same “business as usual” they had grown accustomed to. The hours were long and the constant travel must have been brutal.
All that being said, I did have some critiques for the book. The old saying “When all you have is a hammer, everything looks like a nail” came up many times during the book. He believes that only manufacturing creates “real” wealth, and often poo-poos the technology sector.
He also made a big deal about the US trade deficit blowing out during the 2000s. But fails to mention that a large part of the reason was due to the US's voracious appetite for oil. US oil consumption has held steady at around 20mm barrels per day for ~30 years. But US oil production suffered a steady decline during the 1990s and 2000s. It got to the point where the US was importing close to 15mm barrels per day. At $60-$80/bbl it was over $300 billion a year and a big chunk of the trade deficit.
He also discussed the 1980s and the flood of Japanese cars and his role in the Reagan administration in putting a stop to it. He blames Japanese industrial policy and an undervalued currency for their success. And I think that’s only partly true. After the oil shock of the 1970s, Americans wanted small, economical, reliable, and fuel-efficient sedans. “Detroit” (GM, Ford & Chrysler) was still building unreliable land yachts and large trucks (with terrible mileage). So where did the American consumer gravitate to? Today, US car makers have completely given up trying to make small sedans to compete with the Japanese and South Koreans.
A similar issue is unfolding now. He didn’t spend a great deal of time but blamed European industrial policy for Airbus coming to dominate the aircraft industry. The trade spat between the US (Boeing) and Europe (Airbus) is legendary but it’s not just industrial policy that is the cause of Boeing’s woes. Terrible management, obsession over short-term performance and focus on share price are just as much to blame (if not more) than some European subsidies. Ironically, Boeing sued Bombardier’s C-Series program which caused the company to almost fall into bankruptcy. And handed the C-Series to Airbus (rebranded as the A220) which is now one of the bestselling aircraft in the world.
Overall it’s worth reading just to get an insight into how Trump and his administration think about trade. The days of free trade deals for all, especially without equal reciprocity, are long over.
Disclaimer: This newsletter and/or any other articles that I publish should not be construed as investment advice. None of the strategies or securities mentioned should be considered as an investment recommendation to buy or sell. I am not an investment advisor and I highly recommend that anyone considering this investment strategy or any of the securities first consult with a registered investment advisor to assess both the suitability and risk of any strategies or securities that are mentioned.