Timothy Geithner was President of the Federal Reserve Bank of New York from 2003 to 2009 and U.S. Secretary of the Treasury under from 2009 to 2013. Many people would have loved to be a fly on the wall in some of the meetings that Geithner was in during the financial crisis, the Great Recession, and the recovery. Geithner provides some insights, but he is also overly concerned with addressing his critics, especially those he calls “moral hazard fundamentalists.”
He makes some good analogies, although he repeats the same ones again and again, and I don’t think he addresses the fundamental problems that his critics are trying to get to. Sure, TARP assuaged the market by injecting capital into the struggling financial sector, and the taxpayers made a profit off the program in the end. Perhaps moral hazard arguments in reference to TARP are overblown. However, does this really settle the argument about whether or not the government should be bailing out companies? Should calming a volatile market really be the role of the federal government? Continue reading “Book Review: Stress Test”
The Austrian School approach to the study economics is practical, logical, and accessible. Understanding it gives one an excellent perspective on history, philosophy, politics, business, current events, and daily life. However, there are so many thinkers one needs to explore, starting with Frédérick Bastiat, Carl Menger, Ludwig von Mises, Murray Rothbard, and Friederich A. Hayek. While incredibly enlightening, their works can be overwhelming in their size, depth, and dryness. They can each take quite a while to get through, and there are so many of them. Gene Callahan shrinks the central concepts from the works of Bastiat, Menger, Mises, Rothbard, and Hayek into one reasonably sized volume that is succinct and more colorfully written. Continue reading “Book Review: Economics for Real People”
I have recently been reading The Young Entrepreneur’s Guide to Starting and Running a Business by Steve Mariotti. It is a great resource that I am using as the textbook for the Intro to Entrepreneurship class I am teaching this year. In chapter 2, there is a little section called “Widen Your World,” and throughout the book, Mariotti encourages readers to feed their imagination, read more books, and take an active approach to life. Inspired by Mariotti, this post is the first of a series I will be doing on this blog called “Widen Your World.” I am starting with my favorite source of inspiration, books! Continue reading “Widen Your World, Part I: Read a Book!”
David Abrams sums up Security Analysis the best in his introduction to Part VII of the 6th edition, where he calls it “the value investors’ equivalent to Deuteronomy” . SA is an extremely thorough explanation of how to evaluate stocks and bonds, primarily focusing on a company’s income statement and balance sheet. It is not an ideal starting point for young investors, but it is essential reading for any serious investor.
Graham and Dodd discuss the philosophy of value investing eloquently. They provide detailed analysis of dozens of companies’ finance statements to support their arguments about how investors should analyze securities. It is an excellent reality check for anyone who thinks he knows a thing or two about investing.
The examples given by Graham and Dodd are a bit dated (1930s), but most of the principles are still relevant today. The organization of the book is a bit awkward, but I don’t presume that I could organize such a massive quantity and variety of material any better.
It took me a long time to get through this, and I will probably explore many parts of it again over the next few years. It is a valuable addition to any business library and a resource that you can use for a lifetime of investing.
I am 3 days into the new Intro to Entrepreneurship class that I am teaching to 24 high school students this year. I am already having a blast, as the students—mostly freshmen—are very enthusiastic, despite several of them not being quite sure what entrepreneurship was 3 days ago. We started off by analyzing the etymology of the word entrepreneurship. Etymology is underrated as a tool for studying concepts like this. You get a peak into the cultural perspective of the time and place where the word was first invented. How cool is that?! Continue reading “Entrepreneurs: The New Adventurers”
All About Asset Allocation is worth a read by every investor, even if you don’t buy into efficient-markets theory (EMT) or modern portfolio theory (MPT) and focus your investing on alternative strategies.
Richard A. Ferri uses tons of charts to help demonstrate the effectiveness of various kinds of diversification of the portfolio. He identifies the roles of various kinds of securities in the modern portfolio. He makes excellent cases for the importance of real estate exposure and international equities. He points out the weakness in the simplistic approach that many financial advisors take to investing in bonds.
Ferri demonstrates various strategies for hedging against inflation, interest rates, and other risks. He creates suggested allocation plans for investors at 4 different age levels and 3 different risk profiles. While I do not agree with all of Ferri’s theories and strategies, everything he advocates is research-based. His approach is appropriate for investors at any level, young or old, advanced or beginner. This is a great resource for anyone committed to meticulous portfolio management.
The Big Short is more technical and more entertaining than I had expected. When it comes to coverage of the 2008 financial crisis, there are few in books or media who do an adequate job of explaining the mortgage-backed securities, collateralized debt obligations, credit default swaps, and other technical finance concepts involved. Michael Lewis manages to make sense of a complex system of debt speculation that the people who were responsible for understanding didn’t seem to understand. It is exactly what one might hope to get out of this book, but it’s not the thing that makes this book truly special.
What is really surprising about this book is its tone. Wall Street investors can be very brash. The investors covered by Lewis are outsiders. They share many characteristics with Wall Street stereotypes, but for various reasons they don’t fit in to those social circles. They are rogue investors, searching for any niche they can find, striving to be contrarian. They speak with a colorful vernacular; Lewis doesn’t bowdlerize. In fact, Lewis adopts a bit of the voice of his characters to better tell their story.
As the story progresses, the tone drastically changes. The events that unfold have huge implications for capitalism, democracy, and the history of the world going into a new century. Seeing how the men who predicted it profited from it and eventually reacted to it is what The Big Short is really about.