Books – Page 129 – artdiamondblog.com

Happiness Depends Most on Being Free to Choose

(p. 27) Getting richer is not the only or even the best way of getting happier. Social and political liberation is far more effective, says the political scientist Ronald Ingleheart: the big gains in happiness come from living in a society that frees you to make choices about your lifestyle – about where to live, who to marry, how to express your sexuality and so on. It is the increase in free (p. 28) choice since 1981 that has been responsible for the increase in happiness recorded since then in forty-five out of fifty-two countries. Ruut Veenhoven finds that ‘the more individualized the nation, the more citizens enjoy their life.’

Source:
Ridley, Matt. The Rational Optimist: How Prosperity Evolves. New York: Harper, 2010.

Mackay Warned about Delusions, then Was Deluded by Bubble

(p. B1) Can you spot a bubble?
Ever since 1841, when a Scottish journalist named Charles Mackay published the book known today as “Extraordinary Popular Delusions and the Madness of Crowds,” the answer has seemed clear. If you watch carefully for signs of euphoria, you can sidestep the damage when markets go mad.
But bubble spotting isn’t as simple as Mackay made it sound–even, it turns out, for Mackay himself. Investors should always guard against the glib assertions of pundits who claim they can detect bubbles before they burst.
. . .
But new research tells the untold tale of Mackay’s own behavior in the face of a bubble–and it is a shocker. A mathematician and former cryptographer at Bell Labs named Andrew Odlyzko has spent much of the past decade researching a forgotten stock mania. One of its biggest boosters was none other than Charles Mackay.
A bubble in British railroad stocks began in 1844, only three years after Mackay published his book, and it didn’t start to collapse until late 1845. Even with the history of market folly fresh in his mind, Mackay urged British investors to pile into railway stocks, whose extravagant prices were based on absurdly unrealistic projections of future growth.
The most famous critic of bubbles who ever lived fell like a chump for a craze that was unfolding before his very eyes. On Oct. 2, 1845, Mackay wrote that “those who sound the alarm of an approaching railway crisis have somewhat exaggerated the danger.”
He went on to ridicule anyone who argued that “the Railway mania of the present day” was similar to the devastating bubbles he had described in his own book. “There is no reason whatever to fear” a crash, he concluded.
He couldn’t have been more wrong. From 1845 to the bottom in 1850, railway stocks fell by two-thirds–the equivalent of roughly $1 trillion of losses in today’s money. Mackay never fessed up to his own extraordinary delusion.

For the full commentary, see:
JASON ZWEIG. “THE INTELLIGENT INVESTOR; The Extraordinary Popular Delusion of Bubble Spotting.” The Wall Street Journal (Sat., NOVEMBER 5, 2011): B1.
(Note: ellipsis added.)

Ridley Argues that Our Future Can Be Bright

Source of book image: http://1.bp.blogspot.com/_cheRMv1X2oI/TAOvTFTnoeI/AAAAAAAAAgU/WAp7q0I_5mw/s1600/Ridley+Rational+Optimist.jpg

Ridley’s book is very well-written, well-argued and well-documented. He takes on all the main arguments against a happy future for humans. I agree with most of what he writes. (One exception is that I think he underestimates the importance of patents in enabling a broader group of inventors to continue inventing.)
In the coming weeks, I will be quoting some of the more memorable, thought-provoking, or useful passages.

Book discussed:
Ridley, Matt. The Rational Optimist: How Prosperity Evolves. New York: Harper, 2010.

Collins Says Successful CEOs Are Empirical and Disciplined

Source of book image: online version of the WSJ review quoted and cited below.

(p. A15) ‘Great by Choice” is a sequel to Jim Collins’s best-selling “Good to Great” (2001), which identified seven characteristics that enabled companies to become truly great over an extended period of time. Never mind that one of the 11 featured companies is now bankrupt (Circuit City) and another is in government receivership (Fannie Mae). Mr. Collins has a knack for analysis that business readers find compelling.

Mr. Collins’s new book tackles the question of how to steer a company to lasting success in an environment characterized by change, uncertainty and even chaos. Like his previous work, this book builds its conclusions on a framework of painstaking research, conducted over nine years and overseen by Mr. Collins and his co-author, Morten T. Hansen, a management professor at the University of California, Berkeley.
. . .
Messrs. Collins and Hansen draw some interesting and counterintuitive conclusions from their research. First, the successful leaders were not the most “visionary” or the biggest risk-takers; instead, they tended to be more empirical and disciplined, relying on evidence over gut instinct and preferring consistent gains to blow-out winners. The successful companies were not more innovative than the control companies; indeed, they were in some cases less innovative. Rather, they managed to “scale innovation”–introducing changes gradually, then moving quickly to capitalize on those that showed promise. The successful companies weren’t necessarily the most likely to adopt internal changes as a response to a changing environment. “The 10X companies changed less in reaction to their changing world than the comparison cases,” the authors conclude.
. . .
If “Great by Choice” shares the qualities that made “Good to Great” so popular, it also shares some that drew criticism. The authors’ conclusions sometimes feel like the claims of a well-written horoscope–so broadly stated that they are hard to disprove. Their 10X leaders are both “disciplined” and “creative,” “prudent” and “bold”; they go fast when they must but slow when they can; they are consistent but open to change. This encompassing approach allows the authors to fit pretty much any leader who achieves 10X performance into their analysis. Would it ever be possible, one wonders, to find a leader whose success contradicted their thesis?

For the full review, see:
ALAN MURRAY. “BOOKSHELF; Turbulent Times, Steady Success; How certain companies achieved shareholder returns at least 10 times greater than their industry.” The Wall Street Journal (Tues., OCTOBER 11, 2011): A15.
(Note: ellipses added.)

Companies Can Grow to Greatness in Brutally Turbulent Environments

(p. 118) All that said, there remains a question: what about “the perennial gale of creative destruction” as described by the famous twentieth-century economist Joseph Schumpeter, wherein technological change and visionary entrepreneurs upend and destroy the old order and create a new order, only to see their new order destroyed and replaced by an even newer order, in an endless cycle of chaos and upheaval? Perhaps all social institutions in our modern world face disruptive forces so fast, big, and unpredictable that every entity will fall within years or decades, without exception. Can we still stave off decline in the face of severe turbulence?

While working on How the Mighty Fall, my colleague Morten Hansen and I have been simultaneously working on a six-year research project to study companies that grew from vulnerability to greatness in severe environments characterized by rapid and unpredictable change in contrast to others that did not prevail in the same brutally turbulent environments.

Source:
Collins, Jim. How the Mighty Fall: And Why Some Companies Never Give In. New York: HarperCollins Publishers, Inc., 2009.
(Note: italics in original.)

A&P Sold Consumers Better and Lower-Priced Food

Source of book image: online version of the WSJ review quoted and cited below.

(p. A15) Mr. Levinson’s history centers on the two Hartford sons who followed their father into the business. They would spend their entire working lives at the company being known simply as “Mr. George” and “Mr. John.” Thoughtful and studious, Mr. George’s idea of excitement was a good jigsaw puzzle; Mr. John, somewhat more outgoing, liked the horses but also a daily lunch of milk and crackers. Together the brothers, neither of whom had finished high school, built what would be, for 40 years, the largest retail outlet in the world.

The brothers’ business philosophy was simple, writes Mr. Levinson: “If the company keeps its costs down and prices low, more shoppers would come through its doors, producing more profits than if it kept prices high.” The more stores they could open, the greater the take.
But the Hartfords had a public-relations problem. Since the nation’s earliest days, small family stores had served as community anchors. There were thousands across the country. Mom and pop knew every customer who came through their door; they extended credit to families down on their luck. If low-priced chains drove out such stores, what would happen to small-town America?
In fact, many mom-and-pop operations were inefficiently and incompetently run. A&P might be coldly corporate by comparison, but it offered consumers far more variety and fresher, better-quality goods at less cost to the family budget.

For the full review, see:
PATRICK COOKE. “BOOKSHELF; How a Grocer Bagged Profits; At its peak, the chain had nearly 16,000 stores. Critics charged it with competing unfairly by offering too-low prices.” The Wall Street Journal (Mon., AUGUST 29, 2011): A15.
(Note: ellipsis added.)

The book under review is:
Levinson, Marc. The Great A&P and the Struggle for Small Business in America. New York: Hill and Wang, 2011.

Entrepreneur Sam Walton Sought to Learn from Others

(p. 40) So where is Ames at the time of this writing, in 2008?
Dead. Gone. Never to be heard from again. Wal-Mart is alive and well, #1 on the Fortune 500 with $379 billion in annual revenues.
What happened? What distinguished Wal-Mart from Ames?
A big part of the answer lies in Walton’s deep humility and learning orientation. In the late 1980s, a group of Brazilian investors bought a discount retail chain in South America. After purchasing the company, they figured they’d better learn more about discount retailing, so they sent off letters to about ten CEOs of American retailing companies, asking for a meeting to learn about how to run the new company better. All the (p. 41) CEOs either declined or neglected to respond, except one: Sam Walton.
When the Brazilians deplaned at Bentonville, Arkansas, a kindly, white-haired gentleman approached them, inquiring, “Can I help you?”
“Yes, we’re looking for Sam Walton.”
“That’s me,” said the man. He led them to his pickup truck, and the Brazilians piled in alongside Sam’s dog, Ol’ Roy.
Over the next few days, Walton barraged the Brazilians with question after question about their country, retailing in Latin America, and so on, often while standing at the kitchen sink washing and drying dishes after dinner. Finally, the Brazilians realized, Walton-the founder of what may well become the world’s first trillion-dollar-per-year corporation-sought first
and foremost to learn from them, not the other way around.

Source:
Collins, Jim. How the Mighty Fall: And Why Some Companies Never Give In. New York: HarperCollins Publishers, Inc., 2009.

How Entrepreneurship Rebuilt San Francisco After the Fire

(p. 5) At 5:12 a.m. on April 18, 1906, Amadeo Peter Giannini felt an odd sensation, then a violent one, a slight, almost imperceptible shift in his surroundings coupled with a distant rumble like faraway thunder or a train! Pause. One second. Two seconds. Then-bang!-his house in San Mateo, California, began to pitch and shake, to, fro, up, and down. Seventeen miles north in (p. 6) San Francisco, the ground liquefied underneath hundreds of buildings, while heaving spasms under more solid ground catapulted stones and facades into the streets. Walls collapsed. Gas mains exploded. Fires erupted.

Determined to find out what had happened to his fledgling company, the Bank of Italy, Giannini endured a six-hour odyssey, navigating his way into the city by train and then by foot while people streamed in the opposite direction, fleeing the conflagration. Fires swept toward his offices, and Giannini had to rescue all the imperiled cash sitting in the bank. But criminals roamed through the rubble, prompting the mayor to issue a terse proclamation: “Officers have been authorized by me to KILL any and all persons found engaged in Looting or in the Commission of Any Other Crime.” With the help of two employees, Giannini hid the cash under crates of oranges on two commandeered produce wagons and made a nighttime journey back to San Mateo, where he hid the money in his fireplace. Giannini returned to San Francisco the next morning and found himself at odds with other bankers who wanted to impose up to a six-month moratorium on lending. His response: putting a plank across two barrels right in the middle of a busy pier and opening for business the very next day. “We are going to rebuild San Francisco,” he proclaimed.

Giannini lent to the little guy when the little guy needed it most. In return, the little guy made deposits at Giannini’s bank. As San Francisco moved from chaos to order, from order to growth, from growth to prosperity, Giannini lent more to the little guy, and the little guy banked even more with Giannini. The bank gained momentum, little guy by little guy, loan by loan, deposit by deposit, branch by branch, across California, (p. 7) renaming itself Bank of America along the way. In October 1945, it became the largest commercial bank in the world, overtaking the venerable Chase National Bank. (Note of clarification: in 1998, NationsBank acquired Bank of America and took the name; the Bank of America described here is a different company than NationsBank.)

Source:
Collins, Jim. How the Mighty Fall: And Why Some Companies Never Give In. New York: HarperCollins Publishers, Inc., 2009.

Collins’ “How the Mighty Fall” Is Useful Business Book

Source of book image: http://www.harpercollins.com/harperimages/isbn/large/9/9780977326419.jpg

Jim Collins’ business books are usually sensible, and are full of arresting examples and memorable hypotheses. His latest full-scale research effort (Great by Choice) is just out, but I have not yet read it. In the next few weeks, I will quote a few of the more thought-provoking or useful passages in his 2009 small book How the Mighty Fall.

Book discussed:
Collins, Jim. How the Mighty Fall: And Why Some Companies Never Give In. New York: HarperCollins Publishers, Inc., 2009.

“Private Life Was Completely Transformed in the Nineteenth Century”

(p. 448) Private life was completely transformed in the nineteenth century – socially, intellectually, technologically, hygienically, sartorially, sexually and in almost any other respect that could be made into an adverb. Mr Marsham was born (in 1822) into a world that was still essentially medieval – a place of candlelight, medicinal leeches, travel at walking pace, news from afar that was always weeks or months old – and lived to see the introduction of one marvel after another: steamships and speeding trains, telegraphy, photography, anaesthesia, indoor plumbing, gas lighting, antisepsis in medicine, refrigeration, telephones, electric lights, recorded music, cars and planes, skyscrapers, motion pictures, radio, and literally tens of thousands of tiny things more, from mass-produced bars of soap to push-along lawnmowers.
It is almost impossible to conceive just how much radical day-to-day change people were exposed to in the nineteenth century, particularly in the second half. Even something as elemental as the weekend was brand new.

Source:
Bryson, Bill. At Home: A Short History of Private Life. New York: Doubleday, 2010.

Justice for He Who Taxed Unjustly

(p. 444) At the height of the agricultural crisis, the British government under the Liberals did an odd thing. It invented a tax designed to punish a class of people who were already suffering severely and had done nothing in particular to cause the current troubles. The class was large landowners. The tax was death duties. Life was about to change utterly for thousands of people, including our own Mr Marsham.
The designer of the new tax was Sir William George Granville Venables Vernon Harcourt, the chancellor of the exchequer, a man who seems not to have been liked much by anyone at any point in his life, including his own family. Known familiarly, if not altogether affectionately, as ‘Jumbo’ because of his magnificent rotundity, Harcourt was an unlikely persecutor of the landed classes since he was one of them himself. The Harcourt family home was Nuneham Park in Oxfordshire, which we have visited in this book already. Nuneham, you may remember, was where an earlier Harcourt reconfigured the estate but failed to recollect where the old village well had been, fell into it and drowned. For as long as there had been (p. 445) Tories, the Harcourts had numbered themselves among them, so William’s joining of the Liberals was seen within his family as the darkest treachery. Even Liberals were startled by his tax. Lord Rosebery, the prime minister (who was himself a big landowner), wondered if some relief should at least be granted in those cases where two inheritors died in quick succession. It would be harsh, Rosebery thought, to tax an estate a second time before the legatee had had a chance to rebuild the family finances. Harcourt, however, refused all appeals for concessions.
That Harcourt stood almost no chance of inheriting his own family property no doubt coloured his principles. In fact, to his presumed surprise, he did inherit it when his elder brother’s son died suddenly, but heirlessly, in the spring of 1904. Harcourt didn’t get to enjoy his good fortune long, however. He expired six months later himself, which meant that his heirs were among the first to be taxed twice over in exactly the way that Rosebery had feared and he had dismissed. Life doesn’t often get much neater than that.

Source:
Bryson, Bill. At Home: A Short History of Private Life. New York: Doubleday, 2010.