Book Report: Pour Your Heart Into It

I suspect it's far more interesting to read this book today with 20/20 hindsight than it would have been when it was originally published about 10 years ago. Howard Schultz (CEO of Starbucks) penned this as the Starbucks brand was peaking. The book provides an interesting history of the company from birth to several years after their IPO, but indulges in a decent amount of "we did a kick ass job." We can all agree that the Starbucks team created an incredibly memorable brand that will sustain over the long haul, but it's meaning today is very disconnected from the vision Howard Schultz puts forth in the book.

To his credit, Howard writes candidly about the company's struggle to keep Starbucks grounded in it's premium coffee roots while trying to reach an ever more mainstream audience. At one important turning point in the company's early history, an influential member of the executive team succeeded in pushing the company towards a customer focus (as opposed to a product focus). This brings up an interesting question for all CEOs, should you be in the business of providing whatever a customer says they need? People like fats, sugars, and salts so if you're a food service organization should you load up your products with those things? It's an interesting question and one that pulls at the tension between delivering to your customer something you believe in vs something they'd happily buy. Howard laments the idea that anyone would ever compare Starbucks to McDonalds, yet today the two companies are now tellingly locked in a marketing battle. How do you stay true to your core while still continuing to meet the demands of Wall Street for eternal growth? 

Other books I've read recently...

Lives of Ants - Yes an odd choice for me, but an okay survey of the ant species. Not that exciting of a read, but I'll leave you with two fun takeaways: there are ant species that raise livestock (aphids) and others that raise crops (fungi). Crazy!

The Language Instinct - Pretty interesting (key elements of language are innate, children without language can create new full featured languages, theory of a universal system underlying all languages), but Pinker dives too deep and the book gets very technical and ultimately boring. I ended up skipping around and didn't reading everything... 

Book Report: Animal Spirits - How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism

Another econ book, guess I can't get enough of them these days. Due to Shiller's involvement I had high hopes, but found it pretty disappointing. I didn't get the sense that the authors really thought through who their audience might be. It seemed far too light for economists (even armchair ones) and maybe too advanced for a mainstream audience (though we'll have to watch the sales figures). 

The basic premise is that the core models on which we've long built macro economic theories are far too simplistic and therefore wrong. Markets of all types are influenced dramatically by "animal spirits" (aka human psychology) and we need to find ways to successfully incorporate this new understanding. The authors suggest that theirs is a unique insight and as a result we can finally understand why our macro econ models are so broken: "Our theory of animal spirits provides an answer to a conundrum: Why did most of us utterly fail to foresee the current economic crisis?"  I found this statement a bit too bold, shouldn't behavioral economics pioneers like Daniel Kahneman and Vernon Smith share in the credit? Also beyond a light weight discussion of their theory and it's grand implications there isn't much depth to back up their claims (though I'm not saying the ideas are wrong). Further research is left as an exercise to the reader or the current crop of grad students...

If you haven't been following the latest economic thinking since undergrad (and you went to undergrad 10+ years ago) you might find this book illuminating, otherwise I'd probably skip it.

Book Report: The Rise and Decline of Nations

Finally finished this one, eek that took a while. Rise and Decline of Nations was dry as matzoh, but it did leave me with some ideas to chew on...

The basic theme is wonderfully simple: special-interest groups (aka distributional coalitions) are bad. Through influencing government policy and collective action (price fixing, etc) over time they manage to tax each of us, thereby reducing our wealth while increasing theirs (in an extremely inefficient way). 

One key takeaway for me was when Olson explained why consumers (like you and me) don't defend themselves against these groups...

Olson provides 9 implications of having special interest groups operate in a stable society over time (paraphrased more or less here): 

1. No country will obtain an optimal economic outcome through competition between groups since only those with something significant to gain by organizing (distributional coalition) are represented. 

2. Older stable societies have more special interest groups.

3. Small groups can organize easier and have more power in a newly formed societies.

4. Special interest groups on balance reduce economic efficiency and make political life divisive. 

5. Very large groups (encompassing) have some incentive to do what is best for society and are less damaging. 

6. Groups make decisions far more slowly than individuals.

7. Groups slow down society's ability to adjust to changing conditions and technologies, reducing economic growth. 

8. Once successful, a group seeks to limit diversity of incomes and values. They also work to restrict membership (to protect the value of the benefits obtained for each existing member).

9. More groups means more regulation and government involvement. 

South Park on the Economy

Banker: How can I help you young man?

Stan: I got a hundred dollar check from my grandma and my Dad said I should put it in the bank so it can grow over the years.

Banker: Well thats fantastic, a really smart decision young man. We can put that check in a money market mutual fund that will reinvest the earnings into foreign currency accounts with compound interest... and it's gone.

Stan: Uh what?

Catch the full episode for some "gallows" humor.

Book Report: Work Hard. Be Nice.

Another good book on some of the positive change now happening in the world of education. Jay Mathews tells the story of the founding and success of KIPP (Knowledge is Power Program) charter schools. Started in Houston about 15 years ago by two Teach for America teachers (Levin and Feinberg) the program has since grown to 66 schools in 19 states. KIPP has had considerable success boosting test scores and hence college preparedness of kids from underprivileged backgrounds.

Perhaps the most important takeaway is that change is not easy. Overcoming bureaucratic sclerosis (both in the world of education and most certainly anywhere else an old guard exists) is a serious challenge no matter how good your program or idea. In addition, great success also attracts great scrutiny and the book touches on the many probing questions raised by skeptical critics as KIPP schools and it's unique program became more widely known and celebrated. Fortunately, despite significant resistance and opposition KIPP continues to expand and looks poised to transform education for the better. 

After reading this text and Whatever it Takes I'm quite optimistic that the charter system will be ultimately hailed a roaring success. While there is still a long way to go, the program has clearly fostered creativity and experimentation in education, which was so badly needed. 

The Stimulus

The NYTimes has a mildly informative breakdown.

Book Report: Whatever it Takes

Read this book. In these morose times it's refreshing to hear about something that could have a huge positive impact on society. I was pointed to Whatever it Takes by a NYTimes Magazine piece entitled "The Big Fix". 

I've long been interested in our country's education challenges, but I'm an armchair quarterback on the issues and have little direct experience with the problems faced in America's schools. I do know a few TFA folks and I've enjoyed talking to them about the challenges they've faced in trying to educate disadvantaged students. 

While we're always hearing in the media that America's schools are failing us (and I believe this is largely true) there are beacons of hope. Paul Tough takes you into Harlem for an up close look at an experiment in early intervention and education that really does look like it's working (Harlem Children's Zone). While I was left feeling like the work of HCZ will get many of the most disadvantaged students scoring as well as middle class suburbanites on standardized tests (and therefore into college), the final chapter is still to be written. The book highlights that early interventions (working with parents from the day their child is born until the kid is a late teen) and continual support (pre-kindergarten, etc) do appear to dramatically raise standardized test scores. We still need to wait for more complete data on how well children do when they are intensely aided through their entire youth and early adolescence, but I'm excited at the prospect that it might actually work.

The book reminded me of Malcolm Galdwell's point in Outliers that even small differences early on can lead to massive disparities later. It follows logically that deltas in a child's earliest years should have dramatic effects on a students ability to perform as a young adult. 

Calendar Year Stock Returns

2008 is that little yellow box circled on the far left... sigh.

For my birthday, I'd like one of these...

Food Poisoning: Bleh!

Friday I was taken out by what appears to be food poisoning. I know it's tricky to pinpoint the culprit, but why isn't there an easy and quick way to report suspected food poisoning and possible suspects? If we all dutifully reported where we may have gotten food poisoning it follows that it'd be pretty easy to sort out if there is a particular establishment with a real problem. 

Instead we're told to... 

1. Call the suspect(s)

But as you can see from the Chronicle story, restauranteurs aren't likely to believe you and you're accusing them of hurting your health which is guaranteed to put all but the most cool headed operator on the defensive.

2. Call the Dept of Health

Sounds like 4 or more people need to be affected for any investigation to occur. Seems unlikely that 4 people would take the time to call in unless a restaurant was making a large number of people sick. 

Solution?

Set up a website that allows consumers to quickly report cases of poisoning and possible culprits. Make this page easy to find and prominent on the Health Department's site (I couldn't find anything about reporting food poisoning on the front page or via a quick search). If you lower the barriers to report, you'll get more information, and more information means you'll have a shot at identifying problems. 

Just a thought...

Book Report: Outliers

Meh. Ok sure it's the cocktail party chatter book of late 2008 so you'll probably end up reading it, but please allow me to spoil it for you...

You're not that great and you're not that talented, so get over yourself. 

It's true, we're all a product of our (random and sometimes privileged) circumstances. As Buffett likes to say he won the ovarian lottery, if he were born dirt poor in rural Africa could he possibly have achieved so much? Hardly.

Gladwell is a great story teller and the book is not without it's surprising and delightful anecdotes (the opening Canadian hockey tale and Manhattan law firm history were two of my favorites). However, if you take away the sizzle of these stories and focus on the book's main point, you're left with a big... well duh. Obviously extremely successful people are just people. Yes they are motivated and hardworking, but they've also benefited from unique opportunities and timing aka luck. 

No one ever said life was fair, and randomness plays a huge role in everyone's outcome starting with which womb and in which country you popped out. Malcolm seems somewhat uncomfortable with the fact that life does not provide a level playing field. While it's an admirable goal to smooth such disparity, random happenstance will always play a major role. 

If you're interested in reading more about outliers try Creativity by Csikszent Mihaly

 

Book Report: Bad Science

Pretty good. Found it on The Economist's list of Best Books of 2008. 

The main premise is that the media is absolutely terrible at informing the public on issues relating to science. Goldacre (himself an NHS physician in the UK) skewers the press for fear mongering, relying on frauds or shysters as "experts", supporting pseudoscience and a whole host of other information atrocities. His focus is entirely on the UK and the personalities and media sources he discusses will be unknown to US readers (like me), but that doesn't get in the way of his anecdotes or points.

A particularly amusing highlight from the text was this graph...

Which points to the dangers of incompetence; the least able are also the least likely to know it. If you don't have time to read the book you still might want to check out Ben's Bad Science blog.

Get better and come back soon...

Book Report: The Essays of Warren Buffett

Loved it.  Editor Lawrence Cunningham has gone through all of Berkshire's old annual reports and compiled a very readable "Buffett's Greatest Hits" with lessons organized by topic. If you want to hear directly from the Oracle, this is your best bet (unless you have time and inclination to read all the annual reports yourself). 

I can't help but be in awe of what Buffett has accomplished in business. He has been an unwavering voice of reason, bucking trends that make no sense, occasionally warning us of impending doom, and generally kicking ass and taking names. 

Some quotes I noted while reading (some paraphrased, mostly on valuation and investing)

The goal of each investor should be to create a portfolio (in effect, a "company") that will deliver him the highest possible look-through earnings a decade or so from now. 

The primary test of managerial economic performance is the achievement of a high earnings rate on equity capital employed (without undue leverage, accounting gimmickry, etc.) and not the achievement of consistent gains in earnings per share.

In analysis of operating results... what a business can be expected to earn on unleveraged net tangible assets, excluding any charges against earnings for amort. of Goodwill, is the best guide to the economic attractiveness of the operation. 

Owner Earnings: reported earnings plus depreciations, depletion, amort, and other non-cash charges less average annual capex for plan and equipment required to maintain its long term competitive position and unit volume. 

Intrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life. 

The percentage change in book value in any given year is likely to be reasonably close to that year's change in intrinsic value. 

Book value is meaningless as an indicator of intrinsic value. 

Question: Why don't airlines auction upgrades?

On my flight out to London I inquired (the day of) about upgrading on Virgin Atlantic to Premier Economy. I was quoted $300 so I put my name on the waiting list. The flight was completely booked so I flew next to 3 screaming babies. Awesome.

On my flight back from London I again inquired (the day of) about upgrading and was quoted £380 ($580). This time the flight was half full and both First Class and Premium Economy were absolute ghost towns. The $580 made no sense to me in the context of lower demand and it was higher than my willingness to pay, so again it was a no go.

So now my question: why on earth don't airlines allow interested customers to bid on available seat upgrades? 

Benefits: 

• More revenue from the same flight, those seats are going to go empty. 
• Thrilled customers who get upgrades they weren't expecting for a price they're happy to pay.
  

Downsides: 

• Less exclusivity, prices on some seats may be sold cheaply. 
  
• Variable costs servicing fancier seats may be higher than add'l revenue gained. 
  
• Fewer people may book early relying on playing the upgrade game at the airport.

Proposed Mechanism: 

• Arrive at airport to check in
  
• Say you're interested in upgrades
  
• Enter a willingness to pay
  
• Find out at the gate whether you have an accepted bid
• Get your upgrade
  

So am I missing something? Why hasn't anyone tried something beyond just flat (but obviously inconsistent) pricing for upgrades? 

WSJ: Expert advice vs Expert's own actions

Got a chuckle from the WSJ's reporting on investment gurus who haven't strictly followed their own "sound" advice...

"John C. Bogle, founder of the Vanguard funds, believes investors should rebalance their portfolios on a regular schedule by selling a portion of whatever has gone up the most or buying some of whatever has gone down. 'I think rebalancing makes a substantial amount of sense,' Mr. Bogle recently said on the Jean Chatzky radio show. With his own money, however, 'I don't rebalance ... I leave it alone. I have not touched my asset allocation since March of 2000.'"

The full story: Investing Experts Urge 'Do as I Say, Not as I Do' (WSJ subscription required)