Book Worm

Trust is the necessary foundation for long-term business success and candor is the language of leaders who choose to be trusted. This book offers important clues for deciphering the CEO communications to help investors make better decisions.

When an investor starts his investigation about a business the first thing he wants to know is if the business is strong and profitable? The answer to this question can be found out from the company’s annual report by reading the numbers like net earnings, debt, cash flow, profitability ratios etc.

The next question one needs to answer is how accurate or authentic those numbers are? Of course they are verified by auditors, but then Enron and Satyam numbers were also certified by auditors. And both of them ended up as biggest accounting scandals.
[Read more…] about BookWorm: Investing Between The Lines

This collection of stories of 8 terrific CEOs proves that the outsider approach to resource allocation offers a proven method for navigating the unpredictable, untidy world of business. These outsiders have generated exceptional results across a wide variety of industries and market conditions.

It’s a known fact that Warren Buffett reads hundreds of books every year but when it comes to making book recommendation publicly, he’s very conservative. However, every once in a while he comes out with few book recommendations in his annual letters.

In his 2013 letter to shareholders, Buffett recommended –

“The Outsiders, , by William Thorndike, Jr., is an outstanding book about CEOs who excelled at capital allocation. It has an insightful chapter on our director, Tom Murphy, overall the best business manager I have ever met.

One of the most important questions that an investor needs to answer while making an investment decision is – How to measure a CEO’s performance? Conventional wisdom says, it’s active oversight of business operations, regular communication with research analysts, and an intense focus on stock price. But is it right?
[Read more…] about BookWorm: The Outsiders

Dan Ariely, in his own witty and entertaining way, refutes the assumption that we behave in fundamentally rational ways. Our misguided behaviours are systematic and predictable – making us predictably irrational

Dan Ariely’s Predictably Irrational was probably one of the first few books that I read on the subject of human irrationality and psychological bias.

Ariely is a Professor of Psychology and Behavioral Economics at Duke University. He has an unusual way of looking at things which is quite evident from the way he designs his experiments to gain insights on human behaviour. A lot of credit goes to him for transforming the academic studies about human biases into interesting and entertaining text.

The topic of psychological biases and human irrationality isn’t a new one but what Ariely has done is shift a lot of the thinking developed by such pioneers as Kahneman & Tversky who worked in behavioural economics, and moved it into the everyday sphere.
[Read more…] about BookWorm: Predictably Irrational

Building a business is hard and there are no easy answers to the tough problems business throws at you every day. A high technology entrepreneur and a venture capitalist shares an honest and straight talk based on his experience in starting, running and selling a billion-dollar company.

While many people talk about how great it is to start a business, very few are honest about how difficult it is to run one. In fact, calling it difficult would actually be an understatement.

Building a company inevitably leads to tough time. It’s just hard and the hard thing about it is that there is no formula to deal with those hard things.
[Read more…] about BookWorm: The Hard Thing About Hard Things

An effective decision making process needs two things. Reducing errors and gaining insights. What if you could find a way to gain more insights than most people.

Two cops were stuck in traffic. They were on a routine patrol. As they waited for the light to change, the younger cop glanced at the fancy new BMW in front of them. The driver took a long drag on his cigarette, took it out of his mouth and flicked the ashes onto the upholstery.

The younger cop couldn’t believe it. He exclaimed, “That’s a new car and he just ashed his cigarette in that car. Who would ash his cigarette in a brand new car? Not the owner of the car. Not a friend who borrowed the car. Possibly a guy who had just stolen the car.”

Upon quizzing the driver, it did turn out to be a stolen car. The cop noticed something which wasn’t obvious to others. He had a brilliant Insight.

The example comes from the book Seeing What Others Don’t by Gary Klein, a renowned cognitive psychologist.

Charlie Munger, the inimitable partner of Warren Buffett, likes to quote,

A lot of success in life and success in business comes from knowing what you really want to avoid.” He favours the attitude where one is consistently trying to avoid stupidity instead of running after brilliance.

On other hand, the key to success, according to Munger, is “Work, work, work and hope to have a few insights.”

What I infer from above two statements is that, in life and in business, reducing errors is good strategy but one shouldn’t forget about generating new insights too. The following illustration from the book captures the idea very well.
[Read more…] about BookWorm: Seeing What Others Don’t