May + June 2024 Favorite Reads

90+% value comes from 10% of what we read. Here’s my summary of favorites from May and June. 

Books 

1. The Great Depression: A Diary by Benjamin Roth
   • Most history is told after the fact. In this book, a lawyer in Youngstown, Ohio details what the Great Depression was like in real time.
   • What stood out to me
     1. How little people knew – many didn’t even realize they were in a depression at the time it occurred. 
     2. Market timing was virtually impossible – even within the depression there were huge bumps and dips. Particularly from 1935 to 1937 it seemed you were coming out of the depression, but then it all fell back to lows again.
     3. How vitally important Roth thought cash on hand was – he saw many bargains, but was unable to buy and it reinforced how important it is to have excess cash.
     4. Most people he saw who bought any stocks on margin were wiped out – “never bet what you have and need for what you don’t have and don’t need”
     5. Real estate didn’t make it through the crisis well – people who bought real estate struggled to rent it out and still had to pay taxes on it. 
     6. His best advice still resonates
        • Live on less than you earn (save at least 10%)
        • Use that to consistently invest and reinvest the earnings
        • Hold on to stocks for long term
        • His 3 necessary ingredients for investing are patience, courage, and cash on hand
     7. Fun fact: in 1929 only 2.5% of people owned stocks vs 55-60% today. Because of this, a similar level drop as Great Depression seems less likely to me

Articles

1. How I think about Debt by Morgan Housel
   • “Japan has 140 businesses that are at least 500 years old. A few claim to have been operating continuously for more than 1,000 years.”
     • Morgan makes point all of these Japanese businesses carry almost no debt
     • His point is “As debt increases, you narrow the range of outcomes you can endure in life.”
   • Debt makes you susceptible to volatility that will wipe you out
   • Since Morgan wants to be around another 50 years, there will be wars, recessions, dramatic political events, etc.
     • Debt makes you less able to sustain these events
     • These will happen and you need to be resilient when they do occur
2. The Impact of Debt by Howard Marks
   • Builds on Morgan’s article above and expands to Mark’s business context as a large US debt investor
   • Whether debt is appropriate depends on
     1. “(a) the size of the overall enterprise and (b) the potential for fluctuations in the enterprise’s profitability and asset value.”
     2. The more stable assets are, the more debt is appropriate. When asset isn’t stable and there’s more debt then it’s volatile
   • ”The most important adage regarding leverage reminds us to “never forget the six-foot-tall person who drowned crossing the stream that was five feet deep on average.”
     • To keep going you need to have drawdowns and debt makes it harder to have drawdowns
     • Even harder to know not to use debt because tail events come out of nowhere
   • Thinks of determining debt levels as optimizing not maximizing
     1. Optimize best for long term business, don’t maximize short term returns
     2. Maximal returns with downside is still wrong for most businesses
     3. Key to survival lies in Buffett’s margin of safety
3. How to Manage Opportunity Cost: Attention Thresholds in Personal Wealth Building by Eric Jorgensen
   • Focuses on the idea that how you make decisions should change as your personal wealth grows
     • Argues that spending decisions are trivial at 0.01% of your current net worth
     • As your income grows, you should only spend your time on things that are much higher percentages. So you should worry less about groceries or restaurants if you have millions of dollars 
   • His visual table is incredibly helpful here, but I’ve struggled to add it in for ten minutes and gave up
4. NY Times Rent vs Buy Calculator Update
   • An update to one of the best summaries for the largest financial decision most people make 
   • A few things stand out
     1. Renting is way cheaper right now and buying is an emotional not financial decision
        • At the cost of my local real estate, staying for 10 years, and our marginal tax rate you’d have to have to be charged the equivalent of 2X for renting for the math to make sense 
        • This reinforces our decision to rent for now
     2. With current interest rates, the numbers are so skewed in the favor of buying that we’d almost have to put down a ton of money and have a ton of confidence before buying
5. The Verge – The Cloud Under the Sea
   • The internet is transmitted by hundreds of thousands of cables under the sea. These cables break often, but are repaired by a network of ships and this article walks through this
     • Cable breaks happen about 200 times a year and 22 ships strategically placed go fix them
     • “Cables that are about as thin as a garden hose. There are about 800,000 miles of these skinny tubes crisscrossing the Earth’s oceans”
     • If all cables stopped, internet would break as would all financial transactions and markets as satellites could only pick up half a percent of their traffic
   • Following the Japanese quake in 2011, they almost lost internet entirely
     • Earthquakes are an instance when multiple cables are severed at the same time which threatens to knock out a whole area (this somewhat happened in Taiwan in 2006)
     • When earthquakes occurs, there’s underwater avalanches in underwater mountains which can knock out everything
   • Cable repair works by effectively dragging a long hook along the ocean floor and then grabbing the cable
     • Repair the cable by picking up the two pieces of cable, cutting out the break, and then attaching a new cable to connect them
     • Repairing cable adds a few miles to each new portion of cable
   • Way the industry works is regions of world are split into zones and each companies or a few companies operates in that zone
     • Owners of cables then pay a fee for having ships on call and then a daily rate for repairs
     • This article profiles a Japanese company (KCS). KCS has only 80 people and companies in this industry are small 
   • Two major forces are unclear in the future
     1. Who in the market will pay for new cable maintenance?
        • Tech companies have invested in new cables particularly as they have operated large cloud networks, but not maintenance
        • Been some interest in governments directly paying for repair ships recently
     2. What happens with geopolitical tensions? Maintenance in South China Sea and Red Sea are fraught with conflict