Jan-Feb 2025 Favorite Reads

90+% value comes from 10% of what we read. Here’s my summary of favorites from Jan-Feb 2025. 

Books 

1. The Family Firm by Emily Oster – 5/5
   1. Core takeaway – As children get older, you need to be deliberate and thoughtful about what you’re optimizing on
   2. As you get older, logistics impact more of the decisions you make as parents (p 6)
   3. Recommends a four step approach (p 15)
      1. Frame the Question – what are you asking? (ex: where to send our child to school or school A or B)
      2. Fact-Find
      3. Final Decision – document your decision (ie use decision docs)
      4. Follow-Up – check back in to see if you made the right decision
   4. Recommends a family mission statement (p 43)
      • Approach for coming up with one with partner is you both write down
        • Main mission statement for family
        • 3 main goals for your children
        • 3 main priorities for you
        • 3 activities you see as must do on most weekdays
        • 3 activities you see as must do on most weekends
      • Then discuss these with each other and use to come to a mission statement
   5. Recommends having shared family docs on “policies” (p 63)
      • Ex: They have shared meal policies for their family
      • The method matters less, but idea is to have a shared thing everyone can view and is invested in
   6. A critical set of decisions is about your kids independence (p 113-124)
      • How much support will you provide?
      • How much physical freedom?
      • What expectations do you have?
   7. Extracurriculars are really parents decisions
      • Most benefits of parents are likely due to correlation vs learning in the extracurricular itself…ie music lessons (p 185)
      • Concussion rates are highest among football and women’s soccer (p 187)
      • Participation in extracurriculars does likely help with belonging (p 195)
        • Similarly summer camp can also help with belonging (p 207)
   8. An interesting note when evaluating school or camp is to try and see if people who are in it are like you and your family (p 221)
      • Easier to evaluate this way vs actual data as camp/school will present their best to you
   9. Don’t stress too much about time spent on TV or video games (p 243-247)
      • Biggest thing is watching TV is time spent not doing other things, but doesn’t seem to negatively impact overall 
      • Screens before bed are likely a mistake though as impacts sleep 
   10. There isn’t great data for social media (no robust studies on negative impact) yet and this should be a deliberate parent decision (p 252) 
2. Tap Dancing to Work by Carol Loomis – 5/5
   1. A collection of articles of Warren Buffet over the years
   2. Early on Buffett talks about how inflation eats away returns. Describes how he believes ROE is fixed and then inflation eats away all the returns of equity
      • Key takeaway for me is high quality companies spin off a lot of cash “an irony of inflation-induced financial requirements is that the highly profitable companies – generally the best credits – require relatively little debt capital. But the laggards in profitability never can get enough” (p 15)
   3. Introduced idea of shareholders in corporations as holding Class D stock after the shareholders of municipal, state, and federal governments
   4. Believes in the power of competition and every generation should compete
      • “Would anyone say the best way to pick an Olympic team is to select the sons and daughters of those who won 20 years ago?”
   5. Buffett was particularly cautious to save his reputation
      • That’s why he stayed at Salomon and helped make sure it got through the crisis
      • Told his children “it takes a lifetime to build a reputation, but only a few minutes to tear it down”
   6. Time helps good businesses compound, but mediocre businesses stay stagnant
   7. Buffett Ratio is market value of all publicly traded securities/GNP of that country
      • When it’s high (eg over 1.3) then county is overvalued and stocks are generally highly priced
      • When low the country is undervalued and there’s lots of bargains
      • Right now in Feb 2025 it’s at unprecedented levels of 2.1 and US seems to be overvalued
   8. Among the ultra wealthy, he prefers to not pass everything down
      • Loved his quote about “It’s interesting that the same people who talk about the terrible cycle of dependency that welfare brings will then hand their kids when they emerge from the womb a lifetime supply of food stamps”
      • He says his kids will be wealthy, but doesn’t want to create dynastic wealth and pass everything down to his kids. Believes in equality of opportunity and will give everything to his kids like college/learning at home, but then they make their own way
      • Andrew Carnegie’s pov is “huge fortunes that flow in large part from society should be returned back to society” (p259)
   9. Buffett’s advice for the average investor is to buy index funds and dollar cost average
      • “Well if they’re not going to be an active investor – and very few should do that – then they should just stay with index funds. Any low cost index fund. And they should buy it over time. They’re not going to be able to pick the right price and the right time. What they want to do is to avoid the wrong price and wrong stock. You just want to make sure you own a piece of American business, and you don’t buy all at one time” (p 275)
   10. Talks about how he minimizes the things he owns as that takes time/energy
       • “Owning a half a dozen homes would be a burden. Too often a vast collection of possessions ends up possessing its owner. The asset I value the most aside from my health is interesting, diverse, and long-standing friends” (p306)
       • This shaped his approach to giving where using more than 1% of his family’s wealth would not increase happiness or well-being. Because of this, he wants to “keep all we conceivably need and distribute the rest to society for their needs” (p307)
   11. Talks about how gold is an unproductive asset and BRK wants productive assets like land and businesses
       • Provides hypothetical where you own all the gold in the world, but it just sits there like a pet rock
       • This explains a lot of why Warren wouldn’t like Bitcoin either as it’s not a productive asset
   12. Favorite quotes
       • “Don’t ask the barber whether you need a haircut” (p 38)
       • “The market, like the Lord, helps those who help themselves” (p 38)
       • The perfect amount to leave to children is “enough money that they feel they could do anything, but not so much they could do nothing” (p 55)
       • “With few exceptions, when a manager with a reputation for brilliance tackles a business with a reputation for poor fundamentals, it is the reputation of the business that remains intact” (p 68)
       • “Could you really explain what it’s like to a fish to walk on land? One day on land is worth 1000 years of talking about it” (p75)
       • “There’s never just one cockroach in the kitchen” (p92). When you see one alarming thing, there may be more around
       • “A small chance of distress or disgrace, can never be offset by the large chance of extra returns” (p 106). Never overextend when you’re putting important things at risk
       • Do things you enjoy today otherwise you’re “saving up sex for old age” (p 136)
       • “You never know who is swimming naked until the tide goes out” (p 161)
       • “You cannot expect to forever realize the a 12% annual increase, much less 22% of American business if the value of profitability is only growing at 5%…The value of an asset, whatever its character cannot over the long term grow faster than its earnings do” (p171)
         1. “the most that owners in aggregate can earn between now and judgment day is what they’re businesses in aggregate earn” (p 247)
       • “Never invest in a business you don’t understand” (p280)
3. A Psalm for the Wild Built – 5/5
   • A futuristic book about a “tea monk” who travels the world, listens to others problems and then pours them tea to help solve it. This monk meets a sentient robot and together they talk about the meaning of life and what humans need

Articles

1. Howard Marks: On Bubble Watch
   • Notes on Magnificent Seven
     1. Represented 32-33% of the index’s total capitalization at the end of October;
     2. Roughly double the leaders’ share five years ago
   • At the end of November, U.S. stocks represented over 70% of the MSCI World Index, the highest percentage since 1970 according to another Cembalest chart
   • Says to find a bubble is actually more of a psychological approach where there is “no price to high”
     His 3 lessons from early nifty fifty experience
     1. It’s not what you buy, it’s what you pay that counts.
     2. Good investing doesn’t come from buying good things, but from buying things well.
     3. There’s no asset so good that it can’t become overpriced and thus dangerous, and there are few assets so bad that they can’t get cheap enough to be a bargain.
   • There are usually grains of truth under bubbles/manias, they just get taken too far (ex: internet stocks)
   • Good example of a PE earning of 16 means that company will be in business for roughly 20 years (due to discounting) at that same level
   • High PE earnings (ex: Nvidia’s 30) mean that
     1. First, that investors think Nvidia will be in business for decades to come. Second, that its profits will grow throughout those decades. And third, that it won’t be supplanted by competitors. In other words, investors are assuming Nvidia will demonstrate persistence.
     2. Persistence in technical fields is incredibly hard though and only 6 of top 20 companies from 2000 are still around
   • Most important line “In bubbles, investors treat the leading companies – and pay for their stocks – as though the firms are sure to remain leaders for decades. Some do and some don’t, but change seems to be more the rule than persistence.”
   • Additionally the overall market increase or decrease is what’s important
     1. When investors forget that corporate profits grow about 7% per year they tend to get into trouble.” What this means is that if corporate profits grow at 7% a year and stocks (which represent a share in corporate profits) appreciate at 20% a year for a while, eventually stocks will be so highly priced relative to their earnings that they’ll be risky.
     2. When stocks rise too fast then they come back down to earth
     3. When stocks don’t rise enough, then market is positioned for a big increase
   • There were only 4 times where market rose 20% two years in a row
     1. In both cases the index declined in the next two years
     2. In the last 2 years, this happened again
   • Notes for caution he sees
     1. The cautionary signs today include these:
        • the optimism that has prevailed in the markets since late 2022,
        • the above average valuation on the S&P 500, and the fact that its stocks in most industrial groups sell at higher multiples than stocks in those industries in the rest of the world,
        • the enthusiasm that is being applied to the new thing of AI, and perhaps the extension of that positive psychology to other high-tech areas,
        • the implicit presumption that the top seven companies will continue to be successful, and
        • the possibility that some of the appreciation of the S&P has stemmed from automated buying of these stocks by index investors, without regard for their intrinsic value.
     2. Finally, while I’m at it, although it’s not directly related to stocks, I have to mention Bitcoin. Regardless of its merit, the fact that its price rose 465% in the last two years doesn’t suggest an overabundance of caution.
   • Great graph from S&P 500 showing that 20x+ PE ratios will lead to decreases over next 10 years
2. Allen Pike: An Unreasonable Amount of Time
   • Talks about a trick where a magician (Teller) asked what card you picked and then went to a local park and dug up a box which contained the card in it
     • It worked because magician had multiple boxes buried
     • Waited months till grass grew over the box and then went there
   • Quote is “ Sometimes magic is just someone spending more time on something than anyone else might reasonably expect.”
   • Do impossible things sometimes just involves putting way more time into it than any one else will
3. Derek Thompson: Is Moderate Drinking Ok?
   • Evidence against heavy drinking (more than 3-4 glasses a night) is clearly bad
   • Talks about how the new health influencer belief that any moderate drinking is bad is based on the same flawed methodology as French paradox saying it’s good for you
     • “J curve of risk going down and then going up as alcohol increases” was wrong because of many low alcohol drinkers are healthy because of reasons unrelated to it (ie richer)
     • However the new studies saying this is unhealthy are similarly based only on observational studies that aren’t controlled and may suffer from the same problems
   • Important part though is relative risk vs absolute risk
     • Particularly at low levels of drinking it may increase relative risk by say 40% (in his example of mouth cancer), but the lifetime absolute risk is less than 1%
     • Low levels of drinking seem to have low absolute risk and not strong evidence that it’s increasing to really high levels of absolute risk
   • His motto becomes have a drink, have a jog
     • According to Tim Stockwell, each drink reduces your lifetime expectancy by 5 minutes
     • However, each minute exercising increases your lifetime expectancy by a similar 5 minutes
   • Finally realize that alcohol is a social lubricant
     • Going to a happy hour and having a drink or two may actually be positive to your health because of the socialization aspects
     • Much of culture grew up around drinking within it and not drinking/not seeing people is likely not a great solution
4. Ted Lamade: Handle Hard Well
   • Talks about how Mahomes, Allen, Jackson were all 3 star quarterbacks and that’s actually more common among NFL quarterbacks than 5 stars
   • Quote he references “Most people think things are going to get easier. Life is going to get easier. Basketball is going to get easier. School is going to get easier. It never gets easier. What happens is you become someone who handles hard stuff better. “
   • A lot of 3 star athletes had to grind to get to their position so when this becomes hard in the NFL they just keep grinding
   • Uses comparison of how people in financial markets that just assumed things would be easy by crypto going up vs those who made hard decisions, saved, etc. and the latter are more set up for the long run
5. Tyler Cowen: Trumpian policy as cultural policy
   • Thinks of Trumpian policy as elevating culture above all else
   • Great thought example where “So imagine you started a political revolution and asked the simple question “does this policy change reinforce or overturn our basic cultural messages?” Every time the policy or policy debate pushes culture in what you think is the right direction, just do it. Do it in the view that the cultural factors will, over some time horizon, surpass everything else in import.”
     • Just think of culture and then attempt to pass it
     • Doesn’t even have to be legal as illegal may provoke more discussion on the culture
   • Trump’s policy is to flood the zone with so many things that it throws off the media and people believe he is all powerful
     • He can’t do most of them, but focus is on everything
     • His approach isn’t to win all the debates, but flood the zone so that he controls the ideological agenda
   • The focusing on culture piece is why they are trying tariffs on Canada and Mexico
     • Most people have heard of these countries vs announcing tariffs elsewhere
     • Point is to show America is so much stronger than these other places…and get people talking