Top 15 Books Read in Five Years in Chicago

15. Zen and the Art of Motorcycle Maintenance: An Inquiry Into Values by Robert Pirsig

The only work of “fiction” cracks the list at number fifteen. I put fiction in quotes at its really a philosophical textbook intermingled with a novel about a father and son cross-country roadtrip. It’s worth noting that the author just passed away a few months ago. The New York Times obituary and retro-review of the book do it justice, and concludes with the epilogue Pirsig himself wrote for the novel:

“There is a Swedish word, kulturbärer, which can be translated as “culture-bearer” but still doesn’t mean much. It’s not a concept that has much American use, although it should have….

Culture-bearing books challenge cultural value assumptions and often do so at a time when the culture is changing in favor of their challenge. The books are not necessarily of high quality. Uncle Tom’s Cabin was no literary masterpiece but it was a culture-bearing book. It came at a time when the entire culture was about to reject slavery. People seized upon it as a portrayal of their own new values and it became an overwhelming success….

This book offers another, more serious alternative to material success. It’s not so much an alternative as an expansion of the meaning of “success” to something larger than just getting a good job and staying out of trouble. And also something larger than mere freedom. It gives a positive goal to work toward that does not confine. That is the main reason for the book’s success, I think. The whole culture happened to be looking for exactly what this book has to offer. That is the sense in which it is a culture-bearer.”

14. Bubble Logic: Or How I Learned to Stop Worrying and Learned to Love the Bull by Cliff Asness

I was hesitant to even review this because it’s a long paper (about 50 pages), and wasn’t published as a book. But it’s length just passes my threshold, and it’s such an important read that I had to share it. The author is a billionaire investor only occasionally recognized outside the financial industry. This paper, written at the height of the 1990s dot-com bubble, served as not only an accurate predictor of the bubble-burst, but a precise one. Asness’s mathematical takedown of bubble logic is swiftly and decisively deconstructs human’s poor decision making abilities. Given what we have seen in the past year in the cryptocurrency markets and in the mid-2000s real estate bubble, it’s as relevant as ever.

13. The Black Swan: The Impact of the Highly Improbable by Nassim Taleb

Taleb is a bit of a cult hero these days, and this book is what started it. While I was in college (2008-2012), this book (published in 2007) became a sensation in the financial community for its ability to not only predict the financial crisis, but provide a mathematical and philosophical framework (informed from the author’s own experience in the financial industry in the 1980s) for understanding its causes and consequences. While not everyone likes his writing style, his messages are too important to be ignored.

12. The Management Myth: Debunking Modern Business Philosophy by Matthew Stewart

This two-part tale shines a bright light on the dangerous, long-held myths about “business management”. A former management consultant recounts his own time in the industry (both at top name-brand firms and spin-off independents) and researches the history of “management theory” starting from the industrial revolution. What he finds is obvious to those least empowered to change these practices: most of traditional consulting industry theory is either outdated or was never accurate to begin with, are filled with scientism, and the real answers are much closer to social science and philosophy than business school. It’s a fantastic insider expose on an industry which exists to capitalize on people’s weaknesses inside large organizations.

11. Fooling Some of the People All of the Time: A Long Short Story by David Einhorn

Often, doing the right thing is hard. It’s even harder when “the establishment” is completely against you. David Einhorn, professional investor and unintended detective, writes his memoir of his hunt to take down corrupt and shady business loan provider Allied Capital. It covers all my favorite topics in a non-fiction story: An underdog raging against the machine, simple explanations of complex financial industry minutiae, and a detective story of real-world big business corruption. I thank David for documenting his service to society.

10. Zero to One: Notes on Startups or How to Build the Future by Peter Thiel and Blake Masters

In a brief 100-or-less pages, venture capitalist Peter Thiel and his protege succinctly convey Peter Thiel’s worldview. The books’ title has become a tech startup cliche shorthand for bringing new innovation to the world. This ranks so highly in my list as I don’t think I’ve read a book with a higher value-per-word ratio than this, so I’d recommend everyone take an evening or two to complete it.

9. Indecent Exposure: A True Story of Hollywood and Wall Street by David McClintick

When I recently reviewed another book, I wrote: “My favorite genre is probably “business epics”, a category label I just made up to cover longform biographies done of companies. The historical leaders of this genre (and some of my all-time favorite books) are Barbarians at the Gate, Indecent Exposure, and The Smartest Guys in the Room.”

Indecent Exposure is the oldest of the group and served as an inspiration for many business journalists who followed in McClintick’s footsteps. It’s the “All the President’s Men” of business dramas. It’s not short, but the true absurdity gripped me all the way through this masterpiece on the greed and egos running high-profile industries.

8. What Do You Care What Other People Think?: Further Adventures of a Curious Character by Richard Feynman

I had already read the classic “Surely You’re Joking, Mr. Feynman” in college. This spiritual sequel is a collection of fewer essays, but contains a couple of much greater emotional and intellectual impact. Specifically, there are two must-read tales: First, Feynman’s reminiscing on the last year of his wife’s life leaves an impression for its emotional honesty. Second, and the largest chunk of the book, is his now-infamous Challenger story, where Feynman uncovers and explains to the government why the space shuttle exploded after launching. These two stories, emotional and intellectual, paint a fuller picture of one of the greatest minds humanity has seen.

7. Diary of a Very Bad Year: Confessions of an Anonymous Hedge Fund Manager by Keith Gessen and n+1

Possibly the best book written on the 2008 financial crisis. Keith Gessen, a fantastic writer at n+1 magazine, serves as the everyman while interviewing a friend-of-a-friend who happens to be a professional investor during the Great Recession. Each chapter is a new interview occurring about every three months, spanning a two year period. Over the course of time, The Anonymous Hedge Fund manager educates Gessen (and by proxy, the reader) on the high-level philosophy of financial industry, and the brutality of the day-to-day workings on an industry in disarray. The concept (collecting these interviews over a long period during tumultuous times) is brilliant and the execution is flawless.

6. Antifragile: Things that Gain from Disorder by Nassim Taleb

“Wind extinguishes a candle and energizes fire.” So begins Taleb’s magnum opus (although he does have a new book coming out in 2018, so he may disagree with that description). Where his prior books highlighted problems, Antifragile moves closer to prescribing, or at least describing, solutions. I prefer not to try and summarize nuanced ideas into a one-liner. This book is for anyone who wishes to be more like fire and less like a candle (or more broadly be able to adapt and thrive in an uncertain world).

5. High Output Management by Andy Grove

As I did in my 2016 review, I’ll just repeat Ben Horowitz’s quote on this book and the amazing man behind it:

Andy himself was a legendary figure. He had grown up Jewish in Hungary during a time when the country was occupied by the Nazis and, later, by the Soviet Communists. Arriving in New York, he spoke no English and had almost no money. He enrolled himself at the City College of New York, overcame his language deficiency, and went on to get a PhD from UC Berkeley. This nonnative English speaker would then write an important textbook on semiconductors in English while working at Fairchild Semiconductor. As a result, he was considered a scientific pioneer even before helping to launch Intel in 1968, building it into the seminal technology company of the era. Later, in 1997, Time magazine would recognize his nearly impossible accomplishments and name him Man of the Year. This is in part what made High Output Management so extraordinary. Andy Grove, who built himself from nothing to run Intel, stopped what he was doing to teach us his magic. And not through some ghostwriter either — Andy wrote this book himself. What an incredible gift.

4. Born Standing Up: A Comic’s Life by Steve Martin

The best biography I’ve read since college. Much like Dave Chappelle in the early 2000s, Steve Martin stepped down from the standup comedy industry while he was still at the top of the field. But that’s not the noteworthy part. What Steve Martin conveys is the struggle required to reach greatness. The years of performing in front of empty rooms, working odd jobs to make ends meet, and grinding toward an unknown future. It’s told in a compact, straightforward style that is accessible to anyone. If you read it, just maybe it will inspire you to leave all your blood, sweat, and tears on your metaphorical field of dreams.

3. Enough: True Measures of Money, Business, and Life by John Bogle

As the founder of the sensational money management firm Vanguard, Bogle has a unique vantage point on how the financial industry is designed to stealthily steal money from the rest of society. In this concise, consumable manifesto, Bogle lays out important principles for improving our financial industries, corporate America, and our personal lives.

2. But What If We’re Wrong? Thinking About the Present As If It Were the Past by Chuck Klosterman

When I previously described Klosterman as a “cultural philosopher”, I meant that not only were the topics about pop culture, but Klosterman writes in a uniquely intelligent way that’s palatable for anyone (the closest comparison to this style I can think of is the scripts from Frasier and The Twilight Zone). The ideas discussed in “But What If We’re Wrong” are simultaneously thought-provoking, relatable, profound, and accessible.

1. Command and Control: Nuclear Weapons, the Damascus Accident, and the Illusion of Safety by Eric Schlosser

The “Illusion of Safety”, as Schlosser subtitles it, is such a profound point that it can’t be understated. As I alluded to in my review of this book, there is essentially no grander story that can be told than the true story of how humanity could have created its own nuclear apocalypse, and the slim margin of error by which we’ve avoided it thus far

This review is kept short because there aren’t enough bits in our collective computers to capture all the superlatives I’d use to describe it. I rarely find a new book that both breaks into my personal pantheon of favorites and is something that I’d recommend to everyone.

“An entire generation has been raised without experiencing the dread and anxiety of the Cold War, a conflict that lasted almost half a century and threatened to annihilate mankind. This book assumes that most of its readers know little about nuclear weapons, their inner workings, or the strategic thinking that justifies their use. I hope readers who are familiar with these subjects will nevertheless learn a new thing or two here. My own ignorance, I now realize, was profound. No great monument has been built to honor those who served during the Cold War, who risked their lives and sometimes lost them in the name of freedom. It was ordinary men and women, not just diplomats and statesmen, who helped avert a nuclear holocaust. Their courage and their sacrifices should be remembered.”

On Books – Where I’ve Changed My Mind

Overrated

  • Catching the Wolf of Wall Street – Nowadays I’d give this two stars instead of the three at the time. It’s really only interesting to those who probably saw the “Wolf of Wall Street” movie, and it’s less exciting than the first book.

Underrated

  • Work Rules: Insights From Inside Google That Will Transform How You Live and Lead – Today I would probably bump this up to four stars, as it’s got great business lessons and Google stories that anyone might find interesting. I probably only gave it three stars in an attempt to not grade too easily. During that set of reviews, I gave only one four star score.
  • Dead Companies Walking – Received four stars, but in hindsight I think the lessons on evaluating shit businesses and it’s efficient short structure make this worthy of five stars.
  • Diary of a Very Bad Year – Even for a five star book, this one is exceptionally good. It would’ve been a “Best Book of 6 months” if it wasn’t read around the same time as “Command and Control”.
  • Lolita – Gave it four stars. The writing style might make it five star-worthy and I only held back due to the subject matter.
  • The Score Takes Care of Itself – This should’ve been five stars. Walsh’s “standard of performance” concept is a framework I’ve referenced a lot since reading it.
  • Atlas Shrugged – I gave this a one star rating at the time due to its length. There are enough interesting plot points and enough minimally thought-provoking philosophy to warrant two stars.
  • The Management Myth – Was a five star but should’ve been even higher. Its philosophical lessons apply beyond the management consulting industry and generally encourage everyone to be more thoughtful individuals.
  • The Mythical Man Month – Was the lowest rated of the four stars that semi-annual post. I would move that higher now, nearly five-stars, as its an engineering management classic that I have found to be increasingly relevant as my career has continued.

Other Neutral Notes

  • Chaos Monkeys – Seemed to be the most divisive solely due to the author’s personality (which comes through in the writing style). When I gave this book five stars, I received multiple emails, texts, and Slack messages from friends saying they couldn’t/wouldn’t finish the book as the author’s pomposity overwhelmed any story he was trying to tell. While I can see where this complaint was coming from, I stand by the five star rating because I interpret the author’s stance as being a particular brand of unabashed calling-it-as-he-saw-it, and is still one of the best descriptions of Silicon Valley.
  • The Alliance by Reid Hoffman – I probably only gave this three stars and not four due to its length, but it contains some very important messages for managers of people.
  • Slaughterhouse Five – Considering this is one of my favorite works of fiction in the past five years, this deserved a longer review (the one at the time was written in a rush to get the blog post out).

Analyzing Five Years of Reading

Some Summary Stats:

Total Books Read in Five Years: 142.

This averages out to about one book every two weeks.

Average Book Review Score: 3.8

Average review score makes sense when I reflect upon the two major influencing factors: The sample of books I’ve read (and how that’s selected), and how I grade.

I typically read books that I already know I will like or have come recommended, which will naturally bias the set. The exceptions are the impromptu airport or used bookstore buys, or books that are well-known that I’ll read for the sake of having said I’ve read it (like Atlas Shrugged and Isaac Asimov’s Foundation).

Then, I try to grade using a normal distribution (where a 3/3 is “average but recommendable”) as opposed to the “letter grade” scale (where anything less than 75% is bad).

These two factors show up in the average. I’m naturally inclined to read things I already know I’ll like (which would push the average score up), but then try to consciously grade on a somewhat normal distribution (which would anchor the average around three out of five).

Number of Books Read Over Time:

Stacked Columns

Clustered Columns

Length of Books Read Over Time

Following the overall quantity numbers, the next question to come to mind was whether the lengths of the books affected the quantity read in a given time period. Since books vary by length (mostly measured by number of words), it’d really be more precise to track “words read per six months”. But since that’s not really practical, the combination of books by quantity and then estimated length per book are the next closest thing. One could also suspect that, if I were reading at a consistent pace all five years, that periods with low book quantity would be balanced by the fact that the books read were longer/had more words.

StackedColumns - Books by Length

I have only categorized books into three sizes (short, medium, and long lengths), and it’s an imprecise categorization, but it does provide some insights.

  • It’s clearly noticeable that in my first six months in Chicago reading longer books (Atlas Shrugged on the bus trip moving to Chicago) that took up most of that time.
  • The periods with the highest total quantity read were packed with many shorter books.

Fiction, Biographies, and Other Non-Fiction Split Over Time

Fiction vs Nonfiction

Most Read Authors

Below is a list of authors I read at least two books from during this time period:

  • Michael Lewis – 7
  • Nassim Taleb – 4
  • n+1 – 4
  • Chuck Klosterman – 2
  • Edge Magazine – 2
  • David Ogilvy – 2
  • George Soros – 2
  • Tyler Cowen – 2

Next is a list of authors I wanted to highlight authors who I read before moving to Chicago who also had books read in these five years.

  • Emmanuel Derman
  • Stanley Bing
  • Jordan Belfort
  • Thomas Cathcart and Daniel Klein
  • Richard Feynman
  • Russ Roberts
  • Joe Nocera
  • Bethany McLean
  • Sarah Kay

Revisiting Books Read in Five Years in Chicago

This past July marked my fifth year in Chicago. It’s an arbitrary milestone, yet feels like a natural reflection point. Upon reflecting, what stands out most to me is the wide variety of great people this city has brought into my life throughout the years.

But this is not a blog about relationships, it’s a blog about books. And many of those people have not followed my reviews all five years, so now is as good a time as any to revisit everything I’ve read since I’ve lived in Chicago.

I’ve split this reminiscing into three posts:

A full list of all the books is available in Google Sheets.

Books Read in the First Half of 2017

In putting together this set of reviews, I noticed my reading material in 2017 had some very specific patterns:

  • Biographies: Seven out of 18 books count as biographies, either of individuals or individual businesses.
  • Warren Buffett: Two books on Warren Buffett, one investing-oriented and one biography.
  • Advertising: Three books about the advertising business, including the two premiere books by ad legend David Ogilvy.
  • Sales and Marketing (excluding advertising) for Business: Three books, aside from advertising, specifically about sales and marketing, primarily for software companies.

Hopefully any of these themes or some of the other surprise recent reads are of interest to you.

Two Stars (Recommended only for those interested in the subject):

Hacking Sales – The Playbook for Building a High-Velocity Sales Machine by Max Altschuler:
Author Altschuler has taken the popular “growth hacker” term and given it a more sales-oriented bent while sharing some of its same principles. Primarily this revolves around using data and tools to quantify and operationalize the sales process. This is also the book’s weakness: It’s so tooling-centric that it’s almost certainly going to be deprecated in five years, and the abstract ideas that might hold up over time are only briefly highlighted.

Three Stars (Recommended):

Adulthood is a Myth – A Sarah Scribble’s Collection by Sarah Anderson:
I hadn’t heard of Sarah Anderson until a friend came into town and lunged toward this book at a bookstore. It’s hard to tell if the “Sarah Scribbles” webcomic-turned-print-comic speaks specifically to millennials or would’ve worked for twenty-somethings of every generation, but they’re quick and clever and can make you chuckle.

Predictable Revenue – Turn Your Business Into a Sales Machine With the $100 Million Best Practices of Salesforce.com by Aaron Ross and Marylou Taylor:

Predictable Revenue, written by a former sales leader at Salesforce, is a guide to building sales departments within businesses. It won’t apply to all companies, but it’s got enough thoughts on both structuring a sales organization and tactics for improving sales processes that it’s worth the hour or two it takes to complete.

Oxymoronica – Paradoxical Wit and Wisdom from History’s Greatest Wordsmiths by Dr. Mardy Grothe:
If you’re a sucker for witticisms like I am, or just a fan of Yogi Berra you’ll enjoy this collection of paradoxical aphorisms. I’m mostly impressed by the unique angle of this compendium. It’s one thing to compile a list of great quotes; it’s another to collect only oxymorons. I wish I was clever enough to be in this book.

Ogilvy on Advertising by David Ogilvy:
While Ogilvy’s “Confessions of an Advertising Man” is more of an autobiography, this is more like a how-to manual for advertising. Each chapter, featuring aging yet still colorful ad images, focuses on a different area of the advertising business: how to create effective ads for different mediums, managing clients, and the history of the industry. There is plenty of food for thought here for anyone trying to use advertising to grow a business, even if you have to filter for what’s still relevant in today’s technological world.

Hacking Growth – How Today’s Fastest-Growing Companies Drive Breakout Success by Sean Ellis and Morgan Brown:
Author Sean Ellis, who coined the phrase “growth hacking” and runs a company espousing its concepts, has compiled a solid foundational textbook for modern business “growth”, which distinguishes itself as a distinct discipline crossing product and marketing.

It’s split into two major parts: “The Method” defines what a “growth” department is and then how they do it. The second half of the book is the “playbook” with detailed tactics and testimonials from modern (primarily software) businesses. These methods and techniques share the general philosophy of mixing creative marketing ideas with scientifically-inspired, experiment-driven execution to generate unique results.

This combination can generate either lots of small improvements that cumulate into big impact, or that “aha” moment that provides a business’s great leap forward. Regardless of which approach ends up working for your business, “Hacking Growth” can both spark ideas to try and serve as a reference whenever you’re suffering from “business owner’s block”.

More Awesome Than Money – Four Boys and Their Heroic Quest to Save Your Privacy from Facebook by Jim Dwyer:
Diaspora was a flash in the pan attempt by four NYU students to overthrow Facebook’s monopoly on social networking by giving individuals control of their online data.

With unique, early access, journalist Jim Dwyer was able to build this story over many years and direct interactions with the young cofounders and the Silicon Valley-ites they bumped up against. Without too many spoilers, the project fizzles as the Diaspora team comes to grips with their own lack of knowledge and lack of direction. This is a tragic tale, where young, unsophisticated idealists crash against the realities of owning and building a tangible business and the sociopolitical dynamics of Silicon Valley.

Four Stars (Highly recommended for those interested in topic, or generally recommended for anyone):

End of Advertising – Why it Had to Die and the Creative Resurrection to Come by Andrew Essex:
This is a tricky one to review. Picked up due to its catchy title and my interest in advertising, it’s a pretty thin, quick read. Author Andrew Essex, a former Drogan and now head of Tribeca (known for its film festival), opines on ad-blocking technology as the killer of traditional advertising. That alone wouldn’t really warrant a four-star review, but his two insights into potential futures for the ad industry so stuck in my mind that I had to give this a four.

Those ideas are:

  1. Advertising is not compelling content which is why people hate it. If companies made entertaining, educational, or otherwise valuable content instead of “advertising”, then people would watch it. The Lego Movie is a mainstream data point.
  2. Companies/brands that used to advertise could spend that budget in better ways to build goodwill with consumers. Essex’s interesting recommendation is for companies to lead the charge in privatizing America’s failing infrastructure (at a time when government budgets are a mess). Some companies have started doing this through means like sponsoring bikesharing programs in many cities. What if your street’s pothole got filled next week, but had your bank’s logo on it? Or more boldly, if new high-speed trains connecting major cities were built, funded by McDonald’s and Coca-Cola? It’s quite likely people would welcome the new improvements to their daily commute or vacation in exchange for the Golden Arches on the side of the hyperloop.

While the first idea is increasingly well-known, I found the second one pretty novel and have been mulling on it ever since.

An alternative description of this book was also provided by the author when asked by the New York Times to pitch it: “It’s the only place where you can learn about the origins of heroin and Ivory soap and the future of the internet in one tight little 200-page package. And also, hardcover is the new black.”

The Undoing Project – A Friendship That Changed Our Minds by Michael Lewis:
Michael Lewis, probably the author I’ve read the most in the last five years, has written his best book since The Big Short. The Undoing Project documents the lives of two of the most influential social scientists of the last century: Amos Tversky and Daniel Kahneman.

Both Israeli, their forced time as youths in the military shaped their unique views on how people think about problems. Eventually they find themselves in American academia, where there work, undervalued for decades, slowly spreads through word of mouth and Tversky’s inclination to accept speaking gigs. Their work formed the basis for an entirely new field now commonly called behavioral economics, which counters the heavily mathematized theories of most of the 1900s with an emphasis on observing how people actually make decisions rather than solely theorizing about it.

Their influence can not be understated and was cemented with Kahneman’s 2002 Nobel Prize coronation (Tversky prematurely passed away in 1996). Lewis successfully captured how the youths and personalities of these two friends shaped their perspectives and enabled them to provide unique insights into the human mind and encapsulate these insights into an incredible body of work.

Confessions of an Advertising Man by David Ogilvy:
When I would read this book in coffee shops and bars, staff and strangers only occasionally recognized the name “Ogilvy”. Considering he was the leading practitioner of advertising, he should really still be household name.

I expected Confessions to be a memoir, but it’s a more of a how-to manual for working in advertising (and really any business). The writing is just like one of his ads: High value-per-word (one personal metric I use when reviewing books) and short sentences composed of articulate, yet plain speech. As mentioned in my earlier reviewed book “The End of Advertising”, some of the concepts may be outdated (no surprise given it’s fifty years old). However, every other line is quotable, highlight-able, or whatever method of bookmarking you prefer, so you should give it a skim.

1984 by George Orwell:
This is one of those “classic” works that I delayed reading because I felt like I already knew too much about it.

After completing it, my first thought was that having epic, multi-page “John Galt”-esque speeches three-quarters through must’ve been much more popular a century ago and feels really bloated today.

Despite the negative tone to the review, this is still a monumental piece, painting the image of a dystopia enforced through ubiquitous paranoia. It only receives a four, not a five, because I’m comparing it to “Brave New World”, which was shorter, was more eloquently written, and is possibly more accurate depiction of how humanity could end up in a dystopia.

Radical Candor – Be a Kick-Ass Boss Without Losing Your Humanity by Kim Scott:

This book reminded me of Reid Hoffman’s “The Alliance”, which was about the flexibility of people’s roles and tenures within modern organizations. These two have what I think are important theories that are relatively fresh in management theory, yet feel more natural to my millennial cohort and therefore less surprising or informative.

Despite feeling like I didn’t “learn” much new, per se, Kim Scott has done a terrific job codifying what good management is: Honest constructive criticism, not making work issues personal while still enabling everyone to display their personalities, and many more aspects of mixing humanity with the workplace. I’d consider Radical Candor to be required reading for anyone in position to manage people, and still recommended for anyone in a profession which requires personal interaction.

Inside the Investments of Warren Buffett – Twenty Cases by Yefei Lu:
There have been many books written about investment strategies loosely based around Buffett’s philosophies. I have not yet read a book quite like Lu’s.

He takes an interesting approach. He has taken twenty of Warren Buffett’s investments and goes through the following steps:

  1. Describe the company, including its history and how the business works.
  2. Explain what most ordinary investors would have seen when looking at that company at the period of time when Buffett was investigating it.
  3. Provide his own analysis on what the business was likely worth.
  4. Explain where Buffett was in his career at the time
  5. Ultimately show how Buffett invested in the business and why

Lu outlines these investments with the appropriate amount of financial detail (while providing appendices for those who want to look themselves) and through multiple perspectives (the typical investor and Buffett).

Lu extracts important lessons from Buffett’s body of work, many of them are often lacking from conversations about Buffett’s investment style. In particular, his strategies are not as simplistic as many think, have evolved (by necessity) over time as his fortune has grown, and that many of his opportunities in recent decades would not have been available to many individual investors.

The Complacent Class – The Self-Defeating Quest for the American Dream by Tyler Cowen:
Cowen comes out with a new book seemingly every year, and each one contains a concise thesis. “The Complacent Class” covers what I consider to be an underreported topic: The rise of complacency throughout American life.

This modern complacency is caused, according to Cowen, by two forces: the rise of bureaucracy post-world wars, and technology which makes it easier to “match” a person to their existing interests (food, friends, jobs, etc.), thereby reducing dynamism and progress in society.

The end result of this complacency is almost inevitably major shocks to the system, such as the 2008 financial crisis and the 2016 election, as systemic problems build to breaking points and violent reactions. If you are looking for explanations for the volatility of the past decade, Cowen has some intriguing theories.

Five Stars (Highly Recommend to Everyone):

Weapons of Math Destruction: How Big Data Increases Inequality and Threatens Democracy by Cathy O’Neil
What Cathy O’Neil has written here with is a public service announcement against the abusive algorithm practices in our society. It is too infrequent that an insider speaks out against the hand that has fed them. O’Neil, whose credentials include stints as a Wall Street quantitative analyst and mathematician for an advertising technology firm, calls out the most damning argument against much of the math applied in our modern world: the mathematical modeling itself is poorly implemented. This is only one of her many arguments made against the widespread abuse of math, but it’s the one that bothers me most deeply because it requires someone with a certain level of knowledge and experience such as Cathy to credibly call out poor industry practices.

The above is the broader theme of the book. The literal content is: Poorly constructed and implemented algorithms are being used to further divide our world by either unintentionally discriminating against the poor (such as job application tests and insurance companies analyzing data to deny people jobs and insurance, respectively), or more heinously profiting explicitly from the exploitation (for-profit colleges and some payday loan companies).

For potential readers who would normally shy away from anything that advertised itself as a book about math, fear not. WoMD features no equations and the problems described are understandable for everyone. While Cathy does sound the alarm on many terrible practices, she provides her own upbeat solutions where math and humanity meet.

If you read WoMD and enjoy it, or want to preview O’Neil’s writing style and topics covered, she actively blogs at MathBabe.org.

The Snowball – Warren Buffett and the Business of Life by Alice Schroeder:
The number of books written about Buffett could fill its own bookshelf. Snowball is unique among them because author Alice Schroeder had unique, authorized access to Buffett, making this as close to an autobiography as we’ll ever get on this living legend.

I delayed reading Snowball for years because I had already read so much material on Buffett before, including Roger Lowenstein’s “Buffett” biography. Lowenstein, a fantastic financial journalist, focused more on the evolution of Buffett’s fortune than his personal life. Schroeder does the inverse, focusing less on the investing and more on the making of the man.

This kind of book is generally a lay-up for a great rating: The inside scoop on one of the richest man in the world, operating out of a modest home in Omaha, Nebraska, who will be remembered more for the way he accumulated his wealth than just its size.

A Man For All Markets – From Las Vegas to Wall Street, How I Beat the Dealer and the Market by Edward Thorp:
Ed Thorp is a contender for the title of “most influential man that’s not a household name.” In this autobiography, a legend walks us through his world-changing life with the humility of a man who has come, with time, to understand the gravity of his accomplishments.

For those unaware, Thorp’s resume includes creating the groundbreaking card counting system which then broke the Las Vegas casinos (until they changed all their game rules), created the first wearable computer with Claude Shannon, and being an early acquaintance with Warren Buffett. Not a bad resume.

While the subject matter (academia, Las Vegas, and Wall Street) may not appeal to everyone, the way in which one man managed to disrupt so many fields should be inspiration for anyone.

Eccentric Orbits – The Iridium Story by John Bloom:
My favorite genre is probably “business epics”, a category label I just made up to cover longform biographies done of companies. The historical leaders of this genre (and some of my all-time favorite books) are Barbarians at the Gate, Indecent Exposure, and The Smartest Guys in the Room.

Eccentric Orbits is nearly in the same league as that triumvirate. What Eccentric Orbits doesn’t quite have, by comparison, in dramatic characters, it makes up for with (spoilers) a more uplifting ending than most business dramas.

Eccentric Orbits is the history of Iridium, which if I were to describe as a “satellite company” would be under-selling its accomplishments as the only truly global telecommunications infrastructure.

The story consists of four major parts:

  1. In the 1980s, Iridium is born from humble beginnings by a few men in a Motorola research lab in Arizona. They concoct the ambitious idea of truly worldwide telecommunications via satellites, beyond any existing cellular phone technology in remote parts of the deserts and poles of the Earth.
  2. With the engineering underway, the business and legal teams at Motorola go on an international scramble to get hundreds of countries and governments, literally covering the entire world, to allow a private company to build a worldwide communications infrastructure and surround the Earth with satellites.
  3. Macroeconomic factors and the egos of Motorola’s upper management sabotage the launch of the Iridium company and satellite system by milking it for so much money and not promoting it, nothing is left to continue to operate the business.
  4. Finally, a lone, retired businessman reading about all this in the newspaper takes it upon himself to rescue the near-bankrupt satellite company with the unexpected help of Black Entertainment Television and the Prince of Saudi Arabia.

The entire saga seems so unlikely at so many junctures, and Bloom describes it all with both parts humor and Tom Clancy-esque action. In telling the story of one just one company, the author manages to teach much about the history of technology and communications in the past century. It was certainly a story worth telling and one I recommend reading.

Best Book Read in the First Half of 2017

On Writing – A Memoir of the Craft by Stephen King:
There’s something special about someone at the top of a field writing the canonical text on how to contribute to said field. Stephen King has done that for aspiring writers.

The book is broken into multiple parts, with the first third being an autobiography of his life. He discusses his lower-middle class upbringing, his youth where he discovered comic books and horror movies which gave his art its unique flavor, his life with his wife, and his struggles with alcoholism.

The heart of the book is where King gets down to brass tacks, laying bare what he knows about being a professional writer. Some of it is technical; King espouses his disdain for overly-architected plots, adverb abuse, and many more recommendations for fiction writers. And some of it is philosophical, emphasizing that achieving greatness in writing is the same as in any field: you have to enjoy what you do, and then do it a lot.

I haven’t read any Stephen King novels before, but I may have to start. King found that he enjoyed writing at a very young age, and like many greats, quickly committed his life to his craft. I am grateful that someone who devoted his life to his craft wrote a how-to manual on a subject which is really universal.

Books Read in the Second Half of 2016

Due to a very busy start to 2017, it’s taken a couple months to play catch-up on writing the latest set of reviews. My reading material in second half of 2016 was heavily influenced by career changes throughout the year, moving into product management, marketing and analytics. For everyone who reads my book reviews looking for something novel and/or thought-provoking, there are still a couple of hopefully unexpected picks (often picked up during my random but frequent stops at local bookstores).

One Star (Not Recommended):

Growth Hacker Marketing- A Primer on the Future of PR, Marketing, and Advertising by Ryan Holiday:
I picked this up mostly due to Holiday’s online reputation as a prominent “growth hacker” blogger and marketer. This book in particular was disappointing as Holiday admits it was basically compiled from blog posts and smaller eBooks he’s already written. It’s very thin, repeats some already well-known online viral marketing tales. The target for this book really old-school marketers who haven’t figured out the digital era. For anyone in the demographic of having an active online life, Growth Hacker Marketing really doesn’t have much to teach.

Two Stars (Limited Recommendation for those interested in subject):

Straight to Hell – True Tales of Deviance, Debauchery, and Billion Dollar Deals by John LeFevre:
When I was taking finance and economics classes in college, the Goldman Sachs Elevator twitter feed was all the rage with the bankers-to-be. LeFevre was able to leverage his viral Twitter feed into a book deal, though not without controversy regarding the accuracy of the content and the author’s employment background. Straight to Hell reads like the twitter account (including excerpts from the feed). The problem is the online material lends itself better to pithy one-liners than a full-length book. Compared to “Monkey Business” and “Liars Poker”, it’s not as informative on the actual going-ons of investment banking, and the coke-and-hookers antics are less extreme than “The Wolf of Wall Street”.

Inbound Marketing – Attract, Engage, and Delight Customers Online by Brian Halligan and Dharmesh Shah: Halligan and Shah are the co-founders of Hubspot, a marketing software company that helps any company grow their business through “inbound” marketing. What this means is figuring out how to attract customers into seeking you out, instead of a company having to do paid advertising or have sales teams.

This book is Hubspot’s introductory guide into the digital techniques for inbound marketing, and it’s a disappointment. Published in 2014, much of the content is either already outdated (use the StumbleUpon browser plugin bar), oversimplified (the definition of a prospective customer funnel), or obvious (how to set up a Twitter account). I picked this up to see if it provided any insights for my work in online marketing, and while it’s not really incorrect on anything and has some ideas worth thinking over, there’s not much value here you can’t find elsewhere.

Three Stars (Recommended):

Inspired – How to Create Products Customers Love by Marty Cagan:
Purchased by my boss’s boss for the product management team at my last job (iLoan.com), Inspired seems to be one of the most popular books on the role of Product Manager. Given the content, I’m a little surprised by this fact and I feel like there’s a market opportunity for a deeper guide or story about product management. Inspired works much better as an introduction to product management for the uninitiated than a textbook for teaching expert-level PM techniques to those already in it. Most of the material is covers what someone who has knowledge or has worked as a PM would/should already know (the difference between “product” and “project” management, balancing tradeoffs between design, engineering, and business, customer and market research, etc). It’s also a surprisingly quick read. If you’re someone who works with product managers (as an engineer, designer, or marketer), this is a helpful read which will educate you on what these people do (or should be doing).

Winning with Data – Transform Your Culture, Empower Your People, and Shape the Future by Tomasz Tunguz and Frank Bien:
Written by the CEO of business intelligence company Looker and one of his investors, Winning With Data is clearly self-promotional. But it’s not without value. Tunguz and Bien’s brief guide to building a “data-driven” organization has a couple of novel chapters (data applied to human resources and sales departments). But for the most parts, the chapters and examples are all centered around Looker’s own customers, and the briefness of the book really make it feel like marketing material. Because of how thin it is, I’m inclined to say it should be picked up in a cheaper e-book format and read on a flight.

Traction – How Any Startup Can Achieve Explosive Customer Growth by Gabriel Weinberg and Justin Mares:
A good skim for anyone working in a startup wanting to experiment with new ideas for growing your organization. Weinberg and Mares, through dozens of interviews with entrepreneurs and marketers, have compiled a collection of diverse methods for new customer acquisition. The only catch is that they’ve done such a good job blogging their work, you can get a good chunk of the knowledge for free online!

Crossing the Chasm – Marketing and Selling Disruptive Products to Mainstream Customers by Geoffrey Moore
Considered one of the canonical books on marketing, particularly for technology products, Crossing the Chasm describes a common dilemma new companies face: How do I grow my business beyond early enthusiasts who will experiment on untested technology and into mainstream markets expecting polished products? Moore’s prescribed solution is a combination of defining a subset of the mainstream that you can land on as your “beachhead” and then what additions you need to make to your early technology to make it a complete solution to that beachhead’s problems to the point they’ll pay you for it.

The rest of the book delves into the details of the decisions that go into all of this (product development, pricing, marketing tactics) paired with numerous case studies. It’s got enough business jargon (“Positioning is a noun, not a verb”) that might turn off readers not interested in the topic. Due to originally being published in 1991, it also suffers from most aspiring tech entrepreneurs already having learned it’s insights through osmosis elsewhere. But I personally always enjoy reading the original sources.

The Death of WCW: 10th Anniversary Edition by Bryan Alvarez and R.D. Reynolds:
A lot of people in modern America forget just how popular professional wrestling was in the late 1990s, which were the peak adolescent years for my generation. And during what the industry has coined “The Monday Night Wars”, WCW became the only wrestling company, for a brief couple years, to make more money and be more popular than the now monopolistic World Wrestling Entertainment. In fact, WCW would at one point in 1997 be not only the most popular wrestling company in the world, but the single most-watched television show in all of cable television. This is a fact that seems lost on people today due to how far wrestling has fallen in pop culture. But there was a time only 15 years ago when wrestling was the most popular show on cable television.

“WCW” stands for “World Championship Wrestling”, which was a wrestling company created by media mogul Ted Turner through an acquisition of another failing wrestling business based in the American South in the late 1980s. Off the back of creative storytelling and large investments by billionaire Ted Turner, it would rise to a valuation (based on proposed acquisition offers from other media companies) of $500 million in 1999, mirroring the rise of the dot-com boom in that same era. It would turn out that the dot-com boom would lead to WCW’s bust, as a series of corporate deals led WCW to be owned by America Online (yes, AOL at one time owned a professional wrestling company), whose new public company status could not support the $60 million WCW lost in the year 2000. AOL would pull the plug on WCW by selling its assets to the WWE for a mere $3 million, a stunning plummet for a business in a year and a half.

“The Death of WCW” is a business book as much as it is a wrestling book. The overarching business lesson is that customers of any business just want a good product, and if you start sacrificing on the core quality of your offering, no other antics or promotions or salesmanship will keep them. And if things are going well, limited success will cover a lot of internal mistakes. Once business turns for the worse, the whole house of cards collapses so quickly, there is no time to wait for a rebuilding.

I first came across this book when it was originally published in 2004. This 10th anniversary edition is double the size and almost goes into too much detail of the week-to-week changes in the wrestling industry for the uninitiated. However, this is also a testament to the work Alvarez has done in thoroughly researching and documenting the story of a company who, most importantly, played a significant role in the childhoods of tens of millions of Americans in the 1990s.

Disrupted – My Misadventures in the Startup Bubble by Dan Lyons:
Dan Lyons made a name for himself with his sardonic parody of Apple’s cofounder via his blog Fake Steve Jobs. Since winding down the blogging, his career has taken a series of unexpected turns. Laid off from role as a Newsweek reporter, Dan decided to take his wordsmithing into the startup land he once covered.

The company he lands at is Hubspot. For those unaware, Hubspot is a billion dollar company which sells marketing and sales software for businesses (it’s a mix of basic website form builders, customer relationship tracking, and some other minimum odds and ends a business might need to manage its online presence).

Dan’s year there turns into a nightmare for himself and the company, and Lyon’s journalistic roots motivated him to write this scathing expose of the company and startup culture at large. Dan, in his mid-50s, has immediate cultural clash with a company staffed by twenty-somethings. I’m an old soul, so I particularly enjoyed relating to the young startup employees working for low salary but free beer and candy and team praise in the form of emails ending in exclamation points, while at the same time understanding Dan’s insight into how vapid and fleeting a culture like this is. It may be surprising if even 50% of Hubspot’s current full time employees are there five years from now, and Disrupted does an adequate job of juxtapositioning this against the employment world Dan grew up in.

On one hand, Hubspot clearly has operational issues. Specifically, it seems like they’re growing their “inbound marketing” business through traditional “outbound” sales methods of having call centers staffed with low wage phone jockeys calling up small businesses and pushing them to buy a $10,000 piece of software they may not need.

If I have any issue with this story, it’s that it does seem somewhat sour to very publicly trash a company’s reputation that did pay you for a year and hired you when you were unemployed.

However, when it came to light that Hubspot executives were using illegal means to try to hack Lyon’s life and prevent this book from getting published, the company surely deserves the public relations hit it has taken since Disrupted was published.

Four Stars (Highly recommended for those interested in topic, or generally recommended for anyone):

Seinlanguage by Jerry Seinfeld:

I found this 90’s gem in the discount bookshelf at a thrift store somewhere in the Lakeview neighborhood of Chicago. Seinlanguage is a collection of essays Jerry wrote before starting his famous sitcom, and the stories served as the basis for many of his standup routines and TV episodes. So if you’re a fan of Seinfeld (the man or the show), much of the material will be familiar, yet I found enough original bits which made me genuinely laugh out loud. Seinfeld’s legendary abilities as an observational comic have been discussed ad nauseum elsewhere, so I’ll just reiterate that his insights into human behavior or so keen, and so clearly conveyed in Seinlanguage, it’s absolutely worth the $7 it costs for a copy online.

Seven Brief Lessons on Physics by Carlo Rovelli:
One of the greatest joys in life is walking into an old, small bookstore in an unknown land with no deadlines and no worries. While in New Orleans last Autumn for a family wedding, I had a lull in between festivities where I got to walk around the city and stumbled upon Faulkner House Books, a cozy floor-to-ceiling packed store. Befitting the store where I found this book, Rovelli’s brief history of physics was a fantastic find. It’s a sub-100 page, double-spaced explanation of the major concepts of physics since Einstein. One might not expect a physicist to be so eloquent. Rovelli’s writing (likely aided for American readers by translators) is clear and clever. He’s also demonstrably a deep thinker, sprinkling philosophical thoughts throughout the physics. It was such a perfect breezy read I flew through it in one coffee shop trip and on the flight home.

Creativity Inc – Overcoming the Unseen Forces That Stand in the Way of True Inspiration by Ed Catmull and Amy Wallace:
Ed Catmull may not be a household name, but his work certainly is. As the President of Pixar since it’s inception (when the Pixar team and technology was purchased from George Lucas by Steve Jobs), Catmull and his team have had an immeasurable impact on the happiness of humanity.

This is his half-personal, half-business biography, with the book itself split into two major portions: The first half is the biography of Catmull’s childhood and education breaking into the burgeoning field of computer graphics, working for George Lucas at Lucasfilm, and then founding Pixar with the support of Steve Jobs. The second half is a collection of lessons learned over his 30+ year career at Pixar as they faced specific challenges ranging from the technological, financial, and personal.

The book this most reminded me of is the previously reviewed Ben Horowitz’s “The Hard Thing About Hard Things”. They both follow the same format described above, and it’s a format I enjoy. When it comes to “business books”, I think it’s much more meaningful if the authors take the approach of “Here are problems I faced and how I dealt with them at the time. In retrospect, I maybe should’ve done this differently,” as opposed to the direct, infomercial-ly, self-help approach of, “This is how you can make a million dollars!”

Creativity Inc is a solid read for anything interested in working in any business or creative profession.

The Song Machine – Inside the Hit Factory by John Seabrook:
I think a majority of people have an instinctual knowledge that modern mainstream music is formulaic in sound and structure. But most haven’t delved into why music all sounds the same, when it started (The Beatles certainly didn’t sound like our current pop and hip hop stars) and how it got this way.

Seabrook’s “Song Machine” unveils the history of the greatest hit song machine in musical history, as measured by quantity of Top 100 hits (only behind The Beatles), length of time (30 years), and variety of artists. The machine? Swedish record studio Cheiron Studios was founded by Denniz PoP and taken to greater heights and legendary status by his protege Max Martin.

Their resume as song makers is unprecedented, starting with the major hits for both the Backstreet Boys and N’SYNC, followed by Britney Spears, Kelly Clarkson, Usher, Avril Lavigne, Pink, Katy Perry, Ke$ha and Taylor Swift. And what made them so special was nailing the modern formula: 80s stadium rock mixed with hip-hop dance-ability and rhythm mixed with choruses that can be both sung and danced to.

Along with the mythic story of Cheiron Studios’ creation and steady growth to industry powerhouse, “Song Machine” follows the beginning of the careers for the 90s major boy bands, Rihanna, and Ke$ha, along with the colorful and volatile personalities of their managers and producers.

Overall, it’s a succinct look at the history of modern pop told through the lens of its primary rainmakers. I am always personally fascinated by stories of how a small group of people (a few guys in a recording studio in Sweden) can have an inordinate impact on culture worldwide. It is profound to think that this handful of people essentially created the soundtrack to my generation, and the legend of their music factory, with the help of this book, will not be forgotten.

Five Stars (Highly Recommend to Everyone):

Chaos Monkeys – Obscene Fortune and Random Failure in Silicon Valley by Antonio Garcia Martinez:

This book is the best representation and explanation of current Silicon Valley. Chaos Monkeys, named after a technical tool from Netflix, is a memoir of Antonio’s professional career from 2010 to 2014 which included stops at many of the brand names of the Valley: Quant at Goldman Sachs and an adtech firm, starting his own adtech company funded by Y Combinator, selling that company to Twitter, and landing at Facebook.

What stood out to me is that someone so seemingly ingrained in the system would be willing to write a tell-all, including naming names, at a still relatively young age, when he could seemingly still milk it. However, two points become apparent while reading:

  1. The easy money is not as easy, or large, as headlines make it sound.
  2. In the machine of Silicon Valley, people’s memories are short and he’ll have little trouble remaining in the system.

Since it is a memoir, the reader’s reaction to the book will largely be influenced by their perception of the author. Antonio seems like someone who is not honest in the sense of strict truth-telling, but is honest with himself and his worldviews. His own opinionatedness and outspokenness comes through clearly, as does his self-awareness.

Beyond the author’s life story, readers are treated to inside scoop on the machinations of America’s glory industry: web businesses. The acquisition dance between startups and tech giants, and the inner managerial dysfunctions of Twitter and Facebook are elaborated from Antonio’s quasi-insider vantage point.

Chaos Monkeys and Silicon Valley as a whole is well summarized in this book excerpt, surely written to be quoted in reviews such as this:

“Investors are people with more money than time.
Employees are people with more time than money.
Entrepreneurs are simply the seductive go-betweens.
Startups are business experiments performed with other people’s money.
Marketing is like sex: only losers pay for it.”

Why We Get Fat – And What to Do About It by Gary Taubes:
Nowadays the dangers of sugar and excess carbohydrates are increasingly household knowledge. This was not nearly as true in 2010 when Taubes published “Why We Get Fat”, and the knowledge contained within is still not pervasive enough in American society.

“Why We Get Fat” is essentially a slimmer, more consumable take on Taubes’ 2008 book “Good Calories, Bad Calories”. He does a concise yet convincing job of disproving many of the common theories around weight gain and loss, particularly the ideas of calories-in versus calories out (the biology and chemistry of what kinds of calories consumed does influence on fat creation/destruction), overeating and laziness as causes of obesity (anecdotal and genetic evidence says otherwise), and that socioeconomics factors cause obesity (supporting academic research from both the humanities and natural sciences can demonstrate the social/economic evidence is symptomatic, not causal, of obesity).

Next, Taubes takes the time to explain the real causes of obesity, which delves into the specifics of hormone chemistry and how the body metabolizes different sugars. Thankfully Taubes is a journalist by trade (with a graduate degree in engineering) and has the ability to make the complex readable, while providing extensive references for those requiring scientific sources.

This isn’t a diet book (though it does contain an appendix with food suggestions). It isn’t a biology textbook. It’s just a well-written, high-level read for anyone who wants to improve his or her own health.

Best Book Read in the Second Half of 2016

How Doctors Think by Jerome Groopman, M.D.:
I first started this book in 2012, when I decided to buy it on a whim during a random trip to Barnes and Noble senior year of college. A few months later, it was one of the few items I packed in my bag carried with me onto a Megabus as I moved to a new city to start a new post-college life. On that 8 hour bus ride from Columbus to Chicago, I got through a majority of the book and purposefully set it aside because I didn’t want to finish it until I was ready to write a review for it and wanted the content to be fresh in my mind when I did. A few months ago, as 2016 was ending, I was ready to revisit this book and complete it knowing it would receive my highest recommendation in this set of reviews.

How Doctors Think covers a lot of examples of one overarching theme: how do doctors make decisions? As the back cover adds, the major sub-topics include why doctors succeed in decision-making and diagnosis (where expertise comes is useful), where they make errors (where expertise and experience blinds them), and how patients can influence their doctors (emphasizing that individuals can both take control of their health while also avoiding their own set of cognitive biases).

Groopman tells a story familiar to anyone interested in economics such as myself. It’s the story behavioral economics (Nobel-winning psychologists Kahneman and Tversky are cited early in the book) and fallibility of the human mind. The author does a few things tremendously well here:

  • Apply the academic work of behavioral economics to a different domain
  • Turning intellectual questions into a narrative
  • Creating this narrative out of real world anecdotes.

It is this third bullet where How Doctors Think really makes a profound impression on the reader. It is one thing to discuss human biases in academic exercises and brain teasers. Mental errors take on a deeper meaning when the results are doctors missing cancer in someone’s body because they ignored certain symptoms, or suggesting a surgery that kills someone who didn’t need to cut open. These heart wrenching stories of debt and death in our medical system due to human error should concern everyone. Luckily, Groopman summarizes these stories with lessons and suggestions to doctors and patients for improving decision-making and ultimately healthcare. I’m not listing these lessons here because you might not internalize them without the profound emotional impact How Doctors Think conveys.

Books Read in the First Half of 2016

As a reference, my grading scale is:

One Star: Not recommended for any number of reasons (poorly written, lack of content, poor depth-to-length ratio).

Two Stars: Not recommended, but tends to have a few worthwhile moments that would merit skimming, or is written for a small niche that might find something worthwhile.

Three Stars: Recommended, but either covers too niche a topic to get a stronger recommendation for a broad audience or doesn’t offer enough depth to be really interesting.

Four Stars: Recommended, well-written, and covers material I think most people would find useful or interesting.

Five Stars: Strongly recommended due to superb writing or research material. These books could expertly appeal to a wide audience or cover their subject so thoroughly to be authoritative accounts of their topics.

Additionally, I pick one book every six months as the “best book I’ve read” during that time period.

Three Star

Hipster Business Models – How to Make a Living in the Modern World by Priceonomics: Disregard the cheesy, off-putting title. Hipster Business Models is a collection of essays on eccentric ways people are making money, such as a Cheeto photographer and brothers who travel the country in a van doing odd jobs. The level of interestingness and originality varies from story to story. The essay format makes each chapter readable on its own and the less interesting ones skippable. A quick, fun read to give you ideas for how you’d make money if circumstances forced you to get creative, or you want to monetize your pre-existing offbeat side.

The Third Wave- An Entrepreneur’s Vision of the Future by Steve Case: The cofounder and CEO of American Online has released his first book almost two decades since he took AOL to the peak of the dot-com bubble. I decided to pick this up when I happened to see it on the shelf at a nearby Barnes and Noble and recognized it from Steve Case’s marketing blitz for it the past few months. Named after a book of the same title by futurist Alvin Toffler that Case read when he was younger, “The Third Wave” is half memoir and half futurology, with alternating chapters covering Case’s story in building AOL in the 90s and his predictions for the future of the internet.

The three waves as described by Case are three approximately 15-year periods: First, 1985 to 2000 as the period of building the Internet and its infrastructure; Second, 2000-2015 when companies made web applications and businesses on the Internet; and now the third wave is building “the Internet of Everything”, where all of society is imbued with the Internet in the same way electricity is embedded into modern life.

Considering the book covers two topics, Case keeps the writing succinct and readable. While not particularly deep on any of the future topics, it’ll provide less techno-centric people interesting brainfood on the future of the Internet and insight into the making of AOL, one of the flag-bearers of the Internet gold rush.

Work Rules – Insights From Inside Google That Will Transform How You Live and Lead by Lazlo Bock: Google’s Head of People Operations has written the manual for how Google hires and manages employees and creates an environment which has won numerous “Best Places to Work” awards. Bock’s writing style is simple and full of wisdom, as if Mark Twain ran your human resources department. The big difference between Google and most other companies is a bias towards trusting people and believing they are generally morally good. This one belief informs all other management decisions. The key takeaway from this book, beyond the specific Google-implementation examples, is that most companies can replicate Google’s culture, and many already have with great success.

Four Star

Phishing for Phools – The Economics of Manipulation and Deception by George Akerlof and Robert Schiller: Structured like a dissertation without any of the charts or equations. It concludes with a chapter specifically explaining its contribution to the economics field, which I’ll attempt to summary in a jargony one-liner:

Deception by people or firms is a natural outcome in competitive free markets where there are profit opportunities caused by informational or psychological asymmetries.

While that should summarize the message of the book, it’s an incredibly quick and fun read as the two economics Nobel Prize winners walk through a dozen examples of this dynamic. Highly recommended for anyone interested in economics or psychology. Only reason it doesn’t earn a five is because there’s not a lot of “new” knowledge, just new semi-formal framing and perspective on problems most people already understand intuitively.

Five Star

The Sixth Extinction – An Unnatural History by Elizabeth Kolbert: A truly historic event is happening to life on Earth, and it’s not just climate change. We are in the midst of what scientists identify as an “extinction event”, a short period of time where the diversity of life on Earth rapidly diminishes.

“Sixth Extinction” is structured, like many books I like, with two alternating running stories. Half of the book follows Kolbert’s global travels as she tracks down scientific experts on endangered and extinct species, interviewing them on why we’re observing such a loss of global organism diversity. The other half of the book is a walkthrough of the history of extinction research with highlights of the prominent geologists, zoologists, and other-ologists who’ve promoted the idea that species can be both appear and disappear during the historical timeline of life.

One surprising theme Kolbert uncovers is that modern humans are not just causing our current extinction event, but caused previous ones as well, as identified by the correlation of human expansion with the major declines in species extinction over tens of thousands of years.

The journalism is detailed, the scientific explanations understandable, and the stakes high. Winner of the Pulitzer Prize, “The Sixth Extinction” is a must-read for anyone who considers themselves thoughtful and desirous in understanding the fate of humanity.

Managing Humans – Biting and Humorous Tales of a Software Engineering Manager by Michael Lopp: In my last set of reviews, my top pick was “High Output Management”, which was partially about being an executive leader of a large (technology) organization. “Managing Humans” is a great complement, giving very tangible recommendations for working with and managing people (and not just in the software business). Drawing from decades of experience as a leader at some of the preeminent companies in Silicon Valley (seriously, check out his resume), Lopp provides tips for running meetings, getting the most out of your team without them hating you, how to work across departments, interviewing (on both sides of the table), and much more. This is all done with the same clarity and wit as his blog Rands In Repose.

The Best Book I’ve Read In The First Half of 2016

But What If We’re Wrong? Thinking About the Present As If It Were the Past by Chuck Klosterman: For my 2010 self, Chuck Klosterman was a name I was only vaguely aware, having seen it mentioned by other journalists in articles about pop-culture and on the recognizable cover of his book “Sex, Drugs, and Cocoa Puffs”.

Then in the Autumn of that year, the NFL released a video series on the 100 greatest football players in history. O.J. Simpson, a hall of fame-caliber football player and world-renowned convicted felon, made the list. His video package was narrated by Chuck Klosterman. I knew little about both men. I was struck by Klosterman’s willingness to acknowledge someone for their tangible accomplishments when I’m sure many others would be unwilling to do the same.

This stellar video, where Klosterman explains how O.J. Simpson may have arguably been the best football player in the world for a few years in the early 70s and held the records for most yards in a single game and season, was posted by the NFL a few weeks ago.

“But What If We’re Wrong” is not about football, but it is a continuation of Klosterman’s willingness to question convention. The subtitle is an accurate one-liner of the content. I’ll rephrase it as, “How will future humans, when looking back in history, think about the time we are currently living in?”

My restated subtitle of the book is answered by the implication of the title: What we currently think is important and what we think will be important to future generations is most likely wrong. The primary supporting argument is that this has historically been the case; what we currently think about past generations is rarely what past generations thought about themselves.

This point is supported with chapters on individual cultural aspects: literature, music, television, architecture, physics, sports, and politics. Each theme is then dissected in two ways: what are the past and present beliefs in this field, and what do we think the future human beliefs will be on this same issue?

The conclusion, as suggested by Klosterman, is that the future is unsurprisingly unknowable, yet people are unsurprisingly confident about their knowledge. This leads Klosterman into an overlapping field with one of my other favorite (and previously reviewed) authors, Nassim Taleb.

Klosterman’s work, while thematically similar to Taleb, is more of cross between Malcolm Gladwell (writing about complex topics in a simpler, relatable style) with the pot-smoking burnout most people know at least one of in real-life or have seen in movies (this comparison due to pattern of finding profundity in the banal, superficial aspects of life). However, this comparison is meant as a compliment. Chuck elevates himself above perpetual stoners having “high-deas” in dorms by concretely producing coherent content.

Past work had elevated Klosterman from music critic to cultural commentator. “But What If We’re Wrong?”, which I read in a few non-stop sittings a few weekends ago, firmly places him in my opinion as a mainstream cultural philosopher.

Books Read in the Second Half of 2015

One Star

Wrestling for My Life by Shawn Michaels:
I’ve already written before about how Shawn Michaels is one of my personal influences, so it’s not a surprise I picked up his newest biography. Sadly, it’s not one I can widely recommend. Michaels, a born-again Christian, wrote this book primarily to demonstrate examples of how to integrate Christianity into one’s life, with him only using professional wrestling stories to demonstrate how his Christian values informed his work. If you’re a wrestling fan, you won’t find many new behind-the-scenes stories, and if you’re deeply religious, you probably won’t care about the wrestling content.

Three Star

The Brief and Wondrous Life of Oscar Wao by Junot Diaz:
I decided to read this on the recommendation of multiple friends. It’s not the kind of book I’d typically read. It’s fiction that very much feels like it was written to be read by humanities majors (flowery descriptions, written in the style of specific character voices instead of a distant narrator). “Oscar Wao” is the story of a Dominican family that moves to New York City, and a reflection of the family’s ancestry in their dictator-destroyed homeland. The first half lays a lot of the character groundwork. The second half of the book picks up the pace and visceral-ness. The flashbacks to the brutality of the Dominican Republic and the emotional scars left on those who escaped and their descendants did resonate with me by the end.

The Sun Also Rises by Ernest Hemingway:
I hadn’t read Hemingway before and probably won’t again, considering I was told that “The Sun Also Rises” was the place to start. The story, about a group of young, upper-middle class friends traveling Europe together in the 1920s, doesn’t feel like it goes anywhere. The characters don’t really feel deeply developed either, so what you’re mostly reading is a period piece about the post-World War One “Lost Generation”. I do like Hemingway’s writing style, which is succinct with dialogue that finely balances being timely and modern. Sadly, for an author and book touted as a classic, I did not find the writing style original enough or the message profound enough to earn its status.

Modern Romance by Aziz Ansari:
I got a Kindle for Christmas, so maybe my first foray into e-book reading influenced my enjoyment of this book. I zoomed through “Modern Romance” in a couple of nonstop, multi-hour sittings. Ansari uses a surprisingly large amount of academic research, combined with his own comedy material, to explain how dating works for the millennial generation. This includes the rise of texting, dating apps, and economic uncertainty. If you’re a fan of Aziz’s standup, his Netflix show “Master of None”, or Tinder, you’ll probably enjoy this.

Four Stars

What to Think About Machines That Think by Edge Magazine and edited by John Brockman:
The 2015 Edge magazine question: “What do you think about machines that think?”. In order to answer this question, I think you have to answer three derivative questions: One, how do you define what is a “machine”? Two, what does it mean for something “to think”? And three, is what you answered in question one capable of doing what you described in question two?

The hundreds of intelligentsia who provided Edge with essay responses gave a whole span of answers to all of these. There’s no specific conclusion, just a lot of food for thought about the future of machines, humanity, and our intertwined fates.

How Google Works by Eric Schmidt and Jonathan Rosenberg:
One of the better business books I’ve read, the former CEO of Google and one of its top leaders speak on a variety of topics based. Interestingly, and no surprise given Google’s numerous awards, the first chapter is on company culture and following chapters on hiring and communication emphasize that people management is a primary task of creating a great company. The other chapter subjects (strategy, decision-making, and innovation) are supported by having the right people and giving them support and room to do their jobs.

The Gay Science by Friedrich Nietzsche and translated by Walter Kaufmann:
I’m generally not a reader of traditional “philosophy” books, especially the classics, because they seem unapproachable due to denseness, less-relevant due to time, or are a lot of fluff without meat. Nietzsche has some of these issues. Yet his phrasing and and logical framing of varied aspects of humanity are so thought-provoking as to make this book very readable and quotable. The Gay Science is organized as a collection of 350+ thought topics, each typically a couple paragraphs. It was written over the course of a decade and covers much ground, including many of the author’s major themes from his other works. I’m still not sure to what extent I agree with his philosophies (which are long, nuanced, and better summarized through his Wikipedia page as opposed to here) because many of the ideas still haven’t been worked through in my own mind.

Shaky Ground: The Strange Saga of the U.S. Mortgage Giants by Bethany McLean:
McLean, one of the primary people whose reporting helped expose Enron, has produced third book, highlights our country’s ongoing struggle of managing the mortgage industry. Shaky Ground specifically focuses on Fannie Mae and Freddie Mac, the two government-sponsored business that were quasi-nationalized by the government during the 2008 financial crisis. Almost a decade later, the status of these companies hasn’t changed, but they are still operating as a central hub in the housing industry, which itself has thousands of economic spokes all connected to it. Ideological wars between private shareholders in these companies and the two major political parties have ultimately resulted in an unproductive stalemate, leaving our economy still hinged on large, old institutions. The history of these issues and the current quagmire are excellently and concisely reported in a quick 150 pages.

Five Stars and Best Book Read in the Second Half of 2015

High Output Management by Andy Grove:
My first reading of this book and writing about it are incredibly timely: the author and former CEO of Intel passed away a couple weeks ago. We all are lucky that what he left us is the best book on management.

I could describe the details of HOM, the specific tips and directions Grove gave us. However, there are so many great lessons, and the book is thin enough to knock out in a couple sittings, that I’d rather you order a copy and then read this excerpt on Andy Grove by venture capitalist Ben Horowitz:

“Andy himself was a legendary figure. He had grown up Jewish in Hungary during a time when the country was occupied by the Nazis and, later, by the Soviet Communists. Arriving in New York, he spoke no English and had almost no money. He enrolled himself at the City College of New York, overcame his language deficiency, and went on to get a PhD from UC Berkeley. This nonnative English speaker would then write an important textbook on semiconductors in English while working at Fairchild Semiconductor. As a result, he was considered a scientific pioneer even before helping to launch Intel in 1968, building it into the seminal technology company of the era. Later, in 1997, Time magazine would recognize his nearly impossible accomplishments and name him Man of the Year.

This is in part what made High Output Management so extraordinary. Andy Grove, who built himself from nothing to run Intel, stopped what he was doing to teach us his magic. And not through some ghostwriter either — Andy wrote this book himself. What an incredible gift.”

This books is so good, it actually depresses me thinking about how many managers have either not read the book or have read it and not internalized it, because there are so many managers still making preventable mistakes. If you want to ever be a manager, High Output Management is required reading.

Books Read in the First Half of 2015

This post is a few months late compared to my usual semi-annual book review schedule. Just as a reminder, my scale is from one to five, with five being the best, and the last review being my top pick as the best book I’ve read in the past half-a-year.

Two Stars:

The Meaning of Human Existence by E.O. Wilson: When you name your book “The Meaning of Human Existence”, you’re setting a high bar from the get-go. The primary problem is that the majority of the book does not address the question in the title. Instead, Wilson discusses two topics: a brief history of evolutionary biology research, and the relationship between science and the humanities. Worthwhile topics, sure, but not what readers would expect from the title. He doesn’t answer the question posed from the start except with this off-hand line near in the conclusion: “What is the meaning of human existence? I’ve suggested that it is the epic of the species…it is also what we will choose to become.” If you finish this book, you won’t have learned much about why we are here.

Three Stars:

What If? Serious Scientific Answers to Absurd Hypothetical Questions by Randall Munroe: This first book from the creator of nerd-to-mainstream webcomic XKCD is a collection of responses to his webcomic reader emails. Chapters are structured as Q&As, with the answers comprising both essay explanations of the science of how the hypothetical situations would work and cartoons visualizing said unrealistic scenarios. If you’re a fan of XKCD or hypothetical thought experiments, this is worth the couple hours it takes to read.

The Circle by Dave Eggers: The obvious comparison, made by other reviewers, is to Huxley’s “Brave New World”. This is the first book by Eggers I’ve read, although multiple friends swear by his other works. Eggers does not seem to be nearly as strong a writer as Huxley (as measured by creative use of the English language and Huxley’s ability to say more with fewer words). However, what “The Circle” lacks in grandiosity and profundity, it makes up for being relatability. He’s written a compelling story about a web company that takes over the world economically and politically, as told from the perspective of one of its employees. Nearly all of the technology mentioned in the book exists today, which is the most chilling part. “The Circle” does a solid job of demonstrating the potential horrors of modern technology to a millennial reader.

Four Stars:

The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means by George Soros: This is billionaire investor George Soros’s thoughts on the causes of and solutions to the 2008 financial crisis. Like many of his books, a third of the book is devoted to reiterating the philosophical theory of “reflexivity” and its application to economics. The second third reviews the recent financial crisis, which doesn’t contain much material different from other sources except for Soros’s investing strategies amidst the events of 2008. The book then ends with his prescriptions for fixing the global economy: central bankers should be worried about asset bubbles along with the money supply, complex financial securities should be standardized and forced to go through clearing houses with margin requirements, and the housing bubble should be addressed by keeping people in their homes and adjusting bankruptcy proceedings. While this book walks a lot of previously covered ground, the content is still thoughtful enough that any reader, whether familiar or unfamiliar with Soros, will take something away from it.

Bad Paper: Inside the Secret World of Debt Collectors by Jake Halpern: I have a soft spot for stories from the financial underworld, and Jake Halpern’s investigative work into the underbelly of debt collection. He managed to submerge himself into the side of everyday finance most individuals don’t think about but are linked to: if you don’t pay off a credit card bill, where does that debt go? Who takes the loss? Halpern has found the answer (and reveals it in balanced thrilling yet sobering fashion) in the debt secondary markets. This business, largely trafficked through Buffalo, New York, is managed by a combination of high class bankers and lower-class ex-convicts trying to make a living by tracking down individuals who miss their phone bills. Like Martin Scorsese, Halpern makes mobsters sympathetic and complex-to-the-layman financial deals understandable.

Good Guys and Bad Guys by Joe Nocera: New York Times business columnist Joe Nocera published a compilation of his articles over the past three decades that were specifically memoirs or interviews with high-profile business leaders, especially those with distinct public images. Warren Buffett, Michael Milken, and the Enron crew all make appearances. Nocera’s writing is most intriguing when trying to highlight the shades of grey between what we think of as good and evil (was Milken a scapegoat for an entire industry that was misbehaving? Can good businesses be bankrupted by predatory lawyers?) The collection is bookended by interviews, done two decades apart, with oil tycoon T. Boone Pickens, whose personal life and career have had as many ups and downs as the economy.

The Money Culture by Michael Lewis: This is another collection of articles from a business journalist. Famed financial journalist Michael Lewis focuses on the mid-80s to mid-90s era of financial globalization. Broken up into three sections (United States, Europe, and Asia) with pieces Lewis wrote for The New York Times, New Republic, Washington Post, and others, Lewis guides us through the laughable idiocy of the financial elite (or what would be comically stupid if it didn’t pay so well) as they almost destroyed venerable companies such as Macy’s, American Express, Nabisco, and the mortgage lenders in the post-leveraged buyout era. When they had taken over and destroyed what they reasonably could in America, the bankers moved to Japan to run the same playbook, and there too was Michael Lewis to share with the masses with his sense of sarcasm and understandable explanations of financial chicanery. This is definitely a quick, worthwhile read for those who want to understand a not-so-distant but not-so-recent time in the history of big, bad business.

Dead Companies Walking by Scott Fearon and Jesse Powell: “Short selling” (making money on the decline of stock) is a unique, difficult, and controversial art. Hedge fund manager Scott Fearon has been making these contrarian bets for decades and has assembled a guidebook for identifying these opportunities. As Fearon points out, most business failures aren’t from Enron-like fraud, but from changing technologies, competitive landscape, or simple mismanagement. He takes examples from company collapses he’s seen during his finance career and explains how to identify broken businesses before bankruptcy sets in. Even for non-financially literate readers, the lessons on how to think about what works and what doesn’t in business teaches a perspective of skepticism that is lacking in a lot of people.

Fooled By Randomness by Nassim Taleb: I read most of his other books before coming back to Fooled By Randomness. This makes it tricky to review because each of his successive books builds intellectually from the predecessors. As the title suggests, the book is about how people are prone to mistaking random events for those that they think have a known cause, and applying this idea across different fields (mostly financial markets in this book). For me personally, I had already covered most of this ground. However, this is still a great starting point for anyone who is unfamiliar with Taleb, as it’s significantly shorter than The Black Swan and the concepts are quite as a deep as those in the later books.

Five Stars:

Diary of a Very Bad Year: Confessions of an Anonymous Hedge Fund Manager by Keith Gessen and n+1: I’m certainly not part of the literary community nor a regular reader of the n+1 magazine, but everything I’ve read from them has been great. Here, Keith Gessen, one of the publications cofounders, sits down for a series of interviews with an unnamed hedge fund manager from September 2007 through August 2009. What starts as an inquiry into high finance becomes a roller coaster ride through the 2008 financial crisis with each cliff documented by two people unaware of what’s around the corner.

The star of the novel is the anonymous investor. Gessen does an incredible job of maintaining an enigmatic vibe for what this person is really like personally, but giving enough background to convey that this man is not your stereotypical rich asshole. He’s an insightful, down-to-earth non-economist who happened to find himself in his position through a series of fortunate events. Anonymous man has learned much about the roots of economics and human psychology along the way and is happy to share his wisdom. I highly recommend this as an introduction into the workings of markets, economics, and the financial crisis.

This Idea Must Die: Scientific Theories That Are Blocking Progress by Edge Magazine, Edited by John Brockman: Edge magazine sends out its annual “Edge” question to various members of the intelligentsia who are asked to write essay responses, the results of which are compiled into a book. 2014’s question was “What established scientific idea is ready to be moved aside so that science can advance?”, and the answers come from a range of experts and fields of thought (apparently many physicists are tired of the search for a “Theory of Everything” and “string theory”, while economists are trying to select the successor theories to the historically strict definitions of “economic growth” and “rationality”). Whether or not you are familiar with a scientific niche (say, evolutionary biology), the vast majority of the answers provide an interesting perspectives and food for thought in a couple pages. The best part is that this “book” is available entirely free online, so there’s no excuse for not skimming to see if there are any essays that pique your interest.

Best Book Read in the First Half of 2015:

Command and Control: Nuclear Weapons, the Damascus Accident, and the Illusion of Safety by Eric Schlosser: From the writer of “Fast Food Nation” comes undoubtedly his career’s hallmark achievement; the story of America’s nuclear arsenal. I have not read a work of non-fiction more engrossing than a good novel in a decade (since Barbarians at the Gate), and Schlosser surpasses that here because the scope of the story is about as grand as non-fiction can get.

“Command and Control” tells two stories, alternating chapter by chapter: First, the story of a 1980 accident at a nuclear missile silo in Damascus, Arkansas, and second, the rise of the military-industrial complex throughout the 20th century in response to the Cold War.

The writing itself is paced like a Tom Clancy story, except real, and the science of nuclear weapons is explained in enough detail to appreciate their power without confusing readers or slowing the story.

The takeaway of the Damascus incident and Cold War is that mankind’s current existence is owed to the sheer luck that the world’s mismanaged nuclear warheads were never detonated anywhere, even accidentally, despite ample opportunities.

Schlosser summarizes the story’s moral:

“An entire generation has been raised without experiencing the dread and anxiety of the Cold War, a conflict that lasted almost half a century and threatened to annihilate mankind. This book assumes that most of its readers know little about nuclear weapons, their inner workings, or the strategic thinking that justifies their use. I hope readers who are familiar with these subjects will nevertheless learn a new thing or two here. My own ignorance, I now realize, was profound. No great monument has been built to honor those who served during the Cold War, who risked their lives and sometimes lost them in the name of freedom. It was ordinary men and women, not just diplomats and statesmen, who helped avert a nuclear holocaust. Their courage and their sacrifices should be remembered.”

A “Short” Update on Bank of Internet

Disclaimer: I am short Bank of Internet. Supporting documents referenced in this article can be downloaded in zip format. Also, the title is just a joke related to short selling, this article is more than 140 characters.

Since I started writing reports on my favorite stock trades, the only one which has, so far, not worked in my favor is my bet against Bank of Internet.

My original thesis claimed Bank of Internet was an overvalued company whose stock price would decline for five reasons:

  • Excess profits were driven by a one-time opportunity in buying cheap mortgage-backed securities in the aftermath of the 2008 financial crisis that would not continue.
  • BOFI’s assets are structured to have a “negative interest rate gap” where a rise in interest rates could cause its depositor liabilities to become more expensive more quickly than its real estate investments could increase in value, thereby shrinking profits.
  • There was a real risk in its proposed acquisition of H&R Block Bank that the government would force BOFI to increase its spending on legal services and regulatory compliance software. The government cares about this deal is because the H&R Block Bank is involved in the “pre-paid card” business, a financial product used by terrorists for moving money/money-laundering.
  • The company is overvalued from a financial standpoint using either a discounted cash flow analysis or comparable price-to-earnings/price-to-book ratios versus competitors.
  • The top two executives (CEO and CFO) were involved in two previous financial companies which both collapsed and had to be saved by the government.

Shortly after I first wrote on the company in August, 2014, the stock dropped from $80 to $65 in two months. Since then it’s gone on an unhalting tear upward to $106.

BOFI Stock Chart Since First Blog Post

Why Did The Stock Dip Lower in October? The Regulators Delayed BOFI’s Acquisition of H&R Block Bank

On October 5, H&R Block announced that the Office of the Comptroller of the Currency was delaying the deal past the 2015 tax season, with an expiration date for the deal’s approval on April 30th, 2015. The deal was originally announced on April 10th, 2014.

The next day, H&R Block CEO William Cobb said on a conference call, “I am obviously extremely disappointed, and frankly I am surprised in this development.”

Then on February 17th, they announced another deal delay in an SEC filing, extending the deal talks again with a projected closing date of June 30th and a termination date of July 31st when the deal would be canceled.

June 30th passed without an SEC filing updating progress on the deal from either company involved. However, Bank of Internet did announce that its next annual earnings call would be on July 30th.

The BOFI CEO Responds to Investor Questions About the Deal with Wife-Beating Reference

During the second quarter conference call for the 2015 fiscal year, Julianna Balicka, an equity researcher for Keefe, Bruyette, and Woods, asked CEO Gregory Garrabrants about the government’s investigation into the H&R Block deal:

“On the H&R Block Bank transaction, to the extent that in reviewing the transaction and kind of based on — my comments are based on kind of how regulators have approached other bank acquisitions. To the extent that the regulators have asked you or H&R Block Bank to go back and fix ABC or change ABC with how you run your own bank and then they have to go back approve the ABC changes, and then they go to approve the deal, right? To the extent that, that happened with H&R Block Bank deal, have A, B and C that they’ve asked for already been completed?”

To which the CEO responded with an in-poor-taste joke (emphasis mine):

“That’s — I have to say, actually, I’m going to give you, like, the award for that. I think my dad had a good sense of humor, and he used to say, ‘If that’s a question’– When you get a question, like, ‘Have you stopped beating your wife?’ You always have to stop back and say, ‘Wait a minute. What was that — just question?’”

It’s Not Surprising To Hear These Comments from the CEO of a Company Without a Human Resources Department

My own research on the job review site Glassdoor revealed an interesting company secret: Bank of Internet does not have an HR department.

A search through its 330 employees on Linkedin found that the company has (at least of publicly available employees) an in-house recruiter, a payroll and benefits administrator, and a workforce operations administrator. Other than the workforce operations administrator, there doesn’t appear to be any human resources employees at Bank of Internet.

The nine Glassdoor reviews below all mention this issue:

null

It’s not only the bad reviews or disgruntled employees. Even this positive, four-out-of-five-stars review of the company admits to no HR department:

H&R Block’s CEO is Not Happy About The Deal’s Progress

On June 9th, H&R Block had its latest quarterly earnings conference call. Its CEO Bill Cobb did not sound nearly enthused about the progress of the deal as his counterpart at Bofi.

“I’d like to comment on H&R Block Bank. Let me be clear. While we respect the work of the regulators, we are frustrated by this process and the length of time it is taking for the transaction to come to conclusion. We continue to work with BMI and our regulators, and believe that on its merits this transaction should be approved.”

Before going into further details from the call, I should explain upfront again why H&R Block is selling their banking division. Aside from the regulatory risks related to its prepaid card business I’ve explained before, H&R Block is primarily a tax preparation services business which also happens to run this bank business on the side. It wants to get out of the banking business for two primary, related reasons: First, it’s banking division is regulated by the OCC, and second, it’s required to maintain extra cash reserves to support its bank in case the bank runs into trouble and doesn’t want to risk depositors losing money. If H&R Block can sell its bank to another bank, then it can use its extra cash for other business expansion or share it with investors, and it won’t have to answer to as many government officials.

Mr. Cobb elaborated these points during the call: “We continue to expect to have approximately $1 billion of excess capital on the balance sheet when the bank deal closes. It is the desire of the board and management to use this capital and also incur some incremental net debt while maintaining an investment grade rating to return capital to shareholders. More details regarding the capital plan will be shared after the bank deal closes.”

When the question-and-answer session of the call started, the analysts continued to ask for further BOFI deal details.

Gil Luria of Wedbush Securities asked, “In your prepared remarks, you talked about the fact that the regulator hasn’t approved, or doesn’t seem to have any merits for not approving the bank sale. It sounds like you’re maybe implying that there’s other factors at hand here. And if that’s the case, and even if it’s not the case, and the regulator’s going to take an unknown period of time to approved this, doesn’t that make this the new normal? And if it is the new normal and even in consideration of everything that you talked in terms of volumes and unit accounting, how do you generate earnings growth on a sustainable basis going forward without a bank sale?”

Cobb responded,

“I don’t think we wanted to indicate anything other than there is no information at this time. And while we’re frustrated by the pace of the project, we don’t see any reason why this wouldn’t – transaction would not be approved on its merits.

Now, so there’s no signaling, there’s no, nothing of – and this seems to be taking a long. That is from our perspective, and probably many people would be with the same way. I’m not sure the regulator does. And for those of you who would deal with other banks and this whole industry, things are taking a long time in terms of any kind of deals that are being approved. I don’t want to speak for the regulators, but I don’t think they think this is – I think they feel they’re being thorough and complete as they approach this transaction.

So while it’s frustrating, while I would have thought we would have had an answer by now, there is nothing – and hopefully, we’ve gotten this through -there’s nothing to indicate that anything other than that this will move forward. However, the timing is something that is still in the hands of the regulators, and I think from their perspective, and again I can’t speak for them and I don’t think they’re going to speak about this, I think the timing is consistent with some of the ways they look at other deals.

Now, as for what the implications of that are – and again, I think every one of us also want to be very clear, we are not going to change our mind, if you will. We do not want to be regulated as a savings and loan holding company any further, and our intention is to exit holding – owning our own bank.”

Luria continued by asking, “Is there not a possibility for you to unwind the bank without having to sell it, and therefore not have to go through the same regulatory approval cycle? Is that not a possibility that you would have if this process was to keep going on or was to end with an unfavorable ruling?”

Chief Financial Officer Greg Macfarlane handled this question: “The important point number one is what Bill said, is we’re going to get out of this business…. We will get it figured out. It’s been frustrating, but we believe that the transaction we’ve entered into with BofI and talked about with all you many times is the way to go. As a hypothetical, in the event that doesn’t work out, what is the next backup? There is a way to separate the going-forward bank support that this company needs to continue to sell Tax Plus products, which we’re very committed to, and the actual formality involved with having a bank balance sheet. So effectively, we want to still be in the business of offering bank products, and we’ll need a partner bank to do that. So think of that as one transaction…. But really, just to finish up my response to your question, the plan that we have with BofI is the right plan we believe, on its merits, will be approved.”

Thomas Allen from Morgan Stanley tried to get a timeline for the deal closing out of Bill Cobb, who neutrally responded, “I’m out of the forecasting business. I think what we share and we continue to work very closely with BofI. We’re committed to them. I think they’re a terrific partner. We think the deal is going to be approved. But as for timing, we’ve been wrong a couple times on this. That’s why I’m out of the timing business.”

Why Is BOFI Even The Bank Getting H&R Block Bank? Because No One Else Really Wanted It

H&R Block has tried to sell its banking division before. In July 2013, it had an agreement to sell H&R Block Bank to Republic Bancorp. When the Republic Bancorp withdrew its offer that October, H&R Block stated:

“So we, last fall, when we made the decision to move forward in this direction, engaged Goldman Sachs and First Annapolis and they’ve been working with us every step of the way. We ran a full process. So we talk to lots of interested parties. They called us; we called them….You then narrow it down to a smaller group of qualified people, have more detailed conversations. We then narrow that list down further to about six counterparties and had in-depth detailed diligence two-way type discussion before we narrow it down further and that sort of the end of that process, we ended up with Republic.”

Kerrisdale Capital asked the important question: If there were actually multiple interested parties, how or why did Bank of Internet manage to outbid the others?

“BOFI had no real edge in bidding for this asset: unlike RBCAA, it doesn’t have a history of offering tax-related financial products, and unlike a firm like The Bancorp (TBBK), it has little experience serving as the back office for a prepaid debit-card program. Yet BOFI still managed to win the transaction, suggesting that it was willing to be more aggressive than its competitors and accept worse economics.”

What are those worse economics? The H&R Block Emerald Prepaid Card business and the bank’s deposits are not even growing.

In April 2014, Huntington Bank took over $450 million deposit accounts in Michigan from Bank of America and paid BofA $16 million, or 3.5% of the value of the accounts. In layman’s terms, a bank’s deposits are our money as individuals or business, and are actually liabilities for the bank who owe consumers that money if we ever want to withdraw it. One bank would acquire another bank’s deposits, despite deposits actually being liabilities, because it gives them a relationship with a customer to make money over the long term.

But in H&R Block Bank’s case, Bank of Internet is not paying H&R Block any significant amount beyond taking over the liabilities of the deposits.

In other words, BOFI somehow outbid other “interested parties” for H&R Block Bank with a bid of…nothing.

As summarized by Kerrisdale, “While the transaction isn’t costless – among other things, BOFI must put up capital to support the assets backing the acquired deposits – it surely says something about the quality and value of HRB’s deposit business that at least six parties closely examined it and none was willing to pay HRB anything for it. Potential buyers may have been unimpressed by the growth trajectory: in a rapidly expanding sector, HRB’s prepaid debit-card transaction volume grew only 3% in 2013, far slower than the 20%+ that BOFI shareholders expect from the company’s core business. Buyers may also have worried about the regulatory and operational risks of dealing with tax refunds and prepaid cards, both areas rife with fraud and money laundering. Whatever the reasons for buyers’ unwillingness to pay up, we doubt that there is much real value to be found in a transaction that was widely and repeatedly shopped yet failed to attract a meaningful bid.”

A month after Kerrisdale’s updated report, H&R Block’s own Annual Report (included in the downloadable folder) stated on page 35 (27 of the 10K SEC Filing): “Emerald Card fees decreased $5.2 million, or 5.0%, primarily due to lower transaction volumes resulting from a decrease of approximately 14% in prepaid debit cards issued.“

Even with an average yield of 34% (according to the the same filing’s line on “Emerald Advance on page 37), the HRB prepaid card business volume is decreasing, and BOFI is buying into it.

Aside from the HRB Deal, The “Negative Interest Rate Gap” and Rising Interest Rates Could Kill Profits

In my last report, I outlined the issues with the company’s focus on mortgage-backed securities, negative interest rate gap, and overvaluation compared to its peers.

The most worrisome of these issues to me is the negative interest rate gap, because it’s another area of its business where BOFI is both placing risky bets with its depositor’s money and regulators are not happy about it.

As a refresher, a bank’s “interest rate sensitivity” is a measurement of the effect interest rate changes (influenced the the Federal Reserve and/or the financial markets) have on the bank’s assets and liabilities. High interest on its assets means it makes more money, but high interest on liabilities means the bank has to pay its depositors higher rates on products like savings accounts. It’s the bank’s management’s job to delicately balance multiple factors: The interest rates it’s earning on its assets, how much it is paying out in liabilities, and the timespan over which it’s collecting money and paying back depositors.

On page 56 of Bank of Internet’s April 30, 2015 quarterly 10Q filing (also in the downloadable folder), the company reveals it has a -45.99% interest rate sensitivity gap, or approximately $2.5 billion in liabilities that will be repriced at potentially higher interest rates than its assets in the next six to 12 months (considering this was end of April, it’s now more like three to nine months).

BOFI explains on the same page: “In a rising interest rate environment, an institution with a positive gap would be in a better position than an institution with a negative gap to invest in higher yielding assets or to have its asset yields adjusted upward, which would cause the yield on its assets to increase at a faster pace than the cost of its interest-bearing liabilities.”

Rephrased, an institution like BOFI with a negative interest rate gap is in a worse position because the cost of interest on its liabilities will increase faster than the interest it earns on its profits.

Summarized, over the next three to nine months, if the Federal Reserve raises interest rates like it says it might, BOFI’s costs will substantially increase, shrinking its profits. Costs will rise because depositors, particularly those using online banks, can switch banks to whoever is offering the highest interest rate on savings accounts and CDs, so BOFI will be forced to increase its payments to depositors if it wants to keep them. But its assets, which are mostly mortgage loans, don’t increase their profitability as quickly.

Unfortunately for Bofi, Federal Reserve Chairwoman Janet Yellen said in a Congressional hearing earlier this week that she expects the Federal Reserve to increase interest rates this year.

This negative interest rate gap is also an area of interest to regulators. If interest rates rise, so does BOFI’s costs. And if costs rise enough, the bank may no longer be profitable and could eventually run the risk of bankruptcy. The government does not want to have to publicly deal with more bank failures.

The FDIC in October 2013 issued a four page guide/warning on managing interest rate sensitivity risk: “The FDIC is increasingly concerned that certain institutions may not be sufficiently prepared or positioned for sustained increases in, or volatility of, interest rates. For example, institutions with a decidedly liability-sensitive position could experience declines in net interest income and potential deposit run-off in a rising rate environment.”

Recently on June 30th this year, the OCC stated in a report: “The prolonged low interest rate environment continues to lay the foundation for future vulnerability. Banks that extend asset maturities to pick up yield could face significant earnings pressure and capital erosion depending on the severity and timing of interest rate moves.“

Related to the prepaid card business, the same report states: “Compliance risks remain high, as banks work to comply with new mortgage lending requirements and manage Bank Secrecy Act/Anti-Money Laundering risks.”

Could I Be Wrong? And if I Were, How Would I Know?

I ended my first report on Bank of Internet by listing the three ways I could be wrong about this pick. What I had failed to take into account the first time was that the regulators would postpone making a decision on the deal for over a year.

So I will state the criteria I personally use to judge whether this is a good pick.

I will continue to short Bank of Internet until the the H&R Block Bank acquisition deal has one of three outcomes: The deal is approved by regulators with no issues, the deal is approved by regulators on the condition that Bank of Internet spends a lot of money on regulatory compliance software and legal staff, or the deal is canceled because Bank of Internet is unwilling to spend the money on compliance or the government has issues with how Bank of Internet’s depositor money is being managed.

Any result beyond the first will be a very public signal that Bank of Internet will not live up to its own hype going forward, and I expect the stock price to drop to reflect that reality.

That’s the primary short term thesis upon which I am trading.

If the government does not act, then it could take a while before Bofi’s stock drops, and I would lose money while waiting. I’d be wrong regarding the government’s view of the H&RB Block deal.

Over the long term, Bank of Internet is still one of the most overvalued banks by fundamental financial valuation metrics with its profitability hinged on the Federal Reserve keeping interest rates low. If the regulators don’t take action against BOFI, its own risk-taking bankers will.