I’ve been waiting for this book for over 10 years.  When Michael Pettis wrote The Volatility Machine, he explained how emerging market countries imported the monetary policies of the developed countries.

Now, in the present mess of economic policies put forth by most governments in our world, he explains how the debt and trade imbalances will eventually have to balance.

We’ve had other economic eras where trade did not balance.  In the era of mercantilism, trade did not balance, because  the mercantilistic countries sought gold, and adopted policies that favored exports, so that their nation would receive gold.  Smart, huh?

Well,  no.  Gold is good; I like it, and it preserves value better than anything else, but when you take actions to disproportionately get gold, you overpay for it.  Then when you realize your error, and start to sell gold for goods, the market knows that you are selling, and the value of gold falls.

That is why countries that force growth tend to lose.  Because they force growth through overinvestment, they look like stars for a time, but eventually the declining marginal productivity of capital catches up with them, as it did with Japan in the late ’80s or early ’90s, and the Soviet Union in the 1970s.

Governments are no good at directing growth.  We knew in the late ’70s that import substitution did not work.   It took 20-30 years more to realize that export promotion does not work long-term.  Happily, my old professor Bela Belassa never lived to see his theories repudiated.  (He was a cold guy, but not totally; he had mercy on me once, and for that I am grateful.)

Back to Pettis: his main argument is that the surplus countries must take losses over loans to deficit countries.  The loans were made in bullish times, and from any reasonable standpoint, they were bad loans.  Therefore the lenders should compromise with the borrowers, and both sides take losses.

This applies to China versus America.  China will not get repaid in the same purchasing power as they lent.  If China wants to thrive, it will need to take steps it has been unwilling to take politically, and free much more of the economy from government and Party control.  Only that can boost domestic consumption as a fraction of GDP.

This applies to Germany versus the rest of the Eurozone.  They won’t get paid back in the same terms; either there will be discounts in Euro terms, or some nations will leave the Eurozone.  The alternative is Federal Europe, where losses are shared across the nation, much as California subsidizes Maryland.

One way or another, just as the mercantilists lost, so will the surplus nations lose today.  It’s just a question of when and how.

Quibbles

I can’t get into  SDRs [Strategic Drawing Rights] of the IMF as a currency.  Currencies either need gold or taxation authority behind them.  Further, taxation authority requires police power to enforce taxation, which is not the case.  SDRs are a cute idea that some academics fall for, but are not a real world solution.

For those who read his e-mails regularly, 25% of the book will be “old hat.”

Who would benefit from this book: Anyone who wants to understand international economics better will benefit from this book.  I cannot recommend it more highly.  If you want to, you can buy it here: The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy.

Full disclosure: I received a free copy from the publisher.  Though I have never met him, I have conversed with the author via e-mail.

If you enter Amazon through my site, and you buy anything, I get a small commission.  This is my main source of blog revenue.  I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip.  Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book.  Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.  Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.  Whether you buy at Amazon directly or enter via my site, your prices don’t change.

This is a different book for me to review, but as my wife once said to me, “Only you could see the economic angles of ‘Little House on the Prairie.’”  Guilty as charged.

Many people have read “Cheaper by the Dozen,” and “Belles on Their Toes.”  Indeed, I read them as a child, and to my children as an adult.  That era in America had huge families as families moved from the country to the cities, and primitive methods of birth control were temporarily forgotten, often amid economic success.  Many people wanted large families if they could afford them.  Affording them was the problem.  My grandparents were kids in large families.  Seemed to be the rule back then.

What makes “Time Out For Happiness” special is that it traces the lives of Frank & Lillian Gilbreth, the parents, and explains why they were so special, not as parents, but as intellectuals that changed our world.

Frank Gilbreth was an ambitious young man who was always looking for a better way to do things.  In learning bricklaying, as an amateur, he analyzed what experts did, looking for the best way to do it.  The experts were annoyed at the neophyte who wouldn’t simply imitate, but had to think it through.  The neophyte was markedly worse initially, but then discovered an idea: if you set up the work to minimize unnecessary motion, a worker can work faster, and with less effort.  Frank devised a way of putting all that a bricklayer would need within easy reach, and he became the fastest bricklayer around.  He then made money selling his system, but then he went on to do the same for many building tasks, raising productivity dramatically, without demanding that workers work harder.

This contrasts with the ideas of Frederick Winslow Taylor, whose disciples measured employees with stopwatches, and urged that all work faster.  Gilbreth assumed that most workers wanted to do a good job; how could he make doing a good job easier.

Politically, Gilbreth was a centrist; he wanted the growth in productivity to be shared by all; he worked mostly with those that would deliver part of the increase in profits back to workers. As such, Gilbreth’s ideas were often supported by unions, and Gilbreth himself supported unions, so long as they limited themselves to the welfare of workers, and did not create onerous work rules that unnecessarily harmed productivity.

Phrasing it differently, the Gilbreths wanted the increase in productivity to result in greater happiness for all.  After all, if we are saving time by being more productive, what will we do with all the extra time or goods produced?  We should use them to be happy, owners and workers alike.

One key thing that Frank Gilbreth did was do time & motion studies.  With film being a new thing, and expensive, he measured the way people moved at work an analyzed it closely.  He did this with the interests of owners and workers at heart.  This enabled them to come up with process improvements that other experts could not.

As his ideas gain more respect, and as his corporate profits grew, he and Lillian wrestled with the question, “Run a company, or teach ideas?”  They both concluded that being consultants for improving productivity was the most desirable goal, though it took some struggle to give up the immediate profitability of the construction business.  The early days weren’t easy, and its took a while before they got any business, because the disciples of Taylor did not respect him.

When WWI arose, Frank volunteered to help make the military more efficient, and as a Major did so for four months before he became very sick, and Lillian dropped everything in order to save him.  She succeeded, and Frank lived for six more years, building the business, and benefiting their home.  He died while talking to her on a pay phone, traveling to give a talk.

This left her in a financial lurch.  She survived by getting advances on Frank’s inheritance, and building the business Frank left behind, including starting a school for efficiency.  There was no inheritance from here side, because they concluded she needed none, being married to the prosperous Frank.

But as she continued to speak, write and teach, she gained enough  to support the family and send her kids through college.  She received many awards where she was the first woman to receive them.  Lillian was different from Frank because though she knew most of what he knew, and vice-versa, her strength was the employer/employee relationship.  How do you create good relationships that create productivity, and good companies?

Both Frank and Lillian were driven; they worked hard, and focused on the public good.  Frank died working.  Lillian worked into her mid-80s, with her children protesting her demanding schedule.  She gave her last talk at age 90, to honor the work of Frank at his Centennial.  She lived four years beyond that.

She had many famous friends, including many US Presidents, on whose committees she served, from Hoover to LBJ.  Much of it dealt with disability, which both she and Frank had worked on, because they had an interest in helping those who had it bad.  Frank devised ways to aid the disabled to dress, and more.  Lillian improved on that.

Do you want to get to know two quirky humanitarian people who changed our society?  They created the coffee break (rest helps productivity) and anticipated many later improvements in the workplace.

Don’t Buy This Book

This book is too scarce.  Don’t buy it.  Use interlibrary loan to borrow it.  But it is a very good book, and I haven’t told you the half of it.

I enjoyed this book, but it is not a book on investing.  Here is my rough breakdown of the book:

• 40% Ben Graham’s childhood
• 30% Early work experience up until the Great Depression
• 10% His personal life with family and others.
• 10% His late-Depression successes in investing up to 1940.
• 10% His efforts as a playwright and as an amateur economist.

So, here’s my biggest gripe about the book: in many ways, Ben Graham’s biggest days as an investor — his greatest times of success in the 1940s & 1950s don’t get mentioned at all.  I learned more of what he was like in that era from reading Alice Schroeder’s The Snowball.

Should this surprise us?  No.  Ben Graham wanted to live the good life in modern terms.  From his time as a youth, he was hard-working, growing up amid poverty, and he never wanted to be poor as an adult.

He was a very bright guy on many topics.  He was not only studied in the humanities (which he loved more), he was exceptionally good at math.  The book does not describe him in these words, but he was the first hedge fund manager, and the first quantitative investor.

What made Graham a lot of money was realizing that convertible bonds and preferred stocks carried a valuable option that was often undervalued, and so he would buy the convertible security and short common against it.  Strategies like this, plus activist investing, where he uncovered information advantages on undervalued stocks allowed him to become wealthy.

And that was enough for him.  Unlike his more focused protege, Warren Buffett, once the game got too tough, and a pleasant retirement was attractive, he trotted into the sunset, with modest contact with his former friends in investing.

The book does not describe his time teaching at Columbia, nor any of the great investors that he influenced.  Ben Graham was interested in investing, but he was more interested in the humanities, and generally having a happy time.  Thus, if you read this book, realize that it is about a slice of the life of Ben Graham.  The first half of his life comes in great detail.  The last half of his life comes almost not at all.

But this is not an autobiography, it is a memoir.  As such, Graham tells us what he wants to tell us, and leaves the rest unsaid.  He tells us a little about his thoughts on marital infidelity, but does not tell us how his ending companion ended up being his deceased son’s wife.

All that said, we get what Graham wanted to reveal to us.  Janet Lowe’s book on his life is more comprehensive on his later days… even Alice Schroeder gives us more on his later life by accident of covering Buffett.

In summary: this isn’t primarily a book on investing.  It is a book on the thinking of one very bright man who invested and did well, and used the freedom that money brought for his own ends, both for good and for bad.

Quibbles

Already expressed.

Who would benefit from this book:  If you want to know the early life of Ben Graham, this is a great book.  Beyond that, you will be disappointed.  If you want to, you can buy it here: Benjamin Graham: The Memoirs of the Dean of Wall Street.

Full disclosure: I borrowed it from the local library.

If you enter Amazon through my site, and you buy anything, I get a small commission.  This is my main source of blog revenue.  I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip.  Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book.  Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.  Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.  Whether you buy at Amazon directly or enter via my site, your prices don’t change.

After I finished last night, I realized I had a few more things to say.  First I need to correct what I wrote in part two regarding the separation of Buffett and Susie.  Here’s some help from one of my readers:

I do have a bone to pick with your review of the Snowball, part two: in describing the Buffett’s separation and arrival of Astrid Menks, you have substituted your own judgment for that of Schroeder and Buffett, without making it clear that it is your own viewpoint.  I certainly understand your assessment of the marriage and perhaps your desire to defend Buffett, as he is someone you clearly respect (as do I).  But Buffett’s own view, expressed in the book that Susie’s leaving was “99% [his] fault”.  Schroeder also indicates that Buffett was quite difficult, and of course, he was totally driven, and in any case, not terribly emotionally supportive.

The ethical judgments that I made in parts two & four were mine.  They were not those of Alice Schroeder, Buffett, or anyone in Buffett’s family.  That said, because of the role I play in my church, I have had to counsel some people on marriage.  My results have been good, bad, and indifferent.  Usually I think that I have been called in on the late side, when hope is almost non-existent.  Better to call in a counselor on the early side.

I have known many men, and some women who I would call “pieces of work,” where they are very difficult to get along with.  I’ve seen cases where the spouses of such people succeed, and more where they failed.  In marriage, it takes two to make a failure, leaving aside adultery and desertion.

My opinion is this: if Susie could bear with it for 20 years, she could bear with it for 40 or more.  Buffett was maturing emotionally, and was better able to interact with others.  Susie missed the best years of Warren.

As it is, children are affected even if adults when parents separate; they become more prone to divorce.  Buffett’s children had their own marital problems.  It also doesn’t help when you didn’t get a lot of attention from your father when young.

On the Patience of Buffett

Buffett does not have to deploy capital; he does not have to grow.  He can live with a lot of cash on hand, earning zero.  He knows human nature.  As a group, we tend to panic every five years or so.  Buffett picks up a lot of bargains, whether by sector, or across the market as a whole.  He finds good companies that are out-of-favor, and he gives them a good home.  This is very different than how most people invest.

Buffett waits until he sees a return on book capital with reasonable certainty that exceeds his threshold, and then he buys aggressively.  He can do that because he has a balance sheet, and he has simple goals for return on capital.   So long as he continues to be careful he never has to worry about insolvency — his balance sheet is conservative.

Final note on Religion

Because of who I am, I was interested in how Buffett’s and Susie’s parents viewed religion.  Buffett and Susie were a lot like my in-laws: raised in the church, but turned against God.  There was something in the era, as people sought bad interpretations of the Bible so that they could live their own way, and not God’s way.

Quibbles

Already expressed.  This is a great book if you are looking to read about the life of Buffett, rather than the aspects of Buffett’s investing that you can’t imitate.

Who would benefit from this book:  This book will not help you invest like Buffett, unless you are bright, and know all of the details that lay behind Buffett’s strategies.  This book is the best to help you know Buffett the man.  It is a great book.  If you want to, you can buy it here:The Snowball: Warren Buffett and the Business of Life.

Full disclosure: I borrowed it from the local library.

If you enter Amazon through my site, and you buy anything, I get a small commission.  This is my main source of blog revenue.  I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip.  Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book.  Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.  Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.  Whether you buy at Amazon directly or enter via my site, your prices don’t change.

One thing I did not leave clear from my prior writing: Buffett does not think in terms of market value. He thinks in terms of book value, and how to compound it. That is how I think the markets as well. I think of the markets like a businessman does, and so does Buffett.

Why should being a businessman, and being an investor be so different? Answer: they should not be thought of differently. This is why value investors look at the returns relative to the price they paid.

Buffett as an Investor

Buffett had a strong grounding in probability. Whether it was with stocks, or at the racetrack, he was smart enough to find an edge.

He was also wise enough to understand the concept of discounting. Discounting is the cousin of accumulation. One looks forward, the other looks backward.  Buffett understood when it was smart to receive cash and distribute cash. He knew what a dollar was worth. He knew when the dollar was worth in the future. This grounded his sense of investing.

He invested in many industries: Newspapers, Utilities, Insurance, Furniture, Jewelry, Pipelines, Railroads, Manufactured Housing, Coke, Shoes, Textiles, and Airlines.

He also sought a margin of safety. What would be the maximum bad outcome if he invested in a company? If you can limit the downside, you have the capability of making money on the upside.

Buffett also like to play Bridge. Bridge is a complex game; you do the best if you bid to take the amount of tricks that you will actually take. Bridge favors people who can estimate well, and Buffett is one of those people.

Buffett is a very bright guy. Very, very bright.

Buffett and Business Ethics

Buffett is an ethical businessman. Probably one the most difficult parts of his life was when he was chairman of Salomon Brothers. In that situation, he had to play a delicate game trying to satisfy the regulators in Washington, DC, and satisfy investors who held the stocks and bonds of Salomon Brothers. This was a very difficult task, but Buffett performed extremely well. In some ways, I think this is the highlight of his career. I think this, because the regulators were stacked against him, and he succeeded in a large measure. Without Buffett, Salomon Brothers would have been bankrupt. Buffett triumphed against both economic and political forces.

And at the time he did that, he made Salomon Brothers a far better place. He stressed ethics above economics. Bravo! That is what needs to happen in almost all corporations United States now.

Now, when his son Howie had troubles ADM, Buffett had considerable advice for his son but he did not demand that Howie do it he said. But Howie listened to his dad and left ADM before the crisis erupted. As a result, Howie’s reputation stayed clean.

In general, Buffett was a Boy Scout when you consider business ethics. But when you consider other aspects of ethics, he was not so.

Politics

Buffett’s father was one of the most conservative Republicans in the House of Representatives. As a boy, he campaigned for his father. He switched his political views after he married Susie. After he married Susie, the first thing was opposing racism. That was a really good thing, and both he and Susie did many good things in integrating our society.

This is hard to impress on the black children that I have adopted. With no large amount of racism, it is hard to explain to them what others went through 50-150 years ago.

But I disagree with Buffett who bought the concept of the population bomb from Paul Ehrlich. People are born with a mouth and brain. The brain is far more important than the mouth. No matter how much the population grows, we will find ways to make our resources stretch further. The largest scarcity on earth is good ideas.

Munger and Buffett led the way in California on the issue of abortion. To me, this is the worst thing about them. Life begins at conception. Every embryo has unique DNA. Embryos begin most of their adult human actions between two and three months after conception. It is cruel to abort them. Much as people mourn the deaths of six and seven-year-olds in Connecticut, we kill far more children when prior to birth, by a factor of 10,000.

Buffett also favored taxing the wealthy. But most of his tax proposals would not tax him. This is the most hypocritical part of Buffett. He could pay extra tax to the government off of his embedded gains in the stock that he holds of Berkshire Hathaway. Berkshire Hathaway itself could just pay off their deferred tax liabilities. But he doesn’t do that. Instead, he asks others to pay what he will not.

Food

Though I like all kinds of food, I find it amusing that Buffett does not want to eat anything that a three-year-old does not eat. I also find it amazing that he is still alive following such a diet.

That’s one of the cute parts of the book – watching when Buffett turns away food, and the efforts that they make to provide hamburgers and steaks to him in areas where that is harder to achieve.

Summary

I’ve tried to give you all the main themes of the book The Snowball. The biggest theme of the book revolves around Buffett’s first wife Susie. For more than 20 years, Susie was the core of Buffett’s life. She gave him a life after the harsh treatment his mother gave. But after many years of marital neglect, she left him, and that is to her discredit. (Of course, Buffett could have solved this by spending less time on business and more time on his marriage.)

Then when Susie died, that was the next largest theme of the book. She did not care for herself well, but Susie was beloved by almost everyone mentioned in the book.  I wonder at an alternative history where Susie stayed at Warren’s side, and sang without leaving him.  Warren might have done better, far better.

Warren Buffett is an amazing man, and I look up to him, leaving aside his ethical lapses.  This book is the best book that describes him of all the books that have been written about him.  Alice Schroeder did an excellent job on this book.  Warren Buffett should be grateful to Alice Schroeder for this book.  It gives a fair but believable representation of his life.

Compounding

If you have to make it simple, Warren Buffett is in the compounding business. That is what he has done since he was a young boy. He started with selling gum. He moved on to working inside the family firm.

Once his father moved onto DC as an idealistic Congressman, Buffett had a paper route, and as his assets began to grow, he bought a farm and other assets.  He was always trying to grow his net worth.  That is a constant with Buffett – he has always tried to grow his net worth.

By the time he linked up with Ben Graham, there were still a lot of “cigar butts” to pick up and puff.  In that era compounding was easy because the post-depression competition was so low in stock-picking.

But by the late 1960s almost all of the ‘cigar butts” had been picked up and smoked.  Easy pickings were gone, and Buffett was saddled with an unproductive textile company – Berkshire Hathaway, and a mediocre-to-bad department store in Baltimore.

He decreased the activities of the textile company, and reinvested the free cash flows predominantly into insurance, including buying half of GEICO.

(As an aside, Buffett was not a great manager of insurance companies at the beginning, and even the middle.  His early companies had their issues.  Jack Byrne did well running GEICO, followed by Tony Nicely.  Buying Gen Re was a mistake, at least initially – he bought something so complex, and he assumed that all would be fine, setting himself up for losses in the derivative book, and also in the casualty book, where they were reinsuring losses to avoid accounting issues.)

Then came the era of investing permanent capital, where he bought the “sainted seven,” and they produced profits for him.  He made more money off his public equity investments in the era of the 80s & 90s, but in short order thereafter it shifted.  Berkshire Hathaway was no longer an investment company akin to a closed end fund or a business development company – it was a full-fledged conglomerate.  That’s how we should think of it today.  Berkshire Hathaway is a conglomerate that gets a lot of its funding from insurance premiums.

He occupies a unique niche in business.  He will acquire entire firms that are attractive to him, does not change their underlying culture, and rarely if ever sells them.  This appeals to entrepreneurs who built a unique culture, and love their employees.  They will sell to Buffett, because alternative acquirers very likely would destroy the employees and culture for the sake of short-term gain.  Buffett is focused on the long run, and is willing to let a subsidiary underperform for a while, before he sends in additional management to sort things out.

On Buffett’s Wisdom

Buffett has a tremendous memory. He knows all manner of statistics regarding industry, which informs him in his investment decisions.  That is one reason why he makes so many wise decisions.

But another area of Buffett’s wisdom was against the Efficient Markets Hypothesis.  Whether in his debate against Michael Jensen in 1984, which helped to produce the article, “The Superinvestors of Graham and Doddsville [PDF, 13 pages],” or in his annual shareholder letters, that risk is not volatility – risk is the permanent impairment of capital.

If you work with a margin of safety, and buy companies that will produce free cash flow, and can grow free cash flow, you will be safer than most investors, and probably more successful as well.

I’ll finish up this review tomorrow.

According to the book, his wife Susie approached Astrid Menks to care for Warren with food, and other aspects of personal care.  But for a man to have his wife abandon him, with no prospect of return, a pretty 30-year old woman with few requirements would test most men in terms of their fidelity.  According to the book, Susie was surprised that Astrid moved in with Warren.  I think that was naive on her part.  If you want to be a wife, be a wife.  Make up your own mind on what you want, and fault yourself for bad decisions.  Adultery is a bad thing, but Susie is the most to blame by leaving Warren.

Warren is/was a simple guy.  If Susie never left, he would have been happy.  Indeed, he was depressed when she left.  But she got tired of the neglect, and abandoned her marriage vows to him.  She should have borne the neglect, and stayed with him — marriage vows are permanent.  Marry in haste, repent at leisure.  We have no idea of how much Susie may have pleaded with Warren to be connected to her and the family, but the eventual result was a virtual divorce from Susie, which led to another relationship, even though the legal fiction was maintained.

Buffett also had many friends and mentors in the value investing community, most of whom learned from Ben Graham.  In the early years, there was a “Graham Group” that would get together to discuss the principles of Ben Graham.  Bit-by-bit, the group slowly became the “Buffett Group,” because Warren was Graham’s most apt disciple.

But there was one peer who got him thinking more broadly, Charlie Munger.  There were a number of people who thought they would benefit from knowing each other.  They were right; at the very first meeting they hit it off, and found it hard to end the conversation.

Warren received a lot of respect from men in his early years.  They looked at the returns and said, “Wow.”  But his abilities suffered a bit in the late sixties, as “cigar butt” investments disappeared, there was some uncertainty, as to whether Warren would continue to invest.  Fortunately for him, Charlie Munger had given him a new paradigm, which I call “growth at a reasonable price.”

Buffett became very good at estimating opportunities, particularly opportunities that will last.  It is only under such conditions that growth investments will work.

But there are two more entities that shaped him — The Sun Valley Conferences and Bill Gates.  Gates is the more important influence, because his knowledge of the tech sector helped to refine Buffett’s view of moats, because an attractive technology that gets a large market share is its own moat.

The Sun Valley conferences had two aspects.  Buffett presented at a number of them, and during the tech bubble, he drew quiet derision from attendees.  That said, he was a sponge for information, and he understood tech.  What he did not understand was how you could get reliable free cash flow from tech businesses, where obsolescence was such a threat.

Part 3 will come tomorrow.  Stay tuned.

I had wanted to read this book for a long time, and I asked the publisher for a copy of the book.  No copy came, and I asked years ago.

Recently, Alice Schroeder came to speak to the Baltimore CFA Society, and after hearing her good talk, I decided to get a copy from the local library (12 copies available in the system).

This book is complex.  It’s a great book, but you have to appreciate why it was designed the way it was.  Buffett is a complex guy, as you might expect from the only man to become ultra-rich from investing alone.

That’s why the book is long.  I did not mind that; I even read the footnotes to get the nuances on when Alice’s sources did not agree.

Those that criticize Alice Schroeder as not being capable to be a biographer, neglect her significant abilities understanding investment, insurance, and from what I can gather, how a complex man ticks.

She spent years with him, and had access to all of the major sources still living.  Other authors did not have that.

As such, the book focuses on Buffett the man, and less on Buffett the investor.  That’s not a bad thing.  This is a book about Buffett, not a book about how Buffett did it (and how you can too).

The rest of my review will focus on the grand themes of the book as I see them.  Others may differ, but I see it this way:

Overcoming Insecurity

1. Buffett’s mother was a harsh woman, if the book is correct, and did not love her first two kids, of which Warren was one.  On the Mother’s side of the family, there was a history of mental illness.  In terms of early influences, this is the large one.  His Father was at home less, and Leila Buffett was a large influence.

Buffett was industrious as a child, and even during Great Depression earned money.  He quickly realized the value of reinvesting profits, and the concept of compounding come to the young man.

But as with many young men, he had his challenges in his teenage years.  He was not popular.  He got ripped out of his environment to accompany his family to DC, where his father had become a Congressman.  (Think of Ron Paul, but with more idealism, and less contact with his kids.)

Warren became a bit of a rebel, and his grades suffered.  Still amid all of it, his small businesses did well.  In High School, he eventually focused on his studies, and his grades recovered, such that he was able to go to college at the University of Pennsylvania, before transferring to the University of Nebraska at Lincoln.

2. Warren overcame insecurity through the women who cared for him.  In this sense, initially he was a sponge for love, and later, one who would learn to care for friends.  The main women in his life were Leila Buffett, Susie Buffett (wife), Susie Buffett, Jr. (daughter), Kay Graham (Washington Post), Sharon Osberg (bridge partner), and Astrid Menks (mistress, and current wife).  If I may, let me say that men need women to admire them, or they don’t feel whole.  Because Buffett’s mother was sparing with love, Buffett sought a wife, and against all odds, found one that would care for his emotional needs.

Susie was more complex than that, and with Warren’s significant travel, after two decades, she began to seek activities that rewarded her.  This was the beginning of the end of their marriage in real terms, though not legal terms.

More to come in part two, tomorrow.

This is a tough book to review, because I generally respect the author, but there are many things I don’t like about the book.  Let’s start with the main one:

My friend Alice Schroeder came to speak to the Baltimore CFA Society early in November.  It was a great talk, and afterward, I took her back to the Amtrak station.  What was our main topic of conversation?  The many authors with limited or no dealings with Warren Buffett who invoke his name in order to get better sales.  I won’t name names.  I have relationships with a number of them.

I will review “The Snowball” soon.  Alice Schroeder spent around five years creating that lengthy book, and I can see why she would be upset over those that use Buffett for their own personal gain.

This book is another example of that.  Only chapters 1 and 2 have anything to do with Buffett, and there he is quoted extensively to the point where he should be listed as a secondary author, and get a cut of the royalties.  But in the next nine sections have almost nothing from Buffett; it is all the philosophy of Larry Swedroe.

Don’t get me wrong.  Larry Swedroe is a very bright guy, and worthy of being read.  But his philosophy is not that of Buffett.  Yes, Buffett said a number of things stressing that average investors should invest passively, because they have no information edge.  But that’s not what Buffett does himself.

I have written elsewhere that Buffett cannot be imitated by the rest of us (Part one, part two).  (For those reading me at Amazon, please come to Aleph Blog to get links.)  Buffett buys whole companies.  Few of us can do that.  Buffett has a holding company that produces the ability to fund investments cheaply.  None of us have that, and this book by Larry Swedroe, does not even touch on the most powerful and distinct things that Buffett does to earn returns.

Chapters three and beyond are really basic stuff that average people should do to manage their investments wisely.  Larry Swedroe is great with that sort of thing. But it has nothing to do with Buffett.

That’s the main thing that irritates me here.  Don’t put Buffett in the title if the book is not about Buffett.  This book is not about Buffett, it is about how average people should manage what excess assets they have.

Now, all that said, if you read the personal finance section of my blog (which is free) you won’t gain any additional insights from this book, and you won’t pay any money either.  That said, giving a book like this to a friend who doesn’t get the management of assets could be very good for him.  Show a man a website, and he ignores it.  But a physical book — he might read it.

Quibbles

Swedroe does not get corporate bonds.  They are valuable during the bull phase of the credit cycle.  Those of us that follow the credit cycle make excess returns as a result.  You have to be opportunistic and disciplined to do this.  Yes, corporate bonds are hybrid investments — part equity, part guarantee.  But intelligent investors can do well with corporate bonds — it is much less efficient than the stock market.

Also, he overestimates the number of stocks needed to diversify a portfolio on page 68.

On page 77, he engages in data-mining to show what would have worked best in the past, which has no relevance to what will work well in the future.

On page 113, he tells a story from “Time Management for Dummies,” without attribution.

On pages 126-7, he errs, because risk and reward are not correlated.  Also, high yields usually portend risk, but that is not always true.

Finally, on page 131, he is too absolutist on corporate bonds.  Most of the time, it might be better to hold stocks and Treasury bonds, but there are times when corporate bonds are mispriced in a panic, and it is time to buy them.

Who would benefit from this book:   If you want basic book on asset allocation for average people, this could have value.  If you want to imitate Buffett, this book will not help you in the slightest. If you want to, you can buy it here:Think, Act, and Invest Like Warren Buffett.

Full disclosure: I asked the publisher for the book, and he sent it.

If you enter Amazon through my site, and you buy anything, I get a small commission.  This is my main source of blog revenue.  I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip.  Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book.  Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.  Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.  Whether you buy at Amazon directly or enter via my site, your prices don’t change.

This is a very good book.  It is also a hard book, so I don’t think many of my readers will benefit from it.

Score yourself:

• How well you do understand bonds?
• How well do you understand muni bonds?
• How much do you understand about credit analysis?
• Do you understand how municipal credit is different from corporate credit, including how the bankruptcy code works in each case?

If you are positive on three or four of those questions, this book will help you.  If positive on two, it might help you.  If less, forget it.  This is a book for those that have some knowledge of bonds generally and municipal bonds in particular.

I learned a lot from this book, but I have a lot of experience with bonds.  This book is a hybrid.  It is written mostly by the author, who recruited experts to write specialty chapters.

Here is my main misgiving on the book: in order to invest in high yield municipals, you really need an adviser next to you to guide you.  Even though the book says a lot of true things, there is no replacement for the person sitting next to you, who correct you in “real time.”

Aside from what is written in this book, if you are willing to put in a lot of time to understand the high yield muni market, you could do quite well.  But this is not adequate for average investors — I don’t think any book could be for high yield munis.

But the book is a really good introduction to the high yield muni market.  If you understand that it is only an introduction, the book will be valuable to you as you search for more knowledge.  This book is great, but it is not enough.  I don’t think any book could be enough, because there are a lot of complexities in these markets, and who would pay for a 2,000 page book?

Quibbles

Already expressed.

Who would benefit from this book:   If you want to get an introduction the the high yield municipal bond market, you will benefit from this book.  If you want to, you can buy it here: Investing in the High Yield Municipal Market: How to Profit from the Current Municipal Credit Crisis and Earn Attractive Tax-Exempt Interest Income (Bloomberg Financial Series).

Full disclosure: I asked the publisher for the book, and he sent it.

If you enter Amazon through my site, and you buy anything, I get a small commission.  This is my main source of blog revenue.  I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip.  Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book.  Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.  Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.  Whether you buy at Amazon directly or enter via my site, your prices don’t change.