This is not your ordinary Buffett book.? In one sense, that is because it is not a Buffett book.? When I read other early reviews on the web, I concluded that they hadn’t read the book.? I read almost all of the books that I review at my blog.? If I have not read the book, but have skimmed it, I tell you so in the first few paragraphs.? I also purposely avoid reading the stuff that the PR flacks include with the books.? I find it fascinating how many reviewers rely on the crutches provided.
Why is this not an ordinary Buffett book?? Because it concerns how an expert on derivatives came to know Mr. Buffett, and how the current crises were seen in advance by both of them.? This book’s greatest strength comes from its ability to explain the messes we are currently in.? No solutions, mind you, and Mr. Buffett ain’t handing out any of those either, but understanding how we got to where we are is of value, and Janet Tavakoli is nothing if not a good writer on those points.
There is a second theme — how a derivatives expert came to appreciate value investing.? After all, when short term investing is focused on a variety of arbitrage situations, why not think long, and look for long term capital appreciation?
In the book, much of the current crisis gets examined up through September 2008.? Unlike many, she was right in advance on many of the topics that would eventually bite us:
- CDOs
- Subprime mortgages
- Hedge fund underperformance
- Failing Financial Guarantors
- And more…
She also disses the overrated Nassim Taleb, saying that the current events are not a “black swan,” but predictable, given the overage of leverage.? I agree, having written about these thing before the bust hit, while still admiring Taleb’s focus on nonlinearity and feedback cycles.
Janet Tavakoli and Warren Buffett share a similar philosophy on derivatives.? That is what motivates this book.
- How can they be a systemic hazard?
- How might one use them properly?
I heartily recommend this book.? One reading this will understand our current crisis very well, and will gain in his understanding of how our markets work.? That said, the virtues of the book do not come from Mr. Buffett, but from one who intelligently admires his views on derivatives and other matters.
You can buy the book here: Dear Mr. Buffett: What An Investor Learns 1,269 Miles From Wall Street
PS — I write book reviews, and I hope you like them, because unlike other reviewers, I read the books.? I use Amazon because their service is good, and they offer a fair commision to those influencing those that buy through them.? My view is that if you need to buy something through Amazon, entering the site through one of my links will not increase your costs, and I will get a small commission.? Thanks to all who buy on Amazon through me.
A good and easy to read book, thanks for mentioning it here. It is not a book with a “feel good factor”, the elements of the story of greed, corruption, collusion are too sickening. The author’s directness and plain language are refreshing.
One question comes to mind: why in the world would Berkshire buy even one share, let alone a minority stake in Moody’s (19% of capital stock or 48 million shares owned at the end of 2007)?? This though Mr. Buffett was at the forefront of calling derivatives WMD’s? Moody’s ratings helped perpetuate the fairytale and saying “Everyone makes mistakes” is an honorable thing to do but really doesn’t quite cut it here, does it? I would prefer a better answer or further probing.
David:
I actually am quite certain Taleb is vastly under rated. I don’t think equities have any value at all and value investing is just exercise is self delusion. If you can actually purchase a company for less than its assets are worth, sign a contract beforehand to sell the company’s pieces and then, after you’ve already sold the pieces you buy the company. Then, maybe equities are worth something. But beyond that, anything that requires inference to value, well, that’s only as good as the judgment of the person making the inferences. Which is to say, typically worthless.
If anyone is overrated, its Mr. Buffet.
Agree with Kurt here. I’m pretty sure Taleb has stated this current crisis is not a black swan
Im in total in agreement with Kurt
I don?t think equities have any value at all
Bottom indicator?
David:
First, let me say thanks for all your great insights both here and at TheStreet.com, where I’ve read you for a few years now. You’re one of the few commentators whose opinion carries significant weight with me.
With regard to this review, it’s been a while since I read The Black Swan, but I think Taleb states that the current crisis is not a Black Swan for exactly the reason you state–too many people saw it coming. I just found a Time article from 10/28/08 where Time asks, “You’ve said that this current market crisis isn’t necessarily a black swan event. People did see this coming.” To which Taleb replies, “It is a white swan, but very few people saw it coming, I guarantee.” (http://www.time.com/time/business/article/0,8599,1853531,00.html). I believe he expressed the same opinion in his book.
I just wrote about this subject in my blog on Saturday.
http://readthinkplanactrepeat.blogspot.com/
David,
I actually really enjoy your blog posts and opinions but was surprised that you believe that Taleb is overrated. It is clear that he never claimed that the recent credit crisis was a black swan and Janet Tavakoli erred in “dissing” him for this.
I would be very interested to read a post on why you believe him to be overrated, even if only a brief one.
Ps. I second Kurt’s comment that if anyone is overrated, it’s Buffet.
@jagorev:
the bottom is zero, always was, always will be.
Regarding Taleb: overrated may be too strong of a term. I think he is a bright guy, but he’s made a great deal out of one or two core ideas for which he was not the original or leading proponent. Also, he has not done much with it in terms of his investing.
Regarding Buffett: I have been a critic of Buffett in the past, but he and Taleb are not in the same league — Buffett has contributed more to the field of investing in terms of theory, together with Munger, than anyone I can think of in the last 40 years.
David:
With all due respect, I would say that Taleb’s one idea is the only one that matters. When you use leverage or when you must rely on securities to provide you an income, the only thing that matters with respect to your model is the error. Because even if prices were mean reverting, you will not survive long enough when the market is “irrational” to see the prices revert. Either you will get a margin call or you will sell to preserve your wealth, as Keynes noted.
Mr. Buffet has the luxury that virtually no other investor has, not the Harvard Endowment, not Paulson & Co, and that is the infinite holding period. Between never having to sell anything and the “Buffet effect” (that simply by Buffet owning something it become more valuable) most of Mr. Buffet’s returns are unrepeatable by anyone else. There are some brilliant insights in his annual reports, but he’s probably done more harm than good to people who think they can follow his lead.
As for Taleb’s returns. Yes, they are sub-par. However his idea and his returns are two separate things. The way he implements his strategy is highly inefficient, there is a much better way trade volatility such that you benefit from a black swan. (though, he says his goal is not to make money but to insure against losses).
I read the book, and I don’t see anywhere that Tavakoli “dissed” Taleb. Tavakoli says the events are neither a black swan or even a gray swan, and she references an April 3, 2008 Fortune article in which Taleb calls these events a gray swan (he earlier said they were a “black swan,” then by the time the Fortune article came out he had shifted to “gray swan,” and now he says they are a “white” swan, so it seems he has shifted to Tavakoli’s viewpoint):
Taleb from the Fortune article: So I call these crises “gray swans.” I’ve been telling anyone willing to listen that banks have a tendency to sit on time bombs while convincing themselves that they are conservative and nonvolatile.
In a recent FT article (April 7) he again drags out the Black Swan paradigm in talking about how to “black swan” proof the world and sums up with “In other words, a place more resistant to black swans.” Whereas our current debacle was foreseeable and preventable according to Tavakoli, who was way ahead of him in issuing concrete and specific warnings and recommending solutions.