June 27, 2012

5 must read books about stocks

It's always a good idea to read books to learn more about a subject. The problem is that if you enjoy a broad subject, you will also find an endless amount of books you want to read. Sometimes you wish you had one of those machines from the Matrix movie so you can inject the information into your brain in a matter of seconds. But until someone invents one of those machines, I thought it was a good idea to recommend 5 books out of all the books I have read about the financial markets. This is the list I would have wanted to read many years ago, and it would have saved me a lot of time since I wouldn't have read all the other not so good books. This list covers both trading and investing - you should read about both disciplines.

Money Masters Of Our Time by John Train. This book covers 18 different famous and not so famous profiles from the financial markets. These profiles include Warren Buffett, Peter Lynch, Julian Robertson, and Michael Steinhardt. It explains the background each profile has and the different strategies they use, such has how to find growth stocks, and how to value companies from the emerging markets. When you have read the book, you will have a broad introduction to the different strategies you can use. Here's a quote from the book about the similarities between Zebras and portfolio managers:
"Zebras have the same problem as institutional portfolio managers. First, both seek profits. For portfolio managers, above average performance; for zebras, fresh grass. Secondly, both dislike risk. Portfolio managers can get fired; zebras can be eaten by lions. The outside zebras end up as lion lunch, and the skinny zebras in the middle of the pack may eat less well but they are still alive. Third, both move in herds. They look alike, think alike and stock close together.

Market Wizards. This book is considered to be a classic. Jack Schwager has written several books with the same theme, and you should read them all if you enjoyed the first book. It is similar to Money Masters Of Our Time since it covers 17 famous and not so famous profiles, including one who has specialized in psychology. These profiles are generally traders compared with the profiles in Money Masters Of Our Time who are generally investors. You will find out why Paul Tudor Jones thinks "Losers Average Losers," an interview with Ed Seykota who realized an 250,000 percent return on his account over 16 years, and why Michael Steinhardt doesn't like charts. A quote from the book's interview with Paul Tudor Jones when he as an inexperienced trader lost money:
"The guy standing next to me said, 'If you want to go to the bathroom, do it right here.' He said I looked three shades of white. I remember turning around, walking out, getting a drink of water, and then telling my broker to sell as much as he could."

The Complete Turtle Trader. This book has been written by Michael Covel who is interested in Trend Following which is a trading method where you buy an asset, such as a stock, when you think the trend is up. You hold the stock no matter what happens until you think the trend is down, yhen you sell it, and try to make money when the stock is falling. The book itself covers an experiment by Richard Dennis and William Eckhardt. The point of the experiment was to investigate if you could teach amateurs how to trade - or if trading was a skill you were born with. You will also learn about the trader Salem Abraham who is trading from a little town in Texas - far away from Wall Street:
"Just because you have a Lamborghini, you don't have to go 160 miles an hour. I'm never going past 30 and I'm going to control risk."

One Up On Wall Street. This book covers one profile only and that profile is Peter Lynch who is also the author of the book. I believe the methods Peter Lynch is using are the methods that should be used by the average investor. The secret is "common sense." If you are working at Google, you probably know more about Google than the average analyst at Wall Street. You can clearly see if Google is expanding, and you can also see if Google has problems. Buy the stock (if it has the correct value) if Google is expanding. If you like eating at Burger King, buy the stock. If you like Apple products, buy the Apple stock.
"Average investors can become experts in their own field and can pick winning stocks as effectively as Wall Street professionals by doing just a little research."

The Black Swan by Nassim Nicholas Taleb. This book has nothing to do with the movie - it is a book about predictions. The basic idea is that it is impossible to predict the future since we can't predict Black Swan events. Once upon a time, everyone thought that if you looked at a swan, it had to be white. Then we discovered Australia and the black swans living there. There was no way someone could have predicted that swans also could be black by only looking at white swans in Europe.
"One single observation can invalidate a general statement derived from millennia of confirmatory sighting of millions of white swans. All you need is one single black bird." 

June 15, 2012

Are social news websites a waste of time?

Reginald Braithwaite has written an interesting blog-post about social news. Social news websites are news aggregators that uses the crowd. The crowd post links they like and then vote on the best links - in other words a service similar to Trejdify.

One of the problems with these news aggregators is that they consists of a crowd, and people in a crowd tend to believe in one thing and this thing becomes almost like a bubble. If someone submits a link with a different point of view, the people in the crowd will probably not vote on that link. Google has a similar problem. The most popular link on Google is the first link - but is the most popular link always the best link? Is it a waste of time to use Trejdify, Google, and Reddit?

Reginald Braithwaite thinks its not a waste of time. The bubbles existing in these news aggregators and in Google, they tend to overlap and intersect. The common view tend to change over time. The members of the crowd are becoming more exposed to new ideas and are often leading the way to a new point of view - before they who are not using the news aggregator. Common media such as regular news papers are slower since a couple of journalists can't compete with a big crowd. Reddit is the largest social news website and they have like 2 billion viewers each month - how can a regular newspaper compete?

Source: ragnwald's posterous

June 12, 2012

Designed by Apple - How did they do it?

Steve Jobs believed from the beginning that great industrial design would set the newly created company Apple apart from its competitors and make its products distinctive. The computer Apple II featured a colorfully simple logo and a sleek case as seen in Figure 1.

Figure 1. Apple II with a colorfully logo and a sleek case. Source: Wikipedia

While at a conference in Aspen, Steve Jobs was exposed to the spare and functional design philosophy of the Bauhaus Movement. The Bauhaus, a German word meaning "house of building", was a school founded in 1919. Fine art and craft were brought together with the goal of problem solving for a modern industrial society - a society of mass production:
  • There should be no distinction between fine art and applied industrial design
  • Design should be simple, yet have an expressive spirit
  • Emphasized rationality and functionality by employing clean lines and forms
  • God is in the details
  • Less is more

Steve Jobs always liked the Braun products by Dieter Rams.
"What we are going to do is make the products high-tech, and we're going to package them cleanly so that you know they are high-tech. We will fit them in a small package, and then we can make them beautiful and white, just like Braun does with its electronics. ...it all comes down to this: Let's make it simple. Really simple."

He also enjoyed a lamp by Richard Sapper. I'm not really sure, but the lamp was probably a Tizio, as seen in Figure 2. He also liked the furniture by Charles and Ray Eames.

Figure 2. Tizio lamp by Richard Sapper. Source: Wikipedia

Design simplicity should be linked to making products easy to use. It is sometimes difficult to make a product truly simple since a simple product may feel unfriendly. One has to make the products intuitively obvious. The products should also be playful - not cold.

Steve Jobs was also attracted to the Japanese style, much thanks to his devotion to Japanese Zen Buddhism. He thought that the most sublime thing he has ever seen are the gardens around the Japanese city Kyoto as seen in this video:

Invisible details are important. Steve Jobs didn't like the look of the memory chips inside the Macintosh computer and said:
"When you are a carpenter making a beautiful chest of drawers, you are not going to use a piece of plywood on the back, even though it faces the wall and nobody will ever see it. You will know for sure that it is there, so you are going to use a beautiful piece of wood on the back. For you to sleep well at night, the aesthetic, the quality, has to be carried all the way through."

The Apple designer Sir Jonatan Ive is also a fan of the German industrial designer Dieter Rams who always said:
"Less but better"

Both Steve Jobs and Sir Jonatan Ive have always embraced minimalism. Apple's design mantra would remain the one featured on its first brochure:
"Simplicity is the ultimate sophistication" 
...a quote by Leonardo da Vinci. The definition of simplicity is sometimes misunderstood, but Sir Jonathan Ive once said:
"Our goal is simple objects, objects that you can't imagine any other way. Simplicity is not the absence of clutter. It takes a lot of hard work to make something simple, to truly understand the underlying challenges (including manufacturing) and come up with elegant solutions."

Here's a video clip from the documentary Objectified where Sir Jonatan Ive talks about design:

In 2012, a new book was released about Apple's design process. The book is written by Ken Segall who used to work at Apple together with Steve Jobs doing marketing stuff (he came up with the name iMac when Steve Jobs originally thought that MacMan was a better name), and the title of the book is Insanely Simple - The obsession that drives Apple's success.

Steve Jobs is often thought of as being relentless and demanding, but according to Ken Segall, he could also be funny warm, and even charming. There is a huge difference between being brutally honest and being brutal when it comes to design decision. You should always ship products that you are 100 percent proud of and never waste your or someone else's time.

"The work you showed me last week was sh*t. I knew it was sh*t, you knew it was sh*t, but you came all the way out here and showed it to me anyway. That's not acceptable and I never want it to happen again. Ever."

To achieve simplicity, you'll need the following (according to the Insanely Simple book):
  • Start with small groups of smart people, if you add more people, you will add more complexity. Give these talented people real responsibility, and they will work some crazy hours and deliver quality thinking. Steve Jobs had a rule that there could never be more than 100 people on the Mac team. In a smaller team, it's easier to "think different."
  • Pick carefully and focus on the important things. Innovation is saying no to a 1000 things. When Steve Jobs returned to Apple as CEO, he slashed away many of the models Apple had. You can today find only 2 laptop models made by Apple, but you can find 23 models made by HP, and 18 models made by Dell. Trying to please everyone is a good way to please no-one, or as Steve Jobs said:
"Simple can be harder than complex. You have to work hard to get your thinking clean to make it simple. But it's worth it in the end, because once you get there, you can move mountains."
  • Aim realistically high. Apple didn't begin with the iPhone, Apple began with the simpler iPod. Your project has to end on time and deliver what you have promised. 
  • Zero is the only number that's simpler than one. The iPad features only one button, but now when Siri is here, Apple might have products with zero buttons. 
  • Choose a good name, with perfect clarity, it will tell customers who you are and what you sell. One side note here is that the inspiration to the name NeXT comes from a speech by Bill Gates who used the word "next" to describe new technologies being developed by Microsoft.   
  • The first solution is the beginning and not the end, or as Steve Jobs said:
"When you first start off trying to solve a problem, the first solutions you come up with are very complex, and most people stop there. But if you keep going, and live with the problem and peel more layers of the onion off, you can oftentimes arrive at some very elegant and simple solutions." 
  • A bad idea remains a bad idea no matter how you try to simplify it, or as Steve Jobs said:
"Sometimes when you innovate, you make mistakes. It is best to admit them quickly, and get on with improving your other innovations." 

Update! If you want to learn more about Jony Ive and Apple's design process, you should read my review on the book Jony Ive - The genius behind Apple's greatest products.

Source: London Evening Standard, Steve Jobs