BOKTIPS för en investerare

On Power, by Bertrand de Jouvenel

Things Hidden Since the Foundation of the World,by Réné Girard

A Study of History, by Arnold Toynbee

I am feeling a little melancholic, so I go back to the things I read in my active youth when my brain was not yet totally clogged and I could absorb new information. I have had a hard time lately finding intellectual giants on a caliber of those who wrote half a century ago, so I stick with proven values.

I am absolutely convinced that the next big fight will be between individual freedom and democracy as is it practiced today—that is, the dictatorship of a majority of incompetents over a minority of not so incompetents. For example, in Hong Kong (not a democracy) I am free. In France (a democracy), my freedom is curtailed all the time. Individual freedom was invented in the United Kingdom long before it became a democracy, and today democracy is in the process of killing individual freedom in the land of its birth. The same is beginning to happen in the US.

So I am re-reading three books which perfectly predicted this fight, and told us what could come next. First, Bertrand de Jouvenel’s On Power, which explains the uncontrollable growth of the state in our democracies and why it cannot be stopped. Second, Réné Girard’s Things Hidden Since the Foundation of the World, which describes the role of envy in a society and how most societies deal with this sickness of the mind. Today’s socialism is nothing but the political embodiment of envy made respectable.

And finally, Arnold Toynbee’s A Study of History, one of the books that has had the greatest impact on my outlook. Toynbee traces the development and decay of the world’s major civilizations through their major stages: genesis, growth, times of troubles, universal state, and disintegration. The ability of each civilization to survive rested on the ability of elites to meet new challenges with original solutions. If those solutions failed, the elites either had to be replaced (peacefully or not) or the civilization itself collapsed. In this vision, the challenge facing most Western democracies is obvious: our democratic systems and their welfare states were built on the premise that the pyramid of ages would remain so steep that numerous workers could always pay for a few retirees and that voters would always take the long-term view. This premise no longer stands and so Western welfare states face bankruptcy everywhere. And unfortunately, the response of most Western elites so far has hardly been encouraging.

- Charles Gave, GaveKal Chairman

Antifragile: Things That Gain from Disorder, by Nassim Nicholas Taleb

Taleb, author of The Black Swan and Fooled by Randomness, which hit it big after the global crisis, is back with a diatribe against the dangers of trying to manipulate hugely complex systems. By deluding ourselves with the idea that we can manage systems we can barely comprehend, we create rigid environments that prove fragile because of their inability to naturally evolve and strengthen. Instead of fantasizing about control, we should learn to get comfortable with systems that can adapt and strengthen themselves through exposure to natural stressors. Attempts to artificially shelter ourselves from all bumps and bruises reduces our ability to cope in an intrinsically unpredictable world. And by trying to prevent small failures in the short run, we increase the risk of catastrophic failure in the long term. Among other things this is a cautionary tale about trying to be too clever. Taleb’s creed: “I’d rather be dumb and antifragile than extremely smart and fragile any time.”

-Conor Colwell, GaveKal Research, Hong Kong

The Signal and the Noise, by Nate Silver

Silver’s election analyses (which correctly called both the 2008 and 2012 US presidential contests) are well known to most through his FiveThirtyEight blog for the New York Times. Here he explains how prediction works in fields as diverse as baseball, finance, politics, and weather. Taking a trope from Aesop and the liberal philosopher Isaiah Berlin, he divides pundits into two categories: foxes, who know many things, and hedgehogs, who know one big thing. Silver – like Berlin, and unlike Nicholas Taleb, a classic hedgehog – is an unabashed fox. Foxes, he says, do better at forecasting because they impartially assemble evidence from a wide range of sources and follow where the data lead. Hedgehogs first form their argument and then seek supportive facts, ignoring contradictory evidence. An essential read for analysts looking to isolate the valuable signal amidst abundant informational noise.

- Jennifer Thomson, GaveKal USA, Denver

Globalization and its Discontents, by Joseph Stiglitz

The Better Angels Of Our Nature: Why Violence Has Declined, by Steven Pinker

Two books in the “in case you missed it” category. First, pull your dusty old copy of Nobelist Joseph Stiglitz’s Globalization and its Discontents off your shelf for a humbling experience. This is Stiglitz in 2002 writing in defense of all those nice up-and-coming countries being pushed around by the global powers. He describes the terms of China’s then-recent entry into the WTO as cruelly tough on the Middle Kingdom, whose market was not ready for inevitable surge of imports that would mow over local players. As China went on to accumulate trillions in trade surpluses, we have to ask yet again: why did they give this idiot a Nobel Prize? That said, Stiglitz’s fierce criticism here of the IMF’s handling of the Asian financial crisis wound up being very influential, and presaged the policy response to the 2008 global crisis. Austerity is no longer de mode.

Pinker’s book, last year’s big Christmas mind-expander, has a cheerful message: as a species, we are less evil today than we were in previous generations. Although his history of human violence since caveman days is controversial, Pinker’s account is a good introduction to his easy-to-digest version of evolutionary psychology, an approach increasingly used in the interpretation of economic behavior.

-Cathy Holcombe, GaveKal Research, Hong Kong

Capital: A Novel, by John Lanchester

A less auspicious title for a novel is hard to imagine—how many people would want to read a fictionalized version of Marx's treatise on class struggle? But John Lanchester's portrait of London during the financial crisis is the farthest thing imaginable from such a dry exercise. It is wonderfully involving, lively, sympathetic and often very funny. I don't recommend this book because it is "about" the financial crisis, but because it was a blast to read. And it is an unusual novel because it takes seriously people's relationships to their jobs, their houses, their possessions - things that real people all spend a lot of time worrying about but that few novelists dignify with their sustained attention.

Nothing to Envy: Ordinary Lives in North Korea, by Barbara Demick

To get a view of ordinary life in the world's most isolated country is an extraordinary accomplishment. Many journalists have told the stories of the North Korean defectors who have fled across the border into China and finally found refuge in South Korea. But Demick, a Los Angeles Times correspondent, uses a brilliantly simple strategy to transcend tales of individual suffering: she interviewed a half dozen defectors who all came from the same nondescript North Korean city, allowing her to build up a composite portrait of a fairly typical place. By weaving together their stories, she creates a unique, bottom-up history of the catastrophic recent decades in North Korea. A fantastic piece of human storytelling, written in clear, straightforward prose.

-Andrew Batson, GK Dragonomics, Beijing

The Quest: Energy Security and the Remaking of The Modern World, by Daniel Yergin

This sweeping tour across the global energy complex – sequel to Yergin’s Pulitzer Prize winning history of the oil industry, The Prize – is a compelling primer for anyone seeking a balanced account of the political economy of energy markets. The author blends high stakes geo-politics, corporate ambition and down and dirty dealing in some of the world's wilder regions to produce a definitive tome. The great thing with this book is that it lets you keep believing the conspiracy theories (in the energy business a lot of them seem to be true) while gaining a clear view of the market's structural underpinnings. It also tells ripping yarns ranging from pipeline politics in the Caspian to the tale of a small group of rebel wildcatters on the fringes of the US gas industry who utterly changed the dynamics of this most managed of industries.

Life at the Bottom: The Worldview That Makes the Underclass, by Theodore Dalrymple

Over the last 30 years many advanced economies have seen a slice of their working class left behind. The response to long term unemployment and social breakdown was relentlessly expanding welfare state which sought to correct “market failure.” In Britain, the bankruptcy of this patch-up approach was epitomized by the emergence of an ugly new word, “underclass,” in the early 2000s. Life at the Bottom, written by a British psychiatrist who spent years working in post-industrial slums, makes no attempt to prick liberal consciences, but instead paints a vivid account of the broken morality and twisted incentives at work in failed communities. Written a decade ago, this book's contemporary relevance lies in understanding the underclass at a time when government austerity means that welfare dependency must be rolled back. Not happy reading, but utterly compelling.

-Simon Pritchard, GaveKal Research, Hong Kong

The Power of Habit: Why We Do What We Do in Life and Business, by Charles Duhigg

New York Times business reporter Charles Duhigg explains how habits are formed, why they matter, and how we can change them. He argues habits have three phases: cue, routine, and reward. By analyzing cues and rewards, we can permanently alter our routines, eliminating old bad habits and creating new good ones. The author had a habit of buying a chocolate chip cookie in the cafeteria every afternoon, but concluded the real reward was the chance to socialize with colleagues. So now, in mid-afternoon, he gets up from his desk and looks for someone to gossip with. The underlying desire is satisfied, but the bad dietary habit is exchanged for a positive new social one. Businesses have habits too, and bad corporate habits can hurt the bottom line. But careful study of employee habits can help profits and morale. Alcoa changed a “keystone habit” – worker safety procedures – and enjoyed a wave of positive changes in other areas. Big retailers like Target intensively study customer buying habits to tailor incentive programs. This is a fine book on a subtly important topic, rich in anecdotal detail.

-Eric Bush, GaveKal Capital, Denver

American Gridlock: Why the Left and Right Are Both Wrong, by Woody Brock

A big question for rich countries is how to cut government spending without slowing economic growth. The recent record of southern Europe and the UK shows how hard it is to escape the “austerity drag.” Brock argues the case for a “domestic Marshall plan” in the US, exploiting the opportunity created by 30 years of chronic infrastructure underinvestment, and the Federal government’s ability to borrow money at close to zero cost. This is a call not for Obama-style pork, but for intelligent investment in high-return projects. Over time, the shifting of US$1 trillion of deficit spending from negative-multiplier transfer payments to infrastructure with long-run economic returns of two or three to one should enable faster economic growth with less ongoing government spending. This would involve some technocracy – Brock envisions a Singapore-style commission of experts to pick the projects – and a change in government accounts, to distinguish spending from investment. It’s a bold plan to restore confidence in a staggering economy.

- David Hay, Evergreen GaveKal Capital Management, Bellevue WA

Global Trade in Services: Fear, Facts and Offshoring, by J. Bradford Jenson

Jenson offers a vision of future American prosperity completely different from Brock’s. While many believe manufacturing offers the best hope for the US to rebalance its economy and generate employment growth, this book suggests the service sector may be more crucial. The business service sector accounts for a quarter of total employment, more than double the manufacturing share. The author estimates that 14% of the US workforce is engaged in tradable services, and employees of firms producing tradable services earn 10% above the average wage. He suggests that the coming $20 trillion infrastructure boom in the developing world is an historic opportunity for the tradable US service industry. Yet turning the American comparative advantage in services into jobs and income is far from automatic. A quarter of manufacturing firms export, compared to just 5% of services firms. And although the US has historically led the world in the educational attainment of its workforce, that lead is eroding rapidly.

-Steven Vannelli, GaveKal Capital, Denver

Currency Wars, by James Rickards

There are many names for it: currency debasement, competitive devaluation, the ugly contest, beggar-thy-neighbor policies, and… currency wars. But whatever you call it, it is happening today. Much of the world is already involved and one of the few hold-outs may soon be joining, as Japan’s new prime minister Shinzo Abe has vowed to clean house in his country’s traditionally hawkish central bank. This makes James Rickards’ book a timely read. It starts with an unusual war game commissioned by the US Defense Department and largely designed by the author. The game was to challenge American supremacy, and global stability, not on the battle field but in financial markets. The author concludes that the most effective tactic is to attack the world’s reserve currency, the US dollar; and the best defense against this attack is a gold standard. One may or may not be convinced that a full-blown currency crisis is in the making, or that a return to gold is the right prescription. But either way, readers will benefit from an excellent survey of central banking history and the outcome of previous currency wars.

- Will Denyer, GaveKal Research, Hong Kong

The White Tiger, by Aravind Adiga

Adiga’s novel, which won the 2008 Man Booker Prize, takes three hours to read and will tell you more about India's “modern’ economy than most textbooks. It's the story of Balram Halwai, a poor Indian who rises from “the darkness” – his rural, feudalistic hometown – to become a successful entrepreneur in Bangalore. The book is a bit unfair in its macabre portrait of a violent, cruel and corrupt India, but what it lacks in circumspection it more than makes up for in entertainment. The tale of Balram's ascent is also one of India's deep societal divisions and the extreme tensions they engender. Nothing could be more important to understand for a country whose economic development depends so heavily on political outcomes.

- Will Freeman, GaveKal Research, Hong Kong

In the Garden of Beasts, by Erik Larson

Excellent writing and a compelling subject: Berlin in the 1930s through the eyes of American ambassador William E. Dodd and his family. A testament not so much to the Great Man theory of history than to the Great Bickering of Small Men theory: personality clashes and petty squabbles take precedence in the decision-making of both the Nazis and the (soon-to-be) Allies. Also of interest is the diverse way in which Dodd, his family, staff and acquaintances experience and engage with the development of nationalistic thuggery and terror. Good history and highly relevant to contemporary politics.

- Thomas Gatley, GK Dragonomics, Beijing

l’Art Francais de la Guerre, by Alexis Jenni

Alexis Jenni is a high-school history professor who published this first novel last year. This is two books in one. We start off with the story of a 30 something, somewhat unpleasant character. A guy fairly self-absorbed, who does not really work, but instead drifts from job to job, always providing the minimum effort, only really caring about himself, acting cowardly when he sees cops beat up immigrants, or troublesome youths harass a shopkeeper. He judges everyone around him constantly and seems to believe in very high standards, but yet never stops to think how these standards might apply to himself. The fact that this character is also the narrator of the story indicates that there must be some self projection of the author. And then there is the second story when our young, self-absorbed Frenchmen meets a genuine war hero, Victorien Salagnon. A man who joined the resistance at 17, went on to fight in Indochina, then Algeria. A man painted to look a lot like Helie de St Marc? Or Bigeard? The two men meet as the narrator asks Salagnon to teach him to paint. And through their painting lessons, Salagnon tells his riveting history. And through this history, but also through the contrasts between these two Frenchmen separated by some two generations, each one very representative of their generation, one can’t shake the conclusion that France has changed an enormous amount in the past fifty years. Readers will have to pick up the book to decide whether it is for the better!

Thinking Fast and Slow, by Daniel Kahneman

This pick is hardly original as it was the only book published in 2011 chosen by both The Economist and the Wall Street Journal as their ‘non-fiction’ book of the year. So many of our readers will have already picked up a copy. However, anyone who has not, should. Thinking Fast and Slow is many things. It is a self-help book which challenges the reader to review thought-process. It is an economics and political science book in that it helps one understand how bad decisions can so easily be taken. It is an investment book in that reading it allows one to evolve towards a better decision-making process. In short, the reader gets many books for the price of one! And given the depth of knowledge displayed, the originality of the research presented, and the importance of the conclusions reached, it is not surprising that Daniel Kahneman, became the first psychologist to earn a Nobel Prize in economics. This book is almost guaranteed to change the way a reader looks at the world, and at himself; for the better!