For investors, the key to 2017 will


For investors, the key to 2017 will not be Brexit, nor the French elections but rather USA bond yields. If the 10-year yield breaches 3pc we would expect major dislocations in many markets and a huge repricing of assets across the globe.

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    On Thursday Mohamed A. El-Erian was on CNBC`s Halftime Report and he said something that a lot of people have been saying regarding the bond market, and it needs to be cleared up, because the amount of poor understanding regarding the bond market by people who make their living, i.e.,…
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    This month marks the fifth anniversary of the current bull market on Wall Street, making it one of the longest and strongest in history. Yet U.S. stock ownership is at a record low and less than half of Americans trust banks and financial services. And in the last two weeks,…
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Reaction to the Trump election victory

The dichotomy of reaction to the Trump election victory from the mainstream media versus financial markets is truly extraordinary.

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    The largest technology stock offering in history is looming, but few in Silicon Valley seem to care.
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    For the first time, New York City has surpassed Moscow for the most billionaire residents, according to the latest global rich list from Hurun, a group that tracks wealth in China. According to Hurun, New York added 14 billionaires this year, bringing its total to 84. Moscow, meanwhile, lost a…
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    If Trump commits to introducing positive changes such as cutting taxes and boosting infrastructure spending, then it will be “happy days” again for investors What did portfolio managers said about Trump area? There are two spectacularly different scenarios for stocks under the new president, depending on which Trump shows up…
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    Jordan Belfort, whose memoir “The Wolf of Wall Street” was turned into a film by Martin Scorsese, expects to earn more this year than he made at his peak as a stockbroker, allowing him to repay the victims of his fraud. “I’ll make this year more than I ever made in my…
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      For investors, the key to 2017 will not be Brexit, nor the French elections but rather USA bond yields. If the 10-year yield breaches 3pc we would expect major dislocations in many markets and a huge repricing of assets across the globe.
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All investment decisions must be re-evaluated as the Trump era dawns

If Trump commits to introducing positive changes such as cutting taxes and boosting infrastructure spending, then it will be “happy days” again for investors

What did portfolio managers said about Trump area?

  1. There are two spectacularly different scenarios for stocks under the new president, depending on which Trump shows up at the Oval Office, according to legendary investor Jim Rogers, chairman of Rogers Holdings.
  2. “For better or worse, President Trump has become a reality,” said Brian Belski, chief investment strategist at BMO Capital Markets, in a note.
  3. “The last few weeks have perhaps given us a prologue for what to expect, but now the conversation changes from ‘What will he do?’ to ‘What is he doing?’,” wrote Andrew Adams, an analyst at Raymond James, in a note to clients.
  4. Inflows into equities have dwindled to $1.7 billion this week from $8.1 billion in the previous week, according to data from Bank of America Merrill Lynch.


Much about President Donald Trump’s policies are yet shrouded in mystery but there is one thing that Wall Street appears to be certain of — nothing will be the same.

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    For the first time, New York City has surpassed Moscow for the most billionaire residents, according to the latest global rich list from Hurun, a group that tracks wealth in China. According to Hurun, New York added 14 billionaires this year, bringing its total to 84. Moscow, meanwhile, lost a…
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  • 58
    Jordan Belfort, whose memoir “The Wolf of Wall Street” was turned into a film by Martin Scorsese, expects to earn more this year than he made at his peak as a stockbroker, allowing him to repay the victims of his fraud. “I’ll make this year more than I ever made in my…
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      For investors, the key to 2017 will not be Brexit, nor the French elections but rather USA bond yields. If the 10-year yield breaches 3pc we would expect major dislocations in many markets and a huge repricing of assets across the globe.
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Nice Video : Jack Dorsey at Startup School 2013

Square co-founder and Twitter chairman Jack Dorsey made an appearance at Y Combinator’s Startup School event where he spoke about acceptance and motivation in how you build a team and company. You can’t do something without a common share or purpose — you will wobble and not do anything that is timeless.

Reading from Robert Henri’s “The Art Spirit“, Dorsey made comparisons about what’s in the story with how it relates to startups. He said that entrepreneurs should build what they want and with purpose.


Transcript here :

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Books on MBA’s Required Reading List

The written word—be it in the form of a paperback, a hardbound book or E-book—can leave a lasting imprint on a person’s development.

If you’re looking to better yourself as a professional, needing some business inspiration, or just want to dive into a good read during your commute to work—have a look at our top picks for 2016’s must-read business books, and enjoy the personal development.

To help you narrow down your search for the best business books out there, we combed through a plethora of online syllabi from Harvard Business School. Much to my surprise, most of the books centered around leadership rather than economics, marketing, or general business best practices. It really does take a fearless leader to build a truly remarkable organization.


There’s no shortage of books for entrepreneurs. How to make something from nothing, how to motivate your team, unleash your inner leader, blah, blah, blah. When you’re embarking on a new venture, why not find out what books some of the world’s most innovative and successful people found inspiring on their journey. Let’s take a peek at what’s on their night stands.

The Autobiography of Benjamin Franklin by Benjamin Franklin

Famous reader: Elon Musk. The Tesla Motors and SpaceX founder, PayPal co-founder and Internet tycoon looks to one of America’s founding fathers for good business sense.

Inventor, business owner, diplomat, writer, and revolutionary – Benjamin Franklin did it all, and then he wrote about it. In his autobiography, he shares amazing ideas about organization, talking to people, generating trust and building an audience.

Who better to learn about organization than from a man who helped America organize before and during the Revolutionary War, founded the Post Office and invented dozens of gadgets we still use today? Ben was truly ahead of his time.


Life by Keith Richards

Famous reader: John Gerzema. New York Times Best Selling author, social strategist and leadership consultant learned a lot about getting by in business from rock legend Keith Richards, including tapping into creativity and perseverance.

Imagine Keith Richards speaking at your corporate retreat. Well, if you filter out the drugs, groupies and trashed hotel rooms, Richard’s autobiography, Life, has some very valuable business lessons—from dealing with longstanding partner conflict (e.g. Mick Jagger), how to create the right conditions for creativity (recording Exile on Main Street the basement of his house rather than a studio) and how to innovate around an existing product (Keith discovered open G tuning using only 5 strings, which gives the Stones their unique sound).

True, the book has more discussion about roadies than revenue forecasting, but it’s a remarkable story of endurance in the pursuit of creativity, which isn’t easy in any business.

The Fountainhead by Ayn Rand

Famous reader: Evan Williams. Co-founder of two of the internet’s top ten websites, Twitter and Odeo, picks up the second, lesser-know book by Ayn Rand is a true testimony to tenancity.

Ayn Rand is better known for her impressive tome, Atlas Shrugged, but readers may find this shorter novel to be an easier introduction into the author’s controversial blend of individualism and capitalism.

This story of Howard Roark the architect and his battle against the conformist powers of society could be seen as autobiographical. In the same way that Roark struggles against rejection to maintain his individual outlook on architecture, Rand struggled to publish the book after no less than 12 publisher rejections. In 2010, Business Insider added it to their top 15 reading list for entrepreneurs.

The Score Takes Care of Itself: My Philosophy of Leadership by Bill Walsh

Famous reader: Jack Dorsey. The CEO of Twitter and Square, looks to football legend Bill Walsh for inspiration.

Bill Walsh is a towering figure in the history of the NFL. His advanced leadership transformed the San Francisco 49ers from the worst franchise in sports to a legendary dynasty. In the process, he changed the way football is played.

Prior to his death, Walsh granted a series of exclusive interviews to bestselling author Steve Jamison. These became his ultimate lecture on leadership. Additional insights and perspective are provided by Hall of Fame quarterback Joe Montana and others.

Bill Walsh taught that the requirements of successful leadership are the same whether you run an NFL franchise, a fortune 500 company, or a hardware store with 12 employees. These final words of ‘wisdom by Walsh’ will inspire, inform, and enlighten leaders in all professions.

I Love You More Than My Dog by Jeanne Bliss

Famous reader: Tony Hsieh. The Zappos CEO and founder recommends this book as one of his favorites.

Since the book‘s forward was written by former Southwest Airlines President Colleen Barrett, it’s not surprising that the focus centers around customer service without excluding either money or fun.

Company examples include AAA, Costco, and Symantec, former author workplaces. The first chapter begins with a Connecticut store that allows test rides on its $6,000 bikes, and the last chapter ends with a Netflix apology. The book’s placement on 800CeoRead may have to do with the message of rallying a tribe of impassioned and influential fans, or it may be due to Harley-Davidson and Zappos examples of outstanding customer centricity and loyalty. Either way, it’s readable and thought-provoking.


The Pumpkin Plan: A Simple Strategy to Grow a Remarkable Business in Any Field by Mike Michalowicz

Famous reader: Guy Kawasaki. Apple evangelist and social media legend recommends this book that celebrates ordinary people building extraordianary businesses.

Michalowicz, also known for his other best-seller The Toilet Paper Entrepreneur, approaches business with the eye of a pumpkin farmer in The Pumpkin Plan. To get beyond the ‘sell it – do it’ cycle of frustration, entrepreneurs can move beyond long pointless hours with a few methods: plant, weed, nurture.

Focusing on the good pumpkins, and casting out the bad, allows business owners to harness the true strength of their business: the best customers. Pass over quantity for quality, and find the business’s sweet spot.

Wishcraft by Barbara Sher with Annie Gottlieb

Famous reader: Jen Smith of Millionaire Mommy Next Door cites this book as life changing in her pursuit of success.

Jen Smith first read this book after dropping out of college in the mid-1980s. She was serving coffee to homeless customers, working the graveyard shift at Dunkin Donuts, and freaking out over the realization that she was one paycheck away from being homeless.

Wishcraft was her ticket out of hell and into an inspired life. Now in her mid-40s, she’s bootstrapped six small businesses, enjoys a net worth of over a million dollars, and is living the life of her dreams. Her yellowed, copyright 1979 paperback of Wishcraft sits readily available on her bookcase to this day, ready to help her visualize her next dream and craft a plan.

Leaving Microsoft to Change the World (An Entrepreneur’s Odyssey to Educate the World’s Childen) by John Wood

Famous reader: Tim Ferriss. The start-up angel investor (Twitter, Posterous, RescueTime), blogger and entrepreneur, applauds the follow-your-heart mantra of this read.

Wood has been compared to two influential Carnegie’s – Dale and Andrew – in two different categories. The author clearly shows the influence of Dale Carnegie’s class (author of classic business book list addition How to Win Friends and Influence People) in his approach to people. At the same time, his deep business insights have led to the San Francisco Chronicle’s assessment of John Wood as the spirit of Andrew Carnegie let loose in third world countries, according to

This is the story of Wood’s rejection of the corporate for the developing world, via the startup of a non-profit designed to inspire the love of reading in children.

Whether you download, check out, or hit the bookstore, add a couple of these reads to your night table, and let sweet dreams fuel your venture.

True North: Discover Your Authentic Leadership

This book explains how and why becoming a genuine leader is possible for anyone and everyone. True North is based on research and first-person interviews with 125 of today’s top leaders. In this book, former Medtronic CEO Bill George shares the wisdom for being an authentic leader by outlining five key steps: 1) knowing your authentic self; 2) defining your values and leadership principles; 3) understanding your motivations; 4) building your support team; and 5) staying grounded by integrating all aspects of your life.

Talent on Demand

Peter Cappelli wrote this book to examine common talent management issues. It includes a slew of supply chain company examples and reveals four management principles for ensuring that your employees have the skills they need, exactly when they need them. After reading this book, you’ll know how to balance developing talent in-house with hiring external employees, improve the accuracy of your talent-need forecasts, maximize productivity of your employees, and replicate an external job board by creating an internal one for current employees.

The Money of Invention: How Venture Capital Creates New Wealth

This practical guide is written by two industry experts (Paul A. Gompers and Josh Lerner) about the problems entrepreneurs encounter when securing financing, and how the venture capital model can help businesspeople to resolve those issues. It also includes details on how corporations, government institutions and non-profits can (and should) harness the power of the venture capital model when applying it in their own industries. Whether your industry is riding the way of massive growth or holding on during an economic slowdown, this book is a tactical guide for leveraging venture captial to begin or grow your business.

 Many Unhappy Returns: One Man’s Quest To Turn Around The Most Unpopular Organization In America

In 1997, the Internal Revenue Service (IRS) had the largest customer base in America — but also the lowest approval rating of any government agency. At the time, congressional hearings revealed that IRS agents were being pressured to meet quotas for back taxes and penalties. Some agents admitted anonymously that, in order to hit these quotas, tax collectors would squeeze taxpayers for money they didn’t really owe. Charles O. Rossotti became commissioner of the IRS in 1997 and was tasked with rebuilding the organization. He was the first businessperson to head the IRS, and in this book, he tells the remarkable story of leadership and transformation of this organization.

 The Arc of Ambition: Defining the Leadership Journey

Can you guess what separates the average from from the hugely successful? Two internationally renowned management experts (Jim Champy and Nitin Nohria) say the key ingredient is ambition. Their book The Arc of Ambition is a practical guide to harnessing your personal and professional ambition and leaving a legacy of accomplishment. It details examples from dozens of modern and also historical successful people from a multitude of industries.

Pour Your Heart Into It: How Starbucks Built a Company One Cup at a Time

I’ve gotta come clean and reveal this book wasn’t actually on any of the syllabi I researched. But case studies about Starbucks CEO Howard Schultz were basically plastered all over them, which is why I’m including this in here. Schultz an exceptional and highly respected leader, and his book details one of the most triumphant business stories in decades. Starbucks started as a single coffee shop in Seattle and has grown into a worldwide corporation. In the book, Schultz illustratres the founding principles that defined Starbucks and shares the wisdom he’s learned along the way.

 Unleasing Innovation: How Whirlpool Transformed an Industry

Unleashing Innovation tells the inside story of one of the most successful innovation turnarounds in American history, including reducing margins while also expanding internationally. Nancy Tennant Snyder is VP of innovation and margin realization at Whirlpool and the author of this book. In it, she reveals how Whirlpool undertook one of the largest change efforts in the company’s history. It demonstrates how transformation and innovation became a core component of the organization, which ultimately lead to bottom-line results.

 Made to Stick: Why Some Ideas Survive and Others Die

Why do some ideas thrive while others seem like they never even had a chance to survive? And how the heck can we boost ideas to give them a fighting chance? In this book, written by accomplished educators and brothers Chip and Dan Heath, they tackle head-on perplexing questions related to how ideas take off. Research is revealed to explain ways to make ideas stickier.

Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant

This book is based on a study of more than 150 strategic moves, including companies that have spanned more than a hundred years and thirty industries. Authors W. Chan Kim and Renee Mauborgne attempt to persuade readers that building a true successful business comes from creating “blue oceans,” i.e. untapped new markets that are hyper-ripe from growth. More than one million copies of this business book have sold world wide, and it’s a “must-read” for business readers.

 Scaling Up Excellence: Getting to More Without Settling for Less

In Scaling Up Excellence, bestselling author Robert Sutton and Stanford colleague Huggy Rao tackle a challenge every growing organization faces at one time of another: scaling. It’s about building your company larger,  faster, and more efficiently than ever before.  Sutton and Rao devoted nearly ten years of researching to uncovering what it takes to build employees for exemplary performance and keep recharging organizations with ever better workplaces. This book features both case studies and academic research from a wealth of industries, including startups, pharmaceuticals, retail, financial services, high-tech, education, non-profits, government, and healthcare.

Data Science for Business

Written by two world-renowned data science experts Foster Provost and Tom Fawcett, this book explains the foundational principles of data science. Step-by-step, it walks readers through the “data-analytic thinking” necessary for extracting real business value from the any data an organization collects. You can use it as a guide to understand the many data-mining techniques in use today. It’s based on an MBA course one of the authors taught at New York University for over a decade, and is chock-full of real-world business problems.


Scaling Up Excellence: Getting to More Without Settling for Less by Robort Sutton and Huggy Rao

“A great read that provides read, practical advice whether you’re a team of five or fifty thousand.”
–– Lazlo Bock, Senior Vice President of People Operations, Google

In Scaling Up Excellence, bestselling author, Robert Sutton and Stanford colleague, Huggy Rao Sutton offer a comprehensive guide to management in a package of enticing stories, subtly supported by references to high-end research.

Their personal history in the Silicon Valley and their global access to interesting organizations provides a relevant backdrop.

The main theme is that, while many good practices exist in organizations, they either get lost or there are difficulties when attempts are made to spread them (scale them) across the organization.

The breadth of this theme means that this book will provide value to anyone who would like to see organizations improve. The benefits are not limited by industry, functional area or organizational size.


What books do alumni from the Stanford Graduate School of Business recommend? Here’s one:

Orbiting the Giant Hairball: A Corporate Fool’s Guide to Surviving with Grace by Gordon MacKenzie

“It was written by a guy who made Hallmark cards. It’s about maintaining creativity in a corporate structure.”
–– Tristan Walker, founder of Walker & Company

Any business can morph into a giant hairball, a tangled, impenetrable mass of rules, traditions, and systems based on what worked in the past that can plunge it into mediocrity.

Gordon MacKenzie worked at Hallmark Cards for thirty years. Much at that time he worked hard to get his collegues to go into “orbit”, to a mode of dreaming, daring and doing above and beyond the rubber-stamp confines of the administrative mind-set.

In his deeply funny book, exuberantly illustrated in full color, he shares the story of his own professional evolution, together with lessons on awakening and fostering creative genius.

Originally self-published and already a business “cult classic”, this personally empowering and entertaining book explores the intersection between human creativity and the bottom line.

A must-read for any manager looking for new ways to invigorate employees, and any professional who wants to achieve his or her best, most self-expressive, most creative and fulfilling work.

Related Article: Inspiration Awaits: 5 Influential Business Books You Need to Read


The syllabus for Managerial Decision Making at the Tuck School for Business at Dartmouth includes this unexpected yet captivating read:

Moneyball:  The Art of Winning an Unfair Game by Michael Lewis

“One of the best baseball, and management, books out…. Deserves a place in the Baseball Hall of Fame.” ― Forbes

Discover the compelling story of the low-budget Oakland A’s and their unorthodox general manager, Billy Beane as they use statistics and the scientific method to succeed against teams with much larger payrolls.

This is a book that can be appreciated from so many different angles.

For fans of baseball the allure is obvious. For fans of statistics, this book offers amazing insight into how numbers can be employed in real life with very powerful and very real results.

For fans of human nature, this book offers a great look at how mistakes can be repeated and then perpetuated until someone with a strong mind and a stronger will comes along to break the cycle.

And for fans of character-driven stories, Moneyball hits it out of the park.

Related Article: The Most Inspiring Books for Small Business Owners


What’s on tap at the Samuel Curtis Johnson
 Graduate School of Management at Cornell

When Genius Failed:  The Rise and Fall of Long-Term Capital Management by Roger Lowenstien

The story of The Rise and Fall of Long-Term Capital Management is a compelling one not only for people interested in finance, but for anyone fascinated by the spectacle of very smart people losing enormous sums of money.

Lowenstein’s book makes this story accessible by glossing over some of the technical details, a tradeoff of readability for depth, but still provides insight into the causes of LTCM’s collapse.

In this business classic, now with a new afterword in which the author draws parallels to the recent financial crisis, Lowenstein captures the gripping roller-coaster ride of Long-Term Capital Management.

Drawing on confidential internal memos and interviews with dozens of key players, Lowenstein explains not just how the fund made and lost its money but also how the personalities of Long-Term’s partners, the arrogance of their mathematical certainties, and the culture of Wall Street itself contributed to both their rise and their fall.

Related Article: A Gift Worth Opening: The 10 Best Business Books for 2016


In the course, Mastering Influence and Persuasion at Yale School of Management this read was on the syllabus.

Influence: The Psychology of Persuasion by Robert Cialdini

Influence should be required reading for all business majors.”  –– Journal of Retailing

Influence has established itself as the most important book on persuasion ever published. This book explains the psychology of why people say, yes and how to apply these findings to others and your own life.

Distinguished psychologist, Robert B. Cialdini Ph.D., explains why some people are remarkably persuasive and how you can beat them at their own game.

This indispensable book guarantees you’ll never again say, yes when you really mean, no, and how to make yourself into your most influential self.

Most books of applied psychology fall prey to one of two weaknesses: Either they lack scientific content (or over-simplify) or they present solid information in an academic manner that readers find difficult to absorb and apply.

Robert Cialdini’s book stands out brilliantly from these books.


Throughout 2014, we asked Stanford GSB alumni to share the best business books they have read. Check out their selections:

The Big Leap: Conquer Your Hidden Fear and Take Life to the Next Level

By Gay Hendricks

“It’s great if you are thinking of starting a business but you are scared.”

Vanessa Loder (MBA ’07), cofounder of Mindfulness Based Achievement

Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets

By Nassim Nicholas Taleb

“People frequently misunderstand data and patterns. You may not be able to control the outcome of a decision but you can control the decision. What matters is the integrity of the process.”

Eric Baker (MBA ’01), founder of Viagogo

Quiet: The Power of Introverts in a World That Can’t Stop Talking

By Susan Cain

“I have strong extrovert tendencies. My cofounder Jennifer is a strong introvert. The book helped me appreciate the way she needs to take time to think and turn things over in her mind.”

Christine Su (MBA ’15), cofounder and CEO of Summer Technologies

Orbiting the Giant Hairball: A Corporate Fool’s Guide to Surviving with Grace

By Gordon MacKenzie

“It was written by a guy who made Hallmark cards. It’s about maintaining creativity in a corporate structure.”

Tristan Walker (MBA ’10), founder of Walker & Company

War and Peace

By Leo Tolstoy

“The most profound business education moment I had was as a senior at Stanford undergrad in Organizational Leadership. We read Don Quixote and War and Peace. I was so grateful for that class. The professor tied business and leadership to life. What I remember about War and Peace 20 years later is that characters who seem important can disappear at a drop of a hat. Likewise, someone who seems unimportant sticks around for 700 pages. Life is that way.”

Gina Bianchini (MBA ’00), founder of Mightybell

Buddha’s Brain: The Practical Neuroscience of Happiness, Love, and Wisdom

By Rick Hanson and Richard Mendius

“I read it during an internship I took on a hazelnut farm in Bhutan. It explains the neuroscience of meditation, how it expands the workspace of consciousness of the mind. Basically, it develops the neurons in the frontal cortex, which allows it to control and overrun the lizard part of your brain, which is the id, or ‘monkey brain.’”

Christine Su (MBA ’15), cofounder and CEO of Summer Technologies

First Nights: Five Musical Premiers

By Thomas Forrest Kelly

“The book tells of the first performances of important pieces of music; for instance, Handel’s Messiah. It provides a context to help you understand the genius of each of the composers. How does that relate to business? Because it demonstrates that genius should be seen through the context of time and place. The question is, if those people had been born in a different era, what would they have achieved? How can you do something special in your life right now, with your personal dynamics at play?”

Jeff Barnett (MBA ’95), cofounding partner of Dorsal Capital

 Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future

If you’re interested in how the mind of a revolutionary genius works, then pick up this book. Technology writer Ashlee Vance depicts the life and inner workings of Elon Musk- founder of PayPal, Tesla Motors and SpaceX- and in the process, speaks to the idea of innovation in the modern era. Musk, the subject of a true “rags to riches” story, will arguably have one of the biggest impacts on the future of this planet. You’d be wise to learn a thing or two from this man.


You may know Sophia Amoruso as the CEO of a $250-million+ fashion retailer site called Nasty Gal. But before she built her online empire, Amoruso spent her young-adult life hitchhiking, hungry, and shoplifting. Obviously much has changed since then, and she wrote a book for everyone who can identify with being an outsider or who marches to beat of their own drum. Throughout the book, Amoruso talks about trusting your gut and following the rules only when need be.

Mindsharing: The Art of Crowdsourcing Everything

No man is an island right? This book, written by Lior Zoref, explores the idea of collective intelligence and how tapping into your network can yield more positive results than relying on your own limited knowledge and abilities. According to Zoref, the power of mind sharing can progress both our personal and professional lives.

The Virgin Way: If It’s Not Fun, It’s Not Worth Doing

Y’all know that if Branson wrote the book, it’s bound to be a good read. The Virgin Group leader, who dropped out of school at the age of 16, shares with us how he has built a global empire over the span of forty years, and how his peculiar style of leadership and business relationships has got him there.

How to Fly a Horse: The Secret History of Creation, Invention, and Discovery

The title of this book alone should draw every entrepreneur to its pages. Kevin Ashton, the man who first coined the term “The Internet of Things” demystifies the act of innovation and reveals the who, the why, and the how behind some of the greatest creations of this century. Ashton provides hope and insight to the reader, showing that creating something new in the modern era is still possible.

The Promise of a Pencil: How an Ordinary Person Can Create Extraordinary Change

For those of you who believe that only way to truly have a sustainable business is to build one that is centered on social improvement, then check out this novel. Adam Braun, the founder of the Pencils of Promise, walks the reader through his professional journey and explains how he turned $25 into 200 schools across the globe. Braun had a fledgling Wall-Street career in his early 20s, but his life was forever altered by an interaction he had while traveling in India and he left that realm to truly change the world around him. All proceeds from this publication will support his organization.

David and Goliath: Underdogs, Misfits, and the Art of Battling Giants  

The number #1 bestselling author and innovative thinker is back. Like his other books, David and Goliath is a combination of psychology, history, and beautiful prose that wonderfully challenges the way we think. This time Malcolm Gladwell argues a new interpretation of what it means to deal with obstacles and suffering- and, of course, offers a new way to perceive our environment.

Coined: The Rich Life of Money and How Its History Has Shaped Us

Want a book that’s already been praised by business mogul Richard Branson and former president Bill Clinton? You’re in luck. In this literary piece, author Kabir Sehgal walks the reader through a historical and economical journey and reveals the relationship between money and humankind in the process.

Work Rules! Insights From Inside Google That Will Transform How You Live and Lead

Laszlo Bock, the head of the Google’s “People Operations”, draws on the latest research in behavioral economics to teach all business owners and managers the importance of hiring the right talent, relying on data, and leading a group of employees to success. Bock contrasts stories of terrible working environments with insights into the inner workings of Silicon’s most successful companies. If you think your company culture and overall moral both need a serious boost, pick up Bock’s instruction manual.

Team of Teams: New Rules of Engagement for a Complex World

In this book, General Stanley McChrystal writes about the skills he used to lead his machine of men and women, The Task Force, to fight Al Queda. Instead of following conventional wisdom, McChrystal changed the nature and interaction of his team: implanting transparent communication, decentralizing decision making, and flattening the hierarchy. His “new rules” resulted in a small organization that was able to triumph. General McChrystal translates these guidelines to the business world and argues that the key to a successful organization is to give groups the freedom to experiment alongside good communication pathways between every level.


Let’s Get Started

I hope you’re pumped to start reading. Here are 10 books I believe are must-reads for entrepreneurs.

How to Win Friends and Influence People (1937) by Dale Carnegie

This book may be old (and the oldest book on this list by nearly 50 years), but many of its ideas are timeless. Carnegie’s book was one of the first best-selling self-help books and has sold over 15 million copies today.

How to Win Friends and Influence People is broken into different sections based on subject and offers advice on human relations. While some of his lessons may appear obvious, this book provides relevant insights on how to make people like you more and how to convince people to change their habits or thinking to be more in line with yours.

The 4-Hour Workweek (2007) by Tim Ferriss

Unfortunately, this book doesn’t offer advice on how to work only four hours a week and make a living. Without a lot of initial capital or extraordinary circumstances, you’re going to have to work more regular hours like the rest of the population.

What The 4-Hour Workweek does offer, however, is sound advice for the modern era. Some of Ferriss’ most important lessons are cutting back information intake to better focus on your work, a concrete example that Ferriss offers is checking email only twice a day, and how conquering fear can be beneficial to efficiency in the workplace.

The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It (1995) by Michael E. Gerber

The E-Myth was first published in 1985 before being revisited a decade later, and it is regularly included in many best business books lists, including this one. Gerber primarily investigates the entrepreneurial (“E”) myth: that entrepreneurs use technical expertise to build their business.

Gerber instead suggests that successful businesses come from entrepreneurial techniques unrelated to technical skill. Regardless of whether he is right on that point, The E-Myth Revisited offers sound advice on the mentality an entrepreneur needs in order to create a successful business and details the steps a businesses should take to flourish.

4. The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers (2014) by Ben Horowitz

Ben Horowitz, cofounder of Andreessen Horowitz and one of the most experienced entrepreneurs in Silicon Valley, shares his experience and advice in his business book The Hard Thing About Hard Things.

Using anecdotes from his own career, Horowitz talks about how to do everything from demoting a friend to how to handle promotions or bad employees. Taking a straightforward tone laced with humor, Horowitz’s book is an enjoyable read that also gives great insight to aspiring entrepreneurs and veterans alike.

 The 7 Habits of Highly Effective People (1989) by Stephen Covey

A best-selling self-help and business book that has been translated into 34 languages, The 7 Habits of Highly Effective People details the, you guessed it, seven elements that make a successful individual.

The steps are broken into three sections: dependence, independence, and interdependence, and the lessons range from how to be proactive and take steps one at a time to how to engage other people by finding win/win situations and understanding others first.

The $100 Startup: Reinvent the Way You Make a Living, Do What You Love, and Create a New Future (2012) by Chris Guillebeau

This book is a great read for anyone looking to start a small business. For The $100 Startup, Guillebeau created a list of 1,500 individuals with self-built businesses that started on a modest budget and later turned at least $50,000 in annual profits, and from that pool, Guillebeau focused on 50 for the book itself.

He details their trials and errors as they grew their business from the ground up, and through these anecdotes reveals what it takes to build a startup in different countries all over the world.

 Rework: Change the Way You Work Forever (2010) by David Heinemeier Hansson and Jason Fried

Hansson and Fried challenge the way businesses can be successful in their book Rework. The two are the founders of 37signals, a successful software company that has defied conventional business models for over 15 years.

Their book shares the secrets behind their own success and details why long-term plans are harmful, why businesses don’t need outside investors and why you’re better off ignoring the competition. While initially sounding counterintuitive, the more you read the more these two make a strange kind of sense.

Zero to One: Notes on Startups, or How to Build the Future (2014) by Peter Thiel with Blake Masters

Peter Thiel, co-founder of Paypal and Palantir, shares his entrepreneurial experience in his book Zero to One, which is based on notes taken by Blake Masters during Peter Thiel’s lectures at Stanford.

While the book does show some of Thiel’s libertarian mentalities including praise of monopolies, he nonetheless makes insightful points about how to start a business, focusing on small markets, technological superiority, scalability and network potential. Thiel’s main point is that the most successful businesses do something new, not something better.

Good to Great: Why Some Companies Make the Leap…and Others Don’t (2001) by Jim Collins

In Good to Great, Jim Collins discusses the results of a huge management study that he did in the 90’s with a team of researchers. In the study, Collins picked a set of companies that, on average, had stock returns seven times larger than the general stock market for 15 years.

He then compared those businesses to companies poised on the brink of success that never bridged the gap. In the book, Collins discusses why some companies make it when others don’t, mentioning factors like “Level 5 Leaders, ” the now classic “Hedgehog Concept,” and the “Flywheel” and “Doom Loop.”

 The Lean Startup (2011) by Eric Ries

Ries began a lean startup movement with the release of his book in 2011, which made waves among entrepreneurs in Silicon Valley. The Lean Startup details a business model in which small businesses can effectively grow and scale.

Ries’ model involves iterative product releases of minimum viable products, shortened release cycles, a focus on pleasing early customers, and a process that he terms “validated learning.” In a model based around trimming excess, Ries provides lessons on how to shore up the essential components of a company.


Every entrepreneur, business owner and CEO should read business books. They’re an excellent source of information, and they offer useful startup and leadership advice. Managing a business can be nerve-wrecking, especially if you’re just getting started. As a result, reading motivational books can help you stay engaged. Here are 5 business books that are a must-read this 2015.

“Good Leaders Ask Great Questions” by John C. Maxwell

Many leaders want to excel at their jobs but they can’t because of their lack of expertise. In John C. Maxwell’s “Good Leaders Ask Great Questions“, readers will find answers to questions they’ve always wanted to ask. “What do I need to become a great leader?”, “How do I motivate someone who’s unmotivated?”, “How can I work with people who don’t have vision?” are just a few questions you’ll find answers to in the book.

Published in 2014, “Good Leaders Ask Great Questions” is an insightful book about learning how to solve the most challenging problems related to the world of venture capitalism. The business environment is a demanding work environment, and it’s important for leaders to find the determination to move on, no matter how complicated things might get along the way.

 “Predictably Irrational” by Dan Ariely

CEOs and business owners in general, are accountable for everything that happens with their business. They must negotiate on a daily basis, make important decisions and sometimes, mess up and learn from their mistakes. Entrepreneurs must take responsibility, and they can’t afford to get cold feet when things don’t turn out as planned.

In “Predictably Irrational“, MIT professor Dan Ariely, talks about why people behave so foolishly; he tries to make readers understand that they can predict such behavior from materializing. There’s always a good reason why people get mad and act like crazy. His book is extremely therapeutic and thus will compel leaders that a Zen attitude is everything they need to succeed in business.

“The Hard Thing About Hard Things” by Ben Horowitz

Ben Horowitz, the author of “The Hard Thing about Hard Things“, is a business guru. In his latest book, he emphasizes that it’s essential for investors and entrepreneurs to understand they all have a specific level of experience, and that there’s always room for improvement. Not every business individual excels at his job, but that doesn’t mean he can’t strive to do more. Horowitz is a savvy entrepreneur that also provides useful advice on running a startup. His principles are focused on things that are not taught in school, so if you’re a recent graduate with a keen interest in entrepreneurship and the business domain, make sure to read “The Hard Thing about Hard Things”.

 “Confidence” by Rosabeth Moss Kanter

Rosabeth Moss Kanter is a professor at the Harvard School of Business. In her latest book “Confidence“, she clarifies that success and failure are self-fulfilling prophecies, and that self-assurance is everything one needs to succeed. When you pursue a goal, and you do everything in your power to achieve it, success will be right there waiting to happen. “Confidence” is a business book about winning and losing; the author explores new theories about success, and she offers guidelines on how to turn things in your favor without having to make unnecessary concessions.

 “Zero to One”, by Peter Thiel

Peter Thiel’s “Zero to One” is a true masterpiece. Avid entrepreneurs with a dying wish to turn their brilliant ideas into a million dollar business should read this book. Thiel talks about failure in business in the most honest way. People fail to thrive because their only goal is to overcome their competition. Very few focus on making their companies productive. Why bother compete with an enterprise that already has a good reputation? You won’t win. Instead, you should focus on smart ways to make your business stand above the crowd and gain recognition, because that’s the key to success.

Do you want to be a successful entrepreneur? Then you’ll have to work for what you believe in. Reading business books will give you a boost of confidence; it will keep you motivated and focused on your goals.



We spend hours a week commuting to and from work can be put to good use if we utilize them well. One way of combining the necessity of getting to our workplace with success is to spend the time listening to books on CD or MP3, but what to listen to? Here are suggestions for my recent 14 best business books to listen to during your commute.

1. The E-Myth – Michael Greber. This is an excellent book about the myths surrounding starting your own business and demonstrates prevalent misconceptions about running a business.

2. Good to Great Jim Collins. Based on research obtained from US companies, this book shows why some companies make the leap from good to great, and other don’t.

3. Big Magic – Elizabeth Gilbert. The “big magic” of the title is “inspiration”; how does it come about, and how do we find the hidden jewels of inspiration within us.

4. The 7 Habits of Highly Effective PeopleStephen R. Covey. The classic and inspirational book that has transformed lives all over the world for 25 years.

5. Start with Why – Simon Sinek. A brilliantly insightful must-read about the qualities of good leadership.

6. Originals Adam Grant. An entertaining look at how we all can become more innovative.

7. The Five Dysfunctions of a Team – Charles Stransky. For anyone in a team, and especially for team leaders, this book will give you concrete steps to improve your team’s results.

8. The 10X Rule – Grant Cardone. A game-changing book for entrepreneurs, showing how to achieve success in any market.

9. First, Break All The RulesMarcus Buckingham. A well-researched book that explains concepts in a clear and intelligible way, including the 4 keys of great managers.

10. Raving FansKenneth Blanchard. A guide to transforming your customers from just satisfied to “raving fans”.

11. Presence – Amy Cuddy. Not only a business book, the lessons here are also applicable to students and teachers, employees and bosses, and everyone in between.

12. Rising Strong Audible – Brené Brown. An uplifting book for anyone who has ever fallen and a textbook on how to rise again.

13. Crucial Conversations – Kerry Patterson. A guide to those hard-to-have conversations, personal or professional, and how to handle them.

14. Extreme Ownership – Jocko Willink and Leif Babin. This book details the mind-set of  hard-hitting Navy SEALs and how this can be translated into great business and life lessons.

If you have some recommendations make a comment and share.

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The Psychology of Human Misjudgement – Charlie Munger Full Speech

By Charlie Munger (Warren Buffett’s partner at Berkshire Hathaway)
Speech at Harvard Law School (1995)

Transcription of The Psychology of Human Misjudgment, comments [in brackets] by Whitney Tilson.  Note from Joshua Kennon: I’ve written a lot about Charlie Munger over the years, especially the influence he has had on my life and how we run my companies by using our own mental models.  This is one of the best speeches Munger ever gave … which may be why my family owns about a dozen copies of various editions of Poor Charlie’s Alamanack, including an autographed first edition that sits in my office.

Charles Munger, Vice Chairman of Berkshire Hathaway

Charlie Munger: Although I am very interested in the subject of human misjudgment — and lord knows I’ve created a good bit of it — I don’t think I’ve created my full statistical share, and I think that o­ne of the reasons was I tried to do something about this terrible ignorance I left the Harvard Law School with.

When I saw this patterned irrationality, which was so extreme, and I had no theory or anything to deal with it, but I could see that it was extreme, and I could see that it was patterned, I just started to create my own system of psychology, partly by casual reading, but largely from personal experience, and I used that pattern to help me get through life. Fairly late in life I stumbled into this book, Influence, by a psychologist named Bob Cialdini, who became a super-tenured hotshot o­n a 2,000-person faculty at a very young age. And he wrote this book, which has now sold 300-odd thousand copies, which is remarkable for somebody. Well, it’s an academic book aimed at a popular audience that filled in a lot of holes in my crude system. In those holes it filled in, I thought I had a system that was a good-working tool, and I’d like to share that o­ne with you.

And I came here because behavioral economics. How could economics not be behavioral? If it isn’t behavioral, what the hell is it? And I think it’s fairly clear that all reality has to respect all other reality. If you come to inconsistencies, they have to be resolved, and so if there’s anything valid in psychology, economics has to recognize it, and vice versa. So I think the people that are working o­n this fringe between economics and psychology are absolutely right to be there, and I think there’s been plenty wrong over the years. Well let me romp through as much of this list as I have time to get through:

24 Standard Causes of Human Misjudgment

1. Under-recognition of the power of what psychologists call ‘reinforcement’ and economists call ‘incentives.’

Well you can say, “Everybody knows that.” Well I think I’ve been in the top 5% of my age cohort all my life in understanding the power of incentives, and all my life I’ve underestimated it. And never a year passes but I get some surprise that pushes my limit a little farther.

One of my favorite cases about the power of incentives is the Federal Express case. The heart and soul of the integrity of the system is that all the packages have to be shifted rapidly in o­ne central location each night. And the system has no integrity if the whole shift can’t be done fast. And Federal Express had o­ne hell of a time getting the thing to work. And they tried moral suasion, they tried everything in the world,
and finally somebody got the happy thought that they were paying the night shift by the hour, and that maybe if they paid them by the shift, the system would work better. And lo and behold, that solution worked .

Early in the history of Xerox, Joe Wilson, who was then in the government, had to go back to Xerox because he couldn’t understand how their better, new machine was selling so poorly in relation to their older and inferior machine. Of course when he got there he found out that the commission arrangement with the salesmen gave a tremendous incentive to the inferior machine.

And here at Harvard, in the shadow of B.F. Skinner — there was a man who really was into reinforcement as a powerful thought, and, you know, Skinner’s lost his reputation in a lot of places, but if you were to analyze the entire history of experimental science at Harvard, he’d be in the top handful. His experiments were very ingenious, the results were counter-intuitive, and they were important. It is not given to experimental science to do better. What gummed up Skinner’s reputation is that he developed a case of what I always call man-with-a-hammer syndrome: to the man with a hammer, every problem tends to look pretty much like a nail. And Skinner had o­ne of the more extreme cases in the history of Academia, and this syndrome doesn’t exempt bright people. It’s just a man with a hammer…and Skinner is an extreme example of that. And later, as I go down my list, let’s go back and try and figure out why people, like Skinner, get man-with-a-hammer syndrome.

Incidentally, when I was at the Harvard Law School there was a professor, naturally at Yale, who was derisively discussed at Harvard, and they used to say, “Poor old Blanchard. He thinks declaratory judgments will cure cancer.” And that’s the way Skinner got. And not only that, he was literary, and he scorned opponents who had any different way of thinking or thought anything else was important. This is not a way to make a lasting reputation if the other people turn out to also be doing something important.

2. My second factor is simple psychological denial.

This first really hit me between the eyes when a friend of our family had a super-athlete, super-student son who flew off a carrier in the north Atlantic and never came back, and his mother, who was a very sane woman, just never believed that he was dead. And, of course, if you turn on the television, you’ll find the mothers of the most obvious criminals that man could ever diagnose, and they all think their sons are innocent. That’s simple psychological denial. The reality is too painful to bear, so you just distort it until it’s bearable. We all do that to some extent, and it’s a common psychological misjudgment that causes terrible problems.

3. Incentive-cause bias, both in o­ne’s own mind and that of o­nes trusted advisor, where it creates what economists call ‘agency costs.’

Here, my early experience was a doctor who sent bushel baskets full of normal gall bladders down to the pathology lab in the leading hospital in Lincoln, Nebraska. And with that quality control for which community hospitals are famous, about five years after he should’ve been removed from the staff, he was. And o­ne of the old doctors who participated in the removal was also a family friend, and I asked him: I said, “Tell me, did he think, ‘Here’s a way for me to exercise my talents’” — this guy was very skilled technically– “‘and make a high living by doing a few maimings and murders every year, along with some frauds?’” And he said, “Hell no, Charlie. He thought that the gall bladder was the source of all medical evil, and if you really love your patients, you couldn’t get that organ out rapidly enough.”

Now that’s an extreme case, but in lesser strength, it’s present in every profession and in every human being. And it causes perfectly terrible behavior. If you take sales presentations and brokers of commercial real estate and businesses… I’m 70 years old, I’ve never seen o­ne I thought was even within hailing distance of objective truth. If you want to talk about the power of incentives and the power of rationalized, terrible behavior: after the Defense Department had had enough experience with cost-plus percentage of cost contracts, the reaction of our republic was to make it a crime for the federal
government to write o­ne, and not o­nly a crime, but a felony.

And by the way, the government’s right, but a lot of the way the world is run, including most law firms and a lot of other places, they’ve still got a cost-plus percentage of cost system. And human nature, with its version of what I call ‘incentive-caused bias,’ causes this terrible abuse. And many of the people who are doing it you would be glad to have married into your family compared to what you’re otherwise going to get. [Laughter]

Now there are huge implications from the fact that the human mind is put together this way, and that is that people who create things like cash registers, which make most [dishonest] behavior hard, are some of the effective saints of our civilization. And the cash register was a great moral instrument when it was created. And Patterson knew that, by the way. He had a little store, and the people were stealing him blind and never made any money, and people sold him a couple of cash registers and it went to profit immediately. And, of course, he closed the store and went into the cash register business…

And so this is a huge, important thing. If you read the psychology texts, you will find that if they’re 1,000 pages long, there’s o­ne sentence. Somehow incentive-caused bias has escaped the standard survey course in psychology.

4. Fourth, and this is a superpower in error-causing psychological tendency: bias from consistency and commitment tendency, including the tendency to avoid or promptly resolve cognitive dissonance. Includes the self-confirmation tendency of all conclusions, particularly expressed conclusions, and with a special persistence for conclusions that are hard-won.

Well what I’m saying here is that the human mind is a lot like the human egg, and the human egg has a shut-off device. When o­ne sperm gets in, it shuts down so the next o­ne can’t get in. The human mind has a big tendency of the same sort. And here again, it doesn’t just catch ordinary mortals; it catches the deans of physics. According to Max Planck, the really innovative, important new physics was never really accepted by the old guard. Instead a new guard came along that was less brain-blocked by its previous conclusions. And if Max Planck’s crowd had this consistency and commitment tendency that kept their old inclusions intact in spite of disconfirming evidence, you can imagine what the crowd that you and I are part of behaves like.

And of course, if you make a public disclosure of your conclusion, you’re pounding it into your own head. Many of these students that are screaming at us, you know, they aren’t convincing us, but they’re forming mental change for themselves, because what they’re shouting out [is] what they’re pounding in. And I think educational institutions that create a climate where too much of that goes o­n are…in a fundamental sense, they’re irresponsible institutions. It’s very important to not put your brain in chains too young by what you shout out.

And all these things like painful qualifying and initiation rituals pound in your commitments and your ideas. The Chinese brainwashing system, which was for war prisoners, was way better than anybody else’s. They maneuvered people into making tiny little commitments and declarations, and then they’d slowly build. That worked way better than torture.

5. Fifth: bias from Pavlovian association, misconstruing past correlation as a reliable basis for decision-making.

I never took a course in psychology, or economics either for that matter, but I did learn about Pavlov in high school biology. And the way they taught it, you know, so the dog salivated when the bell rang. So what? Nobody made the least effort to tie that to the wide world. Well the truth of the matter is that Pavlovian association is an enormously powerful psychological force in the daily life of all of us. And, indeed, in economics we wouldn’t have money without the role of so-called secondary reinforcement, which is a pure psychological phenomenon demonstrated in the laboratory.

Practically…I’d say 3/4 of advertising works o­n pure Pavlov. Think how association, pure association, works. Take Coca-Cola company (we’re the biggest share-holder). They want to be associated with every wonderful image: heroics in the Olympics, wonderful music, you name it. They don’t want to be associated with presidents’ funerals and so-forth. When have you seen a Coca-Cola ad…and the association really works.

And all these psychological tendencies work largely or entirely o­n a subconscious level, which makes them very insidious. Now you’ve got Persian messenger syndrome. The Persians really did kill the messenger who brought the bad news. You think that is dead? I mean you should’ve seen Bill Paley in his last 20 years. [Paley was the former owner, chairman and CEO of CBS; see for his bio.] He didn’t hear o­ne damn thing he didn’t want to hear. People knew that it was bad for the messenger to bring Bill Paley things he didn’t want to hear. Well that means that the leader gets in a cocoon of unreality, and this is a great big enterprise, and boy, did he make some dumb decisions in the last 20 years.

And now the Persian messenger syndrome is alive and well. I saw, some years ago, Arco and Exxon arguing over a few hundred millions of ambiguity in their North Slope treaties before a superior court judge in Texas, with armies of lawyers and experts o­n each side. Now this is a Mad Hatter’s tea party: two engineering-style companies can’t resolve some ambiguity without spending tens of millions of dollars in some Texas superior court? In my opinion what happens is that nobody wants to bring the bad news to the executives up the line. But here’s a few hundred million dollars you thought you had that you don’t. And it’s much safer to act like the Persian messenger who goes away to hide rather than bring home the news of the battle lost.

Talking about economics, you get a very interesting phenomenon that I’ve seen over and over again in a long life. You’ve got two products; suppose they’re complex, technical products. Now you’d think, under the laws of economics, that if product A costs X, if product Y costs X minus something, it will sell better than if it sells at X plus something, but that’s not so. In many cases when you raise the price of the alternative products, it’ll get a larger market share than it would when you make it lower than your competitor’s product. That’s because the bell, a Pavlovian bell — I mean ordinarily there’s a correlation between price and value — then you have an information inefficiency. And so when you raise the price, the sales go up relative to your competitor. That happens again and again and again. It’s a pure Pavlovian phenomenon. You can say, “Well, the economists have figured this sort of thing out when they started talking about information inefficiencies,” but that was fairly late in economics that they found such an obvious thing. And, of course, most of them don’t ask what causes the information inefficiencies.

Well o­ne of the things that causes it is pure old Pavlov and his dog. Now you’ve got bios from Skinnerian association: operant conditioning, you know, where you give the dog a reward and pound in the behavior that preceded the dog’s getting the award. And, of course, Skinner was able to create superstitious pigeons by having the rewards come by accident with certain occurrences, and, of course, we all know people who are the human equivalents of superstitious pigeons. That’s a very powerful phenomenon. And, of course, operant conditioning really works. I mean the people in the center who think that operant conditioning is important are very much right, it’s just that Skinner overdid it a little.

Where you see in business just perfectly horrible results from psychologically-rooted tendencies is in accounting. If you take Westinghouse, which blew, what, two or three billion dollars pre-tax at least loaning developers to build hotels, and virtually 100% loans? Now you say any idiot knows that if there’s o­ne thing you don’t like it’s a developer, and another you don’t like it’s a hotel. And to make a 100% loan to a developer who’s going to build a hotel… [Laughter] But this guy, he probably was an engineer or something, and he didn’t take psychology any more than I did, and he got out there in the hands of these salesmen operating under their version of incentive-caused bias, where any damned way of getting Westinghouse to do it was considered normal business, and they just blew it.

That would never have been possible if the accounting system hadn’t been such but for the initial phase of every transaction it showed wonderful financial results. So people who have loose accounting standards are just inviting perfectly horrible behavior in other people. And it’s a sin, it’s an absolute sin. If you carry bushel baskets full of money through the ghetto, and made it easy to steal, that would be a considerable human sin, because you’d be causing a lot of bad behavior, and the bad behavior would spread. Similarly an institution that gets sloppy accounting commits a real human sin, and it’s also a dumb way to do business, as Westinghouse has so wonderfully proved.

Oddly enough nobody mentions, at least nobody I’ve seen, what happened with Joe Jett and Kidder Peabody. The truth of the matter is the accounting system was such that by punching a few buttons, the Joe Jetts of the world could show profits, and profits that showed up in things that resulted in rewards and esteem and every other thing… Well the Joe Jetts are always with us, and they’re not really to blame, in my judgment at least. But that bastard who created that foolish accounting system who, so far as I know, has not been flayed alive, ought to be.

6. Sixth: bias from reciprocation tendency, including the tendency of one o­n a roll to act as other persons expect.

Well here, again, Cialdini does a magnificent job at this, and you’re all going to be given a copy of Cialdini’s book. And if you have half as much sense as I think you do, you will immediately order copies for all of your children and several of your friends. You will never make a better investment.

It is so easy to be a patsy for what he calls the compliance practitioners of this life. At any rate, reciprocation tendency is a very, very powerful phenomenon, and Cialdini demonstrated this by running around a campus, and he asked people to take juvenile delinquents to the zoo. And it was a campus, and so o­ne in six actually agreed to do it. And after he’d accumulated a statistical output he went around o­n the same campus and he asked other people, he said, “Gee, would you devote two afternoons a week to taking juvenile delinquents somewhere and suffering greatly yourself to help them,” and there he got 100% of the people to say no. But after he’d made the first request, he backed up a little, and he said, “Would you at least take them to the zoo o­ne afternoon?” He raised the compliance rate from a third to a half. He got three times the success by just going through the little ask-for-a-lot-and-back-off.

Now if the human mind, o­n a subconscious level, can be manipulated that way and you don’t know it, I always use the phrase, “You’re like a one-legged man in an ass-kicking contest.” I mean you are really giving a lot of quarter to the external world that you can’t afford to give. And o­n this so-called role theory, where you tend to act in the way that other people expect, and that’s reciprocation if you think about the way society is organized.

A guy named Zimbardo had people at Stanford divide into two pieces: o­ne were the guards and the other were the prisoners, and they started acting out roles as people expected. He had to stop the experiment after about five days. He was getting into human misery and breakdown and pathological behavior. I mean it was…it was awesome. However, Zimbardo is greatly misinterpreted. It’s not just reciprocation tendency and role theory that caused that, it’s consistency and commitment tendency. Each person, as he acted as a guard or a prisoner, the action itself was pounding in the idea. [For more o­n this famous experiment:]

Wherever you turn, this consistency and commitment tendency is affecting you. In other words, what you think may change what you do, but perhaps even more important, what you do will change what you think. And you can say, “Everybody knows that.” I want to tell you I didn’t know it well enough early enough.

7. Seventh, now this is a lollapalooza, and Henry Kaufman wisely talked about this: bias from over-influence by social proof — that is, the conclusions of others, particularly under conditions of natural uncertainty and stress.

And here, o­ne of the cases the psychologists use is Kitty Genovese, where all these people — I don’t know, 50, 60, 70 of them — just sort of sat and did nothing while she was slowly murdered. Now o­ne of the explanations is that everybody looked at everybody else and nobody else was doing anything, and so there’s automatic social proof that the right thing to do is nothing. That’s not a good enough explanation for Kitty Genovese, in my judgment. That’s o­nly part of it. There are microeconomic ideas and gain/loss ratios and so forth that also come into play. I think time and time again, in reality, psychological notions and economic notions interplay, and the man who doesn’t understand both is a damned fool.

Big-shot businessmen get into these waves of social proof. Do you remember some years ago when o­ne oil company bought a fertilizer company, and every other major oil company practically ran out and bought a fertilizer company? And there was no more damned reason for all these oil companies to buy fertilizer companies, but they didn’t know exactly what to do, and if Exxon was doing it, it was good enough for Mobil, and vice versa. I think they’re all gone now, but it was a total disaster.

Now let’s talk about efficient market theory, a wonderful economic doctrine that had a long vogue in spite of the experience of Berkshire Hathaway. In fact o­ne of the economists who won — he shared a Nobel Prize — and as he looked at Berkshire Hathaway year after year, which people would throw in his face as saying maybe the market isn’t quite as efficient as you think, he said, “Well, it’s a two-sigma event.” And then he said we were a three-sigma event. And then he said we were a four-sigma event. And he finally got up to six sigmas — better to add a sigma than change a theory, just because the evidence comes in differently. [Laughter] And, of course, when this share of a Nobel Prize went into money management himself, he sank like a stone.

If you think about the doctrines I’ve talked about, namely, o­ne, the power of reinforcement — after all you do something and the market goes up and you get paid and rewarded and applauded and what have you, meaning a lot of reinforcement, if you make a bet o­n a market and the market goes with you. Also, there’s social proof. I mean the prices o­n the market are the ultimate form of social proof, reflecting what other people think, and so the combination is very powerful. Why would you expect general market levels to always be totally efficient, say even in 1973-74 at the pit, or in 1972 or whatever it was when the Nifty 50 were in their heyday? If these psychological notions are correct, you would expect some waves of irrationality, which carry general levels, so they’re inconsistent with reason.

8. Nine [he means eight]: what made these economists love the efficient market theory is the math was so elegant.

And after all, math was what they’d learned to do. To the man with a hammer, every problem tends to look pretty much like a nail. The alternative truth was a little messy, and they’d forgotten the great economists Keynes, whom I think said, “Better to be roughly right than precisely wrong.”

9. Bias from contrast-caused distortions of sensation, perception and cognition.

Here, the great experiment that Cialdini does in his class is he takes three buckets of water: o­ne’s hot, o­ne’s cold and o­ne’s room temperature, and he has the student stick his left hand in the hot water and his right hand in the cold water. Then he has them remove the hands and put them both in the room temperature bucket, and of course with both hands in the same bucket of water, o­ne seems hot, the other seems cold because the sensation apparatus of man is over-influenced by contrast. It has no absolute scale; it’s got a contrast scale in it. And it’s a scale with quantum effects in it too. It takes a certain percentage change before it’s noticed.

Maybe you’ve had a magician remove your watch — I certainly have — without your noticing it. It’s the same thing. He’s taking advantage of contrast-type troubles in your sensory apparatus. But here the great truth is that cognition mimics sensation, and the cognition manipulators mimic the watch-removing magician. In other words, people are manipulating you all day long o­n this contrast phenomenon.

Cialdini cites the case of the real estate broker. And you’ve got the rube that’s been transferred into your town, and the first thing you do is you take the rube out to two of the most awful, overpriced houses you’ve ever seen, and then you take the rube to some moderately overpriced house, and then you stick him. And it works pretty well, which is why the real estate salesmen do it. And it’s always going to work.

And the accidents of life can do this to you, and it can ruin your life. In my generation, when women lived at home until they got married, I saw some perfectly terrible marriages made by highly desirable women because they lived in terrible homes. And I’ve seen some terrible second marriages which were made because they were slight improvements over an even worse first marriage. You think you’re immune from these things, and you laugh, and I want to tell you, you aren’t.

My favorite analogy I can’t vouch for the accuracy of. I have this worthless friend I like to play bridge with, and he’s a total intellectual amateur that lives o­n inherited money, but he told me o­nce something I really enjoyed hearing. He said, “Charlie,” he say, “If you throw a frog into very hot water, the frog will jump out, but if you put the frog in room temperature water and just slowly heat the water up, the frog will die there.” Now I don’t know whether that’s true about a frog, but it’s sure as hell true about many of the businessmen I know [laughter], and there, again, it is the contrast phenomenon. But these are hot-shot, high-powered people. I mean these are not fools. If it comes to you in small pieces, you’re likely to miss, so if you’re going to be a person of good judgment, you have to do something about this warp in your head where it’s so misled by mere contrast.

10. Bias from over-influence by authority.

Well here, the Milgrim experiment, as it’s called — I think there have been 1,600 psychological papers written about Milgrim. And he had a person posing as an authority figure trick ordinary people into giving what they had every reason to expect was heavy torture by electric shock to perfectly innocent fellow citizens. And he was trying to show why Hitler succeeded and a few other things, and so this really caught the fancy of the world. Partly it’s so politically correct, and over-influence by authority…

You’ll like this o­ne: You get a pilot and a co-pilot. The pilot is the authority figure. They don’t do this in airplanes, but they’ve done it in simulators. They have the pilot do something where the co-pilot, who’s been trained in simulators a long time — he knows he’s not to allow the plane to crash — they have the pilot to do something where an idiot co-pilot would know the plane was going to crash, but the pilot’s doing it, and the co-pilot is sitting there, and the pilot is the authority figure. 25% of the time the plane crashes. I mean this is a very powerful psychological tendency. It’s not quite as powerful as some people think, and I’ll get to that later.

11. Bias from deprival super-reaction syndrome, including bias caused by present or threatened scarcity, including threatened removal of something almost possessed, but never possessed.

Here I took the Munger dog, a lovely, harmless dog. The o­nly way to get that dog to bite you is to try and take something out of its mouth after it was already there. And you know, if you’ve tried to do takeaways in labor negotiations, you’ll know that the human version of that dog is there in all of us. And I have a neighbor, a predecessor who had a little island around the house, and his next door neighbor put a little pine tree o­n it that was about three feet high, and it turned his 180 degree view of the harbor into 179 3/4. Well they had a blood feud like the Hatfields and McCoys, and it went o­n and o­n and o­n…

I mean people are really crazy about minor decrements down. And then, if you act o­n them, then you get into reciprocation tendency, because you don’t just reciprocate affection, you reciprocate animosity, and the whole thing can escalate. And so huge insanities can come from just subconsciously over-weighing the importance of what you’re losing or almost getting and not getting.

And the extreme business case here was New Coke. Coca-Cola has the most valuable trademark in the world. We’re the major shareholder — I think we understand that trademark. Coke has armies of brilliant engineers, lawyers, psychologists, advertising executives and so forth, and they had a trademark o­n a flavor, and they’d spent the better part of 100 years getting people to believe that trademark had all these intangible values too. And people associate it with a flavor. And so they were going to tell people not that it was improved, because you can’t improve a flavor. A flavor is a matter of taste. I mean you may improve a detergent or something, but don’t think you’re going to make a major change in a flavor. So they got this huge deprival super-reaction syndrome.

Pepsi was within weeks of coming out with old Coke in a Pepsi bottle, which would’ve been the biggest fiasco in modern times. Perfect insanity. And by the way, both Goizuetta [Coke’s CEO at the time] and Keough [an influential former president and director of the company] are just wonderful about it. I mean they just joke. Keough always says, “I must’ve been away o­n vacation.” He participated in every single decision — he’s a wonderful guy. And by the way, Goizuetta is a wonderful, smart guy — an engineer. Smart people make these terrible boners. How can you not understand deprival super-reaction syndrome? But people do not react symmetrically to loss and gain. Well maybe a great bridge player like Zeckhauser does, but that’s a trained response. Ordinary people, subconsciously affected by their inborn tendencies…

12. Bias from envy/jealousy.

Well envy/jealousy made, what, two out of the ten commandments? Those of you who have raised siblings you know about envy, or tried to run a law firm or investment bank or even a faculty? I’ve heard Warren say a half a dozen times, “It’s not greed that drives the world, but envy.”

Here again, you go through the psychology survey courses, and you go to the index: envy/jealousy, 1,000-page book, it’s blank. There’s some blind spots in academia, but it’s an enormously powerful thing, and it operates, to a considerable extent, o­n the subconscious level. Anybody who doesn’t understand it is taking o­n defects he shouldn’t have.

13. Bias from chemical dependency.

Well, we don’t have to talk about that. We’ve all seen so much of it, but it’s interesting how it’ll always cause this moral breakdown if there’s any need, and it always involves massive denial. See it just aggravates what we talked about earlier in the aviator case, the tendency to distort reality so that it’s endurable.

14. Bias from mis-gambling compulsion.

Well here, Skinner made the o­nly explanation you’ll find in the standard psychology survey course. He, of course, created a variable reinforcement rate for his pigeons and his mice, and he found that that would pound in the behavior better than any other enforcement pattern. And he says, “Ah ha! I’ve explained why gambling is such a powerful, addictive force in this civilization.” I think that is, to a very considerable extent, true, but being Skinner, he seemed to think that was the o­nly explanation, but the truth of the matter is that the devisors of these modern machines and techniques know a lot of things that Skinner didn’t know.

For instance, a lottery. You have a lottery where you get your number by lot, and then somebody draws a number by lot, it gets lousy play. You have a lottery where people get to pick their number, you get big play. Again, it’s this consistency and commitment thing. People think if they have committed to it, it has to be good. The minute they’ve picked it themselves it gets an extra validity. After all, they thought it and they acted o­n it.

Then if you take the slot machines, you get bar, bar, walnut. And it happens again and again and again. You get all these near misses. Well that’s deprival super-reaction syndrome, and boy do the people who create the machines understand human psychology. And for the high-IQ crowd they’ve got poker machines where you make choices. So you can play blackjack, so to speak, with the machine. It’s wonderful what we’ve done
with our computers to ruin the civilization.

But at any rate, mis-gambling compulsion is a very, very powerful and important thing. Look at what’s happening to our country: every Indian has a reservation, every river town, and look at the people who are ruined by it with the aid of their stock brokers and others. And again, if you look in the standard textbook of psychology you’ll find practically nothing o­n it except maybe o­ne sentence talking about Skinner’s rats. That is not an adequate coverage of the subject.

15. Bias from liking distortion, including the tendency to especially like o­neself, o­ne’s own kind and o­ne’s own idea structures, and the tendency to be especially susceptible to being misled by someone liked. Disliking distortion, bias from that, the reciprocal of liking distortion and the tendency not to learn appropriately from someone disliked.

Well here, again, we’ve got hugely powerful tendencies, and if you look at the wars in part of the Harvard Law School, as we sit here, you can see that very brilliant people get into this almost pathological behavior. And these are very, very powerful, basic, subconscious psychological tendencies, or at least party subconscious.

Now let’s get back to B.F. Skinner, man-with-a-hammer syndrome revisited. Why is man-with-a-hammer syndrome always present? Well if you stop to think about it, it’s incentive-caused bias. His professional reputation is all tied up with what he knows. He likes himself and he likes his own ideas, and he’s expressed them to other people — consistency and commitment tendency. I mean you’ve got four or five of these elementary psychological tendencies combining to create this man-with-a-hammer syndrome.

Once you realize that you can’t really buy your thinking — partly you can, but largely you can’t in this world — you have learned a lesson that’s very useful in life. George Bernard Shaw had a character say in The Doctor’s Dilemma, “In the last analysis, every profession is a conspiracy against the laity.” But he didn’t have it quite right, because it isn’t so much a conspiracy as it is a subconscious, psychological tendency.

The guy tells you what is good for him. He doesn’t recognize that he’s doing anything wrong any more than that doctor did when he was pulling out all those normal gall bladders. And he believes his own idea structures will cure cancer, and he believes that the demons that he’s the guardian against are the biggest demons and the most important o­nes, and in fact they may be very small demons compared to the demons that you face. So you’re getting your advice in this world from your paid advisor with this huge load of ghastly bias. And woe to you.

There are o­nly two ways to handle it: you can hire your advisor and then just apply a windage factor, like I used to do when I was a rifle shooter. I’d just adjust for so many miles an hour wind. Or you can learn the basic elements of your advisor’s trade. You don’t have to learn very much, by the way, because if you learn just a little then you can make him explain why he’s right. And those two tendencies will take part of the warp out of the thinking you’ve tried to hire done. By and large it works terribly. I have never seen a management consultant’s report in my long life that didn’t end with the following paragraph: “What this situation really needs is more management consulting.” Never once. I always turn to the last page. Of course Berkshire doesn’t hire them, so I o­nly do this o­n sort of a voyeuristic basis. Sometimes I’m at a non-profit where some idiot hires o­ne. [Laughter]

16. Seventeen [he means 16]: bias from the non-mathematical nature of the human brain in its natural state as it deal with probabilities employing crude heuristics, and is often misled by mere contrast, a tendency to overweigh conveniently available information and other psychologically misrouted thinking tendencies o­n this list.

When the brain should be using the simple probability mathematics of Fermat and Pascal applied to all reasonably obtainable and correctly weighted items of information that are of value in predicting outcomes, the right way to think is the way Zeckhauser plays bridge. It’s just that simple. And your brain doesn’t naturally know how to think the way Zeckhauser knows how to play bridge. Now, you notice I put in that availability thing, and there I’m mimicking some very eminent psychologists [Daniel] Kahneman, Eikhout[?] (I hope I pronounced that right) and [Amos] Tversky, who raised the idea of availability to a whole heuristic of misjudgment. And they are very substantially right.

I mean ask the Coca-Cola Company, which has raised availability to a secular religion. If availability changes behavior, you will drink a helluva lot more Coke if it’s always available. I mean availability does change behavior and cognition. Nonetheless, even though I recognize that and applaud Tversky and Kahneman, I don’t like it for my personal system except as part of a greater sub-system, which is you’ve got to think the way Zeckhauser plays bridge. And it isn’t just the lack of availability that distorts your judgment. All the things o­n this list distort judgment. And I want to train myself to kind of mentally run down the list instead of just jumping o­n availability. So that’s why I state it the way I do.

In a sense these psychological tendencies make things unavailable, because if you quickly jump to o­ne thing, and then because you jumped to it the consistency and commitment tendency makes you lock in, boom, that’s error number o­ne. Or if something is very vivid, which I’m going to come to next, that will really pound in. And the reason that the thing that really matters is now unavailable and what’s extra-vivid wins is, I mean, the extra-vividness creates the unavailability. So I think it’s much better to have a whole list of things that would cause you to be less like Zeckhauser than it is just to jump o­n o­ne factor.

Here I think we should discuss John Gutfreund. This is a very interesting human example, which will be taught in every decent professional school for at least a full generation. Gutfreund has a trusted employee and it comes to light not through confession but by accident that the trusted employee has lied like hell to the government and manipulated the accounting system, and it was really equivalent to forgery. And the man immediately says, “I’ve never done it before, I’ll never do it again. It was an isolated example.” And of course it was obvious that he was trying to help the government as well as himself, because he thought the government had been dumb enough to pass a rule that he’d spoken against, and after all if the government’s not going to pay attention to a bond trader at Salomon, what kind of a government can
it be?

At any rate, this guy has been part of a little clique that has made, well, way over a billion dollars for Salomon in the very recent past, and it’s a little handful of people. And so there are a lot of psychological forces at work, and then you know the guy’s wife, and he’s right in front of you, and there’s human sympathy, and he’s sort of asking for your help, which encourages reciprocation, and there’s all these psychological tendencies are working, plus the fact he’s part of a group that had made a lot of money for you. At any rate, Gutfreund does not cashier the man, and of course he had done it before and he did do it again. Well now you look as though you almost wanted him to do it again. Or God knows what you look like, but it isn’t good. And that simple decision destroyed Jim Gutfreund, and it’s so easy to do.

Now let’s think it through like the bridge player, like Zeckhauser. You find an isolated example of a little old lady in the See’s Candy Company, o­ne of our subsidiaries, getting into the till. And what does she say? “I never did it before, I’ll never do it again. This is going to ruin my life. Please help me.” And you know her children and her friends, and she’d been around 30 years and standing behind the candy counter with swollen ankles. When you’re an old lady it isn’t that glorious a life. And you’re rich and powerful and there she is: “I never did it before, I’ll never do it again.” Well how likely is it that she never did it before? If you’re going to catch 10 embezzlements a year, what are the chances that any o­ne of them — applying what Tversky and Kahneman called baseline information — will be somebody who o­nly did it this o­nce? And the people who have done it before and are going to do it again, what are they all going to say? Well in the history of the See’s Candy Company they always say, “I never did it before, and I’m never going to do it again.” And we cashier them. It would be evil not to, because terrible behavior spreads.

Remember…what was it? Serpico? I mean you let that stuff…you’ve got social proof, you’ve got incentive-caused bias, you’ve got a whole lot of psychological factors that will cause the evil behavior to spread, and pretty soon the whole damn…your place is rotten, the civilization is rotten. It’s not the right way to behave. And I will admit that I have…when I knew the wife and children, I have paid severance pay when I fire somebody for taking a mistress o­n an extended foreign trip. It’s not the adultery I mind, it’s the embezzlement. But there, I wouldn’t do it like Gutfreund did it, where they’d been cheating somebody else o­n my behalf. There I think you have to cashier. But if they’re just stealing from you and you get rid of them, I don’t think you need the last ounce of vengeance. In fact I don’t think you need any vengeance. I don’t think vengeance is much good.

17. Now we come to bias from over-influence by extra-vivid evidence.

Here’s o­ne that…I’m at least $30 million poorer as I sit here giving this little talk because I o­nce bought 300 shares of a stock and the guy called me back and said, “I’ve got 1,500 more,” and I said, “Will you hold it for 15 minutes while I think about it?” And the CEO of this company — I have seen a lot of vivid peculiarities in a long life, but this guy set a world record; I’m talking about the CEO — and I just mis-weighed it. The truth of the matter was the situation was foolproof. He was soon going to be dead, and I turned down the extra 1,500 shares, and it’s now cost me $30 million. And that’s life in the big city. And it wasn’t something where stock was generally available. So it’s very easy to mis-weigh the vivid evidence, and Gutfreund did that when he looked into the man’s eyes and forgave a colleague.

18. Twenty-two [he means 18]: Mental confusion caused by information not arrayed in the mind and theory structures, creating sound generalizations developed in response to the question “Why?” Also, mis-influence from information that apparently but not really answers the question “Why?” Also, failure to obtain deserved influence caused by not properly explaining why.

Well we all know people who’ve flunked, and they try and memorize and they try and spout back and they just…it doesn’t work. The brain doesn’t work that way. You’ve got to array facts o­n the theory structures answering the question “Why?” If you don’t do that, you just cannot handle the world.

And now we get to Feuerstein, who was the general counsel with Salomon when Gutfreund made his big error, and Feuerstein knew better. He told Gutfreund, “You have to report this as a matter of morality and prudent business judgment.” He said, “It’s probably not illegal, there’s probably no legal duty to do it, but you have to do it as a matter of prudent conduct and proper dealing with your main customer.” He said that to Gutfreund o­n at least two or three occasions. And he stopped. And, of course, the persuasion failed, and when Gutfreund went down, Feuerstein went with him. It ruined a considerable part of Feuerstein’s life.

Well Feuerstein, [who] was a member of the Harvard Law Review, made an elementary psychological mistake. You want to persuade somebody, you really tell them why. And what did we learn in lesson o­ne? Incentives really matter? Vivid evidence really works? He should’ve told Gutfreund, “You’re likely to ruin your life and disgrace your family and lose your money.” And is Mozer worth this? I know both men. That would’ve worked. So Feuerstein flunked elementary psychology, this very sophisticated, brilliant lawyer. But don’t you do that. It’s not very hard to do, you know, just to remember that “Why?” is very important.

19. Other normal limitations of sensation, memory, cognition and knowledge.

Well, I don’t have time for that.

20. Stress-induced mental changes, small and large, temporary and permanent.

Here, my favorite example is the great Pavlov. He had all these dogs in cages, which had all been conditioned into changed behaviors, and the great Leningrad flood came and it just went right up and the dog’s in a cage. And the dog had as much stress as you can imagine a dog ever having. And the water receded in time to save some of the dogs, and Pavlov noted that they’d had a total reversal of their conditioned personality. And being the great scientist he was, he spent the rest of his life giving nervous breakdowns to dogs, and he learned a helluva lot that I regard as very interesting.

I have never known any Freudian analyst who knew anything about the last work of Pavlov, and I’ve never met a lawyer who understood that what Pavlov found out with those dogs had anything to do with programming and de-programming and cults and so forth. I mean the amount of elementary psychological ignorance that is out there in high levels is very significant[?].

21. Then we’ve got other common mental illnesses and declines, temporary and permanent, including the tendency to lose ability through disuse.

22. And then I’ve got development and organizational confusion from say-something syndrome.

And here my favorite thing is the bee, a honeybee. And a honeybee goes out and finds the nectar and he comes back, he does a dance that communicates to the other bees where the nectar is, and they go out and get it. Well some scientist who is clever, like B.F. Skinner, decided to do an experiment. He put the nectar straight up. Way up. Well, in a natural setting, there is no nectar where they’re all straight up, and the poor honeybee doesn’t have a genetic program that is adequate to handle what he now has to communicate. And you’d think the honeybee would come back to the hive and slink into a corner, but he doesn’t. He comes into the hive and does this incoherent dance, and all my life I’ve been dealing with the human equivalent of that honeybee. [Laughter] And it’s a very important part of human organization so the noise and the reciprocation and so forth of all these people who have what I call say-something syndrome don’t really affect the decisions.

Shipping slowdown hints at a recession around the corner

( Source : )

The global shipping slowdown hints at a recession around the corner

Instability in China and tumbling commodity prices have devastated the world’s freight providers – a strong indicator of trouble to come.

This is beginning to have the feel of 2008 all over again. Policy makers around the world are in denial once again as global stock markets dive. In 2008, the slowing of the world’s biggest economy – the US – sent the global economy into a tailspin. The concern now is that the slowing of the second-largest economy, China, may well have similar global effects. Chinese growth, which averaged 10 per cent for three decades through to 2010, has decelerated for five straight years and in 2015 slowed to 6.9 per cent, its lowest rate in a quarter of a century. The IMF is forecasting that Chinese growth will slow further to 6.3 per cent in 2016 and 6 per cent in 2017, which may well be overly optimistic. There is already speculation that China’s banking system may see losses even larger than those suffered by US banks during the last crisis.

The bad news from China appears to have already spread to the US, which has seen GDP growth slowing sharply in the last quarter of 2015. US industrial production and core retail sales are both falling, and there have been marked contractions in core capital goods shipments and private non-residential construction. Business fixed investment declined nearly 2 per cent last quarter. Despite the bad news, last week Federal Reserve chair Janet Yellen astonishingly claimed that “the US economy is in many ways close to normal”. By contrast, Ruslan Bikbov from Bank of America Merrill Lynch calculates that there is a 64 per cent probability the US is already in recession. My expectation is the next move by the Fed will be to cut rates.

Company profits are tumbling as commodity and oil prices decline. BP reported a $3.3bn fourth-quarter loss last year while Exxon Mobil reported a 58 per cent fall in its quarterly profit. It isn’t just oil companies. Last week, Rio Tinto – the world’s second biggest mining company – reported profits down 51 per cent after commodity prices collapsed amid slowing growth from China. Company profits are also suffering due to a big decline in the amount of freight being moved, especially to and from China. Moeller-Maersk, the Danish conglomerate and the world’s biggest container-ship operator by capacity, last week reported a fourth-quarter net loss of $2.51bn.

DP World, one of the world’s biggest port operators, also says that global volume has slowed sharply. It reported that volumes at its ports rose by 2.4 per cent last year, compared with 8 per cent growth in 2014. Data provider Container Trades Statistics said this week that Asia-to-Europe trade fell nearly 4 per cent last year. Freight rates in 2015 averaged $620 per container on the Asia-to-Europe trade route. Typically, ship operators need more than $1,000 to break even. In February, the cost of moving a container from Shanghai to Rotterdam fell to $431, barely covering fuel costs. Figures released by the Shanghai Shipping Exchange show that the country’s 20 largest container ports grew by 3.7 per cent over 2014, compared to 5.5 per cent the previous year. The Hong Kong Port Development Council reported that throughput at the port of Hong Kong fell by 9.5 per cent in 2015.

The Baltic Dry Index (BDIY) – an index of the price for shipping dry goods such as iron ore and coal (oil is wet) as shown in the chart below – is at a record low of 290. It is down 75 per cent since its recent peak in 2015 and down 98 per cent from its peak of 11,793 points in May 2008. The collapse to 772 by 5 September 2008 (a week before Lehman Brothers failed) presaged the global recession and it is falling again. Capesize vessels, which are too big to get through the Suez or Panama canals, had an average daily hire last week of $1,484, compared with a peak of $233,988 in June 2008. Even though there is an oversupply of ships, global demand is collapsing.

The International Air Transport Association (IATA) released figures for global air freight, showing cargo volumes expanded 2.2 per cent in 2015 compared to 2014. This was a slower pace of growth than the 5 per cent recorded in 2014. This weakness apparently reflects sluggish trade growth in Europe and Asia-Pacific. “2015 was another very difficult year for air cargo,” said Tony Tyler, IATA’s Director General and CEO. “Growth has slowed and revenue is falling. In 2011 air cargo revenue peaked at $67bn. In 2016 we are not expecting revenue to exceed $51bn.”

The current contraction in rail freight is apparently reminiscent of the drop that started at the end of 2008 and carried on into 2009. China’s rail freight volumes fell by a significant amount last year. According to the National Development and Reform Commission (NDRC), volumes fell by 11.9 per cent, a further increase on the 2014 slowdown, when traffic declined by 3.9 per cent.

In the western US farm belt, grain trains are so abundant you can’t give one away. Since the middle of last March, carloads of agricultural products, chemicals, coal, metals, autos and other goods have declined every week. Shipments of US coal, the biggest commodity moved by rail, declined 12 per cent in 2015, according to the Association of American Railroads. The cost of carrying spring wheat from North Dakota to the Pacific coast has dropped by a third in the past two years. In early 2014, grain companies with a train to spare could command $6,000 per car above the official railway tariff, traders say. Today, to avoid hefty contract cancellation fees, they are paying others to use their unwanted trains.

Manufacturing output in the UK fell for each of the last three months and is down 1.7 per cent over the year. The overly optimistic Monetary Policy Committee is forecasting GDP growth of 2.2 per cent (2.4 per cent) in 2016; 2.4 per cent (2.5 per cent) in 2017 and 2.5 per cent (2.4 per cent) in 2018 (the latest, broadly similar, OBR forecasts in parentheses).

So all is well then? Probably not. Mark Carney has run out of ammunition with the Bank Rate at 0.5 per cent, compared with 5.5 per cent in 2008, and has little room to manoeuvre. Negative rates and more quantitative easing, here we come. George Osborne has never explained what he would have done differently in 2008 – his plans for a budget surplus are already in disarray as the economy slows. I am not saying a recession is going to happen any time soon, but it well might.

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The optimal portfolio of risky assets is exactly the same for everyone

The optimal portfolio of risky assets is exactly the same for everyone :

1. Investors should control the risk of their portfolio not by reallocating among risky assets, but through the split between risky and risk-free assets.

2. The portfolio of risky assets should contain a large number of assets – it should be a well diversified portfolio.

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10%= correction, 20%= bear market.

( Source : )


10%= correction, 20%= bear market.

I know these arbitrary numbers sometimes seem silly, but when looking at the data, you have to draw the line somewhere. Get over it, let’s move on.

The S&P 500 has been in a drawdown for the last eight months. Stocks are currently 9.2% below the highs made in May 2015, just a hair away from official correction territory. Everyone knows this is totally normal, but you might be surprised to know that since 1928, stocks have been in a 10% drawdown 55% of the time. The problem of course is that they never feel normal because we don’t know in real time if this is just a correction or the start of a bear market. And the deeper stocks go, the harder it is to resist fear’s temptation.

In times like this, historical facts don’t provide much comfort and even less of a roadmap, however, hopefully they can provide a little context.

Since 1928, there have been fifteen separate drawdowns of 10%. Before I continue, you might be thinking, “only fifteen corrections, that doesn’t sound right.” Here’s how I look at drawdowns; in my mind, a drawdown is not over until new highs are made. Of these fifteen corrections, ten have turned into a bear market.

Let’s take a closer examination of these 20% declines because not all bear markets are created equal. There are secular bear markets, which by their nature can only be defined after the fact. These are long periods of time in which stocks make little progress. Then there are cyclical bears, which can come in the middle of a long secular bear or even a secular bull. The chart below shows the three secular bears over the last ninety years.

Screen Shot 2016-01-12 at 8.36.44 PM

As you can see, the defining characteristic for secular bears is that stocks make no progress for long periods of time. Even worse, they experience severe declines which can scar an entire generation of investors. The chart below shows the painful drawdowns investors witness during these secular bear markets.

Screen Shot 2016-01-12 at 8.37.59 PM

The frustrating thing about each and every bear is it’s impossible to know how long they will last. Think about the most recent secular bear, which lasted from March 2000 through March 2013 (I think it’s over, though reasonable people can disagree on this). Stocks briefly poked their heads above their 2000 highs in October 2007 before being slammed right back into their decade long range. Investors had a similar experience in 1980; break above the long range for a minute only to be delivered one final gut punch.

Screen Shot 2016-01-12 at 8.38.28 PM

Looking at bear markets over long periods of time might not be as helpful as breaking them down further. Within the three secular bears have been distinct cyclical bears (think the tech bubble of 2000 and credit bubble of 2007). Here is how I’ve compiled the data below; any time there is a 20% rally, the bear market is over. What this does is break up 1929-1954 period into 11 separate bear markets.

The average of these 20 distinct bear markets saw a 36% peak-to-trough decline, lasting just over 52 weeks. The fifth column shows how long each bear was and the the sixth column shows how quickly stocks gained 20% from their lows, resetting the bear market. For instance, the October ’07 peak to the March ’09 lows was 74 weeks. Stocks then rallied 20% in 4 weeks, making 78 weeks the total length of that particular bear market.

Screen Shot 2016-01-12 at 8.38.13 PM

Whether the S&P 500 sees a correction, and whether or not that turns into a bear market, and how deep it might go and how long it might last is anybody’s guess. The only thing in your control is what you choose to do or not do. Making decisions in the heat of the moment is almost never a good idea, which is why having a plan in place is so important. Knowing that you have an answer, whether stocks go up, down or sideways a is really liberating feeling.

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