The Slog

A Brief Book Review of Plunkett’s Almanac of Middle Market Companies 2018 by Jack W. Plunkett

In the early 1950s, Warren Buffett, then in his twenties, would regularly flip through Moody’s Investment Manuals and strike gold. He would find within the thousands of pages of those books companies selling at fractions of their intrinsic values, sometimes just 2x their earning power. After conducting due diligence on a business, he’d put significant chunks of his net-worth into it and within weeks or months make multiples of his invested capital. In his own words: “I went through the Moody’s Manuals page by page. Ten thousand pages in the Moody’s Industrial, Transportation, Banks, and Financial Manuals—twice. I actually looked at every business—although I didn’t look very hard at some.”

It became the stuff of legend, and deservedly so. It was remarkable obviously because it was bold and courageous of him to trust his own judgment and make concentrated investments based on what he had independently uncovered. But I want to focus on something else that I think is equally remarkable and more ignored; I think it was remarkable in large part because Buffett, in his attempt to turn over more stones in pursuit of the glittery stuff at the center of all searches, demonstrated tremendous tenacity.

At the beginning of the Mutoro Group’s 2018 first quarter letter, I quoted former Arsenal F.C. manager Arsène Wenger referring to tenacity as “stamina in your motivation”. Here’s the full quote:

“Tenacity is the most underrated quality. We always speak about talent, intelligence, glamour, but tenacity is the common thing for every successful person in life. Maintain that motivation to go from A to B and to keep your focus on the target without any weakening—that is called tenacity. Stamina in your motivation.”– Arsène­­ Wenger

I love this, and not just because I’m a fan of Arsenal F.C., but because it speaks volumes. Anyone could have picked up the books Buffett did and found what he found, but the difference maker was that he actually did; he actually went page by page through a volume so large and so popularly regarded as dry and cumbersome, and he did not lose focus, and he did not stop. I don’t think we say enough as a society about that part of successful journeys, that is, the slog. It’s easy in our media-rich world to only see the joyous outcome at the end, rather than the monotony of what makes the hard in hard work. So much is a montage and set to music that I think it’s easy to trick ourselves into thinking that being on the hunt should be similarly rapid and entertaining rather than sometimes long and slow. But not always.

In 2017, HBO released a documentary called “The Defiant Ones”, which tracked the careers of music-industry giants Jimmy Iovine and Dr. Dre up until their sale of Beats Music to Apple. It’s hilarious and insightful, and one scene in particular is instructive. Bruce Springsteen recounts his in-studio search for high-quality drum sounds for the album “Born to Run”, which was released in 1975. His team spent three weeks trying to get drum sounds up to his exacting standards. “It was indulgent, but sometimes you need to be indulged,” Springsteen says. When he felt they weren’t getting the drum sounds he needed, he would implore Iovine, who was engineer for the album, to redo the work by saying, “Stick”. Just that word, repeatedly for days, whenever he felt it had to be redone: “Stick… Stick... Stick…” The monotony was so unbearable that Iovine almost walked off the project, describing it as “brutal”. Springsteen saw it as necessary. Whatever your perspective, it worked. What seems to matter is the focus and motivation one brings to the hunt despite it occasionally feeling meandering, whether that hunt is for a drum sound or a discounted stock.

I doubt there is anyone who has read a biography of Buffett that retells his Moody’s Investment Manual episodes who hasn’t herself fantasized about finding an investment gem in the discount bin by combing through the pages of an overlooked book. I certainly have. And this ambition has served me well in my more modern way almost seventy years later; I have made numerous investments that I sourced through learning about a company or situation after running a unique stock screen or digging into the guts of a book or the archives of far afield newspapers and then going through the slog of diving into the companies that came out of those searches. This hasn’t always been a fruitful endeavor for sourcing investment ideas, especially recently. As the valuation of markets has grown substantially this decade, most companies that appear “cheap” on screens aren’t diamonds in the used bin, but junk priced the way it should be. Screening, though, will always find some favor with investors in some capacity, especially if the downward volatility in the markets in the second half of this year continues.

It is with this background that I trekked to the New York Science, Industry, and Business Library in Manhattan one recent weekend after going to my gym in Brooklyn. I have worked at funds that spend millions of dollars a year to have access to the most expensive data sources and subject matter experts and take first class trips to the most obscure sites. But I still think one of the hardest things for humans is picking up a book and independently flipping through its contents; the “drier” the book is, the truer this is. I see advantage in that. To this end, I was happy to look through this book, Jack W. Plunkett’s “Plunkett’s Almanac of Middle Market Companies,” which I randomly picked off the shelves, some bit of that inner Buffett-Moody’s fantasy coursing through my veins.

It has hundreds of profiles of businesses, each with its own page containing summary info on the company’s operations and some key financials over the last six years. If I had not heard of a business I came across (many in this book), I quickly calculated some metric I was interested in or read its financial table for its “operating margin”, “revenue growth rate”, and “free cash flow” to see if that particular business met my initial standards for “a good business”. If it did, I read the description, noted its name and then did more research about it. It took me a few hours to go through. I left with 19 companies I have followed up on. That’s what this book did well.

Here’s what it didn’t do well. The long-and-short of it is this book isn’t very well organized and clearly wasn’t researched beyond depths a beagle or corgi could comfortably splash through. Of the six hundred or so companies within this book, some, while presumably “middle market”, come with no financial data and such scant editorial information that it’s surprising they are even here. The Miami Dolphins? The Chicago Bears? C’mon, Jack. And for those companies that do have more information within their pages (i.e., the publicly traded ones), beyond the financial data provided about them, the editorial descriptions of the businesses are so bare bones and disjointed as to be often largely irrelevant.

I think there is still a lot of utility in books like this even in our digital age. But I would not pay a dime toward the $320 this book sells for retail and am grateful for living near a healthy public library system. As for the 19 companies I took away from this book as being worth further investigations: In time I hope my research of some will make this worth the slog.

Moby-Dick

A Brief Book Review of Moby-Dick; or, The Whale by Herman Melville

Come, all ye good people, come! Step into a world in which the superabundant terror and indifference of the sea are foremost; step into a world in which the whale hunt, that wild Scandinavian activity first broached by old Norse sea-kings along the steep cliffs of Viking fjords, is chronicled at depths as great as the vast, blue ocean itself; step into a world in which antebellum, adolescent America, from Nantucket bluffs to Great Lake canals, from dark Manhattan alleyways to bright New Bedford mansions, built and lit with the profits and fat of the sea, is mapped with as much humor, character, and casual racism as the Bard brought to the ancient cities of Europe; step into a world in which the entire globe is a stage and so very many of its ports, and its straights, and its capes, and so very much of human probability are mythologized with as much drama and poetry as the Bible; step into a world in which the leviathan, Moby Dick, that great white monster himself, never daunted, never moored, rarely seen, preys on the minds and fortunes of old, vengeful Ahab, the colorful crew of the Pequod, brave Queequeg, and our narrator Ishmael. Come! I promise if thou hast the stamina for it, and the $3 a used copy will run ye, your rewards both along the voyage and at the end are massive. Two thumbs up.

Playing the Float

A Brief Book Review of Shoe Dog by Phil Knight

In 1977, five years after its founding, Nike introduced an ad campaign with a simple yet powerful ethos. Next to a picture of a lone runner along a country road was the following: “Beating the competition is relatively easy. Beating yourself is a never-ending commitment”. It captured the relentless, competitive nature of the company at the time and, I would venture, the spirit of this remarkable memoir. In ”Shoe Dog”, notions of victory and defeat loom larger than Olympian gods; they bless or curse the effort, teamwork, reflections, ambitions, preparations, and will power of the mere mortals in this story, of which our narrator Phil Knight, co-founder of the company, is most prominent. But he is hardly the only intriguing one. We follow him, and his very own Penelope, on this hilarious, detail-rich Odyssean narrative, as he meets captivating and cleverly described characters such as workaholic bookworm and first Nike employee Jeff Johnson, Oregon track coach and Nike co-founder Bill Bowerman, American track legend and early company spokesman Steve Prefontaine, and numerous Japanese businessmen (most notably the diabolical Kitami and the wise Hasuro Mayami). The book covers 1962 to 1980, with a tender and heart warming epilogue in the 21st century. Despite being one of the world’s most well known and popular companies, this story is full of surprises. Did you know that until its IPO in 1980, Nike flirted with bankruptcy nearly every year, as it grew like a weed but stretched its thin cash balances to the limit? Did you know that for its first ten years despite being known for its shoe innovations and rebellious advertising, Nike only hired accountants and lawyers? There are heartwarming father and son stories here, lessons on frugality and capital allocation, meditations on burnout and international trade, and a fair bit of poetry. One of the best business memoirs I have read. Two enthusiastic thumbs up.

Friday Black

A Brief Book Review of Friday Black by Nana Kwame Adjei-Brenyah

I enjoy reading most when I have a pencil in my hand and can scribble thoughts in the margins of a page. And in the margins of this book, Nana Kwame Adjei-Brenyah’s collection of short stories titled Friday Black, I kept writing “WOW.” It is rare that a book both feels as though it were a sample of the best of what came before it and starkly new. The reader opens “Friday Black” to a quote from Kendrick Lamar and that introductory connection to rap makes sense. Like the Jackson 5’s “I Want You Back” keeping the beat on Jay-Z’s “H to the Izzo” or The Isley Brothers’ “Between the Sheets” lighting candles on Biggie Smalls’ “Big Poppa”, this book, like the best of hip hop, smoothly samples the past while revealing it in a new light. In the story “The Finkelstein 5” we hear a sample of Guitar and the Seven Days from Toni Morrison’s “Song of Solomon”. In the stories “Zimmer Land” and “How to Sell a Jacket as Told by IceKing”, Ralph Ellison’s “Invisible Man” is chopped and screwed. Topics such as freedom, racism, consumerism, White fragility, safe spaces, Black identity, gene-editing, abortion, nuclear weaponry, and school shootings are explored in profound, highly imaginative, absurdist narratives. This book can be dark and violent, so squeamish readers (me among them) should be mindful. But this book is also at times funny and often hopeful, as a skillful young writer shares stories about America’s past, present, and future I’m not sure I would’ve wanted him to tell in any other way.

Atomic Habits

A Brief Book Review of Atomic Habits by James Clear

Everyone has guilty pleasures. I’ll admit that occasionally one of mine is the pop psychology genre. Every time I pick up one of these books it’s with a pound of eagerness and an ounce of anticipatory regret. You leave feeling motivated to tackle anything but not without consuming a stale diet of if-they-can-do-it-you-can-too success stories of celebrity athletes, outworn lessons on how the human brain was made for the Serengenti not the modern world, watered down ideas borrowed from Kahneman and Tversky, and so forth and so forth. But just as you don’t judge a bird for how it swims or a fish for how it flies, you gotta review a book for how it fits in with its genre. And within its genre I really like “Atomic Habits”. James Clear is long on tangible, practical advice and writes with a clean and breezy writing style that hits his points home without feeling too hokey or new-agey. I thought this book significantly better and more useful than one of the most popular in the field, “The Power of Habit.” Key concepts, such as “systems over goals”, “the two-minute rule”, “action over motion”, “temptation bundling”, “intentional friction”, “favorable environments”, “falling in love with boredom”, “reflection and review”, “the close, the many, and the powerful”, aren’t entirely new but are explained in novel and helpful ways. A very quick read, I found myself nodding along to each page like an enthusiastic audience member listening to a pretty good cypher. Maybe it’s the beat of the genre and not the lyrics of the author-MC that keep me coming back to this literary habit; but that’s a topic for another day.

Becoming

A Brief Book Review of Becoming by Michelle Obama

I’ve always admired and respected Michelle Robinson Obama and thought I knew her story well. Before she was the first Black FLOTUS, she was a girl from the South Side of Chicago who, I thought, sailed through Princeton and Harvard before returning to Chicago to work in law and non-profits. But it wasn’t until I read this beautifully written memoir that I realized how little I knew about her beyond her resumé. I excitedly turned every page awe struck by the remarkable and unique life she has lived. She comes across as intelligent and ambitious, yet grounded and approachable, vulnerable and human, yet strong and resilient. Her love for her daughters, community, and country stand out as does the strength of her partnership and love with Barack—that calm, self-assured bookworm and community activist who became first Black POTUS and who teamed with this once check-list-driven woman on an unpredictable adventure that continues to change the world. An excellent read. Two big thumbs up.

The Signal and the Noise

A Brief Book Review of The Signal and the Noise by Nate Silver

Reading this book I came to understand more profoundly than I likely had before the value of probabilistic thinking and Bayesian reasoning in all walks of life. From areas as diverse and different as hurricane and earthquake forecasting to poker and marital relations, Silver uses vivid examples to support his thesis: Life and learning are not about striving for perfection but about accepting imperfection and striving to be ‘less wrong’ over time through attempting better approximations of reality and how it can change. This approach I think allows curiosity, self-acceptance, flexibility, and open-mindedness to flourish. Nate Silver seems a deep thinker and this was a strong book. Long on my reading list, I’m happy I finally got around to reading it.

The Emperor of Water Clocks

A Brief Book Review of The Emperor of Water Clocks by Yusef Komunyakaa

When I was young, a popular rap song came out called “Mad Flava in Your Ear” by the artist Craig Mack. Mack was an artist on the Bad Boy label founded by the hip-hop impresario Sean Puffy Combs, which most famously featured that late titan of rap Biggie Smalls. Over a slow, tugboat-like, see-saw beat, Craig Mack, as rap artists do, boasted about how much better he was at rapping than the competition by saying, “Your album couldn’t fuck with one line.” I remember hearing that and having to step back and unpack it, thinking it one of the greatest boasts of self-confidence I’d ever heard. Here was Craig Mack saying one line of my lyrics is better than your whole album. He didn’t have many other (if any) hits after that, but the boast remained pinned to the walls of my memory. I have happily in a life of literary and artistic consumption encountered artists who could truly make that boast. I had that feeling finishing one of Yusef Komunyakaa’s collection of poems, “The Emperor of Water Clocks”. Toward the end of the collection is a poem titled “Monolith” where Komunyakaa writes “tomorrow hides inside of yesterday.” I dropped the book I was so impressed. The sentiment was not new but the phrasing and the simple beauty of it floored me. That’s the sort of feeling you come across reading Komunyakaa’s poems, which mix past, present, and future mythologies to create images as varied as lion’s on a savannah, New York cafes, and imperial drawing rooms.

Good Ideas Gone Bad

A Brief Book Review of Common Stocks as Long Term Investments by Edgar Lawrence Smith

Toward the end of Chapter 27 of their 1940 edition of Security Analysis, Benjamin Graham and David Dodd discuss Edgar Lawrence Smith's 1924 book Common Stocks as Long Term Investments, which they deride as a "small and rather sketchy volume." Writing after the Great Depression, you can't blame them. With hindsight, we know that Smith's book was used by many at the time of its publication to justify what became the Coolidge-era stock market bubble of the late 1920s. From one man's sound premise came a nonsense conclusion on a massive scale: While it is true that stocks are advantaged over bonds in the long-run because of (a) the positive effects of retained earnings on the growth of businesses and (b) the negative effect of inflation on debt holdings, these two ideas unfortunately were used to justify paying any price at all for a stock if it had an attractive trend in earnings. As Graham and Dodd note:

"This example illustrates one of the paradoxes of financial history, viz., that at the very period when the increasing instability of individual companies had made the purchase of common stocks far more precarious than before, the gospel of common stocks as safe and satisfactory investments was preached to and avidly accepted by the American public."

That all aside, this small book is still worth reading, especially as a historical document on evolving theories related to portfolio construction and investment management; but only if, as soon as you finish this book, you remember that reality is more complex than theory and price still matters.