Tag Archives: reviews

Review – Nonviolent Communication (#peace, #psychology)

Nonviolent Communication: A Language of Life (buy on Amazon.com)

by Marshall B. Rosenberg, Ph.D., published 2003

A “valueprax” review always serves two purposes: to inform the reader, and to remind the writer. Find more reviews by visiting the Virtual Library.

What is all this hippie nonsense?

A common question

VIDEO http://www.youtube.com/watch?v=XBGlF7-MPFI&noredirect=1

The NVC Process

To practice the Nonviolent Communication (NVC) process involves four components, which are:

  1. observations – the concrete actions that affect our well-being
  2. feelings – the emotions we experience in relation to what we observe
  3. needs – values, desires, etc., that generate our feelings
  4. requests – the concrete actions we’d like to see others take in order to enrich our lives

The NVC process is not a new way to manipulate other people; it involves giving and receiving a level of respect and empathy common to ourselves and others which entails:

  • expressing honestly through the 4 components
  • receiving empathetically through the 4 components

Obstacles to needs-based communication

There are many pitfalls that trap us in our efforts to communicate our unique needs. One common communication style which serves to hinder compassionate communication is moralistic judgment, an impersonal way of communicating the focuses on the “wrongness” of the actions of others rather than on revealing what a person thinks and feels inside of themselves. In truth, analyzing and judging the behavior of others is actually a reflection of our own needs and values. For example, “The rich are so selfish!” might be an attempt to communicate something closer to, “When I witness poverty, I feel sad; I value living in a community where everyone seems to have enough to take care of themselves.” The danger of moralistic judgments is that the act of classifying can promote violence by creating adversarial, us-them attitudes toward others– people become obstacles to satisfying our needs and values rather than potential partners.

Another problematic approach to communication involves making comparisons, which are simply another form of judgment. When we make comparisons, we block compassion– for ourselves and for others. It is another way to build walls and separateness.

Compassion is similarly difficult to achieve when we engage in denial of responsibility by using language which obscures the connection between our own thoughts, feelings and actions. In Nazi Germany, officers responsible for the Holocaust and other atrocities relied on Amtssprache, or “office talk/bureaucratese”, to deny responsibility for their actions because everything they did, they did because of “superiors’ orders” or “company policy” or “just following the law/doing my job.”

There are many ways in which we can deny responsibility for our actions by attributing their cause to factors external to the self:

  • vague, impersonal forces; “I did X because I had to”
  • condition, diagnosis or personal history; “I do X because I am Y”
  • actions of others; “I did X because Y did Z”
  • dictates of authority; “I did X because Y told me to” (Amtssprache)
  • group pressure; “I did X because everyone in group T does X”
  • institutional policies, regulations or rules; “I did X because those are the rules around here when people do Y”
  • gender, social or age roles; “I hate X, but I do it because I am a good Y”
  • uncontrollable impulses; “I was overcome by my urge to do X”

History is rife with examples,

We are dangerous when we are not conscious of our responsibility for how we behave, think and feel

Two other ways we create obstacles to life-enriching communication are by stating our desires as demands, and speaking in terms of “who deserves what”.

A demand explicitly or implicitly threatens listeners with blame or punishment if they fail to comply

Similarly, speaking in terms of “deserving” creates the impression of “badness” or “wrongness” and promotes behavior based upon fear and punishment-avoidance (a negative philosophy) rather than goal-seeking and personal benefit (a positive philosophy). In other words,

it’s in everyone’s interest that people change, not in order to avoid punishment, but because they see the change as benefitting themselves

Implementing NVC: nuances and complexities

At this point you might be thinking, “NVC sounds interesting, but how do I actually use it?” Even the first element, observation, can hang people up.

The reason that the NVC process stresses observing without evaluating is that when people hear evaluation, they are less likely to hear our intended message and instead hear criticism which puts them on the defensive rather than being receptive to what we have to say. However, the NVC process doesn’t require complete objectivity and detachment from emotional realities, only that when evaluations are made they are based on observations specific to time and context. In other words, evaluations must be about specific actions taken within specific time periods. For example, “John is a great guy” is a generalized evaluation whereas, “John helped the little old lady cross the street yesterday afternoon” is an observation without evaluation.

Another element of NVC that new adoptees struggle with is separating feelings from non-feelings (thoughts). It is a common construct of the modern English language (and many others) to use “feel” in place of “think”. Red flags for feel/think confusion are the use of the following after the word “feel” when making a statement:

  • words such as “that,” “like,” and “as if”; “I feel like a failure” or “I feel that you shouldn’t do that”
  • the pronouns “I,” “you,” “he,” “she,” “they,” and “it”; “I feel it is useless”, “I feel I am always running around”
  • names or nouns referring to people; “I feel my boss doesn’t like me” or “I feel Jeff is doing a great job”

In NVC, there is a difference between expressing how we feel, and expressing what we think we are (self-evaluation):

  • feeling; “I feel disappointed/sad/frustrated with myself as an X”
  • evaluation; “I feel pathetic as an X”, which is better stated, “I am a pathetic X”

Part of developing our ability to accurately express feelings entails developing our feelings vocabulary, and learning which words connote states of being or evaluations of capability, and which words can authentically convey an emotional response to such values or needs.

The other critical component involved in accurately expressing out feelings is taking responsibility for their cause. The common misconception is that external factors cause internal emotional reactions. The reality that, while external factors may provide a stimulus, the direct cause is our internal values, beliefs, expectations and needs; when they are satisfied, we have one set of feelings (positive) and when they are violated or negated, we experience a different set of feelings (negative).

When we receive a negative message from another person, we have four options for choosing how to react to it:

  1. blame ourselves
  2. blame others
  3. sense our own feelings and needs
  4. sense others’ feelings and needs

Accepting responsibility for our feelings involves acknowledging our needs, desires, expectations, values or thoughts. We commonly mask these things by using unaccountable language such as:

  • use of impersonal pronouns such as “it” or “that”; “It makes me so X when Y” or “That makes me feel Z”
  • use of the expression “I feel X because…” followed by a person or personal pronoun other than “I”; “I feel X because you…” or “I feel X when Z…”
  • statements which only mention the actions of others; “When Y does X, I feel Z”

The simplest remedy is to adopt use of the phrase “I feel… because I need…” which connects our own feelings to our own needs. This can improve our communication with others, as well, because when people hear things that sound like criticism they invest their energy in self-defense, whereas when we directly connect our feelings to our needs we give people an opportunity to behave compassionately toward us.

If we express our needs, we have a better chance of getting them met

The liberation cometh

Emotional liberation is the state of being achievable through disciplined and consistent practice of the NVC process wherein an individual is able to freely and safely express his authentic feelings and needs to others, and to similarly be free and secure in receiving these authentic feelings and needs from others. The movement from emotional slavery to emotional freedom typically involves three transformational stages:

  1. emotional slavery; we see ourselves as responsible for others’ feelings
  2. obnoxious observation; we feel reluctant as we realize we no longer want to be responsible for others’ feelings
  3. emotional liberation; we take responsibility for our intentions and actions

Implementing NVC: the final step, making requests

The fourth component of NVC, making requests, is in some ways the most challenging of all. To practice effective request-making it is important to be in the habit of utilizing positive language as it is hard to “do a don’t.” Thinking of a way to express your request in the form of “Would you be willing to do X?” instead of “Please stop Y” serves to remove incentives for resistance and fighting and gives the other person an opportunity to make a positive contribution to your well being.

Similarly, the focus should be on making specific, concrete, actionable requests rather than something general, ambiguous, vague or abstract.

We often use vague and abstract language to indicate how we want other people to feel or be without naming a concrete action they could take to reach that state

Being clear about what you’re requesting from another person makes it more likely they’ll be willing and able to comply with your request– how can a person satisfy your needs if they don’t know what they are and don’t know what they could do to help you with them? Don’t make people guess!

Additionally, expressing feelings without providing a request can confuse people and lead them to believe you are trying to pin guilt for your emotions on them, rather than prompting them to take some corrective action. For example, “It bothers me that you forgot to do X” is not a clear request for a person to do X and may be interpreted as “You make me feel bad!” which is antagonistic and inspires self-defensive reactions.

Whenever we say something to another person, we are requesting something in return

Another guideline for making requests is to ask for a reflection– ask the person you just made a request of to reflect the request back to you to confirm you have been understood.

After we’ve communicated a request, we’re often interested in knowing how our the other person has reacted. We can get a better understanding of this by soliciting honest feedback through one of three ways:

  1. inquiring about what the listener is feeling
  2. inquiring about what the listener is thinking
  3. inquiring as to whether the listener is willing to take a particular action

A key here is to specify which thoughts or feelings we’d have to have shared; without specificity, the other person may reply at length with thoughts and feelings that are not the ones we’re seeking. Particularly challenging situations arise when making requests of a group.

When we address a group without being clear what we are wanting back, unproductive discussions will often follow

Keep in mind that there is a difference between making a request and making a demand. The difference is that when a person hears a demand, they believe they will be punished or blamed if they don’t comply. This leaves them with two options:

  • submit
  • rebel

Notice how “respond with compassion and seek resolution” is not one of the options. If the speaker criticizes or judges the listener’s response, it is a demand, not a request. A request implies that a person is free to disregard it if they don’t want to comply; that’s their right as a free individual with their own needs and wants.

Making a request implies we are prepared to show empathetic understanding of another when they are unwilling to comply with our request. However, if someone doesn’t comply with our request, we don’t have to give up. We do have an obligation, though, to empathize with their reasons for not complying before attempting to persuade.

(pg.80)

[This review is currently incomplete. 6/9/15]

Review – The Panic Of 1819 (#history, #economics, #banking)

The Panic of 1819: Reactions and Policies (buy on Amazon.com)

by Murray Rothbard, published 1962, 2007

A “valueprax” review always serves two purposes: to inform the reader, and to remind the writer. Find more reviews by visiting the Virtual Library. Please note, this book is also available as a free PDF on the Mises.org website, which is how I read it [PDF]

Introduction

Rothbard’s “The Panic of 1819″ is a lot of things, but the thing it is most is yet another reminder of the old dictum “Plus ca change, plus c’est la meme chose”. Contained in this approximately 250-page reporting of the causes, consequences and social responses to the Panic of 1819 are the same behaviors and political programs that could be found in today’s headlines about corrupt Chinese banking practices, Chicago-school monetarism and Keynesian pump priming, including early recognition that attempts to kickstart “idle resources” logically implies a totalitarian command economy where the government manages all resources (and all people) at all times.

It’s all here, and more. There is nothing new under the sun.

How the business cycle gets started

Early on page 16 the reader is entreated to an excerpt from private correspondence between Pennsylvania politician Condy Raguet and European economist Richard Cantillon in which Raguet tries to clear Cantillon’s confusion as to how fractional reserve banking manages to operate to the point of a catastrophic bubble instead of wobbling and crashing under its own confusing weight:

You state in your letter that you find it difficult to comprehend, why person who had a right to demand coin from the Banks in payment of their notes, so long forebore to exercise it. This no doubt appears paradoxical to one who resides in a country where an act of parliament was necessary to protect a bank, but the difficulty is easily solved. The whole of our population are either stockholders of banks or in debt to them. It is not the interest of the first to press the banks and the rest are afraid. This is the whole secret. An independent man, who was neither a stockholder or debtor, who would have ventured to compel the banks to do justice, would have been persecuted as an enemy of society.

Today’s full reserve Austrian economists, caught between clueless and complacent bank executives, a massively indebted “ownership society” public, Keynesian and monetarist adherents and “free banking” friends who are anything but, simply has no place to turn for safety. He defaults to “enemy of society” status in the ensuing confusion though he seeks only to point out the folly of these fractional reserve systems which inevitably injure all in tying their fates by one string.

The Panic of 1819 followed the War of 1812. During the war, imports and exports came to a halt due to the sea being a battleground and many products which would’ve been imported were kept in their home (overseas) markets to furnish the war effort. As a result, the young States United of America saw the development and growth of domestic manufactures and exportable industries. However, when the war ended and international trade resumed, many domestic manufacturers found they weren’t actually competitive facing world markets (this makes sense because if they had been they probably would’ve developed before the war, not during it in a period of “isolationism”). This created a nascent strain of “protectionist” thinking and monied interests who saw a benefit to adding tariffs on imported products.

The end of the war and the resumption of trade saw a banking boom (fractional reserve) which finally ended in 1819 with the panic. From about 1819-1823 the country was in and out of what could be termed depressed economic conditions. In many ways the early country’s experience mirrored the present day experience from 2008-2009 onward, especially the contentious economic and political debates about how to respond.

Something I found fascinating was what happened to various “macro” economic metrics during the Panic (what we’d call a crash):

The credit contraction also caused public land sales to drop sharply, falling from $13.6 million in 1818 to $1.7 million in 1820, and to $1.3 million in 1821. Added to a quickened general desire for a cash position, it also led to high interest rates and common complaint about the scarcity of loanable funds.

That last bit is especially fascinating to me. I don’t know what the state of federal funded debt was in this time period as Rothbard doesn’t really go into the concept or existence of a “risk free rate” but it is interesting to see “deflation” leading to HIGHER rather than LOWER interest rates. In today’s topsy turvy world, low rates are supposed to be the result of the flight to safety during a depression while high rates are supposed to herald an economic recovery. However, it seems it was just the opposite in 1819.

I found myself charmed by the ability of so many in 1819 to see what was the cause of the bubble and the collapse, even politicians. For example, in an address supporting a “relief bill”, Illinois Senator Ninian Edwards observed:

The debtors, like the rest of the country, had been infatuated by the short-lived, “artificial and fictitious prosperity.” They thought that the prosperity would be permanent. Lured by the cheap money of the banks, people were tempted to engage in a “multitude of the wildest projects and most visionary speculations,” as in the case of the Mississippi and South Sea bubbles of previous centuries.

I enjoyed learning that even medical analogies to describe the cause and effect of monetary expansion and collapse were popular in 1819. One government committee, the Hopkinson Committee, arguing against “debt relief” legislation, noted:

palliatives which may suspend the pain for a season, but do not remove the disease, are not restoratives of health; it is worse than useless to lessen the present pressure by means which will finally plunge us deeper into distress.

I thought that pain pill and hangover analogies were something recent and peculiar to adherents of the Austrian school but critics knew of these rhetorical flourishes even two hundred years ago, at least!

On the topic of “flight to safety”, I did make note of one paragraph which seemed to suggest that while interest rates on bank debt and other commercial lending may have risen, interest rates fell dramatically on tax-backed (ie, “guaranteed”) government issues, for example:

“A Pennsylvanian” pointed to United States and City of Philadelphia 6 percent bonds being currently at 3 percent about par– indicating a great deal of idle capital waiting for return of public confidence before being applied to the relief of commerce and manufacturing. Thus, in the process of criticizing debtors’ relief legislation, the “Pennsylvanian” was led beyond a general reference to the importance “confidence” to an unusually extensive analysis of the problems of investment, idle capital, and the rate of interest.

This theme of “idle capital” was remarked on more than once in the text and by various parties with differing viewpoints. This is a particular fetish of Keynesians and monetarists who cite the existence of “idle capital” as an excuse for government to raise public spending to “put it to work.” It is fascinating to see these early Americans predicted Keynesianism by almost 150 years!

Another thing I found remarkable was the prevalence of either state-owned banks (federal, with the Bank of the United States, or individual states) or strong political pushes to establish these banks in response to the ensuing depression and the stress this created on the banking system. In other words, nationalization of the banking industry as a political prop to collapsing FRB institutions is nothing new:

The Alabama experience highlights the two basic measures for monetary expansion advocated or effected in the states: (1) measures to bolster the acceptance of private bank notes, where the banks had suspended specie payment and where the notes were tending to depreciate; and (2) creation of state-owned banks to issue inconvertible paper notes on a large scale. Of course, the very fact of permitting non-specie paying banks to continue in operation, was a tremendous aid to the banks.

People refer to the United States economy and monetary system at various points in time being “free market”, and while it’s true that tax rates and business regulations were generally less cumbersome near the nation’s founding than today, it is also true that there has been a virulent strain(s) of interventionist thinking and policy-making from very early on. It wasn’t until 1971 with Richard Nixon’s closing of the gold window that the US currency finally went fully inconvertible, and yet already in 1820 (if not earlier), people were calling for inconvertible paper currencies issued by state-owned banks. Some free market!

The whole episode seems to beg a question that, sadly, Rothbard did not explicitly address or explore, namely, Why did banks need to be chartered by the government in the first place? Although there were calls during the response to the economic crisis for various forms of occupational licensing and business regulation (aimed at stemming the flood of superior imports damaging local industries), the reality is that any other business but banking, such as butchering, baking, sawmilling, leather tanning, import/export, etc., did not require special permission granted by a session of the local legislature, state or federal. Why was banking different, requiring an act of congress to get the enterprise going?

Besides the fact that many such banks seemed to be public-private partnerships which included state “capital” injected into them, the only answer I have managed to come up with so far that makes any sense is that the banks were all set up on a fractional reserve basis, and a blessing by the government served to either 1.) grant legitimacy to an illegitimate institution or 2.) create the pretense and wishful thinking of providing some kind of “legal oversight” to what everyone at the outset understood to be an essentially criminal organization operating with a special legal privilege or 3.) both.

Because every bank had to be chartered, when the FRB system inevitably hit a bump in the road as it did in 1819 and many banks wished to suspend redeemability of their bank notes to stem outflows of specie, their status as creatures of the public legal mechanism meant they could run to the legislature for permission to violate their own contracts– and they almost always got the permission granted. Now, for example, if angry pitchfork-wielding townsfolk show up to break into the vault, take their gold and lynch the bankers, the Sheriff might step in with his posse to make sure everyone remembered their role.

Keynesians and monetarists and Chinese bankers

Continuing the theme of “everything new is old”, I was struck by commentary from a Pennsylvanian congressman named Henry Jarrett suggesting that government relief money might serve to prime the pump of the economy:

An inconsiderable sum of money, for which the most ample security could be given, being loaned to a single individual in a neighborhood, by passing in quick succession, would pay perhaps a hundred debts.

Kind of sounds like George W. Bush urging Americans to go shopping after 9/11, in order to get confidence in the economy back. It’s a crass Keynesian tactic inspired by a confused understanding of the relationship between production, consumption and the role of money in the economy.

It was also interesting to see how many people back then could sense there was a problem with the way the banking system operated, but were confused into thinking banking in and of itself was illegitimate, rather than simply the practice of issuing a greater supply of banknotes than the amount of specie held in reserve. Consider a campaign circular for a candidate for Congress from mid-Tennessee, who said:

banking in all its forms, in every disguise is a rank fraud upon the laboring and industrious part of society; it is in truth a scheme, whereby in a silent and secret manner, to make idleness productive and filch from industry, the hard produce of its earnings

If you substitute “banking in all its forms” with “fractional reserve banking”, you’ve got a pretty accurate description of the nature of the problem.

It’s also worth quoting at length the argument of “An Anti-Bullionist”, who thought that the economic crisis of 1819 was caused by specie money specifically, rather than abuse of specie money via fractional reserves. In its place he sought to create a fully inconvertible paper currency issued by the government which would of course be “well regulated” and serve to protect the economy from the inevitable deflationary death spiral of the specie system he believed he was witnessing. Shades of later monetarist thinking abound:

His goal was stability in the value of money; he pointed out that specie currency was subject to fluctuation, just as was paper. Moreover, fluctuations in the value of specie could not be regulated; they were dependent on export, real wages, product of mines, and world demand. An inconvertible paper, however, could be efficiently regulated by the government to maintain its uniformity. “Anti-Bullionist” proceeded to argue that the value of money should be constant and provide a stable standard for contracts. It is questionable, however, how much he wished to avoid excessive issue, since he also specifically called a depreciating currency a stimulus to industry, while identifying an appreciating currency with scarcity of money and stagnation of industry. One of the particularly desired effects of an increased money supply was to lower the rate of interest, estimated by the writer as currently 10 percent. A lowering would greatly increase wealth and prosperity. If his plan were not adopted, the writer could only see a future of ever-greater contractions by the banking system and ever-deeper distress.

Even chartalists will be happy to see that early proponents of the “American System” of nationalist public-private industry were representing their views in the debates of the early 1820s, for example:

Law pointed to the great amount of internal improvements that could be effected with the new money. He decried the slow process of accumulating money for investment out of profits. After all, the benefit was derived simply from the money, so what difference would the origin of the money make? And it would be easy for the government to provide the money, because the government “gives internal exchangeable value to anything it prefers.”

Why even have a private industry? Or money, for that matter?

Luckily, advocates of laissez-faire existed in this time period, too, and they were not silent. Commenting on one proposal to deal with “idle capital” by Matthew Carey, the “Friends of Natural Rights” wrote:

The people of the United States being in a very unenlightened condition, very indolent and much disposed to waste their labor and their capital… the welfare of the community requires that all goods, wares, mechandise and estates… should be granted to the government in fee simple, forever… and should be placed under the management of the Board of Trustees, to be styled the Patrons of Industry. The said Board should thereupon guarantee to the people of the United States that thenceforth neither the capital nor labor of this nation should remain for a moment idle.

[…]

It is a vulgar notion that the property which a citizen possesses, actually belongs to him; for he is a mere tenant, laborer or agent of the government, to whom all the property in the nation legitimately belongs. The government may therefore manage this property according to its own fancy, and shift capitalists and laborers from one employment to another.

Finally, I don’t seem to have made a good note of the specific passage that caught my attention in this regard but I chuckled when reading the description of the operations of the average bank before collapse. These bankers would set up a new bank and pay only a fraction of capital with specie, the rest would be constituted by additional promissory notes from other banking institutions (which were themselves fractional). The bankers would pay themselves dividends, in specie, while the bank operated, and issue themselves and their friends enormous loans with which they’d purchase real goods and services, all while the real specie capital of their bank depleted. When crisis hit and they could not redeem their depositors’ money, they’d get legal permission to suspend redemption, ask for infusions of new capital from state authorities and/or set up a brand new bank whose purpose was to steady the previous institution. Ultimately, the bank would collapse and this too would work in their interest because they’d already hauled off the specie via dividends to themselves, and many of them were debtors of the bank who now had loans due in a worthless currency that was easy to obtain.

It reminded me a lot of the present Chinese state capitalist model.

Conclusion

“The Panic of 1819″ is not light reading and for some readers it may not even be interesting reading. It depends a lot on how fascinating you find in depth examinations of “minor” historical economic events.

But that doesn’t mean it isn’t surprising, well-written (for all the facts and data, Rothbard still manages to weave together a narrative that helps the reader appreciate the nuances of the various factions and viewpoints of the time) and at times, depressingly relevant. People who care about economic and financial history and unique, formative episodes in the early history of this country, will find a lot of insights and curiosities in this work. I strongly recommend it.

Review – Good To Great (#business, #investing)

Good To Great: Why some companies make the leap and others don’t (buy on Amazon.com)

by Jim Collins, published 2001

A “valueprax” review always serves two purposes: to inform the reader, and to remind the writer. Find more reviews by visiting the Virtual Library

The G2G Model

“Good To Great” seeks to answer the question, “Why do some good companies become great companies in terms of their market-beating stock performance, while competitors stagnate or decline?” After a deep dive into varied data sources with a team of tens of university researchers, Collins and his team arrived at an answer:

  1. Level 5 Leadership
  2. First Who… Then What
  3. Confront The Brutal Facts (Yet Never Lose Faith)
  4. The Hedgehog Concept (Simplicity Within The Three Circles)
  5. A Culture Of Discipline
  6. Technology Accelerators

The first two items capture the importance of “disciplined people”, the second two items refer to “disciplined thought” and the final pair embodies “disciplined action”. The concepts are further categorized, with the first three components representing the “build up”, the ducks that must be gotten into a row before the second category holding the last three components, “breakthrough”, can take place. The entire package is wrapped up in the physical metaphor of the “flywheel”, something an organization pushes on and pushes on until suddenly it rolls forward and gains momentum on its own.

This book found its way onto my radar several times so I finally decided to read it. I’d heard it mentioned as a good business book in many places but first took the idea of reading it seriously when I saw Geoff Gannon mention it as part of an essential “Value Investing 101″ reading list. I didn’t actually follow through on the initial impulse until I took a “leadership science” course recently in which this book was emphasized as worth covering.

I found G2G to be almost exactly what I expected– a rather breathless, New Age-y, pseudo-philosophical and kinda-scientific handbook to basic principles of organizational management and business success.  The recommendations contained within range from the seemingly reasonable to the somewhat suspect and the author and his research team take great pains to make the case that they have built their findings on an empirical foundation but I found the “We had no theories or preconceived notions, we just looked at what the numbers said” reasoning scary. This is actually the opposite of science, you’re supposed to have some theories and then look at whether the data confirms or denies them. Data by itself can’t tell you anything and deriving theory from data patterns is the essence of fallacious pattern-fitting.

Those caveats out of the way, the book is still hard to argue with. Why would an egotistical maniac for a leader be a good thing in anything but a tyrannical political regime, for example? How would having “the wrong people on the bus” be a benefit to an organization? What would be the value in having an undisciplined culture of people who refuse to see reality for what it is?

What I found most interesting about the book is the way in which all the principles laid out essentially tend to work toward the common goal of creating a controlled decision-making structure for a business organization to protect it from the undue influence of big egos and wandering identities alike. In other words, the principles primarily address the psychological risks of business organizations connected to cult-like dependency on great leaders, tendency toward self-delusional thinking and the urge to try everything or take the easy way out rather than focus on obvious strengths. This approach has many corollaries to the value investing framework of Benjamin Graham who ultimately saw investor psychology as the biggest obstacle to investor performance.

I don’t have the time or interest to confirm this hypothesis but I did wonder how many of the market-beating performances cataloged were due primarily to financial leverage used by the organization in question, above and beyond the positive effects of their organizational structure.

A science is possible in all realms of human inquiry into the state of nature. Man and his business organizations are a part of nature and thus they fall under the rubric of potential scientific inquiry. I don’t think we’re there yet with most of what passes for business “research” and management or organizational science, but here and there the truth peeks out. “Good To Great” probably offers some clues but it’s hard to know precisely what is the wheat and what is the chaff here. Clearly if you inverted all of the recommendations of the book and tried to operate a business that way you’d meet your demise rather quickly, but that is not the same thing as saying that the recommendations as stated will lead in the other direction to greatness, or that they necessarily explain the above-average market return of these public companies.

I took a lot of notes in the margin and highlighted things that “sounded good” to me but on revisiting them I am not sure how many are as truly useful as they first seemed when I read them. I think the biggest takeaway I had from the book was the importance of questioning everything, not only as a philosophical notion but also as a practical business tool for identifying problems AND solutions.

Review – Deep Value Investing (#contrarian, #investing, @HarrimanHouse)

Deep Value Investing: Finding bargain shares with big potential (buy on Amazon.com)

by Jeroen Bos, published 2013

A “valueprax” review always serves two purposes: to inform the reader, and to remind the writer. Find more reviews by visiting the Virtual Library. Please note, I received a copy of this book for review from the publisher, Harriman House, on a complimentary basis.

Benjamin Graham’s Principles Applied

Although it provides a summary introduction to the theory of Benjamin Graham’s classic deep value (net-net and discount-to-book value) strategy, Bos’s “Deep Value Investing” is decidedly a practitioner’s guide, not a philosophical work. More accurately, it’s a collection of case studies for observation and analysis– what did and didn’t work in various key examples from Bos’s own investment portfolio.

This is the book’s strength, and weakness. It is a strength because any opportunity to peer into the portfolio of a working money manager and see not only what he’s done, but why he has done it, is often worth the price of admission. Bos gets hands on with the reader and provides the relevant information in each case study, including the start and end date and price of each trade, the relevant balance sheet information and per share calculations and a helpful chart of price movements over time to put it in perspective.

Most importantly, though, Bos provides a lot of qualitative detail that helps to flesh out the simple quantitative analysis. Many curious students of value investing will be happy to see Bos not only explains what piqued his initial interest in each security, but that he also talks about how long and why he waited to get involved in each opportunity and how he interpreted business developments in each case (positive and negative) along the way. He also provides an explanation as to why and how he exited each investment, whether it was a winner or a loser.

This is something that’s missing in most investment case study discussions and it’s a real value add with this book. Another value add is the online support materials for the book, including a record of all relevant publicly available information for each investment that Bos used in his analysis (so you can follow along and see if you can see what he saw), as well as a free eBook version of the title accessible with a special link.

As mentioned, the weakness of the book lies in the fact that it’s mostly a collection of case studies with little else to structure it. In that sense, while the material is approachable and certainly not technical or difficult by any means to comprehend, this is not a “beginner’s book” but better for a reader who has already read a more philosophical work such as Graham’s “The Intelligent Investor” or “Security Analysis”. After reading those, revisiting Bos’s “Deep Value Investing” should yield many profitable insights and appreciation for what he has managed to accomplish.

Additionally, a bit of information that is normally found in these “how I do what I do” guides, that being whether or not the author supports diversification or concentration of portfolio positions and how he sizes his positions and manages his portfolio as a whole in general, are noticeably absent. The mere addition of this insightful information might have pushed this book into the “4-star” range in terms of usefulness and candor. As it is, it’s a “3-star”, though a strong 3-star candidate. A good read, but not essential in any library and by no means a classic like “Security Analysis”, though of course it has no pretensions of being so.

If you’re “deep” into deep value strategies, or want to watch over the shoulder of a talented operator, Jeroen Bos’s “Deep Value Investing” is well worth picking up! Even veteran value guys have something to learn from Bos’s “qualitative-quantitative” combined approach and especially his criteria for exiting a successful investment as it “transforms” over time from a balance sheet to earnings play.

Other Notes

Some of my other favorite observations worth noting:

1.) Liquid assets are what we’re really interested in, for the strongest margin of safety

2.) Share prices tend to be volatile, but book values tend to be stable over time

3.) Service companies tend to offer good value opportunities because they’re light on fixed assets and heavy on current assets; they also have flexible business models that can quickly scale up or down depending on business conditions

4.) Cyclical stocks always look cheapest on an earnings basis at the top of their cycle and most expensive at the bottom of their cycle (which is ironically when they’e a best buy)

5.) To better understanding accounting statement terms, compare treatment of confusing items across different companies in the same industry

6.) When evaluating trade receivables, it’s important to understand who the company’s clients are

7.) Check lists of new 52-week lows for good value investment candidates

Reminder On The Death Of “Fugitive” Marc Rich (#MarcRich, #capitalist)

Marc Rich died today in Switzerland at age 78 (Bloomberg.com).

Marc Rich, even in death, is remembered for being a “fugitive.” While his exile to Switzerland may have been self-imposed and motivated by avoiding legal entrapment in the United States, he is better remembered for being an outstanding trader of commodities, with a creative knack for getting around arbitrary political boundaries and conflicts to connect buyers and sellers of desired goods.

This aspect of Marc Rich’s life, along with his legal prosecution and other items of interest, were discussed at length in my review of The King of Oil, the official biography of Marc Rich published in 2010, three years before his death.