Book of the Year 2019

I love books. You can tell by the construct of this site.

At the end of each year, it is common to see many people share their list of best books for the year. I am going to do the same but the difference is that I’m just going to recommend ONE book.

Before we begin, it is good to lay out how this book was selected:

• A favourite book is as subjective as the best movie of the year; I may like it but you may hate it. Hence the best book is based on my judgment and not some bestsellers.
• The book of the year is selected from the books I have read that year and they are very often not published or released in the same year.
• My book of the year usually helped me gain a significantly new perspective.

My 2019’s book of the year goes to The Outsiders by William Thorndike!

This book was published in 2012 but I only read it in 2019. The Buffett Cult would be able to relate to it very well because it was written in their language. Warren Buffett even recommended The Outsiders in the Berkshire Hathaway shareholder letter in 2012.

I’m not suggesting you should follow everything Warren Buffett. Far from it and I really hope more would exercise discretion instead of following Buffett blindly. I picked this book based on its own merit and not because Buffett recommended it.

Basically, the book said that the CEOs who really deliver exceptional stock returns are not the iconic CEOs like Jack Welch. Often times, they are the non-sensational leaders working hard on growing their businesses.

We all expect CEOs of well-run companies to be good at handling operations. This is a given. Author Thorndike stressed that it is the capital allocating ability that sets CEOs apart. These exceptional CEOs are able to make full use of the capital generated from the business to enhance the value of their company significantly. They deploy the capital to re-invest in the business, acquiring other companies at cheap prices (or even use their higher valued shares to acquire cheaper companies), carry out aggressive share buybacks when the market grossly misprices their shares, and more.

They usually have lean HQ to save costs and are prudent in their personal lives. Basically, these CEOs pays a lot of attention to money and looking for the best opportunities to deploy their capital is on the top of their minds.

This is nothing new to those who have followed Buffett’s words.

I learned from it not so much for investing but for my own business. I deplore management who are not good capital allocators when I’m evaluating them as investments but I fail to live up to the standard as an entrepreneur. What a hypocrite!

I believe I am not cost-conscious enough and there’s room to improve meaningfully. Re-investing into business and identifying which is the best place to allocate the capital is also something I don’t do well in. Granted the capital is small for a small business to do any acquisition and no share buybacks are possible since we are not listed, but pouring money in the right business areas is something I could have done better. This book is like a teacher who has reminded me to have capital allocation as a CEO’s priority.

I also connected the dots that why the COO and CFO are usually the second man in almost every company – simply these are the two crucial roles of the CEO!

It is also likely that either one of them (COO or CFO) would be promoted to be the CEO. If the CEO is an ops person, usually the deputy is the CFO. If the CEO is a finance guy, the deputy is likely to be the COO.

It works for Singapore politics too. I would say defence and finance are two key ministries. All our prime ministers have used to hold at least one of these two portfolios. The future PM is likely to be Heng Swee Kiat and his experience is rooted in finance. The deputy is likely to be Chan Chun Sing, who is from defence.

The book has helped me gained new perspectives about myself as an entrepreneur and also to understand the world better. Hence it is the best book for me in 2019.

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I wanted to share my best books for 2018 and 2017 as I haven’t had the chance to do so since this site was started in 2019.

My best book for 2018 was Capitalism Without Capital by Jonathan Heskel and Stian Westlake.

The perspective I gained was that the economy is moving into an intangible one as many tech companies have dominated business and many facets of our lives. They use very little assets (and hence capital) to scale widely and rapidly. In this aspect, we have to change our ways of measuring GDP, accounting and valuation, as well as debt funding which requires asset collaterals. Its wide implications will last for the next decade or so.

My best book for 2017 was The Master Algorithm by Pedro Domingoes.

Artificial Intelligence and Machine Learning are in vogue nowadays. I’m totally green in this field so it was easy to gain new perspectives from this book. I always wondered how does a machine learn? It opens up the topic of epistemology. There are basically 5 main ways to do machine learning:

• Symbolists: Using some initial knowledge, Symbolists combine different pieces of knowledge on the fly in order to solve new problems.
• Connectionists: Modelling how the human brain works.
• Evolutionaries: Simulates natural selection by mating and evolving computer programs.
• Bayesians: Believe all learned knowledge can be wrong and always incorporate new evidence that have higher probability to be correct.
• Analogizers: Recognizing similarities and inferring other similarities in future samples.

The holy grail is to combine all 5 ways as each has its pros and cons.

I had a new realisation while typing this – it seems like our human brain or at least Warren Buffett and Charlie Munger can do all 5!

Both of them emphasised on accumulating knowledge (symbolists). Munger would even go on and say that you need a latticework to hang knowledge on (connectionists and analogizers). We have a lot of biases and our understanding of the world needs to be challenged (bayesians). Sometimes we need to make new combinations of knowledge to gain better understandings of the world (evolutionaries). Buffett is also very good at explaining difficult concepts simply by using analogies (analogizers).