Kevin’s Book List
Keep Reading, Watching, Learning, Questioning
On Finance
This book, “Valuation: Measuring and Managing the Value of Companies,” has been the foremost resource for measuring company value for nearly three decades. Now in its seventh edition, this acclaimed volume continues to help financial professionals around the world gain a deep understanding of valuation and help their companies create, manage, and maximize economic value for their shareholders.
Clear, accessible chapters cover the fundamental principles of value creation, analyzing and forecasting performance, capital structure and dividends, valuing high-growth companies, and much more. The Financial Times calls the book “one of the practitioners’ best guides to valuation.”
The essential premise is that all life forms require energy to continue to be a life form, and, because energy is in finite supply in the universe (subject to clarification as we improve our understanding of the universe and its ‘laws’), then all life forms possess an ‘awareness’ of this scarcity of energy and thus reflect a ‘behavioral imperative’ to adjust behavior according to the opportunity cost of this energy. This is why we all are able to distinguish value creating from value destroying behavior, and also why we have a preference for value creating behavior.
Using the valuation framework based on the Law of One Price, top researchers Jonathan Berk and Peter DeMarzo have set the new canon for corporate finance texts. Corporate Finance blends coverage of time-tested principles and the latest advancements with the practical perspective of the financial manager. You can “practice finance to learn finance” by solving problems like those faced by today's professionals.
The 6th Edition features the latest research, data, events and technologies to help you develop the tools you need to make sound financial decisions.
On Leadership
“All we are doing is looking at the time line from the moment the customer gives us an order to the point when we collect the cash. And we are reducing that time line by removing the non-value-added wastes. (Ohno, 1988)”
The essential premise is that all life forms require energy to continue to be a life form, and, because energy is in finite supply in the universe (subject to clarification as we improve our understanding of the universe and its ‘laws’), then all life forms possess an ‘awareness’ of this scarcity of energy and thus reflect a ‘behavioral imperative’ to adjust behavior according to the opportunity cost of this energy. This is why we all are able to distinguish value creating from value destroying behavior, and also why we have a preference for value creating behavior.
Early on I discovered, to my dismay, that the open exchange of ideas - in a sense, the free-for-all of problem solving in the absence of hierarchy that I had learned at McKinsey - doesn't work so easily in a large, hierarchical-based organization.
Thus began a lifelong process of trying to build organizations that allow for hierarchy but at the same time bring people together for problem solving, regardless of where they are positioned within the organization.
Look for people who have lots of great questions. Smart people are the ones who ask the most thoughtful questions, as opposed to thinking they have all the answers. Great questions are a much better indicator of future success than great answers.
On economics
“There is always a price to pay when energy is processed; there is no free lunch. Because energy underlies the transformation and operation of literally everything, no system operates without consequences. Indeed, there is a fundamental law of nature that cannot be transgressed, called the Second Law of Thermodynamics, which says that whenever energy is transformed into a useful form, it also produces “useless” energy as a degraded by-product: “unintended consequences” in the form of inaccessible disorganized heat or unusable products are inevitable. There”
“Economic institutions shape economic incentives: the incentives to become educated, to save and invest, to innovate and adopt new technologies, and so on. It is the political process that determines what economic institutions people live under, and it is the political institutions that determine how this process works.
NATIONS FAIL TODAY because their extractive economic institutions do not create the incentives needed for people to save, invest, and innovate. Extractive political institutions support these economic institutions by cementing the power of those who benefit from the extraction.”
On Decision Making
First, you can’t begin to understand things like aggression, competition, cooperation, and empathy without biology; I say this for the benefit of a certain breed of social scientist who finds biology to be irrelevant and a bit ideologically suspect when thinking about human social behavior. But just as important, second, you’re just as much up the creek if you rely only on biology; this is said for the benefit of a style of molecular fundamentalist who believes that the social sciences are destined to be consumed by “real” science. And as a third point, by the time you finish this book, you’ll see that it actually makes no sense to distinguish between aspects of a behavior that are “biological” and those that would be described as, say, “psychological” or “cultural.” Utterly intertwined.
Reason, we argue, has two main functions: that of producing reasons for justifying oneself, and that of producing arguments to convince others. These two rely on the same kinds of reasons and are closely related.
In this book, you’ll learn how a simple belief about yourself—a belief we discovered in our research—guides a large part of your life. In fact, it permeates every part of your life. Much of what you think of as your personality actually grows out of this “mindset.” Much of what may be preventing you from fulfilling your potential grows out of it.
On valuation
When we think of death, we are generally thinking about our own: the end of our conscious existence as an individual. There is a stark paradox about that kind of death: although individuals die, life itself continues. I don’t mean just in the sense that our family, community, and society will all go on without us. Rather, it is remarkable that every creature alive today is a direct descendant of an ancestral cell that existed billions of years ago. So, although changing and evolving with time, some essence in all of us has lived continuously for a few billion years. That will continue to be true for every living thing for as long as life survives on Earth, unless we one day create an entirely artificial form of life.
First, you can’t begin to understand things like aggression, competition, cooperation, and empathy without biology; I say this for the benefit of a certain breed of social scientist who finds biology to be irrelevant and a bit ideologically suspect when thinking about human social behavior. But just as important, second, you’re just as much up the creek if you rely only on biology; this is said for the benefit of a style of molecular fundamentalist who believes that the social sciences are destined to be consumed by “real” science. And as a third point, by the time you finish this book, you’ll see that it actually makes no sense to distinguish between aspects of a behavior that are “biological” and those that would be described as, say, “psychological” or “cultural.” Utterly intertwined.
Some things benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressors and love adventure, risk, and uncertainty. Yet, in spite of the ubiquity of the phenomenon, there is no word for the exact opposite of fragile. Let us call it antifragile.
On Investing
This book, “Valuation: Measuring and Managing the Value of Companies,” has been the foremost resource for measuring company value for nearly three decades. Now in its seventh edition, this acclaimed volume continues to help financial professionals around the world gain a deep understanding of valuation and help their companies create, manage, and maximize economic value for their shareholders.
Clear, accessible chapters cover the fundamental principles of value creation, analyzing and forecasting performance, capital structure and dividends, valuing high-growth companies, and much more. The Financial Times calls the book “one of the practitioners’ best guides to valuation.”
This book is about luck disguised and perceived as nonluck (that is, skills) and, more generally, randomness disguised and perceived as non-randomness (that is, determinism). It manifests itself in the shape of the lucky fool, defined as a person who benefited from a disproportionate share of luck but attributes his success to some other, generally very precise, reason. Such confusion crops up in the most unexpected areas, even science, though not in such an accentuated and obvious manner as it does in the world of business.
Managers and investors place big bets and take large risks based on the valuation models discussed in this book. They are willing to make those investments and take those risks because they expect to earn sufficient cash in the future from these investments to create value for their companies or superior returns for their investment portfolios. The valuation models discussedin this book provide the conceptual frameworks and tools to conduct these analyses.
On Governance
In almost nine years as a fund manager, I’ve become increasingly cynical about how public companies are run. In the wasteland of small capitalization companies where I often look for investment ideas, corporate governance can be downright abysmal. I’ve had large investments in several public companies that willfully screwed their shareholders, and I’ve watched many more such situations from the sidelines.
Every once in a while, an up-or-down-leg goes on for a long time and/or to a great extreme and people start to say "this time it's different." They cite the changes in geopolitics, institutions, technology or behaviour that have rendered the "old rules" obsolete. They make investment decisions that extrapolate the recent trend. And then it turns out that the old rules still apply and the cycle resumes. In the end, trees don't grow to the sky, and few things go to zero.
Look for people who have lots of great questions. Smart people are the ones who ask the most thoughtful questions, as opposed to thinking they have all the answers. Great questions are a much better indicator of future success than great answers.
On Psychology
The fall of barriers to power is opening the door to new players of the kind that have transformed chess—and, as the chapters ahead will detail, are now transforming other major fields of human competition.
In almost nine years as a fund manager, I’ve become increasingly cynical about how public companies are run. In the wasteland of small capitalization companies where I often look for investment ideas, corporate governance can be downright abysmal. I’ve had large investments in several public companies that willfully screwed their shareholders, and I’ve watched many more such situations from the sidelines.
This book is about the uneven ebb and flow of history. It distinguishes the long epochs in which hierarchical structures dominated human life from the rarer but more dynamic eras when networks had the advantage, thanks in part to changes in technology. To put it simply: when hierarchy is the order of the day, you are only as powerful as your rung on the organizational ladder of a state, corporation or similar vertically ordered institution. When networks gain an advantage, you can be as powerful as your position in one or more horizontally structured social groups. As we shall see, this dichotomy between hierarchy and network is an over-simplification. Nevertheless, some personal disclosures may illustrate its usefulness as a starting point.
On Nature
In this book, you’ll learn how a simple belief about yourself—a belief we discovered in our research—guides a large part of your life. In fact, it permeates every part of your life. Much of what you think of as your personality actually grows out of this “mindset.” Much of what may be preventing you from fulfilling your potential grows out of it.