- Jan 19, 2019

Circle of Competence Issue #45

Quote of the week: "True humility is not thinking less of yourself; it is thinking of yourself less." - C.S. Lewis

FOOD FOR THOUGHT

Hawaii

Just returned Friday from an incredible trip to Hawaii with my lovely wife and I have to say, the unplugged, naturally beautiful, incredibly warm culture of Hawaii touches your soul. While away, I was able to listen to and read a lot of good material, which I hope you will enjoy below. With a nod to Sahil Bloom's format of book reviews, I'd like to share two books that I read while on vacation - I hope he doesn't mind a little shameless cloning as Mohnish Pabrai would say!

Book Reviews

Enlightenment Now, Steven Pinker (H/T David G.)

Takeaway

We hear a lot of gloom and doom reporting in the media nowadays, especially in the Trump era from media elites and the like. Let’s face it, negative headlines sell! Pinker sets out on a journey to put facts and figures to the narrative that in fact, our world is improving dramatically and exponentially in the 21st century from technological advancements in many fields including medicine, transportation, and agriculture. Opinion

While I may disagree with Pinker on his metaphysics (humanism) due to my own faith as a Christian, what I do affirm is his commitment to the truth and to facts that show that in many ways, our world is healthier, wealthier, and wiser because of free enterprise, free trade, and free speech. He does tend to minimize and gloss over some areas such as the dangers of social networks, bioterrorism, and cyberterrorism and has a real optimism on denuclearization. The only chapter that I would have to say I completely disagree with would be his last, where he unashamedly attempts to undermine all belief in a higher power. I'd like to share a quote from C.S. Lewis as my rebuttal:

"My argument against God was that the universe seemed so cruel and unjust. But how had I got this idea of 'just' and 'unjust'? ... What was I comparing this universe with when I called it unjust?... Of course I could have given up my idea of justice by saying it was nothing but a private idea of my own. But if I did that, then my argument against God collapsed too - for the argument depended on saying that the world was really unjust, not simply that it did not happen to please my private fancies... Consequently atheism turns out to be too simple."

Favorite Tidbit

His whole point can be succinctly summed up as follows:

"As we care about more of humanity, we’re apt to mistake the harms around us for signs of how low the world has sunk rather than how high our standards have risen." - Pinker

The AIG Story, Lawrence Cunningam (H/T Richard M.)

Takeaway

This was a great inside story of the house that Hank Greenberg built, AIG. It highlights the inherent difficulties of what some corporate denizens see as “good” corporate governance (outside directors, split roles of Chairman/CEO, and little management representation on boards) when outsiders are brought into an environment that was carefully crafted and nurtured over decades and expected to perform... with no skin in the game. It also highlights the benefits of having management representation on the board, especially when they have long tenures at the firm and significant skin in the game (AIG under Greenberg, Berkshire Hathaway under Buffett, Fairfax under Prem watsa). Opinion

Overall, Cunningham’s book was very well researched, with a clear slant in Greenberg’s favor at all times. I enjoyed the in depth and behind the scenes look at the construction of an American Giant in the financial services and insurance industries. It was an excellent history of the company, overview the global insurance industry, and a review of varying opinions of what constitutes “good” corporate governance. This is a good read for those interested in insurance, the financial crisis of 2008-09, the conflicts of interest that are rampant in the highest echelons of corporate America, and one man’s journey through it all. In my opinion, it shows how over-zealous politicians (Spitzer) and trends (corporate governance reform) can start off with good intentions (after the Enron and WorldCom debacles) and simply extend the trend until everything that doesn’t check the box is demonized as hellacious and egregious fraud (AIG). Favorite Tidbit

A 2000 report listed AIG’s board, based on too many insiders, as 3rd worst in corporate America... and listed Enron, based on the “best” corporate governance protocols of the day and presence of outside directors, as 3rd best!

Have a great week!

- Benton

WRITTEN WORD

- TOP READ: China - engineers of the soul (Sinocism)

- China offered a bailout of troubled Malaysian fund for deals (WSJ)

- ZeroHedge - the beginning of the end

- John Hempton's book review of Jonathan Tepper's Myth of Capitalism

- German apprenticeships as alternatives to US-style college? (WSJ)

- Sahil Bloom's December book reviews (excellent source of reading)

- US birth rates at 30 year low, significant differences between states (WSJ)

- The 20% a year stock picker who wants his edge to disappear (Bloomberg)

- Adventur.es' Brent Beshore Q&A transcript at Notre Dame