Some of the questions answered by our reading list this week include why did Jeff Immelt and Janet Yellen lose their jobs? Are we living in riskier times than 1987? And what can you do to retain what you’ve read better?
Readers in North America, don’t forget to fall back this weekend! One more hour of glorious sleep.
Here is a curated list of important stories outside the main headlines that caught our attention this week.
Why GE’s Jeff Immelt Lost His Job: Disruption and Activist Investors (8-minute read; Harvard Business Review). The author of this piece, Steve Blank, is an adjunct professor at Stanford University, a senior fellow at Columbia University, and a lecturer at the University of California, Berkeley. He has been either a cofounder or an early employee at eight high-tech start-ups, and he helped start the National Science Foundation Innovation Corps and the Hacking for Defense and Hacking for Diplomacy programs. This is an exceptional piece on the motivations behind the changes coming to General Electric (GE). The fact that is deeply researched and published by the Harvard Business Review lends credibility to what otherwise might be considered anecdote, and you know we don’t like those. The author looks carefully at the presence and influence of activist investors in large multinationals. This immediately turns into a discussion of the changes in investor time horizons of the “average” investor. They’ve become shorter and shorter over the years since the dot com bust. As Erik so rightly pointed out in our The Problem with Passive piece, when you take money out of (when you need money from) the market matters in terms of maximizing returns. The volatility of the past two decades has resulted in an investor class that increasingly values short term gains (because cash is earning little and savings have been generally low). At GE, these shorter horizons (along with some other real issues) caught up with Mr. Immelt ultimately resulting in the loss of his job.
We face a bigger threat than 1987 (5-minute read; MoneyWeek). I started reading up on one of the presenters at the Fall 2017 Grant’s Investment Conference, Frank Brosens, and found this excellent article detailing his take on the present investment environment. Brosens, co-founder of $8 billion Taconic Capital, is suspicious about all the volatility targeting, Risk Parity funds, and derivatives-based ETFs on the market now, especially considering the overall high level of financial leverage in the corporate and sovereign world. He compares today’s environment to that of 1987, when “portfolio insurance” was all the rage. Have a read of this article if you need to stay awake at night and Framework members should look in the Archived Webinars section of our site to hear my interview with a Framework member who attended Brosen’s presentation.
How to Remember What You Read (18 minute read; Farnam Street). With reading such an important part of what we do as investors, I found this article an invaluable reminder of the right practices to retaining what I am reading. Put simply, remembering what we read requires intentionality. The piece points out the difference between an “active” reader and a “passive” one. Unsurprisingly active readers retain most of what they read and can access later as called up by task or situation. The material they read becomes applicable. So what are the actions that active readers take to retain their information? That’s the crux of the rest of this piece. This is an excellent guide to retaining and being able to use what you read. Both are super important to investing.
‘Continuity candidate’ Powell still leaves questions for investors (7-minute read; FT.com). The un-mysterious mystery – who will be the next to hold the position of chair of the Federal Reserve – was cleared up this week with the appointment of Jeremy Powell. The Financial Times did a nice write up explaining who Powell is and why he is a sensible pick to lead the Fed. Many have mentioned, including the author of this FT article, that the main strike that the real continuity candidate – Janet Yellen – had against her was that she was appointed by America’s last president.
Federal Reserve board member Jerome Powell speaks after President Donald Trump announced him as his nominee for the next chair of the Federal Reserve in the Rose Garden of the White House in Washington, Thursday, Nov. 2, 2017. (AP Photo/Pablo Martinez Monsivais)