Book Reviews, Value Investing

Business Adventures: A Good Economic History Book

Book Review: Business Adventures by David Merkel, CFA of The Aleph Blog.

Business AdventuresDo you like economic history?  I do.  I often think that we spend too much time on the numbers in business, and not enough time on the qualitative reasoning that goes into making good business decisions.

This particular book gained some notoriety of late when both Bill Gates and Warren Buffett said they were fans of the book.  Could a book get a more powerful set of recommenders? Unlikely, and as a result, Business Adventures was pulled back into print. [Those reading this review at Amazon, there are links at Aleph Blog to flesh this point, and other points out.]

The stories are taken from articles written in The New Yorker from the 1960s by John Brooks, who wrote what was one of the best summaries of the markets in the ’60s, “The Go-Go Years.”

If you don’t like economic history, this will not be Business Adventures for you, because the old stories will not resonate, and say to you, “We never learn.”

Consider the wealth of situations covered in Business Adventures:

1) There was a surprising fall in the market in 1962.  We have experienced much the same with “flash crashes” recently.  They had a hard time figuring it out as well.

2) There was much work put into testing the Edsel, but it was a flop.  Does that never happen today?  What of New Coke? Various Microsoft products?

3) Even in the ’50s and ’60s there were people looking to convert wage income into less-taxed capital gains income.  The tax code was filled with loopholes.  After a brief tax code cleanup in the mid-’80s, we are back to the same problem today.  Is it any surprise corporations do not manage their businesses for pre-tax economic outcomes?

4) Insider trading scandals are nothing new; we just dress them up in new clothes each decade.  Watch the fun as an oil company delays the release of what a gusher they have drilled, while employees/friends take positions.  And, to no surprise, there are different legal results as different parties knew differing amounts on how certain the information was.

5) New technology?  Something so big that the name of the company becomes the generic name for the product?  Where they set up a center for research in areas not directly related to their main business?  Google!  Okay, Xerox…  (At least Google is trying to profit from their innovations.)  How does a company manage to avoid becoming trapped in one area of technology?  Well, it didn’t work for Xerox, but maybe modern companies can avoid the same problem.

6) Can financial companies rescue a fellow company to protect the good reputation of the industry?  In this case they did, but did Wall Street retain the knowledge for the future?  LTCM was saved, though Bear Stearns didn’t do its part.  Wonder if that eventually cost them?  How many companies were rescued by fellow companies during the recent financial crisis?  A bunch, and some that should not have been rescued.  And some like Lehman Brothers, that were too big to be privately rescued…

7) Price fixing?  Collusion?  Management teams that neglect oversight of employees until they are caught doing something wrong, and then cut the employees free [fire them] while management survives with nary a bruise?  This never happens today, right?  If nothing else, companies should have seen that bigness causes its own set of problems — how do you create an ethical culture across a large organization?

8 ) Or consider the story of Piggly-Wiggly, where the founder squeezed the shorts trying to manipulate his company’s stock, only to take on so much debt in the rescue that eventually he had to declare bankruptcy.  Though the occasions are different, think of many companies that took on too much debt to go private over the last 30 years.

9) What does a man do after a long time in public service?  Many go into business, and for a timely example, think of Eric Cantor joining Moelis.  Does it have to corrupt the former politician or bureaucrat?  No, but it will change you at minimum.

10) There were many angling for corporate governance reform in the ’60s.  This is still a live issue today with “say on pay,” voting rules on directors, shareholder proposals, splitting the role of CEO and Chairman, etc.  Corporate power is undiminished.  Do shareholders own the company, or does management?  Who do the directors care about more?

11) A clever knowledge worker knows a great deal about how a given product is made.  Can he take work at a competing firm?  There are many today who fight back against employment agreements, alleging “restraint of trade.”  This is not a new problem.

12) How do central banks preserve the value of the currency?  Do they work together or separately?  They work together if the cost isn’t high, and separately when the cost is high?  It seems not that much changes over time, aside from the fact that our currency doesn’t have gold backing, or any other kind of anchor for value.  Okay, I guess some things *do* change.

All that said, in short, every chapter of the twelve in Business Adventures has relevance to the modern era.  The real question to the reader is whether you want to think about how these stories relate to the present day.  I think the effort is worthwhile, and the engaged reader will benefit from the effort.



This book is good for those who like economic history, and want to learn from the lessons of the past.  If you require immediate and obvious relevance, look elsewhere.  If you still want to buy it, you can buy it here: Business Adventures: Twelve Classic Tales from the World of Wall Street.

Full disclosure: I looked to get a copy via interlibrary loan.  That failed.  Then I noticed that it was digitally available on a preview website for book reviewers.  That’s where I found it.

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