"Firefighting" by Ben Bernanke, Timothy Geithner, and Henry Paulson

JFK once said "The Chinese use two brush strokes to write the word 'crisis.' One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger - but recognize the opportunity." For an investor, crises are an opportunity to buy into good businesses at reasonable - or at least not ridiculous - prices. That is why, after three years of struggling to find opportunities, I made more investments over the last month than I had made over the last five years. Vladimir Lenin supposedly said that there are some decades when nothing happens, and some weeks when decades happen. From my experience with this crisis, the first of my still-short investment journey, I have learned that in times of crisis, lots happens - or at least, for an investor, a lot (of buying) should happen! 

When you are choosing to invest at a time of crisis, you are catching a falling knife. You do this because you believe the world will bounce back, because it always does. Indeed, human inventiveness, solidarity, and our sheer will to 'live to fight another day' have always come to the rescue. But, it is important to note that this recovery is aided by the tireless work of policymakers, who seek to limit the damage caused by the fire (crisis) at hand. It is important to understand this damage control aspect of crises.

So during the ongoing COVID-19 crisis, I decided to read Firefighting, a page-turner which tells the story of the 2007-2009 Great Financial Crisis from the perspective of the three fire-chiefs who spearheaded the United States government's response. As something of a neo-classicist myself, I found it tempting to cry moral hazard on many instances while I was reading the book; however, I am nevertheless fascinated by the success of the unprecedented measures taken (and arguably needed) to contain the crisis and right the economy. 

I am fascinated by the way in which greed and fear, and exuberance and panic result in credit cycles. That is why I have thoroughly enjoyed reading Galbraith's A Short History of Financial Euphoria and Krugman's The Return of Depression Economics, and watching HBO's Panic: The Untold Story of the 2008 Financial Crisis. And that is also why I have loved learning from Firefighting. Buffett said "[Firefighting's] cautions for the future should be required reading for all policy makers". They should be required reading for all investors too!

When I read, I like to pick out nuggets of wisdom, quotations that beautifully state or explain a seemingly basic, but in fact profound truth. So, here are a few of my favourite quotations from Firefighting (I promise you being this selective was far from easy - in fact it was pretty damn tough):

Financial Crises will never be a thing of the past. Long periods of stability can create overconfidence that breeds instability. We are later told: The enemy is forgetting. 

Risk, like love, tends to find a way. 

Bad news about one segment of the housing market [created] the E.coli effect, where rumours about a few incidents of tainted hamburger frighten consumers into abandoning all meat rather than trying to figure out which meat...is actually tainted. So, as the authors later note, investors began to shun entire classes of financial products, whether they were contaminated with subprime or not, which depressed prices and made them even more toxic. It was as if avoiding meat caused E.coli to spread. 

Every banker knows that if he has to prove that he is worthy of credit, however good may be his arguments, in fact his credit is gone. 

If you've got a squirt gun in your pocket, you may have to take it out. If you've got a bazooka, and people know you've got it, you may not have to take it out. 

Capitalism without bankruptcy is like Christianity without hell. 

Capital cushions can seem safe and adequate until suddenly they aren't. 

We spend a lot of time looking for systemic risk, but it tends to find us.

Learnings from Robert Caro's "Working"

Robert Caro is known for his biographies of political figures such as Robert Moses and Lyndon Johnson. Caro's epic biographies are renowned because of his forensic research process and relentless pursuit of facts. Caro's latest book, 'Working', is an autobiographical text that allows us to gain insight into the methodology of the world's greatest biographer. As an aspiring investor, who is just beginning to realise the importance of meticulous research, I wish to reflect on how some of my key learnings from 'Working' can be applied in the investing world.

Make sure to be thorough
Caro received one piece of advice when he became an investigative journalist: "Turn every page. Never assume anything. Turn every goddamned page." Ever since, this philosophy has been the cornerstone of his research process; a relentless pursuit of the truth underpins Caro's writing.

The more facts you accumulate, the closer you come to whatever the truth is. And finding facts...takes time. Truth takes time. 

A relentless pursuit of facts is of immense importance in investing because it can enable better decisions. However, I must add a caveat. While the past is undoubtably important, investing is less about the past and more about the inherently uncertain future. Thus, it is necessary to accept some uncertainty, provided you understand the limitations of what you know. This is because if you spend your whole life researching, continuously deferring action, you will never make a single investment.

Thought precedes communication
Caro's Princeton professor once told him to "Stop thinking with [his] fingers". I would want to supplement that phrase with another: Stop thinking with your lips. I am targeting both learnings mostly at myself (the lord knows I need to hear them on repeat!).

I can't start writing a book until I've thought it through and can see it whole in my mind. So before I start writing, I boil the book down into three paragraphs, or two, or one - that's when it comes into view.

You only have to watch CNBC's Squawk Box or Closing Bell to know that these tenets would be applicable in the investing world too. Indeed, we seem to suffer from an irresistible urge to quickly publicise our baseless, speculative thinking on the direction in which the market will move next, and to offer instant, frequently-dubious explanations for recent market movements. I know from experience how tempting it is to write without due consideration and speak without proper reflection. This is why I intend to learn from Caro's rigorous process in which thought precedes communication.

Talk to the people that matter
Caro's research relied heavily on being able to speak to people for long periods of time. During these interviews, Caro always asked questions like "What did you see? What did you hear?" They are unusual questions, but they are useful ones; they allow you to learn more about the atmosphere and setting in which an event occurred. In addition, he urges the interviewers to let the interviewees (and not themselves!) fill moments of silence. That way, you might just "find out things from them that maybe they didn't even realise they knew". 

You have to keep going back to important people - people who were important not necessarily because of their status but because of what they saw.

When you become a stockholder in a business, you make the active choice to own a part of it. Before making such a big decision, you have to be sure that you understand the business you are buying into. Therefore, it is important to speak with managers and employees - particularly those employees who are on the frontline - because they are important people. They should know the business better than anyone else, and speaking with them should allow an investor to have a deeper understanding of said business.

'Working' is undoubtably one of my new favourite books. For me, it is the ultimate guidebook on effective research. It should be required reading for all researchers.

Learnings from Stephen Schwarzman's "What it Takes"

Stephen Schwarzman's autobiography details his extraordinary journey of building one of the world's largest asset-management companies. His anecdotes, insights, and values are deeply inspiring for an aspiring investor like me, and I have really enjoyed reading this book. In this post I will briefly note some of my most important learnings, which I hope to take forward with me.

• Entrepreneurship is psychologically and financially demanding. Even when you have a unique idea and are blessed with fortuitous timing, you have to "bludgeon it into existence". If you are dedicating your life to something, it better be worth it: go big or go home.

• Ask for help and seek advice. Don't hesitate to knock on the doors of the people you admire. The odds are that they will be happy to guide you - and maybe, just maybe, you'll find a lifelong friend.

• Relationships and reputations are invaluable. Do whatever it takes to build and maintain them.

• Help others by solving their problems. All acts of kindness (big or small, random or not) go a long way. When you help someone, they remember. This is why listening to others' problems, and trying to solve them is a great way to win friends.

• Information is money. This was why Schwarzman once told an interviewer "I want to be a telephone switchboard, taking information from countless feeds, sorting it, and sending it back out into the world."

• "The harder the problem, the more limited the competition." If you can build a reputation for solving tough problems, people will actively seek you out - and pay you handsomely.

• Work in a team. Scwarzman puts it best: No one person, however smart, can solve every problem. But an army of smart people talking candidly with one another will.

• "There are no brave, old people in finance." As you learn from your mistakes and failures you have to develop a healthy dose of skepticism along the way; otherwise, you won't survive in finance.

• Take a moment. "Take a breath, slow it down, and relax [your] shoulders until [your] breaths [are] long and deep." This works particularly well because "people [are] always happy to let [you] have that extra moment". It "even reassures them" and makes them "more eager to hear what [you have] to say once [you are] ready."

Hail Cash, for Cash is King!

In Fortress Balance Sheets, I talked about how my Aston Martin adventure has taught me that leverage is "the most dangerous gift in finance". In this unusual crisis, however, I am learning not only about the perils of leverage, but also the importance of cash. 

I now realise that it is valuable to have what may, in the normal course, be considered an obscene amount of excess cash. Several companies (e.g. Booking Holdings, which owns OTA Booking.com) are likely to see their revenues hit zero (note that this did not happen even in GFC). Such firms will still incur fixed costs as well as those variable costs, which cannot be cut quickly. So, firms will lose a lot of money. A strong net-cash balance sheet position allows a firm to comfortably weather this storm, without being forced to permanently dilute equity holders. And, perhaps most importantly, having an abundance of cash heading into a downturn can allow a firm to invest aggressively for the long-term at a time when a lot of other firms are fighting for survival. This is why, Facebook's USD 50 billion cash pile no longer seems excessive when you consider that the firm could potentially lose 25 billion this year alone.

Cash piles that seemed ridiculous only three months ago now seem anything but; so-called "excess" cash is now evidence of management's prudence.