Why is this Bill Gates’ favorite book? Book#59

When I learned that this book “Business Adventures” by John Brooks was at the top of Bill Gates’s favorites business reads, I added it to my reading list. What’s so great about it? It’s about reliving some of the worst business ventures of the 1960’s and learning the lessons. Why? Because in business, history keeps repeating itself.

“More than two decades after Warren [Buffett] lent it to me — and more than 40 years after its publication — Business Adventures remains the best business book I’ve ever read . . . Brooks’s deeper insights about business are just as relevant today as they were back then.” — Bill Gates, The Wall Street Journal

12 chapters tell 12 independent stories. Here are below some of the stories whose lessons are worth remembering.

1. A story of the stock market crash on the 28th of May 1962. Lesson learned: in the short run, mood and trend dominate, not the underlying economics of a firm.
2. A story of a company discovering a rich ore mine in Canada in the 1960’s. It understated the reporting of the discovery while its insiders were buying extra shares. Lesson learned: incentives are everything.
3. A story about the Ford Edsel. It took a very long four years to launch. They built up expectations. They bet huge. Yet they had not listened to their customers and came up with a car no one wanted. Ford lost a lot of money. Lesson learned: excessive self-confidence is the mother of many failures.
4. A story on Xerox. New earth changing inventions are not easy to spot and to push through. The copy machine was an invention that no one thought had a future and that many missed. And yet its success at Xerox was enormous. Nevertheless rapid growth and killer product is no guarantee of permanent success. A period of rapid growth made Xerox loose focus. It stopped pursuing the next steps. Lesson learned: self-satisfaction hurts even the best.
5. A story about General Electrics’ price rigging. It started due to miscommunications and false assumptions. If you say X to someone and wink your eye at the same time, what is he/she supposed to understand? That you mean X or Y. Hard to believe but that’s exactly what GE’s management did at the time. That lead to a lot of bad problems. Lesson learned: if you don’t believe the message you are saying, that will come across. And people won’t know what you mean.
6. A story about a market corner strategy that turned into a severe squeeze. Lesson learned: don’t try short selling. It can bite you back hard.
7. A story about the many shareholders’ meetings the author visited. Lesson learned: many end up being a show off of power between short-term oriented managers and a few large short-term professional shareholders both seeking publicity for themselves.
8. A story about a chemical engineer in a niche company who got sued for having accepted a job offer from a competitor. Who is to say what’s right or wrong in that case? What prevails? Loyalty to an employer or free will to make a career move? Lesson learned: there is always more than one version to a story.

Besides these, one story stood apart for me. A story on the tax code on chapter 3 shows how difficult it is to tax the rich. The income tax was not always there. It took great effort to impose it in the last century, but the world is still not more egalitarian. Capital is not as taxed as income, so the rich have a structural advantage. Bottom line, my interpretation of this chapter was: save and accumulate capital; make that your advantage too.

What’s facsinating about this book is that it is timeless. One could write similar stories today with examples of the last decade.

Conclusion: The wise man learns from the mistake of others, the fool learns not even from his own. Human beings are flawed in many ways, and that’s not about to change.

My purpose in life is independence, fulfilment and a better understanding of how the world works. Like Charlie Munger, I believe in the discipline of mastering the best that other people have ever figured out. And like Sir Isaac Newton, I believe in our ability to see further than any others before us by acknowledging that we are standing on the shoulders of giants. With this blog I hope to keep track of my learning about investing, business, decision making, entrepreneurship and self development while inspiring others to do the same. For the moment the format of this blog will be one post for each book that has influenced me, but I expect it to evolve over time. Join my Journey. John.