Wednesday, September 23, 2015

Make Me, by Lee Child

This is the 20th book of Mr. Child's featuring hero Jack Reacher.  I admit to mixed emotions when I started it: on the one hand I was pleased that the library notified me that it was my turn to read (I'd forgotten about having requested it quite a while ago). On the other hand, I was unsure I wanted to bother, since the story was going to be predictable (the standard Jack Reacher formula).

I did read the book, and after only a chapter or two I was pleased that I did. Reacher's age seemed less an issue in this book. The rest of the distinctive characteristics of Mr. Child's novels were present. Reacher still isn't much for inter-personal relationships. Press journalists seem to have extravagant budgets. There are no consequences for murdering bad guys. But hey, that's part of what you get when you read this sort of story.

Summary: a small town in Oklahoma called "Mother's Rest;" Reacher gets off a train to explore it just because he's curious about the story behind the name. He meets a woman who sweeps him up into her situation just because Reacher is bored.

Then there's quite a bit of expensive travel. Some magic around the dark web is exposed by a conveniently cooperative geek. The reporter with a seemingly unlimited budget gets involved. Bad guys are killed off by the bucket load.

Make Me: A Jack Reacher Novel

Thursday, September 17, 2015

Code of Conduct, by Brad Thor

This is the 14th book of Mr. Thor's featuring hero Scot Harvath. As is the norm, Harvath is the super operative who saves the world by disregarding the US Constitution wherever it suits his sense of purpose to do so. As a consequence he always gets the bad guys (and the nice girls), and promulgates the notion of selective interpretation of rights.

Maybe I'm overly sensitive; I watched the GOP primary debate on CNN last night and heard Governor Huckabee suggest that one needn't really follow a directive from the Supreme Court of the United States if you really really really know deep in your heart that theirs is a bad decision.

And on top of that, today is Constitution Day! I guess I'm in that minority who feels as though if one doesn't respect the entirety of the Constitution and Bill of Rights in how we treat our citizens then we've lost the fight.  The Patriot Act -- terrorists win. NSA wiretapping US citizens without prior warrant -- terrorists win. Occasionally overzealous TSA agents acting out the theater of air safety -- terrorists win. Whenever we give up our rights, whenever we act in fear, and whenever we dramatically alter our normal daily behavior -- the terrorists win.

The notion is that the Bill of Rights matters -- primarily when it suits those in power.  Governor Christie's comments at that same debate fall into the same category: he embraces the 10th Amendment ("The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people."). Except for when doing so gets in the way of his views, in this case, horror at states choosing to legalize marijuana. Sigh.

Boy did that debate make me cranky!

Oh well, enough of that. It was a good action novel.

Code of Conduct: A Thriller (Scot Harvath Book 14)

The Little Book that Beats the Market, by Joel Greenblatt

** Updated 09-17-2015 **

In this magazine article packaged as a book, Mr. Greenblatt does a fine job of explaining the basic concepts of value investing. (That is, buy low and sell high.) He then promotes his "magic formula" approach which is to screen stocks for high return on assets (ROA), low price to earning ratio (PE). His formula is that by purchasing the 30 US domestic non banking stocks that are both the highest ROA and lowest PE, and resetting the purchases every year, one can dramatically out perform the S&P 500 or similar indices.

Mr. Greenblatt refers to his backtest (over 17 years in the older version of the book that I borrowed from my local public library) which confirmed that although there may be years during which his approach fails, in the long run it always succeeds. In his backtest he achieved an average return of 30.8% per year, compared to 12.4% per year for the S&P 500 in the same period.

This sounds great. I am, however, skeptical.  Primarily because Mr. Greenblatt did not provide any of his data sets. I'd really like to look at the stocks he chose and their underlying financial information.

To move forward, Mr. Greenblatt points the reader to his website,, from which you can get a screened list of stocks that meet his criteria. For free. So I checked it out. There were some surprises.

I generated a list of 50 stocks with a market cap over $50M (that's a universe that includes very small cap firms all the way up to very large cap firms). Unfortunately the list is presented in alphabetic order. So you can't figure out (without substantial manual labor) which firm has the best combination of {ROA,PE} and which has the next best, etc. Also, there no financial data on the list. Just the firm's name, ticker symbol, market cap, date of analysis, and date of quarter from which the data for the screen was extracted.

So which was the number one stock on this list? Well, we don't know! But we do know that the first one on the list, by virtue of the letter A, was Apple.  At least it is in the top 50 of firms out of the thousands in this screen. So let's think about Apple (AAPL).

On page 136, Mr. Greenblatt says that the minimum ROA should be 25%. As of this writing (per Apple's ROA is 17.09%. Its trailing PE is 13.47, which does seem low relative to the S&P 500. But I'm having trouble understanding how this combination of information put Apple on the top 50 list.

In the appendix, Mr. Greenblatt discusses return on capital, measured by pre-tax operating earnings (or EBIT) divided by the sum of net working capital and net fixed assets. And yield, as the ratio given by dividing EBIT by enterprise value (EV). I didn't compute the return on capital this way, but did look at EBITDA divided by EV; 11.6%. These are a bit different from the simple screen that Mr. Greenblatt explained earlier in the book, but pretty close.

Still surprised by Apple on this list, I looked at three other standard value screens. Historically, EV/Sales should be around 1.4; Apple's is 2.99. That's high (i.e., expensive).  Similarly, yield should be around 11%. That's okay here. Finally, Price/Book Value should be around 2.6 to 2.3; Apple's is 5.28 (i.e., too high).  Gosh, I'm still having trouble with Apple on this list.  And to be clear, I have nothing against owning Apple and I do believe that at current valuations it is a buy. But it is very difficult to imagine that it is one of the 50 best values out of the thousands of stocks from high-micro through small cap, mid cap and large cap, per Mr. Greenblatt's criteria.


The (to me) inexplicable presence of Apple on the screen continues to nag at me. Now I'm obsessing.

So I used the Google Finance screen (which isn't really sophisticated enough to replicate Mr. Greenblatt's model, but is at least a simple, free start) to look at domestic stocks with market cap greater than $460M, low PE ratio, high ROA.  The first one on their (ordered) list was Alliance Holdings (AHGP), a coal industry firm. This firm does not appear on Mr. Greenblatt's site, and clarity about why AAPL does and why AHGP doesn't would be super helpful.

AHGP's ROA is 14.11% and trailing PE is 7.92.  So on just the simple "magic formula" screen of PE and ROA, this sure seems a winner.  Against my other quick checks, it continues to look pretty good with yield at 27.5% (EV/EBITDA is 3.64) and EV/Revenue of 1.27.  Only the Price/Book ratio is high, at 3.63. 

The point of all this is, while I don't understand the coal industry well enough to know if Alliance is a good bargain at its current price, it certainly seems a likely candidate. The book should have sufficient information in it for me to discern why Apple and why not Alliance.

**End Update**

Bottom line: if this were just a magazine article about value investing, I'd have clipped it and shared it with my kids. But the "magic formula" to beating the stock market indices, even if it is completely accurate and repeatable, is not sufficiently well explained to convert me to play with my own money, nor to convince me this is a book worth recommending to others.

I guess if I could easily build the screens myself I might be more generous in my view, but that, even with tools like Value Line, requires effort.

The Little Book That Still Beats the Market (Little Books. Big Profits)

Sunday, September 6, 2015

It IS About Islam: Exposing the Truth About ISIS, Al Qaeda, Iran, and the Caliphate, by Glenn Beck

Mr. Beck's book is in three parts. The first is a thoughtful and reference -laden overview of Islam and in particular, Islamism. The second is a primer of the "13 lies" about Islam (and Islamism) that are considered politically correct or appropriate speech.  Again, although the word "lies" might seem inflammatory, the material is thoughtfully presented. Finally, the third part is what he recommends Americans do going forward. I found it the least compelling section of the book; perhaps it just needs more explanation and detail.

So overall, is this book worth reading? Realize that Mr. Beck is a media personality who is known for both his ultra conservative views and for supporting restraint on the free actions of Americans who have views that differ from his personal religious beliefs (e.g., abortion, gay marriage, etc.).

This doesn't make him a person you might intuit to be a fair and balanced narrator of a book about Islamism. Consider that the group People for the American Way (which exists "to shed light on the activities of right-wing political organizations") characterizes Mr. Beck as "a full-blown apocalyptic End Times preacher."

Well, as former Texas Governor Rick Perry points out, even "a broken clock is right once a day." Well, maybe even twice. The point is, no matter what you may think of Mr. Beck's political slant, my take is that he was diligent in writing an objective, fact-based book.

So the answer: yes, I absolutely recommend this book. In fact, the more the title offends your sense of political correctness, the more interesting it would be for you in particular to read.

It IS About Islam: Exposing the Truth About ISIS, Al Qaeda, Iran, and the Caliphate (The Control Series Book 3)