Book Bits: 25 September 2021

The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance
Eswar S. Prasad
Q&A with author via Bloomberg
Q: Why is there such urgency for central banks to develop digital currencies?
A: The reality is that the end of physical cash is not too far away. We are seeing digital payments in various forms beginning to dominate in economies small and large, developing and advanced. So I think for central banks, if you think about their money being used at the retail level, this is at some level an existential question. Central banks will still be able to conduct their main functions and maybe they can continue doing so without having their money being used for retail payments, but having a CBDC has a variety of advantages.

The Contrarian: Peter Thiel and Silicon Valley’s Pursuit of Power
Max Chafkin
Review via The Atlantic
This fall, Peter Thiel will celebrate his 54th birthday. He has already lived more lives than most mortals can imagine. He has been a Wall Street lawyer, a hedge-fund trader, a Silicon Valley entrepreneur, and a fabulously successful venture capitalist. The team he led at PayPal, the online-payments company he co-founded in 1998, is so influential in the Valley that its alumni are known as the “PayPal Mafia.” Zero to One, his provocative 2014 manifesto on innovation and start-ups, has sold more than 3 million copies globally. He was the most prominent tech titan to back Donald Trump in 2016 and remains a lavish supporter of Trumpish Senate candidates. Ambitious to avoid death, or at least postpone it, he has flirted with ideas for freezing brains for future reanimation and for transfusing the middle-aged with the blood of the young.

Expectations Investing: Reading Stock Prices for Better Returns, Revised and Updated
Michael Mauboussin and Alfred Rappaport
Summary via publisher (Columbia U. Press)
Most investment books try to assess the attractiveness of a stock price by estimating the value of the company. Expectations Investing provides a powerful and insightful alternative to identifying gaps between price and value. Michael J. Mauboussin and Alfred Rappaport suggest that an investor start with a known quantity, the stock price, and ask what it implies for future financial results. After showing how to read expectations, Mauboussin and Rappaport provide a guide to rigorous strategic and financial analysis to help investors assess the likelihood of revisions to these expectations. Their framework traces value creation from the triggers that shape a company’s performance to the impact on the value drivers. This allows a practitioner of expectations investing to determine whether a stock is an attractive buy or sell candidate.

Rationality: What It Is, Why It Seems Scarce, Why It Matters
Steven Pinker
Excerpt via Harvard Gazette
Rationality ought to be the lodestar for everything we think and do. (If you disagree, are your objections rational?) Yet in an era blessed with unprecedented resources for reasoning, the public sphere is infested with fake news, quack cures, conspiracy theories, and “post-truth” rhetoric. We face deadly threats to our health, our democracy, and the livability of our planet. Though the problems are daunting, solutions exist, and our species has the intellectual wherewithal to find them. Yet among our fiercest problems today is convincing people to accept the solutions when we do find them.

The Long Game: How to Be a Long-Term Thinker in a Short-Term World
Dorie Clark
Summary via publisher (Harvard Business Review Press)
Your personal goals need a long-term strategy. It’s no secret that we’re pushed to the limit. Today’s professionals feel rushed, overwhelmed, and perennially behind. So we keep our heads down, focused on the next thing, and the next, without a moment to breathe. How can we break out of this endless cycle and create the kind of interesting, meaningful lives we all seek? Just as CEOs who optimize for quarterly profits often fail to make the strategic investments necessary for long-term growth, the same is true in our own personal and professional lives. We need to reorient ourselves to see the big picture so we can tap into the power of small changes that, made today, will have an enormous and disproportionate impact on our future success. We need to start playing “The Long Game.” As top business thinker and Duke University professor Dorie Clark explains, we all know intellectually that lasting success takes persistence and effort. And yet so much of the relentless pressure in our culture pushes us toward doing what’s easy, what’s guaranteed, or what looks glamorous in the moment.

The Sharpe Ratio: Statistics and Applications
Steven E. Pav
Summary via publisher (Chapman and Hall/CRC)
The Sharpe Ratio: Statistics and Applications is the most widely used metric for comparing the performance of financial assets. The Markowitz portfolio is the portfolio with the highest Sharpe ratio. The Sharpe Ratio: Statistics and Applications examines the statistical properties of the Sharpe ratio and Markowitz portfolio, both under the simplifying assumption of Gaussian returns, and asymptotically. Connections are drawn between the financial measures and classical statistics including Student’s t, Hotelling’s T^2 and the Hotelling-Lawley trace. The robustness of these statistics to heteroskedasticity, autocorrelation, fat tails and skew of returns are considered. The construction of portfolios to maximize the Sharpe is expanded from the usual static unconditional model to include subspace constraints, hedging out assets, and the use of conditioning information on both expected returns and risk.

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