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Ironically, more questions should arise the better the performance and the longer the streak runs. “How is this possible?” is the question that should be on the tip of every board member’s tongue. Too often boards take a hands-off approach to CEOs who meet numbers goals. When the company continues to do well, boards almost always coast. While more is coming (in Chapter 5) on boards, this antidote applies to everyone, from shareholders to analysts.
The Seven Signs of Ethical Collapse
Marianne M. Jennings
When the Trump administration came to power, the chairman of the PCAOB, James Doty, was in the middle of trying to negotiate a new arrangement with Beijing. But Doty was removed in 2018 by Securities and Exchange Commission chairman Jay Clayton, who was chosen by Mnuchin. Clayton was also a legal adviser to Alibaba. As he had so many times before, Trump’s pro-business Treasury secretary had effectively short-circuited America’s response to China’s economic aggression. The massive fraud and corruption these practices allowed eventually became well known enough that a cottage industry of short sellers cropped up. By simply performing basic research on these companies, firms like Muddy Waters Research were able to expose fraud after fraud. They were featured in a 2018 documentary called The China Hustle, which chronicled the efforts of Wall Street whistleblowers to call attention to the huge scope and scale of the probtem. But as so often happened, when China’s economic aggression was exposed, it simply changed its tactics.
Chaos Under Heaven
Josh Rogin
Thaler’s list grew quickly. A lot of the items on it fell into a bucket that he eventually would label “The Endowment Effect.” The endowment effect was a psychological idea with economic consequences. People attached some strange extra value to whatever they happened to own, simply because they owned it, and so proved surprisingly reluctant to part with their possessions, or endowments, even when trading them made economic sense. But in the beginning, Thaler wasn’t thinking in categories. “At the time, I’m just collecting a list of stupid things people do,” he said. Why were people so slow to sell vacation homes that, if they hadn’t bought them in the first place and were offered them now, they would never buy? Why were NFL teams so reluctant to trade their draft picks when it was obvious that they could often get more than the players were worth in exchange? Why were investors so reluctant to sell stocks that had fallen in value, even when they admitted that they would never buy those stocks at their current market prices? There was no end of things people did that economic theory had trouble explaining. “When you start looking for the endowment effect,” Thaler said, “you see it everywhere.” His feelings about his own field were not so very different from his feelings for Monopoly as a kid: It was boring, and unnecessarily so. Economics was meant to be the study of an aspect of human nature, but it had ceased to pay attention to human nature. “Thinking about this stuff was way more interesting than doing economics,” he said. When he called his observations to the attention of his fellow economists, they weren’t interested. “The first thing they’d always say was, ‘Of course we know people make mistakes every now and then, but the mistakes are random, and they’ll wash out in the market,’” recalled Thaler. Thaler no longer believed that.
The Undoing Project
Michael Lewis
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