Book Review: 23 Things They Don’t Tell You About Capitalism

Recently I have read a very interesting book "23 Things They Don't Tell You About Capitalism" by Prof. Ha-Joon Chang. As such it is very interesting and easy going book (no formulas, simple language). But it is much more: in my opinion every investor and trader should read it to better understand the current political and economic trends.

Donald Trump and Brexit, who did expect these "black swans"?! Virtually nobody but were these events really the black swans? For instance, the odds for Brexit were 15 to 85 and 15% is not a negligible probability! Chang's books gives some insights: since the neoliberalism and globalization a few rich people permanently get even richer but the wages of the middle class in USA and Western Europe stagnate. Moreover, Chang points out that the whole economic growth has slowed down, i.e. "making rich people richer doesn’t make the rest of us richer"! One may argue whether the neoliberal economic policy was the cause or is it just an objective process (our Earth is not infinite) but fact is: during last decades the inequality grows and the middle class deteriorates. Thus Brexit and Trump were actually to expect, the question is rather why it did happen only now! Moreover, this deglobalization trend will likely be continued.

Another important issue is that Chang deservedly blames the financial capital to be "too impatient". He recognizes the importance of "LTD" and "Inc" but convincingly demonstrates that in current world the short term profits dominate over the long-term sustainable firm's development.
And I don't believe it will be changed in the near future. But for you and me - as traders, investors and speculators - it is a very important insight! All we have heard that one should invest like Warren Buffet. But those who tells this forget that Buffet can make the companies management adhere to the long-term goals, we cannot. Thus if we want to be investors, we should look for the companies that are managed with long term in mind. However, the problem is that such companies are usually non-public. I, for one, would with pleasure invest in ALDI (the best discounter in Germany) but I cannot. Thus a small market participant should not be embarrassed to be a speculator (at least in part). In particular, if a company goes bad and announces a restructuring, we may be quite sure that all they do will be just cutting-off the costs and firing a lot of employees. However, it (temporarily) improves the financial figures, so in the short term the stocks will likely grow. But we should make no illusions and sell them after they do... Unless we see that the [new] management really pursuits the strategical reforms, in this case we can and should hold the stocks for a long term.

Last but not least Prof. Chang has a very interesting view on the higher education. To put it briefly "the fact that you have graduated from a university tells your potential employers that you are likely to be smarter, more self-disciplined and better organized than those who have not. By hiring you as a
university graduate, your employer is then hiring you for those general qualities, not for your specialist knowledge, which is often irrelevant to the job you will be performing. Now, with the increasing emphasis on higher education in
the recent period, an unhealthy dynamic has been established for higher education in many high-income and upper-middle-income countries that can afford to expand universities. Once the proportion of people going to university goes over a critical threshold, people have to go to university in order to get a decent job. When, say, 50 per cent of the population goes to university, not going to university is implicitly declaring that you are in the bottom half of the ability distribution, which is not the greatest way to start your job search... The higher education system has become like a theatre in which some people decided to stand to get a better view, prompting others behind them to stand. Once enough people stand, everyone has to stand, which means that no one is getting a better view, while everyone has become more uncomfortable".
What does it mean for you personally? Well, at least you (should) now better understand that you'd better think twice before wasting your time and money in order just to get a diploma. If you like science (like I do), do study and to research. But if you don't, don't waste your time and money for the university. I know enough guys and galls that graduated from prestigious paid universities (whereas in Germany most of the universities are free of charge) but these guys and galls work as clerks. And vice versa, I know a guy, who just made a Hauptschule (the lowest secondary school in Germany) and then was trained as a car mechanic. He loves cars, so he worked hard and was soon promoted to a team leader. Having started working in a young age, he also started investing early, which is critical because the compounded wealth growth is most prominent in the long term!

Like this post and wanna learn more? Have a look at Knowledge rather than Hope: A Book for Retail Investors and Mathematical Finance Students

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