Weekend Reads: Classic Papers for Lasting Learning

A few weeks ago, Morgan Housel scared Twitter by asking, “How much of what you read today will you care about a year from now?”

Speaking personally, much less than I’d like.

Fortunately, Google Scholar created Classic Papers, a “collection of highly cited papers in their area of research that have stood the test of time.” Enjoyably, it “excludes review articles, introductory articles, editorials, guidelines, and commentaries,” and allows for high-signal interdisciplinary browsing.

I took the news of this week to the exercise, which began with reports that the US military had downed a Syrian jet. On Thursday Rodong Sinmun, the official newspaper of the North Korean government, reportedly warned South Korea against following “psychopath Trump.”

You wonder about these sorts of things. How are investors reacting? In a discussion at the Annual Ben Graham Value Conference IV, hosted by CFA Society New York on Tuesday, investor John Levin observed that in general, “domestic earnings are undervalued and international earnings are overvalued” as a result of these and other tensions.

While wondering about this and flipping through the aforementioned classic papers, I came across Niall Ferguson’s “Political risk and the International bond market between the 1848 revolution and the outbreak of the First World War.” Its final section asserts that World War I came as a “bolt from the blue” for investors, despite plenty of early discounting.

Ferguson’s paper is relevant to the present but is easy to misinterpret. Whenever one refers to World War I in a geopolitical discussion, it’s hard to avoid the notion that the war was inevitable. Such predestined wars — when established powers clash with rising ones — are sometimes called “Thucydides Traps.” However, Arthur Waldron, reviewing Destined for War: Can America and China Escape Thucydides’s Trap by Graham Allison, writes that there is little evidence that they really exist.

Unexamined assumptions are a silent killer of thoughtful analysis, and one of the most common of these is that “developed” and “emerging” markets have important uniform characteristics. In their paper, “The Early Modern Great Divergence: Wages, Prices, and Economic Development in Europe and Asia, 1500–1800,” economists Stephen Broadberry and Bishnupriya Gupta look under the hood of economic development during that time. The connection they draw between high productivity and eventual prosperity is worth noting in the context of contemporary worries about productivity growth. The discussion continues, as Ryan Avent recently summed up.

I thought Stefaan Walgrave and Peter Van Aelst’s article on the contingencies that enable the media to set a political agenda to be particularly interesting. The discussion of the methods used to create truth in this arena is fascinating.

We often feature posts on the role of women in investment management, so I’d be remiss if I didn’t close this section by mentioning Patricia Yancey Martin’s “Practising Gender at Work: Further Thoughts on Reflexivity.” It is an invitation to view gender performance through the same prism that George Soros suggests we view markets: reflexivity.

Further Reading

• Is it 2057 or 2035 when computers take over the world? Over at AI Impacts, Katja Grace usefully distills and applies the results from a survey of machine learning specialists about the likely path of machine learning technology. For the record, the last time Enterprising Investor asked about this, 35% of respondents thought artificial intelligence (AI) was impossible. (AI Impacts, Enterprising Investor)
• Harry Markopolos, CFA, claims to have uncovered a new fraud, this time in the public sector: The pension of the Massachusetts Bay Transit Authority (MBTA) is $500 million smaller than previously thought. The cause? A mix of “bad investments, fraudulent accounting, and unrealistic actuarial assumptions,” according to Markopolos. (Advisor Perspectives)
• Just print this out and refer to it once every six months: “Can China Really Rein in Credit?” Opinions abound — and have long abounded — suggesting it is necessary. But political will and economic self-interest rarely match up. (Bloomberg View)
• JP Koning’s discussion of what happened in 1947 to 1949 when policymakers were forking the Indian rupee into Pakistani and Indian flavors is a reminder of what occurs when theoretical experiments in currency are made real. Recent op-eds on the effect of demonetization for farmers make me wonder if digital money is worth all of the physical unease it creates. (Moneyness, The Indian Express)
• India and Pakistan have both joined the Shanghai Cooperation Organization (SCO), which Xinhua dubbed the “world’s most populous regional cooperative organization and the largest by area.” What is it, exactly? Read the background from the Council on Foreign Relations. (Xinhua, Council on Foreign Relations)

Fun Reads

• There is no correlation between the frequency of headphones and their retail price. (The Journal of the Acoustical Society of America)
• “A Music-Lover’s Guide to Tinnitus” (Resident Advisor)
• “Why the Falling Cost of Light Matters” (BBC)
• Don’t throw away your snake oil. It might be good for something. (Scientific American)
• Seven percent of Americans believe chocolate milk comes from brown cows. (Washington Post)

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: iStockphoto.com/JLGutierrez