I recently read both these books, though not in the order written (Meat comes before Money). Kessler was a stock analyst latter turned fund manager, and the books give an account of both perspectives.
“Wall Street Meat” starts with his career as an analyst. Kessler has a bit of a cynical streak, so it covers the industry in a way you’d mostly expect – the rare sell calls, difference between retail and institutional customers, and the changing of the industry with the birth of the celebrity analyst. Still, it is quite entertaining and an enjoyable read.
In “Running Money”, he moves into his life starting a fund. This isn’t an account of a fast moving trader, so don’t expect that kind of tale. While it took place in the go-go internet period, it is more an account of the bigger picture around which he framed his trades and there are certainly some lessons and ideas presented there. When he launched his fund, the first questions he generally go was “what is your edge”? How are you different from everyone else and how does that translate into making money? Investor, speculator, day-trader – call it whatever you want, but that’s a pretty key concept that you have to be able to answer.
Kessler started to focus in on “scale”. That is, situations where changing of an input of one unit causes an output of multiple units. A lot of times this is a product’s pricing, if the price drops by half, will 3 or more times as many people buy it? This is the origins of big shifts in market development. His strategy (edge) was looking for small companies that had a scale opportunity that could result in explosive growth either directly or related products. Now, every small cap picker will say they look for companies with explosive growth, but rarely do you find someone who can give a solid concept behind it, going beyond a specifics to a company. Think of industries that have scale compared to those that do not, like software versus airlines, or pharmaceuticals versus oil.
Aside from running his fund, Kessler does put forth some interesting ideas. Such that intellectual property (IP) is a process of continuing improvement, rather than something fixed that you hold a lock on. How much are prior versions of Microsoft Windows worth now? The basis of protecting your IP is trying to give you enough time to improve it and make it obsolete.
Another bolder topic he takes on is trade deficits. While most of the populace will say that the continuous trade deficit that the US is running is a negative situation and a drag on our growth, Kessler argues that is an incorrect view in the current age and that the US runs a marginal profit surplus. This is particularly so in our relationship with China. The US company develops the product, has an overseas company manufacture it for a small fixed cost (scale of 1), where it is sold back in the US and the US company makes the bulk of the profit and the growth. I don’t know if I agree with all of this concept, only history is going to prove that, but it is a compelling argument to explain how the US has been able to get away with deficits for this long. Think of something like an iPhone, where I’m willing to say that the bulk of the profits go to Apple, not the Chinese manufacturer.
While not trading books, they where both enjoyable and “Running Money” probably gets the nod for having some bigger investment concepts. If nothing else, it pounds home another concept I’ve found reliable – if you ask someone a question and they can’t answer it quickly, or the answer is to a different question, you probably want to say thanks and never deal to much with them again.
