Bill Gates‘ favorite book
Of course, Bill Gates has many book recommendations, but this is one of his favorite books. The book’s title is Business Adventures by John Brooks and it has about 464 pages, so it will take like weeks to read it, if you are consistent. Better to read this summary of Business Adventures, which takes you about 15 minutes to read. It is one of the New York Times bestseller books and it describes 12 business stories, where you can learn from their mistakes. Although those stories happened in the 50s and 60s, Bill Gates still recommended it, when he read it in 1991. An evergreen insight. This is what Bill Gates wrote on his blog: „Business Adventures is as much about the strengths and weaknesses of leaders in challenging circumstances as it is about the particulars of one business or another. In that sense, it is still relevant not despite its age but because of it. John Brooks’s work is really about human nature, which is why it has stood the test of time.“ So without further ado, let’s dive into this Business Adventures Summary.
1.) The title of this story is: The Fluctuation. On 28th May 1962, there was a stock market crash, where it lost $20 billion within 3 days and then recovered completely. Investors panicked, so they sold all their shares, which caused a chain reaction. A bigger sell-off by other investors. What we can learn from this story is, that facts were less important. It was panic, which caused the sell-offs. That is why Warren Buffet, who is the star investor of all time, called the stock market as manic depressive. What he means by that, that the stock market is very emotional.
2.) The next story is called the fate of the Edsel in the 1950s. The Edsel is an automobile top product of Ford comparable to the Golf of Volkswagen, which supposed to be Ford’s flagship, but it ended up as one of the ugliest cars ever and one of the worst products failures. There are a few reasons for this. In 1955, the American auto industry was booming and the national income was increasing too. At that time, the medium-priced cars were in demand, which the Edsel also aimed at, but it was launched in 1958, where the market wanted smaller and cheaper cars. Because it did not sell well, the company lost $250 million in development, manufacturing, and marketing. In today’s money, it would be around $2 billion. The lesson here is to implement as fast as possible, what the market wanted before it changes. Maybe that is why the lean method is very popular nowadays.
3.) The next story is called The Federal Income Tax. The income tax should be the same way as in 1913. Warren Buffet is one of the world’s richest people on the planet, but he admits, that his tax rate is lower than that of his secretary. That is a very unfair tax system right now. Well, the only lesson here is just to do a do-over.
4.) The next story is called a reasonable amount of time. Before 1959, there were no insider trading laws. There was a case, where the company called Texas Gulf Sulphur found valuable metals and minerals in the ground. They decided to keep quiet about it first, so the employees and executives bought up the company’s shares. When the company finally announced the news about their find, their shares shot to the roof and all shareholders got rich. At that time the Securities and Exchange Commission took action and charged them with insider trading. Since then companies required to give the public a reasonable time to react on financial news, before insiders are allowed to trade shares. The lesson here is, that the free market economy with their invisible hands can not solve everything. That is why the government has to intervene. Another example of market failure would be monopolies. That is why there competition regulators. One of the most recent examples is, that Google was hit with a new antitrust fine from the European Union with €1.5 billion, because customers of its AdSense business were forced not to accept advertising from rival search engines. The previous year Google was fined €4.34 billion, because Google forced smartphone manufacturers to pre-install Google’s search and browser apps on devices using its Android operating system.
5.) The next story is called Xerox Xerox. In 1959, Xerox launched its automatic copy machine. Their executives don’t believe in that product, but somehow it took off a few years later. The company started to do some philanthropy like spending $4 million for the UN. Somehow, a few years later the competitors already caught up pretty fast. Xerox did not put much R&D effort to be able to compete, so they had a pretty hard time. The lesson here is, that the competition never sleeps, otherwise they would not be competitors. I’m not a fan of philanthropy at all. Companies are already doing good things to society by paying taxes, but even if they don’t pay taxes like Amazon is doing, they still create jobs. Job, jobs, jobs. In Germany, they say, that social is, what creates jobs. Maybe that is why there are many jobs in Germany compared to many other European countries and maybe that is why Germany still has the strongest economy of the whole Europe.
6.) The next story is called making the customer whole. In 1963, the brokerage company Ira Haupt & Co. was almost bankrupt. It is a member of the New York Stock Exchange and it traded in commodities. It had to borrow money from the banks to be able to do trades. It turned out, that the commodities did not exist, because all the receipts were fake. Ira Haupt & Co. was a victim of a large scale fraud and it was unable to pay back their debts. The New York Stock Exchange did not let Ira Haupt & Co. go bankrupt, so they rescued it with $7.5 million to prevent a national financial crisis, because the people should not lose faith in their investments in Wall Street. Roughly a decade ago something similar happened. In 2008 there was a financial crisis, so the US government rescued their banks with $700 billion. The lesson here is to be more strict with credit ratings, so that only companies, who are able to pay back their debts can get loans.
7.) The next story is called the impacted philosophers. In the late 50s, General Electric was involved in a large-scale price fixing together with 29 other electronic companies causing an increase of 25% of their prices, which was illegal. It came to light, so the senate subcommittee and some managers got prison terms and fines, but the higher level executives were not charged. The higher level executives could hide their responsibility by blaming miscommunication. The managers simply misinterpreted their instructions. The lesson here is better to follow the official rule instead of the implied one.
8.) The next story is called The Last Great Corner. In 1917, a supermarket called Piggly Wiggly based in southern and mid-western US, offered a new concept of a supermarket. Their supermarkets offered shopping carts and price tags on every item. On top of that, there were checkout stands. In the 20s Piggly Wiggly started to expand throughout the States. There were only a few franchises, who failed, but some investors took the opportunity to spread false information, that the whole company was in trouble, so that the stock price went down and they could profit from that. In the stock market world, they call it short selling. The founder of Piggly Wiggly called Clarence Saunders decided to teach them a lesson by buying back almost all the shares of his company, so the price of a share rose from $39 to $124, but somehow the investors could persuade the New York Stock Exchange to extend on paying up. Clarence Saunders was forced to declare bankruptcy. He almost won the battle. The lesson here is not to put everything in one basket and to have a backup plan.
9.) The next story is called a Second sort of Life. It is about a guy called David Lilienthal in 1930s, who worked as a government bureaucrat for decades, but he could successfully transition himself into a businessman. He left public office in 1950 to work in the business world to make more money to support his family and for his own retirement. He took over the Minerals and Chemical Corporation of America, which was in a financial trouble, but he could bring it back to life and earned a small fortune as a result. He is not only a successful entrepreneur, but he also wrote a book about why big corporations are important for the economy and security of the United States. The lesson here is no matter your background, you can make a fortune. The American Dream and that is why a minor boy Fred DeLuca, who just sold sandwiches for 50 cents to make money to be able to pay his tuition fees, could make it big too. Nowadays, it is known as subway. A popular fast-food restaurant chain all over the world. Another example is Colonol Sanders started his first KFC franchise, when he was 62 years old, which also becomes a popular fast-food restaurant chain all over the world. That is the American Dream.
10.) The next story is called Stockholder Season. Stockholders or shareholders are people, who bought shares of a company. In America, the largest corporations have huge influence over the country through their lobbies. That is why many political scientists say, that the US is more an oligarchic feudal system than democracy. So officially it’s the shareholders, who are the most powerful people, because they have control over the companies through the board of directors, that they elect yearly. Most of the time the small investors do not use their power. It’s more of the case, that professional investors do. The lesson here is, that you can use your power. It is similar to voting rights, but not everyone uses it. Besides, the more money you have, the more power you have. That is why, Bernard Arnault bought the majority of the shares of LVMH and he could make himself the CEO of the company. Warren Buffet also did the same way. He bought the majority of the shares of Berkshire Hathaway and he could make himself the CEO of the company.
11. The next story is called One Free Bite. It’s about a manager, who wanted to change his job in 1962. David Wohlgemuth was a research scientist, who managed the space suite department of the market-leading aerospace company B.F. Goodrich. However, the competitor International Latex won the contract for the famous project called Apollo. Donald received a job offer from International Latex to work for them with more responsibility, more interesting tasks to do and higher salary, which he accepted right away without hesitation. His company Goodrich feared, that he might reveal the company secrets and the methods of producing space suits to the competitor, the company decided to sue him, also because of he signed a confidentiality agreement before. The judge decided for Donald’s favor, because of the employee’s right to change jobs. The lesson here is, that nowadays nobody works for a company for the rest of their life like the previous generation did. In today’s world, if you stay more than 5 years in the same position, recruiters will wonder, whether that employee is flexible enough to learn new things, which is crucial for today’s world, because the world is changing fast with the current technologies.
12.) Last but not least, Bill Gates favorite book called Business Adventures and its last story is called In Defense of Sterling. It’s about a fixed currency exchange rate called the Bretton Woods system, which was established in 1944 including 44 countries, after the end of WWII. It locked the conversion rate of all currencies to a fixed rate, and pegged them to gold. Governments would regulate these rates by buying or selling currencies to make any adjustments. In 1964, Britain found itself in a large deficit, so they had trouble keeping up the currency exchange rate, which was the most prestigious currency at that time. The US Federal Reserve tried protecting the currency from falling, by buying it up, but in 1967, the Fed could not afford to keep buying the pound, and Britain devalued the pound by 14%. This was the end of the Bretton Woods system in 1971.
Summary of Bill Gates favorite book: Business Adventures. The financial market and business ethics can be traced back to specific events in history. For example: One man’s fight for his right, was the beginning of the employee rights in the future.
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