What I Remember From Journalism Classes

One of the Trump mantras in the current US presidential election cycle is that the system is “rigged.” Part of what Trump includes in the rigging allegation is the behavior of the US media in being bitterly, but not openly, partisan. The reputation of the media in American political theory is that it is a non-governmental check on official political scheming which serves the vaunted public interest in educating Americans on fact and fraud alike. Through the media, the American people, especially as an electorate, can make an informed decision as they exercise their democratic muscle.

A problem with this theory is that the “gatekeeper” role for the media introduces the same risk of regulatory capture that faces an official government agency. If X is the watchdog of Y, then Y has an incentive to exercise influence on X, up to and including implicit or covert control of X, to ensure Y has the maximum opportunity to pursue its own interest without restraint. If journalists are the watchdog of politicians, or of government and the political process as a whole, than people interested in exercising power without restraint via the political process have a strong incentive to try to control journalists.

There’s plenty of evidence, scandal and recent revelations of such influence and control that has come to light recently, mostly via alternative media “institutions” such as bloggers and not-for-profits like WikiLeaks, such that anyone interested in evaluating claims of a “rigged” system can run a simple search and make up their own mind. I don’t really want to go there with this post. Instead, I want to share some brief reflections and anecdotes from my undergraduate education, which included substantial coursework in journalism.

When I went to college, I initially thought I wanted to be a professional journalist. I later came to the conclusion that the system I would be participating in was “rigged”, and that I couldn’t find any heroes to emulate and that it’d be very unlikely for me to profitably, and safely, practice the kind of truth-telling journalism I was interested in, so I decided to abandon that ambition after completing most of the coursework necessary (I did end up completing the degree). Part of my disillusionment came through my experience in my journalism classes.

The very first class I took was an “ethics of journalism” class, which explored this very issue of the role of journalists in a free society, and the special status as gatekeeper assigned to the profession in American political theory. Unfortunately, most of my classes were disrupted that semester because the graduate assistants in the journalism department were on strike and my professor decided not to hold our classes on campus to avoid crossing the picket lines, a decision she made out of perceived solidarity with their plight. On one occasion, class was cancelled entirely because she decided to participate in a protest. While I doubt all journalism graduate students are on strike all the time at all universities in the US, I also would imagine this experience was not entirely unique, and certainly the ethical or political predilections of my professor at the time were not unusual. If this is the mindset and behavior of people teaching introductory ethics courses to aspiring journalists, what do you think might be the impact on journalism as a system in this country?

Another class I remember taking was something like “topics in media criticism”. I think what I imagined the course would be was something like studying news reporting and investigative journalism pieces and looking at how members of the media critically covered certain issues and people, and also how they responded to criticism from those they targeted. Instead, we ended up writing essays about pop culture media through the lenses of things like Marxism, feminism and sexuality.

Things I found memorable and descriptive about the majority of my classmates: few, if any, were double majoring in or had pursued an independent course of study in economics, so they were unfamiliar with even the most watered-down official market-lite basic instruction on the topic, thus making them unfit to cover 95% of what is newsworthy; while they weren’t ascetics, they seemed to accept that they were unlikely to have lucrative careers and seemed suspicious of people who had higher income-earning potential than they; they were definitely not the sharpest, most ambitious students in the school and were closer to being art students than business school students if you could set those things up as two opposite characteristic poles; they were animated by “social justice” issues and assignments, rather than questioning their premises or the validity of that approach; for those who had double majors, they were typically in subjects such as political science, sociology, psychology and occasionally history (ie, philosophically wishy-washy, non-concrete and dominated by Marxist leftover academics); in physical appearance they were often sickly or weak looking, had more body piercings than average and were often disheveled looking, as if they didn’t much care about how they looked to other people; few if any came from true poverty backgrounds, and few came from any wealth, they all seemed “securely” lower-middle class in background.

Putting these three pieces together, a picture emerges. These journalism students were being instructed on their special ethical status and duties while learning from the example of a person whose behavior and loyalties were compromised; they were receiving explicit ideological instruction in their coursework under the guise of some kind of creative criticism curriculum; finally, their personal backgrounds, interest, capabilities and knowledge probably made them unsuitable, on average, for thinking very deeply about key “public interest” issues and their personal circumstances made it potentially easy to tempt or incentivize them in various ways.

Under conditions like these, is it difficult to imagine how journalism, as a profession, might cater to the kind of people who could willfully do the bidding of special interests in a “rigged” system and either not realize how they were being manipulated, or else be eager to take part in such capers?

Of course, it didn’t work on me, but then I decided not to become a journalist!

Review – How To Read A Book

How To Read A Book: The Classic Guide to Intelligent Reading

by Mortimer J. Adler, Charles Van Doren, published 1972

“Literate ignoramuses who have read too widely and not well”

HTRAB seeks to be a remedy for those described above who have read many books but understood little of any of them. As the authors define it, good reading is active reading, that is, it involves note-taking and and highlighting (write in your books to make them truly yours) and question-asking, with the ultimate question being, “What has the author tried to communicate to me and, assuming I’ve understood him, what do I think of what he has said?” A book is an absent teacher– it is ultimately your responsibility to answer on your own and for yourself the questions you might pose to it.

The 4 levels of reading

The authors set out four levels of reading, which are hierarchical in terms of complexity and skill required, and cumulative, in the sense that each level includes the skills and complexity of those below it while adding unique qualities of its own. The levels are:

  1. Elementary
  2. Inspectional
  3. Analytical
  4. Syntopical

Elementary reading is exactly what it sounds like, the most basic level of reading that all people learning to read initially experience. At this level of reading, one begins to comprehend the letters and words they form as being connected to or representative of concepts, actions, etc. Unfortunately, at this level of reading, comprehension doesn’t go much beyond this and even more tragically, few readers ever seem to graduate beyond this level, even during and after time spent in college. For elementary readers, books are full of words one must step and stumble over, but little meaning is ever found in them.

Inspectional reading is the beginning of true “reading for understanding”, which is the kind of reading HTRAB is primarily focused on. Inspectional reading is both a level of sophistication and a specific tool that can be used to heighten overall understanding and reading skill for one who “reads well.” It is a skill in the sense that an inspectional reader is able to draw out of a book its essential meaning and something about the way in which the author goes about it (as opposed to an elementary reader, who never quite gets that far, missing the meaning forest for the crowd of symbolic trees). It is a specific tool in that inspectional reading entails a deliberate process by which a reader examines the preface and introductory material of the book (or the first few pages) and the conclusion or epilogue (or last few pages) in detail, surveys the table of contents (if available) and index to get a feel for the overall structure, order and topics covered in the book and then jumps around at random through the middle of the book reading passages and pages of interest that appear to be central to the author’s theme and argument. In this way, an inspectional reader quickly learns what the book is about, how the author goes about elaborating upon it and, perhaps most importantly, whether or not it’s a message and artifice worthy of the readers attention and time.

Without this process, or at a minimum, familiarizing oneself with the table of contents, a reader who starts at the first page and tries to plow through is only making his reading more challenging because he is attempting to learn what he is attempting to understand (the topic and structure), at the same time that he is trying to understand it.

The three primary questions answered by an inspectional (summary) reading are:

  1. What kind of book is it?
  2. What is it about as a whole?
  3. What is the structural order of the work whereby the author develops his conception or understanding of that general subject matter?

Tools to prepare you for reading well

The authors suggest four essential questions to be asked by an active reader:

  1. What is the book about as a whole?
  2. What is being said in detail, and how?
  3. Is the book true, in whole or in part?
  4. What of it?

These are questions the reader should have always in the back of his mind as he reads, and which he should be able to answer confidently by the time he finishes.

The authors also recommend several techniques for “making a book your own”:

  • Underline major points and forceful statements
  • Make vertical lines in the margins for passages worthy of quoting at length
  • Stars, asterisks or other markings in the margins where the ten or twelve most critical points are made throughout the book
  • Numbers in the margin to catalog the points of an argument being made sequentially
  • Numbers of other pages in the margin indicating where in the text an idea is revisited or referenced
  • Circling of key words or phrases, similar to underlining
  • Writing in the margin or top or bottom of the page or at the end of a chapter as endnotes, to record questions (and answers), a simplified thesis of what you have read or to catalog a sequential argument in concentrated form

Several other techniques and methods are discussed in HTRAB which are critical to reading well. One is to study the title of the book and learn what you can from it. Authors usually take care in naming their books and the titles give significant clues about what the book is and is not about. Another is to practice stating the unity of the book– in a sentence or a paragraph at most, explain what kind of book it is, what it is about and list the devices the author employs to explore that theme. A final tool is to keep in mind the author’s intentions at all times– every book is written ostensibly to solve a problem, which the book is supposed to be a solution for, which begs the questions, “What is the problem the author wanted to solve by writing his book?” and “What solution does he offer to the problem in writing his book?”

The process of analytical reading

The third level of reading, and the most critical for all who wish to learn to read well, is the analytical level. At the analytical level, the primary intention of the reader is to be thorough, complete and to read for understanding. Some of the tools previously discussed are, in fact, part of the analytical reading toolkit. In total, the process or “rules” for analytical reading are:

  1. Classify the book according to kind and subject matter
  2. State what the whole book is about with the utmost brevity
  3. Enumerate its major parts in their order and relation, and outline these parts as you have outlined the whole
  4. Define the problem or problems the author is trying to solve
  5. Come to terms with the author by interpreting his key words
  6. Grasp the author’s leading propositions by dealing with his most important sentences
  7. Know the author’s arguments, by finding them in, or constructing them out of, sequences of sentences
  8. Determine which of his problems the author has solved, and which he has not; and as to the latter, decide which the author knew he had failed
  9. Do not begin criticism until you have completed your outline and interpretation of the book (do not say you agree, disagree, or suspend judgment, until you can say, “I understand.”)
  10. Do not disagree disputatiously or contentiously
  11. Demonstrate that you recognize the difference between knowledge and mere personal opinion by presenting good reasons for any critical judgment you make
  12. For criticism, special criteria apply such as: show wherein the author is misinformed, uninformed, illogical or incomplete

I made a note of some other helpful tips for reading well analytically:

  • the important words (in the sense of being critical to the author’s argument) are the one’s that give you the most trouble
  • one clue to an important word is that the author quarrels with other writers about it
  • if you never ask yourself any questions about a passage, you cannot expect the book to give you insights you did not already possess
  • it is best to do all you can without outside help because if you act on this principle consistently you will find you need less and less of it (and take more and more from your reading)

Bringing it all together: syntopical reading

Syntopical reading is the reading of multiple books, with similar topics, in order to synthesize a “conversation” amongst and between the authors. The beauty of this method of reading is it allows one to pit perspectives and arguments from differing backgrounds and even differing time periods into one intellectual commons. It also allows the reader to get a “full measure” of the literary world’s treatment of a given subject. It can be performed by either multi-inspectional reading of various titles, or multi-analytical reading of those same titles.

The steps of a successful syntopical reading are:

  1. Creative a tentative bibliography of your subject
  2. Inspect all of the books in the bibliography to ensure they’re germane and to get a clearer perspective of the subject itself
  3. Inspect the books amassed to find the most relevant passages to the subject matter
  4. Bring the authors to terms by constructing a neutral terminology that all authors can be assumed to agree with, even if they didn’t employ such terminology themselves
  5. Establish a set of neutral propositions for all of the authors by framing a set of questions to which all or most of the authors can be interpreted to have provided answers, whether they actually treat the questions explicitly or not
  6. Define the issues, major and minor, by lining up the authors’ respective viewpoints on one side or another
  7. Analyze the discussion by ordering the questions and issues so as to throw maximum light on the subject

An afterword

Despite my efforts at being analytical, this review was something of an inspectional survey itself. One thing I took away from my reading is that I do a lot of the things mentioned in the analytical reading process, although I actually neglect a lot of the inspectional reading elements and now realize their value. The reading also confirmed some of my biases by throwing into stark relief the inadequacies of many other people’s reading efforts I am aware of, either from direct personal experience or via interaction with their “interpretations” of ideas gleaned from things they have read. It is somewhat dismaying to realize how few intellectual opponents would qualify as “well read” analytical book users, and how inadequate their attempts at criticism are in light of this. One would be more satisfied to think one’s opponents were both more competent, and more honest, than that.

At the end of HTRAB, the authors provide a number of special tips for the reading of specific kinds of works (poems and plays, history, social science, hard science and math, etc.), as well as a bibliography of “great books” (similar to that found here) and a short essay on what reading well can do for an individual. Aside from the hopefully true suggestion that the mind-exercise provided by reading well can actually help one sustain the vitality and quality of their life even into old age, the discussion of the growing relationship one can develop with truly “great” books is comforting, as well. I think for me personally this passage resonated because of my own experiences reading what I refer to as “acts of philosophy” even when their subject matter is not philosophy per se (endlessly re-readable books like [amazon text=Security Analysis&asin=007141228X] and [amazon text=Human Action&asin=1610161459] which seem to give up new secrets and ideas with each new pass through).

Despite my epistemological misgivings about HTRAB (for example, could HTRAB, in and of itself, assist a person currently capable of nothing more than elementary reading to rise above themselves?), I do believe it itself is a title worth revisiting in the future. My first foray amongst its pages was admittedly quick and inspectional, and there were many passages I will admit I skipped just so I could get to the end and get this up on my blog. It may or may not be a “great” book (I believe I will suspend judgment on that for now), it is undoubtedly a “good” book with much to recommend it and I would encourage anyone who is interested, as well as my future self, to pick it up and give it a read.

Review – The Conscious Investor

by John Price, published 2011

This book was not what I expected to be and it certainly was not what I had hoped it would be. The reviews I had read of the book left me waiting in eager anticipation of its arrival in the mail because it sounded like it would do two things I had been looking to do: deliver crushing criticisms of various technical and non-value based approaches to investing; and provide a concise “how-to” as far as preparing an intrinsic value-based financial analysis of business or investment idea.

With regards to the former, Price delivers, but not courageously. His breakdown of various analytical approaches, while thorough, ultimately is not very helpful. Each analytical methodology is described and then followed by a list of strengths and weaknesses, but no decisive conclusion is reached. Surely there’s nothing wrong with leaving it to the reader to make up his own mind, but there’s no objective scale provided or suggested for weighing the strengths and weaknesses of each– it’s hard to tell just from reading whether any particular strength outweighs a weakness, or vice versa. I would’ve liked it if Price had added his two cents about each rather than trying to be dry and officiously neutral.

As for a concise how-to on value investing, this was one of those books where you keep turning the page hoping the author is going to get to the point and suddenly you turn the last page and you’re confronted with the back flap of the book and all you can do is shout out in frustration, “That’s it?!”

The title of the book seems contrived in relation to its content. “The Conscious Investor”, as opposed to an unconscious one? I assume Price is suggesting a level of awareness, but there is an important qualitative difference about being aware of many different concepts and actually understanding their meaning and significance. I didn’t find the book to have much strength in that sense.

At one point, Price suggests that part of being a “conscious investor” means thinking about what it is, exactly, that you’re investing in, and what would be the implications of that investment succeeding. For example, say you invest in a company that manufactures ugly clothing. If the company is successful and your investment pays off, you’ll now be living in a world of ugly clothing everywhere you look. Is that the kind of world you want to live in?

It’s an interesting idea but a perhaps more important one is, “If the company is clearly undervalued, and I don’t invest in it for ethical reasons… does that mean no one else will recognize the undervaluation and invest, thereby preventing that world of [ugly clothing] from becoming a reality?” Whatever the answer to this question, this is clearly an aspect of being a “conscientious investor”, not a conscious one, so again I am left a bit perplexed by this book.

My disappointment and griping aside, there was some value in this book and I did highlight and underline a few things I had wanted to record here for future reference. But even at Amazon’s reasonable new book prices, knowing what I know now I see this book as overvalued, meaning I clearly overpaid and thereby suffered a permanent capital loss. But maybe that was what Price was trying to teach me the whole time, as a value investor.

Lesson learned!

Some notes and takeaways:

When reading financial statements and company filings, remember to “follow the money“, and ask (and try to answer) the following questions:

  1. How much money came in over the reporting period and where did it come from?
  2. What was it used for?
  3. How much money did the company manage to keep?
If time is limited, reading the Management’s Discussion & Analysis (MD&A) section of company filings is critical, and the aim is “to answer the question whether the management is honest, rational and acting in the best interests of shareholders.”

Further, in the Proxy Statement (Form Def 14A), you should attempt to determine

whether the presentation on compensation in the Proxy Statement is clear and easy to understand. The overall level of compensation to management and directors relative to the size and performance of the business is important.

When studying earnings growth, as a common stock investor it is important to look at growth in EPS, not net income, because the company may be issuing large number of shares and diluting current shareholders even if it is successfully growing net income.

The quality of earnings is in doubt when net income substantially exceeds cash flow from operations. Ideally, positive cash flow conditions would yield:

  1. Cash provided by operations which are positive and trending upward
  2. Cash flows from operations are more than sufficient to cover cash used for investing (CFO > CAPEX)
Share buybacks must be done intelligently if they are to create value.
If you own shares in a company, but don’t think that it represents value to buy more, then welcoming actions of the company to buy back its own shares is not logical.

Mismatches between net and comprehensive income are also a warning sign.

If in most years the comprehensive income is consistently below the net income… the company has been accumulating losses in comprehensive income aside from the regular income, which may indicate that the economic situation is worse than it would appear from an analysis of the income statement.

A higher current ratio is not always better– sometimes a high current ratio means that inventory is piling up, or the company is extending larger amounts of credit to its customers than it ought to be through growing A/R. A low or downward trending current ratio is almost always a cause for concern, however.

With retail companies, it is important to examine growth of same-store sales to determine whether the company is growing simply through the opening of new stores versus expanding its business within existing stores. Also, high asset turnover is critical in a retail business, which normally has low margins, in order to leverage its returns.

Be vigilant with companies whose primary assets are intangibles, which, if developed internally, may not be represented on the balance sheet. “The smaller the role of intangible assets, the closer to book value a company’s market price is likely to be.”

And a Warren Buffett quote:

Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.

Further, according to Price,

Over time, whatever returns a company makes on its equity and capital will be approximately an upper limit on the return made by investing in the company’s stock.

Putting some of this together yields a few “rules” with regards to the P/E ratio:

  1. Know the history of the P/E ratio
  2. Do not buy unless the P/E ratio is toward the lower end of its historical range
  3. Compare the P/E ratio with the P/E ratios of competitors
  4. Compare the P/E ratio with the average P/E ratio for the same sector or overall market
  5. Be wary about buying when the P/E ratio is high
  6. Look at the earnings yield, which suggests a minimum return that can be anticipated if earnings remain steady, with anything more caused by growth in earnings

“Find companies with high and consistent return on equity and not too much debt. Try to determine what is special about them– what economic moats do they have?”