I had such a great time reading Business Adventures by John Brooks. As someone who might as well have been the father of Michael Lewis, John Brooks is simply a fantastic writer.
Even though the book is written from a collection of twelve New Yorker articles in the 1960s, each story is as relevant to business today as ever. The settings might have changed but the key lessons have not, because the rules of business success and failure haven’t. That is why the book is up there as one of my favorites on the shelf.
I’m not alone in this opinion. Since Bill Gates blogged about his admiration for the book, it has been relisted at the top of the Amazon and New York Times bestseller lists.
Born in 1920, John Brooks grew up in the Roaring Twenties, lived through the Great Depression, graduated from Princeton, and served in World War II, until becoming a contributing editor for Time Magazine. After writing for a couple of years, Brooks longed for a looser style and longer-form writing and moved on to the New Yorker as a financial writer which he called the lucky break that made his career.
Many of Brooks’s pieces were about business profiles and economic affairs throughout the 1950s and 1960s. While not being a breaker a big stories, Brooks realized early on that it was storytelling – and not financial jargon – that would propel readers through his pieces. He simply wrote about business, people, and how it went for them in a very intriguing way. And it served him very well.
Business Adventures consists of twelve stories from the business world and Wall Street with each comprising a chapter that details critical moments in American industry.
By the first impression, the stories appear rather unrelated but in a subtle way seem to reach every fragile key point of almost any business and its relation to capital providers. But what scrutinizing readers will find is that there is a common theme behind every story.
I think Brooks's purpose was for the reader to take a mental leap in getting to the conclusion and lesson for each story in order for it to sink in much better. Brooks does not deliver read-made solutions or answers but merely describes the stories and challenges of the human characters and stakeholders involved. It allows the reader to really think the issue through and discover how timeless the ideas really are.
Although it’s really kind of a shame to summarize Brooks’s stories since one in no way can capture his brilliant, thorough, and thrilling storytelling, here is a quick recap for you to get an idea of what each of his stories is about:
The 1962 market flash crash: Over the course of only three days, fear and panic lead the stock market to crash tragically only to recover one day later. No one could find any rational explanation for the crash, and when the Dow came close to hitting 500, mutual funds stepped in and bought aggressively. The lesson showed that investors are irrational and that markets are unpredictable guided by mood.
As J.P. Morgan said about the only thing that can be predicted about the markets: “It will fluctuate”.
The 1962 flash crash is a great story about the role of the exchange, mutual funds, and retail investors.
The fate of the Edsel: In 1955, Ford developed what was determined to be its new flagship car but which turned out to be a historical fiasco. Today, it’s a timeless case study on how not to develop and launch a product. The Edsel was supposed to be the ultimate choice of car by middle-class Americans created by excessively poll-testing every feature of the car, but that’s not exactly how it went.
As Bill Gates explains on his blog:
[Brooks] refutes the popular explanations for why Ford's flagship car was such a historic flop. It wasn't because the car was overly poll-tested; it was because Ford's executives only pretended to be acting on what the polls said.
"Although the Edsel was supposed to be advertised, and otherwise promoted, strictly on the basis of preferences expressed in polls, some old-fashioned snake-oil selling methods, intuitive rather than scientific, crept in."
It certainly didn't help that the first Edsels "were delivered with oil leaks, sticking hoods, trunks that wouldn't open, and push buttons that … couldn't be budged with a hammer."
Ford ended up spending $250 million in developing the car and lost a total of $350 million.
The U.S. federal income tax system: Over the years, the U.S tax system had become very complex and convoluted. The system was so filled with loopholes that richer citizens were able to evade considerable taxes by hiring better lawyers. It was a very complex problem to solve. The only real recourse would be to scrap it and revert it back to its simpler 1913 state.
Texas Gulf insider trading case of 1959: Texas Gulf found huge sulfur mines in Eastern Canada, and when executives of the company found out, they began accumulating shares and telling their families to follow suit all the while keeping the public in the dark. When the rumors spread that the company had discovered something worthy of interest, Texas Gulf held a conference downplaying the case and spreading disinformation. When the news was finally revealed, the stock price shot up and everyone who had bought it became very wealthy.
The problem at the time was that insider trading laws hadn’t been properly enforced before, which posed important questions like when information exactly becomes official. In the end, the SEC issued a guilty verdict against Texas Gulf insiders and insider trading has been regulated extensively ever since.
The story of Xerox: When Xerox launched the copy machine in 1959, the popularity took off in a huge way and the company became a significant market leader in copiers. But by 1964, the company earned so much money that executive attitude started to become complacent. Even though Xerox had worked up a huge R&D department, the company failed to capitalize on its ideas and research. Others started to develop products based on Xerox’s own research and started to overhaul. It's is one of my favorite stories from the book.
The rescue of Ira Haupt & Co: A brokerage firm ends up in trouble by a collateral issue with one of its clients. The New York Stock Exchange, in collaboration with banks, ends up bailing them out. At the time, it prevented a financial crisis in the heat of national panic. This story has interesting parallels to the Long-Term Capital Management bail-out which happened about 40 years later, threatening to take down the global financial system.
Miscommunication at General Electric: From the years of 1956 to 1959, 29 companies selling heavy electrical machinery engaged in illegal price fixation. When it was found out that General Electric was the leader in this scheme, the matter was brought before the court and senate subcommittee. No higher-level executives from General Electric were charged. This story is an interesting case of how executives can blame immoral or criminal actions on communication errors.
The Piggly Wiggly story: Clarence Saunders invented the first self-service grocery store called Piggly Wiggly. When some Piggly Wiggly franchises operating in New York ran into financial trouble, word quickly spread, and the Piggly Wiggly share price plummeted being started by a bear raid of short-sellers. Wanting to teach these short-sellers a lesson, Saunders decided to corner the market of the company’s stock. Using largely borrowed money to fulfill his idea, he was able to drive up the share price three-fold.
However, the short-sellers were able to convince the exchange to suspend trading and later grant an extension for these short-sellers to pay up.
Saunders’s position was not tenable due to his debts, and he eventually suffered so large losses that he was forced to declare bankruptcy.
The story of David Lilienthal: A highly influential government employee moves on to work in the private sector and creates a great career.
Serving as chairman at the Tennessee Valley Authority in charge of developing and distributing cheap hydroelectric power in areas that private providers didn’t cover and later as first chairman of the Atomic Energy Commission, Lilienthal decided to finally leave public office in 1950.
His background in the energy field made him fit to start his private business in minerals and so he acquired the distressed Minerals and Chemical Corporation of America and became widely successful in turning it around.
Here's a great excerpt from Lilienthal's diary at his early years in the business world.
Business has its man-eating side, and part of the man-eating side is that it’s so absorbing.
Making a million – I was surprised of course. It’s like when you are a boy and you try to jump six feet. Then you find you can jump six feet, now what?
Amid old government employees accused him of being a sell-out, Lilienthal wrote a controversial book on how important big business is to society.
The power of shareholders: This story includes descriptions of Brooks’s experiences by visiting several shareholder meetings.
Although companies’ boards are elected by the shareholders, it was a general observation that directors at big corporations did not view the shareholders as their bosses. Cases that Brooks wrote about involved management making attendance to the meetings hard and avoiding critical questions by droning on about the company’s great performance and brilliant future.
Brooks found that smaller shareholders cared more about regular dividend payments while appropriate corporate governance depended on professional investors challenging the company through activism.
Wohlgemut’s secret: Donald Wohlgemuth, a scientist, decided to switch job from the space suit engineering department of B.F. Goodrich Company to International Latex, a competitor.
At the time, the race to reach the moon was in full swing and Goodrich was the leader as supplier to spacesuits. However, when Goodrich lost the contract for the Apollo project to International Latex, Wohlgemuth received an offer from the competitor with a prestigious responsibility and salary, and he jumped at it.
Obviously, Goodrich wasn’t pleased and was frightened that Wohlgemuth might reveal vital trade secrets. So, they decided to sue him.
The case became of a very philosophical nature without precedent. If one hasn’t broken an agreement or shown intention of doing so, can preemptive action be taken against them on the assumption that they will? The court finally decided that he could not found guilty and he was free to enter the position with International Latex. That court decision marked an exemplar of employee rights for the future to come.
The attack of pound sterling: A neatly told story about the fragile Bretton Woods system initiated in 1944. When the pound came under attack from speculators and hedging businesses in 1964, central bankers around the world felt obliged to defend it, and Britain was at last forced to devalue the currency in 1967. The book’s ending story is a great lesson on the power of the free market and the forces going behind a fixed currency system.
That Brooks has documented these stories in such detail really is a gem. How else would you find out the entire story leading up to the launch of the world’s ugliest car? Or how a culture of miscommunication, intended or unintended, can spread slowly throughout an organization like Gresham’s Law? It's hard to find anything better in understanding how these things come into being than by reading John Brooks's work.
After reading Business Adventures, it was very clear to me what Brooks’s central theme is throughout every story. Business success and failure, including that of the stock market and the economy, is about human behavior and that will never change.
To really master business, one has to be able to identify and navigate destructive human behavior - and to unleash human potential.