Enough by John C. Bogle

Is there no limit to what enough is in modern society? Capitalism is at play. Management earn obscene amounts of compensation. Greed can cause a system’s downfall. How long can materialism and greed last? I have been given enough, in more aspects than just financially. My great grandfather was incredibly thrifty. My family was fraught with financial difficulty. I had to work when I was young in order to feed the family. I learnt to accept responsibility when I was young. I did well in school and mum put in so much effort into investing in my education. My attitude in life has been influenced by my family. The first ‘diamond’ of my life was my admittance to the Blair Academy. My family was incredibly close-knitted and that helped a lot. Later, I got admitted to Princeton University on a full scholarship. Even then, I had to take up temporary jobs for me to get paid. However, my parent’s marriage fell apart after that. I discovered that the mutual fund was new at that time and wrote about it. Mr Morgan was the boss of Wellington Fund. When I was 35, he said I could take over the firm. After a disagreement with the other shareholders, I got fired. My business model was to manage our affairs internally and not require any external party to manage it. Vanguard would have to do everything in-house if it wanted to succeed. Before 1875, I founded the world’s first index mutual fund. The fund didn’t need to be managed as the returns would track a basket of stocks that were representative of an index. ‘If you build it, they will come.’ Thankfully, we got approval from the SEC too. A donated heart was one of my ‘diamonds’ too. This heart enabled me to live healthily. Be blessed by the number of diamonds you have. Humans are all too interested in short-term gains. Companies should recount their past values which enabled them to thrive. Virtue doesn’t come from money. It comes from doing good.

Some men wrest a living from nature and with their hands; this is called work. Some men wrest a living from those who wrest a living from nature and with their hands; this is called trade. Some men wrest a living from those who wrest a living from nature and with their hands; this is called finance. – Old Epigram from 19th Century Britain

There is a food chain and the investor is at the bottom of it. The financial system cannot be too costly. We are often trading paper and paying bankers too much. In addition, the financial system is fraught with complexity. Young graduates like to enter banking. We should strive to do good in our jobs. Never let money alter your conscience. Do not invest in products which require you to pay high management fees etc. Serving your client is the highest priority. The sub-prime crisis was an example of extreme greed. The finance sector takes up too much of the earnings of the S&P 500. Sometimes, the markets crash but those people in IB keep making money. The ex-CEOs of Citigroup and Merrill Lynch were paid very well just before the sub-prime crisis. They were not penalised heavily after that. However, bankers earned nothing as compared to the hedge fund managers. The hedge fund industry demands high management fees and investors can’t survive. The number of CFAs are increasing all the time. There is an inherent disconnect between cost and value in our financial system. Humans have abandoned the traditional standards of investing. The author looks up to people like Benjamin Graham and uses value-investing. Speculation is rife nowadays. The cumulative costs keep growing. Does the financial system create more value than cost? My fear is that the finance sector is getting too big and out of control. There needs to be a financial system reform. As public investors, we should demand more from our financial system.

The motivation of too many of those rushing into finance is more aligned with what they can get from society than what they can give back to it. – John C Bogle

Too Much Speculation, Not Enough Investment. Investing is about long-term ownership of the business. Speculation is just the opposite and is about short term gains. One of Keynes’ famous works is the ‘General Theory of Employment, Interest and Money’. In the long run, the stock price must be aligned with the business fundamentals. Speculators cannot capture the inherent value in a stock. Markets are volatile because of speculators. In the expectations market, prices are set based on the expectations of investors. These are not based on ‘real value’ per se. We live in an era of speculation. However, it is true that investors win and speculators lose in the long run. Stock markets have crashed, just like on Black Monday in 1987. Short term outcomes can’t be predicted accurately nowadays. There have been little cases of black swans in the long term market. The financial system is prone to innovation. Learn to emulate tortoises. Market timing is not sound. Market timing doesn’t work. It is difficult to make the right decision consistently on market timing. We need to improve the balance between entrepreneurial innovation and more traditional values. We cannot allow the whirlwind of speculation to continue unabated.

In investing, tortoises tend to win far more often than hares over the turns of the market cycle…Placing large bets on an unknown future is worse than gambling because at least in gambling you know the odds. Most of the decisions in life motivated by greed have unhappy outcomes. – Peter L. Bernstein

Too Much Complexity, Not Enough Simplicity. Simplicity has been the key to successful investing. Technology has complicated our lives. There are many middlemen in a CDO offering. Some banks are also not concerned with the creditworthiness of such offerings. The market has been flooded with interest rate swaps, credit default swaps etc. The value of the derivatives market is huge. ‘As long as the music is playing, you have to keep dancing.’ The Federal Government has also backed such offerings. It is better to buy an index fund as it has better returns. Innovations have hurt investors. The winners are usually the fund managers or distributors. Innovations like stock index fund, bond index fund have done investors well. ETFs are great. However, they are being traded too frequently, leading to speculation. Some ETFs also do not contain stocks that track the stock market index. There are many different types of funds nowadays, like market neutral, hedging, commodities, private equity etc. However, please examine the track record before buying. Commodities are purely speculative in nature. Fund expenses must be cut if investors are to gain. Fund failure rate is very high amongst idiosyncratic funds. Some funds are not concerned with shareholder performance. It is time to get down to basics. The author believes that the simple way is the best way. The mutual fund industry often fails to provide market-beating returns. The fund manager should serve investor’s interests.

Too Much Counting, Not Enough Trust. We often place too much emphasis on numbers and trust them. Then, we have optimistic views on the future because of them. Even numbers produced by the government can be questionable at times. We need to understand the sources of stock returns. Do not project future returns based on past historical rates. This causes the expected rate of return of investments to rise. The bubble of investor optimism will have to burst someday. It is smarter to set your expectations for future earnings on basis of current sources of returns. There is a bias towards optimism in the future. CEOs often paint too optimistic pictures for earnings and analysts tend to agree with them. The standard for analysts has changed from GAAP earnings to operating earnings. Pro-forma earnings also exclude all the one-time losses etc. Creative accounting is a big issue nowadays. Pension holders might lose money on their investments and this will have other repercussions as well. Businesses like to use M&A to create ‘value’. For each M&A deal, the bankers and lawyers earn huge sums of money. ‘Paper’ companies have acquired ‘rock’ companies that make. In Vanguard, we believe in organic growth, not forced growth. Nowadays, we do not know how to ask without any numbers and this is a scary fact. Trust is important.

The first step is to measure what can be easily measured. This is okay as far as it goes. The second step is to disregard that which cannot be measured, or give it an arbitrary quantitative value. This is artificial and misleading. The third step is to presume that what cannot be measured really is not very important. This is blindness. The fourth step is to say that what cannot be measured does not really exist. This is suicide. – Daniel Yankelovich

Modern capitalism has two parts: there’s business, and there’s finance. Business is renting you a car at the airport. Finance is something else. – Michael Kinsley

Too Much Business Conduct, Not Enough Professional Conduct. Professional associations are now run like business enterprises. However, professionals should be responsible and selfless in their service towards their clients. Times have changed nowadays. Professional conduct is less well regarded as in the past. Too many banks are seeking competitive advantages at the expense of their customers. The battle for professional independence is never won. Trust and be trusted. Capitalism has eroded as well and this is a big issue. Owners’ capitalism has been transformed to managers’ capitalism. Institutional investors are a big thing nowadays. Managers are not acting as they should for their principal. Beware of negligence and profusion have prevailed among corporate management. How much should the CEO be compensated? It is hard to determine how much value a CEO has added. Sometimes, their salary growth outstrips the corporate profit rate. There are accountability issues. Institutional money managers hold a lot of power. CEO stock based compensation should be based on intrinsic value and not actual stock price. The compensation consultant has also become more popular. Many CEOs are also paid according to how they fair in their peer group. A basic set of ethical principles is needed to guide the profession. Financial engineering is getting more and more popular. Capitalism must be fair, regulated and ethical.

Money management extracts value from the returns earned by our business enterprises, and in the process of maximizing its own commercial benefits, the industry seems to have lost its professional bearings. – John C Bogle

Too Much Salesmanship, Not Enough Stewardship. The industry is characterized by salesmanship too. Mutual fund size has grown by a tremendous rate recently. Fund investors start trading funds instead of simply holding them. The holding period for stocks has been cut from 6 years to 1 year. Fund costs have soared as well. The fund industry is more like a marketing industry now. Investment focus has been truncated. Some funds are only created because of the latest market fad. There is a need for reform. We need to cut down costs for investors. Serve the investor for a lifetime. There are too many choices of funds out there and this makes people confused. There is a need to have long term investment horizons. Serve the long term investors. We must all return to the index fund. Put fund investors in the driver’s seat. Shareholder education takes time. The industry should aim to be objective and unbiased. We need to have an industry that is of the shareholder, by the shareholder, and for the shareholder. We need a mutual fund industry with vision and values. We must build companies that stand for something. Stewardship will pay off. It is important to keep the faith every day.

Too Much Management, Not Enough Leadership. Our large corporations are over-managed but underled. Managing and leading are completely different. The leader is more original. The leader should be able to inspire. They should care about the deeper values of the organization. There are 10 rules for building a great organization. 1) Make caring the soul of the organization. 2) Forget about employees (call them crew members instead). 3) Set High Standards and Values – and Stick to Them. 4) Talk the Talk. Repeat the Values Endlessly. 5) Walk the Walk. Action Speaks Louder than Words. 6) Don’t over-manage. 7) Recognize Individual Achievement. 8) Loyalty is a Two-Way Street. 9) Lead and Manage for the Long-Term. 10) Press On, Regardless. A superior company thinks about its dream. It also applies unconventional thinking. We were based on value profit chain concepts. I built a company that would endure. Businesses should have purposes besides making money.

The institution must be the object of intense human care and cultivation. Even when it errs and stumbles, it must be cared for, and the burden must be borne by all who work for it, all who own it, all who are served by it, all who govern it. Every responsible person must care, and care deeply, about the institutions that touch his life. – Howard W. Johnson

Too Much Focus on Things, Not Enough Focus on Commitment. Where are the things by which one measures one’s life? Don’t let things measure the man instead. Life is never smooth and we might lose our wealth one day. However, your character is the one that will endure. Boldness and commitment is all important. Commit the most to make a second life. It is crucial to be committed to your family. Commitment to neighbours and the community is also important. We thrive as human beings and have faith in ourselves. Give credit to those who have helped you along the way. You didn’t succeed on your own. Be bold and summon your magic.

Too many 21st century values, not enough 18th century values. Do not move away from the truth. Facts are everywhere. The Age of Reason occurred in the 18th century. Many of the great leaders spoke about the period of Enlightenment. Benjamin Franklin was a great leader in the 18th century. Joseph Schumpeter also described what an entrepreneur ought to be. Entrepreneurs and capitalists are not the same. Have the will to conquer, and the joy of a good battle. Franklin invented many tools for the public’s benefit. There are other motives for business other than profit. A man should have a mind to improve, a heart to cultivate and a character to form. Keep striving to improve. Return stewardship to capitalism. Lead with purpose. Virtue is all important. Franklin listed 13 virtues. He started his day by asking ‘What good shall I do this day?’ and ended it with ‘What good have I done today?’ His energy and persistence helped him in his public life.

Knowledge is not the personal property of its discoverer, but the common property of all. As we enjoy great advantages from the inventions of others, we should be glad of an opportunity to serve others by any invention of ours, and this we should do freely and generously. – Benjamin Franklin

The real test for an honest and productive society is not what a society has achieved, but what it aims to achieve. It can put honest people on a pedestal even if they do not maximize their personal benefits and preferences…and discard and shun as models of failure dishonest people who achieve their highest ambitions by fraud and abuse of trust. – Tamar Frankel

Too Much ‘Success’, Not Enough Character. We often chase success but success continually eludes us. Is success all about achieving wealth and fame? Financial wealth is not a good measure of success. Fame is a flawed measure too. Fame is used for other purposes now. One can contribute to society in a great way but yet not be famous at all. Power should not be used capriciously and arbitrarily. Power should be used for a worthy cause. Have we been chasing the fake rabbit of success? Success isn’t about meeting other people’s expectations too. You should just base success on your own expectations and make the most of your talents. We should admire those people in professions where they can contribute to society, but not achieve any fame or recognition. Modern life has forced people to be competitive. Life demands much more of us nowadays. What are you competing for? Without character and courage, nothing else lasts. To hone character, one must undergo tribulations etc. Be yourself and strive to be better. With age, you should better understand where the rabbits are. Challenge yourself and strive to be better. Chase the real rabbits of your life.

Success can be measured in our contributions to building a better world, in helping our fellow man, and in raising children who themselves become loving human beings and good citizens. Success, in short, can be measured not in what we attain for ourselves, but in what we contribute to our society. – John C Bogle

I long to accomplish a great and noble task, but it is my chief duty to accomplish humble tasks as though they were great and noble. The world is moved along, not only by the mighty shoves of its heroes, but also by the aggregate of the tiny pushes of each honest worker. – Helen Keller

Highly educated young people are tutored, taught, and monitored in all aspects of their lives, except the most important, which is character-building. But without character and courage, nothing else lasts. – David Brooks

What’s Enough? What is the relationship between happiness and success? Success is not the key to happiness, happiness is the key to success. Humans are resilient. Money only provides a transitory form of happiness. Autonomy, social interaction and competence are all important. How much money do you need? I want to give something back to the less fortunate. For example, give back to your alma mater. I also offered scholarships to the Blair students. It has been a thrilling ride indeed. I was born to save rather than spend. Our shareholders also have received superior returns. I do not like extravagance. My retirement plan is the largest in the family balance sheet. Saving early and regularly is the key for wealth accumulation. Postpone your first payment for Social Security. Stick with low-fund fees. There are still many people living in poverty in the US. The income disparity is growing. You must remember that you are fortunate but not all fellow Americans are enjoying it. The domination of the US will not happen forever.

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The Pearl by John Steinbeck

Kino is a fisherman, Juana is his wife and their baby is named Coyotito. Kino and Juana were both awake now. Kino was very attune to the sea and the natural environment. It was a perfect morning. His wife sang family songs to Coyotito. Kino entered the brush house now. He and his wife rarely spoke, but they were very close to each other. Suddenly, there was a scorpion on the rope and it was approaching the box where Coyotito was resting in. Juana started chanting, in the hope that the scorpion would leave. It was in that moment that the scorpion bit Coyotito. Just following that, Kino crushed it. Juana tried to use her mouth to suck out the poison from Coyotito. Coyotito screamed in pain. The baby had a real chance of dying from the sting. Kino was impressed by the bravery of his wife. The doctor didn’t visit the brush houses as he often attended to richer patients. Juana decided to head to the doctor instead. Juan Tomas was Kino’s brother and Apolonia was his wife. The whole community soon got to know of this incident. The doctor was apparently a very cruel man. The doctor was from a race that despised Kino’s in the past and Kino had second thoughts about visiting him. He dismissed the case, saying that he didn’t help ‘little Indians’. The messenger revealed to Kino that since he could only offer pathetic pearls as payment, the doctor did not want to see him. The villagers were in disgust. Kino was literally shamed in public. In anger, Kino punched the gate with his fists.

Canoes were parked alongside the beach. A hazy mirage was forming in the air. Kino and Juana headed to their canoe. The canoe they owned was 3 generations old. It guaranteed at least a supply of food via fishing. Kino took delicate care of the canoe. Coyotito was puffed and feeling feverish now. Juana applied seaweed on Coyotito’s shoulder. Now, she was praying that Kino could find a pearl as a means of paying the doctor. However, finding one was never easy. Now, Kino started tearing the oysters apart and placed them in a basket. It would take a great deal of luck to find a pearl in an oyster. Juana, still on the canoe, started singing the Song of the Undersea. Now, Kino surfaced with his haul. There was an oyster which was not surrounded by others and he grabbed that as well. Reluctantly, Kino opened his largest oyster. Inside it, was a pearl, perfect like the moon. It was a brilliant pearl, possibly the largest in the world. It had perfect curvature. The swelling in Coyotito was subsiding.

It is not good to want a thing too much. It sometimes drives the luck away. You must want it just enough, and you must be very tactful with the gods. – John Steinbeck

News spread like wildfire. Everyone knew that Kino found the best pearl around. The doctor now proclaimed that Kino’s son was his victim and fantasized about heading to Paris. It was the Pearl of the World. Now, many people took interest in Kino, and many of them were just trying to be greedy. The town was venomous now. Kino and his family didn’t know that yet. Kino proclaimed that he would get married with Juana and then they could have a grand wedding with new clothes. Kino now fantasized about getting a rifle. Humans are never satisfied. Now, Kino also believed that the new found wealth could be used to develop Coyotito’s education. Suddenly, the priest appeared from nowhere. In a quick turn of events, Kino sensed that song of the pearl was evil now. Kino knew he had to face the world, where others set up to destroy his dream and ambition. It was then that the servant and his doctor paid Coyotito a visit. He warned them that the scorpion might dissipate for a while, but there would be lingering effects on the body. Kino didn’t know much about the sting and let the doctor into his house. The doctor knew that Kino couldn’t take a risk on his son. The doctor gave Coyotito some medication to consume. Kino concealed the pearl in a rag and placed in at the corner of the house. Now, the baby was flushed and was suffering from stomach cramps. Coyotito vomited. The neighbours thought that luck brought bitter friends. Now, the doctor re-entered and gave the baby 3 drops of ammonia. However, Kino was suspicious of the white powder that the doctor first administered as a form of medication. Kino vowed to pay the doctor after he had sold the pearl. Kino moved the pearl to a location under his sleeping mat. His behaviour was suspicious in nature. No one could be trusted. Late into the night, Kino heard footsteps. Kino stabbed at the creature with a knife, forcing it to retreat. In that process, Kino got slightly hurt. Juana proclaimed that the pearl has brought them evil and she wanted to dispose of it immediately. Kino took out the pearl, stared and it and they began the day with hope. It was necessary to send Coyotito to school in order to break out of the poverty cycle.

Every man suddenly became related to Kino’s pearl, and Kino’s pearl went into the dreams, the speculations, the schemes, the plans, the futures, the wishes, the needs, the lusts, the hungers, of everyone, and the only one person stood in the way and that was Kino, so that he became curiously every man’s enemy. – John Steinbeck

If every single man and woman, child and baby, acts and conducts itself in a known pattern and breaks no walls and differs with no one and experiments in no way and is not sick and does not endanger the ease and peace of mind or steady unbroken flow of the town, then that unit can disappear and never be heard of. – John Steinbeck

Everyone knew that Kino would sell the pearl today. The fishermen all didn’t fish that day. Many wished that the pearl would not destroy a good man like Kino .In the past, people used agents to sell their pearls. But the agents all disappeared. It was best to do it alone this time. Kino removed his pearl and showed the buyer. The man offered him a thousand pesos and said that it was too large and was like fool’s gold. Kino was angry at his reply. The pearl was large but it was a strange colour. The dealer challenged Kino to go ask other people to value his pearl. The first dealer did not want to bid for it, calling it a monstrosity. The second guy said that it wouldn’t last long. The final dealer offered 500 pesos. Kino complained that he was cheated and wanted to head to the capital now. The last deal was 1500 pesos. Kino was not convinced. Kino’s actions were rated differently by the villagers. Some thought he was brave, some thought he was stupid for heading to the capital when he had no guarantee he could find another buyer. His brother was fearful that Kino was walking on dangerous territory where he didn’t know the way. Kino was brooding and occasionally turned to his wife for support. Someone later stabbed Kino. Blood was oozing from him and Kino was only half conscious. Juana helped him and nursed him now. She wanted him to dispose of it, but Kino clung on to it and refused to let it go.

The next day, they would head to the capital on their canoe. In the night, Juana tried to throw away the pearl into the ocean. Kino saw her in the nick of time and hit her in anger. Juana didn’t appear frightened and knew that Kino was half insane and half god. Later, Kino killed a man, who he thought stole the pearl. However, the pearl was actually still in Juana’s possessions. Kino realized that a large hole has been found in his canoe. Someone had sabotaged it. Kino was filled with rage and behaved like an animal now. Their house was also lit ablaze. Thankfully, the baby was safe. In order to seek refuge, Kino went over to his brother’s house. His brother was disappointed at the turn of events but vowed to protect Kino and his wife and child. The wind was favourable for Kino to travel.

This pearl has become my soul. If I give it up, I shall lose my soul. Go thou also with God – Kino

Kino was glad that there would be no tracks when he moved about. Kino experienced a rush of exhilaration. They walked all night. Now, it was warm again. Kino didn’t manage to see who attacked him. He dreamt of what he could do with the money earned from selling the pearl. Juana did not sleep. Now, they sensed some trackers and could spot that one of them had a rifle. Kino could not cover his tracks well. Thankfully, the trackers left for the moment and didn’t manage to detect them. Kino thought about going into the mountains to escape from them. They went to high ground, although the terrain was bad. Kino now wanted to distract the trackers while his wife and kid went to hide. Juana refused, saying that they must stick together. Even the spring they came across was dry and barren. Finally, they managed to find some water. From the distance, he spotted 2 trackers. Now, their plan was to hide in the shallow caves. Now the three trackers climbed the slope and started eating. Kino’s plan was to get to the man with the rifle first, while the other two men were sleeping. Kino removed his white shirt as it would attract attention in the darkness. Then he was gone. Kino was creeping quietly down the mountain. Now, 20 feet separated him and the enemy. The moon suddenly emerged from the clouds and Kino knew he was too late. Then the watchers heard a cry of a human child. The man thought it was a coyote and cocked his rifle. Now, Kino leapt with his knife and slashed at the man. Kino was a deadly man. Now, Kino heard the crying sound again, it was the cry of death. Kino and Juana returned to their homeland. Kino had a rifle with him now. Coyotito was killed in the process of the battle. They stared at the pearl for a long time and recounted how Coyotito was killed. Finally, Kino flung the pearl away with all his might. The music of the pearl finally disappeared.

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The Big Short By Michael Lewis

To the author, bankers do not provide much social utility and they are highly overpaid. Not enough attention is paid to the fraud cases. Meredith Whitney, a nobody, shocked the bankers in Citigroup in Oct 2007 by claiming that they had mismanaged their assets. She was basically saying that bankers were stupid. People like John Paulson, Steve Eisman made a fortune betting against the banks.

Steve Eisman is from a research firm, Oppenheimer, which was run like a family business. He started off as an equity analyst. He built his reputation and eventually his opinions had the ability to stir the market. His peers described him as fearless, smart and honest. People on Wall Street think he’s rude, obnoxious and aggressive. In the early 1990s, subprime mortgage loans started. The plan was to turn all these loans into bonds/securities that can be marketed. The loans underlying the mortgage bonds were guaranteed by several government agencies. Many took to buying these mortgage backed securities (MBS). The point was to take the consumer from a high interest rate category to a lower one. Eisman hired Vincent Daniel to work for him. When you buy the MBS, you also assume part of the risk. Cheap loans are a way to make people feel rich. The subprime lending companies used shady accounting. Eisman moved to a hedge fund, Chilton Investment and analyzed consumer loans. The poor and middle income group gets neglected as the regulation does not really protect them. The teaser rates that the subprime companies offered were not true rates. Fuck the poor. Eventually, Eisman started his own equity fund. The credit quality was still good until the second half of 2005. ‘It was the golden rule. The people who have the gold make the rules.’

You have to understand. I did subprime first. I lived with the worst first. These guys lied to infinity. What I learned from that experience was that Wall Street didn’t give a shit what it sold. – Steve Eisman

The market might have learned a simple lesson: Don’t make loans to people who can’t repay them. Instead it learned a complicated one: You can keep on making these loans, just don’t keep them on your books. Make the loans, and then sell them off to the fixed income department of big Wall Street investment banks, which will in turn package them into bonds and sell them to investors. – Michael Lewis

Michael Burry got in on the act and short subprime mortgage bonds. He pored through financial statements and prospectuses. By 2005, the lenders had lost their game. They degraded their standards to boost loan volumes then sold the loans to the big investment banks. It was hard to borrow stocks/bond in the market. Therefore, Michael Burry decided to buy credit default swaps on subprime mortgage bonds instead (limited downside, max upside). He pestered the big banks to create that instrument. He was socially awkward and preferred emailing others instead. He had bipolar disorder. ‘My nature is not to have friends. I’m happy in my own head.’ He started his own investment blog. He started Scion Capital, which was a huge success. Michael avoided shorting stocks and engaged in value investing. This meant analyzing company financials closely; even those in the short term, the share price might be falling. He bought millions of dollars’ worth of credit default swaps from big banks, betting against the subprime loans. Many of his investors didn’t like the fact that he was moving away from value investing in equities. The banks become desperate and wanted to buy the credit default swaps he owned. He sold back those he owned to Greg Lippmann, a trader at DB/ However, Greg thought that being in the short position for these CDS would be beneficial as it was eventually sold to AIG.

I don’t take breaks in my search for value. There is no golf or other hobby to distract me. Seeing value is what I do. – Michael Burry

To succeed in a spectacular fashion, you have to be spectacularly unusual. – Michael Burry

The stock market is lot more regulated than the bond market. Therefore, it is easier to manipulate the bond market. Lippmann was a bond salesman for DB. Greg Lippmann (DB trader) was selling bonds (short position) offered by Deutsche Bank to Eisman even though he knew the bank would lose a lot of money. Eugene Xu, a Chinese national was responsible for churning the hard numbers for Lippmann. AIG were the ultimate insurers on the credit default swaps. Since it was unlikely that many investment-grade companies would default at the same time, it seemed like offering corporate credit default swaps made sense. However, the banks tricked them and sold them in essence ‘subprime mortgage CDS’. Goldman Sachs created the Collateralized Debt Obligation – to redistribute the risk of corporate and government bond defaults to the risk of subprime mortgage bonds. Goldman Sachs paid the rating agencies a huge sum of fees to get them from BBB rated initially to 80% triple A rated. GS got the rating agencies to think that the different ‘towers’ of BBB loans were diversified. Lippmann eventually when short on subprime mortgage bonds. Not many were willing to bet against the market at that time.

Senior management’s job is to pay people. If they fuck a hundred guys out a hundred grand each, that’s ten million more for them. They have four categories: happy, satisfied, dissatisfied, and disgusted. If they hit happy, they’re screwed up: They never want you happy. On the other hand, they don’t want you so disgusted you quit. The sweet spot is somewhere between dissatisfied and disgusted. – Greg Lippmann

Gene Park from AIG realized they were in trouble. Joe Cassano, head of AIG FP, was terrifying. Nobody dared to challenge him. He was like a dictator. It was like a bet on whether house prices would fall. In 2006, the subprime mortgage machine roared on despite AIG stopped insuring such CDS. AIG stopped selling credit default swaps to Wall Street. Lippmann met Eisman at a meeting. ‘The problem with someone who is transparently self-interested is that the extent of his interests is never clear.’ S&P changed its model to value subprime mortgage bonds. Loans made to poor immigrants were most likely to default. ‘Guys who can’t get a job on Wall Street get a job at Moody’s. FICO aimed to measure the creditworthiness of individual borrowers. The rating agencies used an average rating for FICO and the information could be easily rigged, such as placing greater weight on ‘thin-file’ FICO score. Even the people at the rating agencies didn’t know what they were up to.

We were doing every single deal with every single Wall Street firm, except Citigroup. Citigroup decided it liked the risk, and kept it on their books. We took all the rest. – Gene Park

Many institutional investors bought insurance on subprime as a hedge against their real estate stocks. Only a handful noticed that the market was collapsing. Even John Paulson heard Lippmann’s pitch. Housing prices started falling in the summer of 2006. Charlie Ledley sought to make money by betting on what was the least likely to happen on Wall Street. He believed private markets were more efficient than public ones. Charlie bought options on companies. They engaged in event driven investing. Ben Hockkett, a trader, joined Jamie and Charlie’s team. The losses were trivial compared to the gains. Eventually, they got DB to trade with them and an approved ISDA. They bought CDSs for Greg Lippman at DB. They soon exploited CDOs as it was cheaper than CDSs.

It’s really hard to know when you’re lucky and when you’re smart. – Charlie Ledley

As a private investor you are a second class citizen. The prices you get are worse, the service is worse, everything is worse. – Jamie Mai

Lippmann had to fork out huge premiums as the credit default swaps had not gone bad yet. The triple-B tranche of mortgage bond (CDO) was ‘the equivalent of three levels of dog shit lower than the original bonds.’ Wing Chau, a CDO manager, sold the CDOs to big multinational banks. He didn’t give a damn about whether the investors won or lose money. Charlie and Ben began to doubt what they were doing. None of them believed in gambling at the casino. Almost everyone there was in a long position. Many relied on the ratings from the agencies. They were all like underpaid government employees.

Who the fuck lends money to people who can’t make the first payment? – Steve Eisman

You know when you’re with someone who is intellectually powerful: You just know it. When you sit down with Richard Posner (the legal scholar), you know it’s Richard Posner. When you sit down with the ratings agencies, you know it’s the ratings agencies. – Steve Eisman

They weren’t getting satisfied getting lots of unqualified borrowers to borrow money to buy a house they couldn’t afford. They were creating them out of whole cloth. One hundred times over! That’s why the losses in the financial system are so much greater than just the subprime loans. – Steve Eisman

It was Jan 2007. The banks stopped offering CDS at this point, apart from Wachovia. Moody didn’t want to re-rate the bonds. The market was still surprising upbeat at this stage. Steve Eisman wanted to short a lot more positions, such was his confidence.

They didn’t know. They didn’t know their own balance sheets. I was sitting there listening to him (CEO of BOA, Ken Lewis). I had an epiphany; I said to myself, ‘Oh my God, he’s dumb!’ A lightbulb went off. The guy running one of the biggest banks in the world is dumb! – Steve Eisman

When I read it, Oh my God, this is like owning a gold mine. When I read that, I was the only guy in the equity world who almost had an orgasm. – Steve Eisman

Wachovia was a gift from God. It was like we were in a plane at thirty thousand feet, which had stalled, and Wachovia still had a few parachutes for sale. No one else was still selling parachutes, but no one really wanted to believe they were needed, either. After that, the market completely shut down. – Charlie Ledley

We turned off CNBC. It became very frustrating that they weren’t in touch with reality anymore. If something negative happened, they’d spin it positive. If something positive happened, they’d blow it out of proportions. It alters your mind. You can’t be clouded with shit like that. – Danny Moses

New financial instruments were created with the aim of lending to people who can’t repay. Michael Burry has Asperger’s syndrome. He can’t control what he was interested in. The banks will continue to attract such investors and hide from them their actual losses. ‘One of the oldest adages in investing is that if you’re reading about it in the paper, it’s too late.’ The big banks call the shots. Burry’s investors were extremely dissatisfied. Some even tried to sue him. People are always quick to criticize. To him, the market seemed fraudulent and delusional. The third quarter of 2007 was when the market truly headed downhill. This was the time the bankers started to bet against the market too. Despite the fact that he was now making money, his investors did not mention a word of gratitude.

I have always believed that a single talent analyst, working very hard, can cover an amazing amount of investment landscape, and this belief remains unchallenged in my mind. – Michael Burry

Howie from Morgan Stanley kept thinking of trades in order to fool the customer. It is possible to make loads of money at hedge funds. He took a huge risk by buying excessive CDOs on ‘triple A’ rated tranches of loans. He deceived himself. ‘The subprime mortgage market resembled a giant helium balloon, bound to earth by a dozen or so big Wall Street firms.’ Like most, he was delusional and was overly optimistic. Success is attributed to the particular individual, failure is collectively spread. ‘The correlation among triple-B rated subprime bonds was not 30%. It was 100%.’ ‘CDO were either worth 100% or 0%’. Howie left the firm. He made the single largest trading loss in history. 9 billion dollars. Even the CEO could not explain this. Even UBS got in on the act. Banking is a very important business and has repercussions on other sectors. It is very dangerous when customers start withdrawing their deposits.. Michael Burry was sick of finance and he decided to buy a guitar. LOL. ‘It was as if bombs of differing size had been placed in virtually every major Western financial institution. The fuses had been lit and could not be extinguished.’

This refers to both the financial institutions and the US citizens. In the same boat. All the banks were heavily leveraged. At 20:1 on average. Many of the CDOs were off balance sheet. People panicked and started to withdraw their money from money market funds. Interest rates spiked. Michael Burry eventually closed his hedge fund as he didn’t feel appreciated.

In 2008 it was the entire financial system that was at risk. We were still short. But you don’t want the system to crash. It’s sort of like the flood’s about to happen and you’re Noah. You’re on the ark. Yeah, you’re okay. But you are not happy looking out at the flood. That’s not a happy moment for Noah. – Steve Eisman

I sort of feel sorry for him because he’s a guy who is really smart who was basically wrong about everything. – Steve Eisman on ex-Fed Reserve Chairman, Alan Greenspan

Bonuses remained excessively high just before the crisis struck. The current crisis took its ideas from 1985. The crisis was caused by greed by both the investors and bankers. People were just interested in short term gains and neglected the possibility of long term losses. Freddie and Fannie Mae was nationalized. AIG had to be bailed out. Lehman Brothers, Bear Stearns, Wachovia, Washington Mutual collapsed. Merrill Lynch got bought over by BOA. Objective of TARP was to buy the lousy positions held by banks. The US Treasury simply gave billions to banks, as a ‘gift’. A major problem was the lack of sufficient regulation.

Derivatives are like guns. The problem isn’t the tools. It’s who is using the tools. – Michael Lewis

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Charlie and the Chocolate Factory by Roald Dahl

Augustus Gloop was a greedy boy. Veruca Salt was a girl who was spoiled by her parents. Violet Beauregarde chewed gum. Mike Teavee does nothing but watch television. Charlie Bucket was the hero.

Grandpa Joe and Grandma Josephine, and Grandpa George and Grandma Georgina. Mr and Mrs Bucket have a son named Charlie. The 6 grownups and Charlie stay in a wooden house. It was a very small house. They were very poor and had to sleep on mattresses. Mr Bucket worked at a toothpaste factory. Their family often ate bread and margarine, boiled potatoes and cabbage etc. Charlie needed more food. He yearned for chocolate. He could only eat one bar during his birthday each year. He could make the precious bar last more than a month. In his town, there was an enormous chocolate factory. It was called Wonka’s factory and was owned by Mr Willy Wonka. He loved the smell of chocolate whenever he walked past. He longed to enter the factory.

His grandparents’ loved the sight of him. They often told him stories at night. It was the biggest chocolate factory in the world. Mr Willy Wonka was an amazing man. He invented over 200 different kind of candy bars amongst other things.

Prince Pondicherry wanted Mr Wonka to head to India to build a palace out of chocolate. Mr Wonka did go over to build it. Everything was made of chocolate. During a sunny day, it melted and sank to the ground. No one has been seen entering or leaving the chocolate factory.

Mr Wonka ordered all the workers in the past to leave because of spies. There were people trying to steal his recipes. The factory was shut down for a while after that incident. Suddenly, like magic, the factory began operating on its own. Shadows could be spotted inside the building. Those people were tiny. Charlie wanted to find out who they were. There was a headline in the newspapers ‘Wonka Factory to be opened at last to lucky few’.

Mr Wonka only allowed 5 children to visit the factory. They would know all the secrets plus be given a lifetime supply of chocolate. The tickets were the wrappers of 5 ordinary candy bars. Everyone wanted those golden tickets. Charlie had slim chances because he only had 1 bar per year.

Augustus Gloop had the first ticket and he was extremely fat and lazy. He ate a huge amount of chocolate. Everyone was frantically buying chocolate bars. People even went to stealing money to buy bars. The second winner was a girl named Veruca Salt. Her parents were very rich. His dad bought thousands of them. He got his factory of workers to stop working and to remove wrappers from the chocolate bars. Veruca started throwing tantrums. Luckily, she managed to find a ticket.

He spoils her. And no good can ever come from spoiling a child like that, Charlie, you mark my words. – Grandpa Joe

Charlie held the chocolate bar in his hands. They were preparing him for disappointment. ‘That however small the chance might be of striking lucky, the chance was there.’ Everyone was tense and excited. He opened it and there was no sign of the golden ticket. It was time for Charlie to go to school and he wanted to share the bar with the adults too.

The winner of the third ticket was Miss Violet. She loved to chew on gum. She couldn’t do without gum. The adults condemned her as being despicable. The recipient of the fourth ticket was Mike Teavee. He loved TV and was constantly glued to it. Mike was also into guns. All 4 tickets had gone to brats so far.

Grandpa Joe was awake and he opened his purse. He wanted Charlie to use the money to buy one more bar. His grandpa opened the wrapper together with him. It was just an ordinary chocolate bar.

The weather turned for the worst and the family started to starve. The snow blocked roads and covered the path to their house. It was bitterly cold. Everyone concentrated on keeping warm and trying to survive. Charlie only had cabbage to eat every day. He started becoming thinner. The toothpaste factory had to close down as it went bust. Now, his dad wasn’t even working. The cruel weather persisted. Charlie began saving strength. He did not play in the snow, like the other kids. When walking home, he found a dollar bill in the snow. He wondered whether it was right for him to take it. Instantly, the dollar meant food to him.

He went to a shop and bought himself a chocolate bar. Every mouthful was a delight to Charlie. Charlie decided to buy one more bar. Inside contained the golden ticket. Soon, a crowd started to form. Charlie started feeling dizzy and he felt like his feet were not touching the ground. People started to offer money to buy it from him. Someone offered $500 for it.

He yelled to his mum about the ticket. His grandpa thought that he was joking. The ticket was made out of gold. He was to report on the first day of February at 10am sharp. It was tomorrow. It was going to be the biggest day of his life. Swarms of photographers were now outside their house.

Grandpa Joe accompanied Charlie into the factory. Charlie didn’t have a coat despite the chilly weather.

Mr Willy Wonka was a little man. He wore a black hat with a tail coat which was velvet in color. He welcomed them with open arms. In total, there were 9 grownups and 5 children. The place was gigantic. They were heading underground. The factory had to be located underground because it was far too large. They came to a door with the words ‘The Chocolate Room’.

This was an important room and it was also known as the nerve center. It was a lovely valley and also contained a waterfall. There was a river where every drop was melted chocolate. The children were flabbergasted and awestruck. The chocolate was mixed in the waterfall. They spotted little men in the factory. They were no larger than medium sized dolls. They were known as Oompa-Loompas. These were the workers in the factory.

They were imported from Loompaland. They were all starving in Loompaland when Mr Willy Wonka found them. Chocolate originates from Cacao Beans. These people loved cacao beans. Veruca wanted an Oompa Loompa. Augustus headed down to the river and scooped melted chocolate into his mouth.

He fell into the river. He was being sucked into one of the great pipes. Due to immense pressure, Augustus was propelled in the air. Mr Gloop didn’t want to save his son. Mr Wonka assured his parents that Augustus was safe. He ordered a Oompa Loompa to help look for Augustus.

The rest were led to the next room. They took a pink boat which was pulled by Oompa-Loompas. Everyone was on the boat as it glided across the river. Mr Wonka gave Charlie and his grandma a drink. Now, they entered an area which was pitch black. They realized they were inside a gigantic pipe. They passed a door which stored different kinds of cream. Storeroom number 77 contained all jelly beans. They came upon a Red Door now.

All the new inventions were cooking inside the room. It was like a witch’s kitchen. This was Mr Wonka’s favorite room. Everlasting Gobstoppers were produced. They were hard and change colour every week. They never disappeared as well. He showed them what hair toffee was like. Now, Mr Wonka brought them to the Great Gum Machine. This machine produced fabulous and amazing gum.

He created a chewing gum meal. It was a meal replacement tool. Mr Wonka warned that the recipe wasn’t perfected yet. However, Violet took it and started chewing on it. Now, Violet was experiencing roast beef and baked potatoes. Now, it was blueberry pie and cream. Now, her nose and face was turning blue. Now, she turned into blue and purple, like blueberry juice. Now, she was swelling up. She was blowing up into the size of a balloon. Now, she was turning into a gigantic blueberry. The Oompa-Loompas took her to the juicing room in order to fix her.

There were only 3 kids left. Hot ice cubes make drinks warmer. Veruca Salt didn’t want to keep rushing along with the tour. The candies looked round according to Mr Wonka. Oompas-Loompas loved butterscotch and soda. Mrs Salt started panting from the furious speed in which they were travelling.

Squirrels were shelling walnuts in the nut room. Veruca Salt decided she wanted a squirrel. She demanded one. Mr Salt took out his money and wanted to buy one. Mr Wonka was firm that they were not for sale. However, Veruca entered the nut room. All the squirrels pinned her down once she entered the room. Veruca tried to escape but the squirrels were too strong. She was a bad nut and had to be disposed in the garbage chute. Now, Mr and Mrs Salt were very concerned about their kid. All 3 of them fell in the chute, never to be seen again.

Now, only Mike and Charlie were left. They all entered the glass elevator. There were buttons everywhere. Mike pressed a button where they would be brought to a television room. Charlie loved the exhilarating ride. Mrs Teavee experienced motion sickness and wanted to get off the elevator. Finally, the elevator reached its destination.

The room was extremely bright and everyone had to put on dark glasses. Everything was painted white in colour. Everyone was quiet in the room. This is the Testing Room. Mr Wonka wanted to break up a piece of chocolate and put them through a screen. Mike Teavee was too close to the dangerous rays and was warned to back off. It appeared in the screen and they could all sample a piece of it.

Mike Teavee ran off. He disappeared after he used the machine and wanted to appear on TV. They all watched a TV set. He turned into a midget. He shrank into a midget but he was fine. Mike kept demanding to watch television. Mr Wonka had a plan to fatten him up. The Oompa-Loopas began to sing. TV rots the senses, kills imagination.

TV rots the sense in the head! It kills imagination dead! It clogs and clutters up the mind! It makes a child so dull and blind he can no longer understand a fantasy, a fairyland! – Oompa-Loopas

Charlie was the only one left. It meant he had won. He congratulated Charlie. They pressed up and out on the elevator. The elevator was surging fast. It shot right through the roof of the factory. Now, it started to hover in midair. Charlie was intrigued that he could see the entire town from above.

Augustus was now as thin as a straw. Violet also didn’t like gum anymore. Veruca and Mr and Mrs Salt were covered with garbage. Mike was 10 feet tall but extremely skinny. Charlie continued his ride on the elevator.

Charlie proclaimed that he loved the factory. When he was old enough, Mr Wonka wanted to hand over the factory to Charlie. Mr Willy Wonka wanted to hand it over to someone as he was getting old. The winner of the golden ticket would get the factory. Charlie’s family could now live in the factory. The elevator crashed through Charlie’s house and it wanted to pick up his grandparents.

I don’t want a grown-up person to be my successor at the factory at all. A grownup won’t listen to me; he won’t learn. He will try to do things his own way and not mine. So I have to have a child. I want a good sensible loving child, one to whom I can tell all my most precious candy-making secrets – while I am still alive. – Mr Willy Wonka

 

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Boomerang by Michael Lewis

This book is about how several hedge fund investors, including Kyle Bass from Hayman Capital engaged in credit default swaps to make a fortune during the subprime crisis in 2008. This meant betting against the subprime mortgage bond market. First, the crisis hit banks like Bear Stearns. Later, it hit countries like Iceland. Governments can actually default. The warning signs were clear. Kyle analyzed the countries which he thought would default, including Iceland, and placed bets against them.

Iceland went bust in October 2008. Their debt at the height of the crisis amounted to 850% of their GDP. When the Icelandic Krona was strong and interest rates were high, people started to borrow in Yen or Swiss Francs. Once the krona plunged, citizens were in for a lot of trouble. During the crisis, the streets were empty and so were the stores. Prices shot up when the krona plunged as shops had to import goods from overseas. Their biggest mistake was to buy as much assets as possible using borrowed money. This was ok as long as asset prices kept rising. Banks traded fake capital at inflated asset valuations. The Icelandic investment bankers made inappropriate and risky decisions and didn’t know what they were doing. Iceland ignored reports from other countries, like Denmark. The banks sold each other stuff, borrowing huge sums of money and relending them to the public. The public, in turn, bought all messy assets as well. Icelandic people are generally very ambitious. Iceland ignored help. PhD holders don’t want to fish or smelt aluminum for a living.

I have never in my life slept so little, because I was so eager to learn. I slept two or three hours a night because I was sitting beside him (fishing legend). .. The reach of the trawler. The most efficient angle of the net. How do you act on the sea. If you have a bad day, what do you do? If you’re not fishing at this depth, what do you do? If it’s not working, do you move in depth or space? In the end it’s just so much feel. In this time I learned infinitely more than I learned in school. Because how do you learn to fish in school? – Stefan Alfsson, an Icelandic fisherman

The author visited Greece. Greece bonds were rated as junk and had to be bailed out by IMF and the other members of the European Union. The government borrowed 30 billion euros of money and spent it on areas like paying the civil servants excessive salaries, pension schemes etc. The education system is very inefficient as well. Bribery is also prevalent throughout the country. In the case of Iceland, it was the banks sinking the country. In the case of Greece, it was the country sinking the banks. Many items were kept of the government’s balance sheet. There was no statistics department or independent check on the government finances. People were not fined for not paying taxes. The authorities take about 7 to 8 years to resolve a case of bribery. Almost everyone in Greece engages in some form of bribery, cheating etc. The real structure of their society is akin to ‘every man for himself’. Greece joined the European Union in 2001 after being suspected of manipulating their figures in order to meet the EU requirements. They were eventually discovered in 2009, after a change in political ruling party.

This is the secret of success for anywhere in the world, not just the monastery. The idiot is bound by his pride. It always has to be his way. This is also true of the person who is deceptive or doing things wrong: he always tries to justify himself. A person who is bright in regard to his spiritual life is humble. He accepts what others tell him – criticism, ideas – and he works with them. – Father Arsenios

The Irish banks went bust. The banks borrowed foreign money to conquer Ireland, buying up property in their own country. As a result, hoards of people are leaving the country. Unemployment rates spiked. Interest rate spiked. Budget is a severe deficit position. Ireland was tremendously successful from the 1990s to the early 2000s. The young, immature bankers didn’t realize that a housing bubble was emerging. The housing prices kept rising and were bound to fall one day. Banks started offering loans without performing adequate customer due diligence checks. The important people in Ireland went down with their banks. Their housing bubble was also not as complex as America’s. There were loads of unoccupied new property projects. The Irish government created ‘TARP’ and nationalized Anglo Irish bank, thereby guaranteeing depositors and bondholders of their investments. There was a major issue with the government paying off foreign bondholders using money borrowed from the ECB. Unlike Greece, there was hardly any public unrest. The big property developers were spared from bankruptcy and instead could aid the government in resolving the crisis.

Are Germans willing to bail out countries like Greece? There is a feeling of rage, indignation among Germans on the European financial crisis. The two main options for Greece is firstly to slash their size of the government or undergo major structural reform. To the Germans, it is politically unacceptable to bail out other countries in the EU. Public dissatisfaction is at an all-time high. Germany have become so powerful that the rest are relying on their financial power. The people are very frugal and will not live beyond their means. Living beyond their means is seen as unacceptable and unbecoming.

The German government gives money to the European Union rescue fund so that it can give money to the Irish government so that the Irish government can give money to Irish banks, so the Irish banks can repay their loans to the German banks. They are playing billiards. – Henrik Enderlein

 

Why should you pay twenty million to a thirty-two-year old trader? He uses the office space, the IT, the business card with a first-class name on it. If I take the business card away from that guy he would probably sell hot dogs. – Klaus-Peter Muller, Commerzbank chairman

Even the US government bonds was not triple A rated at one point. Municipal bonds are not doing well and state treasurers are not aware of how their situation. Different municipals performed differently, and some were a lot worse than the others. The state of California had excessive pension schemes and sacrificed on other important areas of the economy, like the education system. The amount of tax collected could not sustain the pension scheme. Eventually, parks had their funding cut. The cities pay eventually when the state as a whole is not performing well. The people of San Jose refused to believe the state they were in, even though the state was flirting with bankruptcy. The state was in so much debt that even forcing public workers to take pay cuts won’t work. Service-level insolvency or cultural bankruptcy is when the libraries and communities centres are closed because they can’t afford to open. Greed was the main problem. Americans look at short term reward, neglecting the long term consequences. They are tempted by the chocolate cake that appears before their eyes. Self-regulation is hard as humans are generally greedy. Self-regulation can work if the environment punishes the institution/people for being greedy.

My approach has been I don’t care who is to blame. We needed to change. It’s got to be about the people. Teach them respect for each other, integrity and how to strive for excellence. Cultures change. But people need to want to change. People convinced against their will are of the same opinion still. – City Manager of Vallejo, Phil Batchelor

 

There was once a lone pheasant in the gardens of Blenheim Palace who avoided being killed by the hunters. He was affectionately known as Henry by the tourists. Being the only survivor in an unregulated environment, he faced no competition for food. Henry kept eating till he was fat. Even when he was fat, he just ate and ate. Eventually he became too fat to fly. Then one day, a fox ate him. – Peter Whybrow, a neuroscientist, on the greed of Americans

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George’s Marvelous Medicine by Roald Dahl

George hated his grandma because she was mean towards him and wanted to take revenge. He thought of making a marvellous medicine. She was a grumpy and selfish woman who didn’t want George to grow taller in future. A spark came to him. George wanted to make a marvellous medicine just for her. He added materials from the toilet, laundry room, kitchen, shed and garage into a large stewing pot. Now, after some mixing and boiling, the medicine was ready. The mixture was brown in colour and looked like real medicine.

Upon consumption, the medicine produced a vigorous reaction in grandma’s body such that she grew and surged through the attic of the house. She was extremely tall and skinny. A hen tried the medication and had a similar effect. His dad, Mr Kranky, wanted George to replicate the recipe so that his farm animals could grow bigger. Grandma still had a nasty personality despite her size. George could not replicate the results of growth on the animals due to the wrong concentration of materials in the pot. The last recipe caused the animals to shrink. Being greedy, Grandma swallowed the whole mixture and after a vigorous reaction to her body, she started shrinking. On and on it went. Till she disappeared without a trace.

All of a sudden, George had a tremendous urge to do something about her (grandma). Something whopping. Something absolutely terrific. A real shocker. A sort of explosion. He wanted to blow away the witchy smell that hung about her in the next room. – Roald Dahl

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The Paper Bag Princess by Robert Munsch

Elizabeth was a princess who was going to marry Ronald, the prince. One day, a dragon destroyed the castle and took Ronald away. As her clothes were burnt, Elizabeth wore a paper bag instead as she chased the dragon. She came upon the dragon but was told to go home as he was too full from eating the castle. The dragon admitted he was the smartest and fiercest one in the world. He could burn up to 50 forests with his breath. In another breath, another 50 forests were burnt to the ground. However, he didn’t have energy left for another breath of fire. To showcase his ability once again, the dragon flew around the world in 10 seconds and came back exhausted. He did it another round and fell asleep from sheer exhaustion. The dragon was so tired that he could hardly move. Then, Elizabeth saw Ronald in the cave. He criticized her for the way she looked in that paper bag dress. She in turn called him a bum for the way he behaved. She didn’t marry Ronald in the end.

Ronald, your clothes are really pretty and your hair is really neat. You look like a prince, but you are a bum. – Elizabeth

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