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We’ve constantly been sharing a list of our recent reads in our weekly emails for The Good Investors.

Do subscribe for our weekly updates through the orange box in the blog (it’s on the side if you’re using a computer, and all the way at the bottom if you’re using mobile) – it’s free!

But since our readership-audience for The Good Investors is wider than our subscriber base, we think sharing the reading list regularly on the blog itself can benefit even more people. The articles we share touch on a wide range of topics, including investing, business, and the world in general.

Here are the articles for the week ending 16 May 2021:

1. Play Your Own Game – Morgan Housel

Someone recently asked how my investment views have changed in the last decade. I said I’m less judgemental about how other people invest than I used to be.

It’s so easy to lump everyone into a category called “investors” and view them as playing on the same field called “markets.”

But people play wildly different games.

If you view investing as a single game, then you think every deviation from that game’s rules, strategies, or skills is wrong. But most of the time you’re just a marathon runner yelling at a powerlifter. So much of what we consider investing debates and disagreements are actually just people playing different games unintentionally talking over each other.

A big problem in investing is that we treat it like it’s math, where 2+2=4 for me and you and everyone – there’s one right answer. But I think it’s actually something closer to sports, where equally smart and talented people do things completely differently depending on what game they’re playing.

What you want might not be what I want.

What’s fun to you might be miserable to me.

Your family’s different from mine. Your job’s different from mine. You have different life experiences than I do, different role models, different risk tolerances and goals and social ambitions, work-life balance targets, career incentives, on and on.

So of course we don’t always agree on what’s the best thing to do with our money. There’s no world in which we should.

And if we’re different people who want different things, the investing skills we need might be completely different. Information that’s relevant to you might be a waste of time to me.

But it’s rarely parsed that way.

Nineteen-year-old daytraders buy Apple stock. So do endowments with century-long time horizons. But the headline usually says something like, “Is Apple undervalued?” Then you see why so many investing debates a waste of time.

VCs have different priorities than public market investors.

Twenty-year-olds trying to learn about markets have different desires than 48 year-olds saving for their kids’ college.

Ninety-seven-year-old Charlie Munger isn’t as interested in new technology as younger investors because he’s … 97.

It’s fine.

2. Twitter thread on lessons from a book titled “Hidden Champions” – The Undercover Fund Manager

I read a very good book called ‘Hidden Champions’ recently. It discusses strategies adopted by mid-sized industrial companies that made them world leaders. There are some great lessons in this book; below I reveal the common approaches that made these firms successful (thread)

The management of Hidden Champions typically shun the limelight and focus on running their businesses. Average CEO tenure is 20 years and they promote from within. These leaders are obsessive about their companies, and making money isn’t their primary motive… 

…They have an ownership mentality and run their businesses with a constant state of paranoia. They have well-defined cultures with high standards. They adopt lean workforces, have low employee turnover due to treating their employees like partners and value independent thought.

The Hidden Champions typically dominate narrowly defined niche markets (e.g. aquarium supplies). They tend to offer a premium product or service and avoid competing on price.

They think in generations, not years. They do many small things slightly and consistently better than the competition. They believe sustained success is a matter of focusing regularly on the right things and making lots of uncelebrated improvements every day.

3. The Psychedelic Revolution Is Coming. Psychiatry May Never Be the Same – Andrew Jacobs

“Some days I wake up and can’t believe how far we’ve come,” said Dr. Doblin, 67, who now oversees the Multidisciplinary Association for Psychedelic Studies, a multimillion dollar research and advocacy empire that employs 130 neuroscientists, pharmacologists and regulatory specialists working to lay the groundwork for the coming psychedelics revolution.

The nation’s top universities are racing to set up psychedelic research centers, and investors are pouring millions of dollars into a pack of start-ups. States and cities across the country are beginning to loosen restrictions on the drugs, the first steps in what some hope will lead to the federal decriminalization of psychedelics for therapeutic and even recreational use.

“There’s been a sea change in attitudes about what not long ago was considered fringe science,” said Michael Pollan, whose best-selling book on psychedelics, “How to Change Your Mind,” has helped destigmatize the drugs in the three years since it was published. “Given the mental health crisis in this country, there’s great curiosity and hope about psychedelics and a recognition that we need new therapeutic tools.”

The question for many is how far — and how fast — the pendulum should swing. Even researchers who champion psychedelic-assisted therapy say the drive to commercialize the drugs, combined with a growing movement to liberalize existing prohibitions, could prove risky, especially for those with severe psychiatric disorders, and derail the field’s slow, methodical return to mainstream acceptance.

Dr. Doblin’s organization, MAPS, is largely focused on winning approval for drug-assisted therapies and promoting them around the globe, but it is also pushing for the legalization of psychedelics at the federal level, though with strict licensing requirements for adult recreational use.

Numerous studies have shown that classic psychedelics like LSD and psilocybin are not addictive and cause no organ damage in even high doses. And contrary to popular lore, Ecstasy does not leave holes in users’ brains, studies say, nor will a bad acid trip lead to chromosome damage.

But most scientists agree that more research is needed on other possible side effects — like how the drugs might affect those with cardiac problems. And while the steady accumulation of encouraging data has softened the skepticism of prominent scientists, some researchers warn against the headlong embrace of psychedelics without stringent oversight. Although “bad trips” are rare, a handful of anecdotal reports suggest that psychedelics can induce psychosis in those with underlying mental disorders.

Dr. Michael P. Bogenschutz, a professor of psychiatry who runs the four-month-old Center for Psychedelic Medicine at NYU Langone Health, said most of the clinical studies to date had been conducted with relatively small numbers of people who were carefully vetted to screen out those with schizophrenia and other serious mental problems.

That makes it hard to know whether there will be potential adverse reactions if the drugs are taken by millions of people without any guidance or supervision. “I know it sounds silly but, Kids, don’t take these at home,” Dr. Bogenschutz said. “I would just encourage everyone to not get ahead of the data.”

4. Don’t Be Fooled by April’s Inflation Jump. It’s Being Driven by Reopening Quirks – Matthew Klein

The apparent surge in inflation in April is mostly a reflection of the economy’s reopening and the idiosyncrasies of the used-vehicle market. Investors should discount inflation headlines and focus on what’s going on under the hood by examining the specific categories driving the changes in the price level.

Back in September, Barron’s warned “that the coronavirus pandemic has made the aggregate inflation data mostly useless.” Aggregate indicators are informative only to the extent that the importance of the underlying components are constant over time. Sudden changes in behavior can lead to big swings in individual categories that don’t tell us much about the broader economy. The big drop in airfares and hotel room rates last spring and summer were clearly one-off consequences of a temporary emergency—just like the one-off increases in the prices of meats and household cleaning supplies. Neither one was particularly meaningful for anyone trying to understand what was happening to the price level as a whole.

Something similar is happening now, but in reverse. The consumer-price index rose by 0.8% in April compared with March on a seasonally adjusted basis, vastly exceeding forecasters’ expectations. Most of that increase, however, can be attributed to a few categories that collectively account for just 13% of consumer spending, at least in normal times: used cars and trucks, hotels and motels, airfares, motor vehicle insurance, car and truck rental, admissions to live events and museums, and food away from home.

Most of those categories had been hit hard by the pandemic. Airline prices fell 30% between February 2020 and May, and remain 18% below prepandemic levels. Hotel room rates dropped 14% and remain 6% below prepandemic levels.

Car rental prices fell 23%, which caused the big companies to liquidate many of their fleets by selling hundreds of thousands of units to consumers in the used vehicle market. As demand has recovered, the rental companies have been desperate to rebuild their fleets, driving up the prices both of rentals and used vehicles. The shortage of microprocessors necessary to make new vehicles has exacerbated this problem, but there’s no reason to think it tells us anything about the broader state of macroeconomic conditions.

5. The not-so-surprising secrets of wealthy investors – Bethany McLean

William Green’s new book, “Richer, Wiser, Happier: How the World’s Greatest Investors Win in Markets and Life,” offers an immensely alluring promise: By learning the secrets of great investors, from the famous, like Charlie Munger and Sir John Templeton, to those who deliberately fly below the radar, like Nick Sleep and Laura Geritz, we too can be as successful as they are, in business and in life. “They can teach us not only how to become rich, but how to improve the way we think and reach decisions,” and show us how “they attempt to build lives imbued with a meaning that transcends money,” Green writes…

…Green’s book does suffer from some of the same flaws that affect most investing “how tos.” We’re told over and over again that, as famed investor Joel Greenblatt, the founder of Gotham Capital, says, the entire secret of successful stock picking comes down to this: “Figure out what something is worth and pay a lot less.” Or as Benjamin Graham, the inventor of value investing and the intellectual forefather of Buffett, Munger and most of the investors in this book, said, make sure you have a “margin of safety.”

Well, yes, but that’s way easier said than done. Green nods to the difficulty when he asks the reader, “Do you know how to value a business?” His answer is a discussion of Greenblatt’s various techniques, such as an analytical exercise called a discounted cash flow analysis — which can sound like science. What goes unsaid is that any valuation methodology is only as good as the many, many assumptions that go into it, and therein lies the art.

The book also backfires in its implicit promise that the secrets of great investors can be synthesized into consistency. They can’t. Investors like Mohnish Pabrai, Greenblatt and Sleep often invest almost all of their money in just a few stocks. That’s contrary to the advice given by Graham, who says diversification is key, and contrary to what’s done by many of the other featured investors, like Jean-Marie Eveillard, who began running SoGen International in 1979 and who routinely owned more than 100 stocks…

…If emulating these investors to become rich is nice in theory but tough to execute, emulating the way they live to become happy might not work even in theory. In one of the book’s few non-fanboy moments, Green confesses that he didn’t really like Templeton. “I saw in him a cold austerity that I found unnerving,” he writes. He also notes that many great investors might be somewhere on the autism spectrum. After all, it’s easier not to follow the herd if you don’t care what the herd thinks. At one point, he asks Munger if he has to work against emotions like fear. Munger says no: He doesn’t experience such emotions.

Another investor, Christopher Davis, who runs Davis Advisors, an investment firm his father founded in 1969, observes that many of the best investors struggle when it comes to “bonding with others” and nurturing “warm attachments in their family life.” In a section with the subhead “Very Few People Could be Married To Me,” Paul Lountzis, the president of Lountzis Asset Management, says he regards social functions as a “bothersome distraction” and cherishes his wife because she “places no demands on me.” Wonderful. For him.

6. The Butterfly Effect – John Markoff

Hidden and barely noticeable amid the clutter is an iridescent butterfly, the Xerces blue. Once found exclusively in the dwindling sand dunes of the Sunset district in San Francisco, it became extinct, probably in 1943. It has the dubious distinction of being the first butterfly to vanish because of the destruction of its habitat as a consequence of urban development.

Gone is a striking oil canvas painted by Sausalito artist Isabella Kirkland in 2004. Although Xerces is virtually lost in Kirkland’s extinction collage, the butterfly has now become a symbol of a growing effort to, in effect, put Humpty Dumpty back together again.

While the effort hasn’t received the attention or generated the controversy of the proposals to bring back the woolly mammoth or the passenger pigeon, it’s quite possible that Xerces will become the first species to be returned from extinction. Two approaches to its de-extinction—one that gives evolution an assist and one involving genetic engineering—are underway, and if either works, Xerces blue butterflies might once again flutter among San Francisco’s sand dunes, possibly in this decade.

If Xerces flies again, it will happen in part because of the efforts of a Bay Area–based conservation group named Revive & Restore. The organization began as a project of San Francisco’s Long Now Foundation in early 2012 after Whole Earth Catalog creator Stewart Brand (a member of Alta Journal’s editorial board) and his wife, social entrepreneur Ryan Phelan, attended a small symposium titled “Bringing Back the Passenger Pigeon,” hosted by geneticist George Church at Harvard Medical School.

While Brand and Phelan watched Church demonstrate new gene-editing techniques, it dawned on them that if it was possible to revive the passenger pigeon, then it would be possible to bring back other species or modify the genomes of species threatened by climate change or disease. The science offered a route to restoring biodiversity and boosting species’ resilience to help them adapt to temperature, rainfall, and wind-pattern changes in their ecosystems. The possibility of de-extinctions, of bringing back near-mythic beasts like the woolly mammoth—one of Church’s crusades—now promised dividends. Already, genetic changes to coral are being explored in order to one day help protect coral against bleaching caused by warming oceans.

Brand has long understood the importance of technologies in shaping and reshaping our world. The debut edition of his Whole Earth Catalog in 1968 established the publication as an idiosyncratic guide to an array of tools, books, and services, often for the betterment of all, that resonated with ’60s counterculture. He wrote in the preface: “We are as gods and might as well get good at it.” The 12 words formed a simple, if controversial, statement about humanity’s use of increasingly powerful technologies: solar energy, space travel, computing, and more. Some 50 years later, at a time when the threats posed by climate change are no longer theoretical, the use of new techniques by godlike mortals—scientists—has grown more acceptable, if not urgent.

7. U.S. Labor Shortage? Unlikely. Here’s Why – Heidi Shierholz

There are lots of anecdotal reports swirling around about employers who can’t find workers. Just search “worker shortages” online and a seemingly endless list of stories pops up, so it’s easy to assume there’s an alarming lack of people to fill jobs. But a closer look reveals there may be a lot less to this than meets the eye.

First, the backdrop. In good times and bad, there is always a chorus of employers who claim they can’t find the employees they need. Sometimes that chorus is louder, sometimes softer, but it’s always there. One reason is that in a system as large and complex as the U.S. labor market there will always be pockets of bona fide labor shortages at any given time. But a more common reason is employers simply don’t want to raise wages high enough to attract workers. Employers post their too-low wages, can’t find workers to fill jobs at that pay level, and claim they’re facing a labor shortage. Given the ubiquity of this dynamic, I often suggest that whenever anyone says, “I can’t find the workers I need,” she should really add, “at the wages I want to pay.”

Furthermore, a job opening when the labor market is weak often does not mean the same thing as a job opening when the labor market is strong. There is a wide range of “recruitment intensity” that an employer can apply to an open position. For example, if employers are trying hard to fill an opening, they will increase the compensation package and perhaps scale back the required qualifications. Conversely, if employers are not trying very hard, they may offer a meager compensation package and hike up the required qualifications. Perhaps unsurprisingly, research shows that recruitment intensity is cyclical. It tends to be stronger when the labor market is strong, and weaker when the labor market is weak. This means that when a job opening goes unfilled when the labor market is weak, as it is today, employers are even more likely than in normal times to be holding out for an overly qualified candidate at a very cheap price.

This points to the fact that the footprint of a bona fide labor shortage is rising wages. Employers who truly face shortages of suitable, interested workers will respond by bidding up wages to attract those workers, and employers whose workers are being poached will raise wages to retain their workers, and so on. When you don’t see wages growing to reflect that dynamic, you can be fairly certain that labor shortages, though possibly happening in some places, are not a driving feature of the labor market.

And right now, wages are not growing at a rapid pace. While there are issues with measuring wage growth due to the unprecedented job losses of the pandemic, wage series that account for these issues are not showing an increase in wage growth. Unsurprisingly, at a recent press conference, Federal Reserve Chairman Jerome Powell dismissed anecdotal claims of labor market shortages, saying, “We don’t see wages moving up yet. And presumably we would see that in a really tight labor market.”

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Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life. Of all the companies mentioned, we currently have a vested interest in Apple. Holdings are subject to change at any time.

We’ve constantly been sharing a list of our recent reads in our weekly emails for The Good Investors.

Do subscribe for our weekly updates through the orange box in the blog (it’s on the side if you’re using a computer, and all the way at the bottom if you’re using mobile) – it’s free!

But since our readership-audience for The Good Investors is wider than our subscriber base, we think sharing the reading list regularly on the blog itself can benefit even more people. The articles we share touch on a wide range of topics, including investing, business, and the world in general.

Here are the articles for the week ending 09 May 2021:

1. The hottest and least understood e-commerce model: Community Group Buying – Lilian Li

Fresh groceries have remained the holy grail of e-commerce. A task so daunting that even Amazon hasn’t been able to crack it. In China, the retail grocery market is estimated by McKinsey to be worth 5.2 trillion RMB (794bn dollars) in 2019, with only 10% of that currently online. In 2020, it seems like we’ve finally found a business model where the unit economics works at scale. Theoretically at least.

That’s 社区团购 or community group-buying, the least understood business model in online retail right now. In this edition, we’ll look at this business model’s innovations, its enabling factors, what will determine the winner’s success and ultimately its challenges…

…With community group buying, the format works like this:

• A self-designated community leader creates and maintains a WeChat group.
• Community leader sign-ups individuals from their local region (usually within their regular walking distance), each WeChat group is capped at 500 people.
• They maintain a weekly or daily schedule of posting a product selection to the group.
• The products are links to mini-programs where residents click through to place their orders. Residents do not have to order the same products and will only need to pay when their collective demand exceeds a designated value.
• The products are not limited to groceries but also include other life essentials like paper towels.
• Once the residents place their orders, the entire collated order is delivered in bulk to collection points the next day for the community leader to pick up.
• Community leader unpacks the bulk order and then organises this into the resident’s orders. They will either deliver the order, or the residents will come to this pick up themselves.
• In case of issues, the community leader is the first point of contact for the residents. They will escalate the problem to the platforms and handle the resolution on behalf of the residents.
• For their work, the community leaders get 10% commission from their group orders. Given the hands-on nature of the work, a community leader can typically only manage three WeChat groups well at any one point.

With the addition of community leaders into the supply chain, the unit economics for online groceries are fundamentally changed. Now CAC is lowered since community leaders are responsible for creating their own customer groups. Customer Life Time Value (CLTV) is extended since customers have more hands-on support and social buying promotes frequent purchases. Conversion rates are much higher – can reach 10% in WeChat community group buying rather than typical 2-3% e-commerce conversions. Community leaders and customers take care of the last-mile delivery, shaving off precious additional logistics costs (lowering logistics costs is often the sole driver of profitability in marketplaces). The platform can carry fewer SKUs, buying in large quantities directly from the source rather than through intermediaries and have higher pass-through rate, which means the produce stays fresh and contributes to a positive customer experience. 

“The delivery cost per order for the home delivery mode is 7-10 RMB. This part of the cost is relatively rigid, and other fulfilment costs such as storage are about 1-2 RMB. The community group purchase model with a better order density can achieve less delivery cost of than 1.5 RMB per order” – Xingsheng Youxuan  (One of the startup unicorn in the race)

The model is a win-win-win proposition for the consumer, community leader and the produce platform itself. The typical community group buying customer is price-conscious, often residing in third or fourth-tier cities, and frequently elderly (a population who find it hard to navigate the complicated purchasing consumer apps). For these consumers, they can access fresher, cheaper and potentially a wider range of goods (especially seafood in more remote regions). For the community leaders, who are typically local shopkeepers or stay-at-home mums, they can earn additional revenue while serving their community. For the produce platforms, they can run a streamlined operation with less spoilage and high volume throughputs. Ultimately, they can operate a profitable business at scale.

2. Chip shortage highlights U.S. dependence on fragile supply chain – Lesley Stahl

Car companies across the globe have had to idle production and workers because of a shortage of semiconductors, often referred to as microchips or just chips. They’re the tiny operating brains inside just about any modern device, like smartphones, hospital ventilators or fighter jets. The pandemic has sent chip demand soaring unexpectedly, as we bought computers and electronics to work, study, and play from home. But while more and more chips are needed in the U.S., fewer and fewer are manufactured here.

Intel is the biggest American chipmaker. Its most advanced fabrication plant, or fab for short, is located outside Phoenix, Arizona. New CEO, Pat Gelsinger, invited us on a tour to see how incredibly complex the manufacturing process is…

…Lesley Stahl: I’m wondering, if we’re going to continue to have shortages, not just in cars, but in our phones and for our computers, for everything?

Pat Gelsinger: I think we have a couple of years until we catch up to this surging demand across every aspect of the business. 

COVID showed that the global supply chain of chips is fragile and unable to react quickly to changes in demand. One reason: fabs are wildly expensive to build, furbish, and maintain.

Lesley Stahl: it used to be that there were 25 companies in the world that made the high-end, cutting-edge chips. And now there are only three. And in the United States? – You.

GELSINGER HOLDS UP FINGER

Lesley Stahl: One. One.

Today, 75% of semiconductor manufacturing is in Asia. 

Pat Gelsinger: 25 years ago, the United States produced 37% of the world’s semiconductor manufacturing in the U.S. Today, that number has declined to just 12%.

Lesley Stahl: Doesn’t sound good.

Pat Gelsinger: It doesn’t sound good. And anybody who looks at supply chain says, “That’s a problem.”…

…Pat Gelsinger: Well, they’re pretty happy to buy from some of the Asian suppliers.

Actually, they don’t always have a choice. For chips with the tiniest transistors – there is no “made in the U.S.” option. Intel currently doesn’t have the know-how to manufacture the most advanced chips that Apple and the others need.

Lesley Stahl: The decline in this industry. It’s kinda devastating, isn’t it?

Pat Gelsinger: The fact that this industry was created by American innovation– 

Lesley Stahl: The whole Silicon Valley idea started with Intel.

Pat Gelsinger: Yeah… The company stumbled. You know, it’s still a big company – we had some product stumbles, some manufacturing and process stumbles.

Perhaps the biggest stumble was in the early-2000s, when Steve Jobs of Apple needed chips for a new idea: the iPhone. Intel wasn’t interested. And Apple went to Asia, eventually finding TSMC: the Taiwan Semiconductor Manufacturing Company – today, the world’s most advanced chip-manufacturer, producing chips that are 30% faster and more powerful than Intel’s.

Lesley Stahl: They’re ahead of you on the manufacturing side. 

Pat Gelsinger: Yeah.

Lesley Stahl: Considerably ahead of you. 

Pat Gelsinger: We believe it’s gonna take us a couple of years and we will be caught up…

…But TSMC is a manufacturing juggernaut worth over a half a trillion dollars. Collaborating with clients to produce their chip designs, it’s been sought out by Apple, Amazon, contractors for the U.S. military, and even Intel, which uses TSMC to produce their cutting-edge designs they’re not advanced enough to make themselves.

Lesley Stahl: How and why did Intel fall behind?

Mark Liu: It is surprising for us too…

…Pat Gelsinger: China is one of our largest markets today. You know, over 25% of our revenue is to Chinese customers. We expect that this will remain an area of tension, and one that needs to be navigated carefully. Because if there’s any points that people can’t keep running their countries or running their businesses because of supply of one critical component like semiconductors, boy, that leads them to take very extreme postures on things because they have to.

The most extreme would be China invading Taiwan and in the process gaining control of TSMC. That could force the U.S. to defend Taiwan as we did Kuwait from the Iraqis 30 years ago. Then it was oil. Now it’s chips.  

Lesley Stahl: The chip industry in Taiwan has been called the Silicon Shield.

Mark Liu: Yes.

Lesley Stahl: What does that mean? 

Mark Liu: That means the world all needs Taiwan’s high-tech industry support. So they will not let the war happen in this region because it goes against interest of every country in the world.

Lesley Stahl: Do you think that in any way your industry is keeping Taiwan safe?

Mark Liu: I cannot comment on the safety. I mean, this is a changing world. Nobody want these things to happen. And I hope– I hope not too– either. 

3. How Shopify’s Network of Sellers Can Take On Amazon – Nilay Patel & Harley Finkelstein

[Patel] And so how does Shopify make money? You take a cut of every transaction, you charge a subscription fee. Where do you take your cut?

[Finkelstein] Yeah, so two sides. One is on the subscription side. So there’s a subscription fee. Starts at $29 a month, if you’re just getting started, and goes up to $2,000 a month for some of the larger merchants. But we also have a payments business. Shopify Payments powers a majority of, particularly in our main geographies, a majority of transactions. We have a capital business. We’ve now given out more than $2 billion of capital to small businesses. We have a fulfillment business and a shipping business. Actually, this is maybe a good point to pause on for a second.

If you were to pretend that Shopify was a retailer, we’re not a retailer, but pretend we were, we would be the second largest online retailer in America, after Amazon. The reason I say that is because the second largest online retailer in America, they’re entitled to massive economies of scale. And so what we try to do is, we try to go to the shipping companies and capital companies and the payment companies, and we negotiate as if we were the second largest retailer, except instead of keeping those economies of scale for ourself, we distribute those economies of scale and give those advantages to small businesses.

And we think what that does is a real leveling of the playing field so that these companies can get bigger, faster, at a pace that, frankly, we’ve never seen before. There’s rumors now that some of our biggest merchants are going public, are filing for IPOs. Some of them didn’t exist five years ago. In the history of commerce and retail, we’ve never seen that type of scale at that speed…

…[Patel] So I want to just pull back for one second, talk about Shopify as it’s something that you could look at as the second largest online retailer in America. You’re up against Google, Facebook, Amazon, Apple, the rest. This last quarter of earnings, these companies all did extraordinarily well. When I started Decoder, the question I would ask everybody is, “What are the trends you see in a pandemic? What’s going to snap back?”

Nothing’s snapping back, except maybe we’re not going to go work in offices the way that we used to. The economy has moved online in a real way. We are really dependent, in particular, on a handful of very large companies. I’ll pick on Apple because they have a lawsuit. They want to take a cut of every time you push a button on the iPhone.

Shopify enables small businesses to compete at that level. You have this economy of scale. You’re also partnered with those companies. You’re competitive with those companies. What is that relationship like? Where does Shopify slot in?

[Finkelstein] Shopify’s entire business model is predicated on: if small businesses do well, we do well. If they don’t do well, we don’t do well. And so the relationship we have, first of all, with small business, I think is very different than a lot of other technology companies where the small businesses, whether they sell a lot or not, they still need them for things like exposure and traffic and other all those things related to marketing and advertising. But the way we think about it is, the future of retail, in our view, is not going to be online, nor is it going to be offline. It’s not going to be on Instagram or TikTok or Facebook or Walmart.com, it’s going to be everywhere.

And the future of retail, in our view, is going to be about consumer choice. Now, that is very different. Commerce is about as old a construct as currency. We’re talking about since the beginning of time, you’ve had commerce and you’ve had currency, but it was always the retailer dictating to the consumer how to purchase.

So a great example is, go back when you were 10 years old or something and you wanted to go buy a video game at the video game store, There was a time it opened, at 9AM on a Saturday morning. Once you picked up the game on the shelf, you went into line. You had to use this credit card, but they didn’t accept that credit card. But basically, it’s always the same. It was always the retailer dictating to the consumer how to purchase.

The big shift that is happening that will exist long after the pandemic and, frankly, will be the future of retail, will be that consumers will simply say, “I want to buy however is most convenient for me.” And if you’re a really forward-thinking merchant like Allbirds, for example, and you know that it’s all about consumer choice, then you’re going to have a great physical store in San Francisco and New York City and a whole bunch of other places, you’re going to have a great online store, you’re going to cross-sell on things like Instagram and Facebook, you may also activate the TikTok ad channel because that’s when you can reach new potential customers. But what Shopify’s role in all that is, is that we want to integrate all of it into a centralized retail operating system.

So, think of Shopify as the hub of where you run your business day-to-day. When you say you’re going to work in the morning, you open up the Shopify admin, you have your inventory, your analytics, your reporting, you do fulfillment from there. One major spoke of that hub will be the online store. Another major spoke may be the offline store, but all the other spokes are going to be with Facebook and Google and Instagram and TikTok and all those companies.

And so our partnership with all these companies is predicated on this idea that we want to enable these merchants, these brands, to sell wherever they have customers. What is the modern-day town square? If you want to sell across a whole variety of age brackets, you need to sell everywhere. And that is really what Shopify’s role is, and that’s the reason why we partner with all these companies…

…[Patel] Oh, that’s really interesting. The reason I ask that is, Shopify is growing really fast. You were there in the early days. I keep coming back to this theme, you are now enabling companies to compete with the giants. You are yourself, in some ways competing with the giants. You are in some ways partnered with them.

As you have to make decisions there, you’re up against a lot of capital, a lot of market power, I’m definitely going to ask you about this Apple-Epic lawsuit. Sometimes you’re just up against other people controlling the interface, and just saying what you can and can’t do. How do you use your overall framework to make a decision, like we’re not going to have the Shop App become an actual marketplace for customers?

[Finkelstein] That’s actually an easier answer, because when you’re specific about that, you ask yourself, “What is best for the merchant?” Forget everything else. What is best for the merchant? During COVID, when COVID first hit, it hit hard in Canada around mid-March. We extended our trial from 14 days to 90 days. That’s a big change. There’s a real cost to moving a trial from 14 days to 90 days, nine zero.

But that was the right thing to do, even if it wasn’t the easy thing to do. Because it meant that more people that may have been on the fence about whether or not to digitalize their brick-and-mortar store, or to commercialize their hobby, or to enter the entrepreneurship ring, were able to do so with less risk, with less cost. That’s an easy decision, because you say, “What is best for the merchant there?”

The other thing is, we use a lens around Shopify, which is the idea of, we want to build a 100-year company. And we’re about 15 years in, so we have like 85 years left to go. When you use a long-term horizon of a 100-year company, you tend to not necessarily focus on short-term metrics or short-term results. You’re able to actually think a lot longer about what you’re trying to do here. And ultimately, just to be clear, what we’re trying to do here, is we want to be the world’s entrepreneurship company.

There is a company that owns search, and it’s Google, and they’ve done an amazing job organizing the world’s content and information. And there’s a company that owns social, and for the most part right now, it’s Facebook. But no company has yet to really own and make entrepreneurship something that is accessible by everyone, and we think we have the best shot at that.

So using that lens, it’s a lot easier to make decisions for the long run. It also means in some cases, that we will do something that maybe in the short run is not great for Shopify, but in the long run is great for the merchant. Or in the short run, it’s also great for the merchant, in the long run may eventually be good for Shopify. We can take these long-term bets, because we’re playing this ridiculously long game of a 100-year company.

4. The Pastry A.I. That Learned to Fight Cancer – James Somers

Computers learned to see only recently. For decades, image recognition was one of the grand challenges in artificial intelligence. As I write this, I can look up at my shelves: they contain books, and a skein of yarn, and a tangled cable, all inside a cabinet whose glass enclosure is reflecting leaves in the trees outside my window. I can’t help but parse this scene—about a third of the neurons in my cerebral cortex are implicated in processing visual information. But, to a computer, it’s a mess of color and brightness and shadow. A computer has never untangled a cable, doesn’t get that glass is reflective, doesn’t know that trees sway in the wind. A.I. researchers used to think that, without some kind of model of how the world worked and all that was in it, a computer might never be able to distinguish the parts of complex scenes. The field of “computer vision” was a zoo of algorithms that made do in the meantime. The prospect of seeing like a human was a distant dream.

All this changed in 2012, when Alex Krizhevsky, a graduate student in computer science, released AlexNet, a program that approached image recognition using a technique called deep learning. AlexNet was a neural network, “deep” because its simulated neurons were arranged in many layers. As the network was shown new images, it guessed what was in them; inevitably, it was wrong, but after each guess it was made to adjust the connections between its layers of neurons, until it learned to output a label matching the one that researchers provided. (Eventually, the interior layers of such networks can come to resemble the human visual cortex: early layers detect simple features, like edges, while later layers perform more complex tasks, such as picking out shapes.) Deep learning had been around for years, but was thought impractical. AlexNet showed that the technique could be used to solve real-world problems, while still running quickly on cheap computers. Today, virtually every A.I. system you’ve heard of—Siri, AlphaGo, Google Translate—depends on the technique.

The drawback of deep learning is that it requires large amounts of specialized data. A deep-learning system for recognizing faces might have to be trained on tens of thousands of portraits, and it won’t recognize a dress unless it’s also been shown thousands of dresses. Deep-learning researchers, therefore, have learned to collect and label data on an industrial scale. In recent years, we’ve all joined in the effort: today’s facial recognition is particularly good because people tag themselves in pictures that they upload to social networks. Google asks users to label objects that its A.I.s are still learning to identify: that’s what you’re doing when you take those “Are you a bot?” tests, in which you select all the squares containing bridges, crosswalks, or streetlights. Even so, there are blind spots. Self-driving cars have been known to struggle with unusual signage, such as the blue stop signs found in Hawaii, or signs obscured by dirt or trees. In 2017, a group of computer scientists at the University of California, Berkeley, pointed out that, on the Internet, almost all the images tagged as “bedrooms” are “clearly staged and depict a made bed from 2-3 meters away.” As a result, networks have trouble recognizing real bedrooms…

…In his late twenties, Kambe came home to Nishiwaki, splitting his time between the lumber mill and a local job-training center, where he taught computer classes. Interest in computers was soaring, and he spent more and more time at the school; meanwhile, more houses in the area were being built in a Western style, and traditional carpentry was in decline. Kambe decided to forego the family business. Instead, in 1982, he started a small software company. In taking on projects, he followed his own curiosity. In 1983, he began working with NHK, one of Japan’s largest broadcasters. Kambe, his wife, and two other programmers developed a graphics system for displaying the score during baseball games and exchange rates on the nightly news. In 1984, Kambe took on a problem of special significance in Nishiwaki. Textiles were often woven on looms controlled by planning programs; the programs, written on printed cards, looked like sheet music. A small mistake on a planning card could produce fabric with a wildly incorrect pattern. So Kambe developed SUPER TEX-SIM, a program that allowed textile manufacturers to simulate the design process, with interactive yarn and color editors. It sold poorly until 1985, a series of breaks led to a distribution deal with Mitsubishi’s fabric division. Kambe formally incorporated as BRAIN Co., Ltd.

For twenty years, BRAIN took on projects that revolved, in various ways, around seeing. The company made a system for rendering kanji characters on personal computers, a tool that helped engineers design bridges, systems for onscreen graphics, and more textile simulators. Then, in 2007, BRAIN was approached by a restaurant chain that had decided to spin off a line of bakeries. Bread had always been an import in Japan—the Japanese word for it, “pan,” comes from Portuguese—and the country’s rich history of trade had left consumers with ecumenical tastes. Unlike French boulangeries, which might stake their reputations on a handful of staples, its bakeries emphasized range. (In Japan, even Kit Kats come in more than three hundred flavors, including yogurt sake and cheesecake.) New kinds of baked goods were being invented all the time: the “carbonara,” for instance, takes the Italian pasta dish and turns it into a kind of breakfast sandwich, with a piece of bacon, slathered in egg, cheese, and pepper, baked open-faced atop a roll; the “ham corn” pulls a similar trick, but uses a mixture of corn and mayo for its topping. Every kind of baked good was an opportunity for innovation.

Analysts at the new bakery venture conducted market research. They found that a bakery sold more the more varieties it offered; a bakery offering a hundred items sold almost twice as much as one selling thirty. They also discovered that “naked” pastries, sitting in open baskets, sold three times as well as pastries that were individually wrapped, because they appeared fresher. These two facts conspired to create a crisis: with hundreds of pastry types, but no wrappers—and, therefore, no bar codes—new cashiers had to spend months memorizing what each variety looked like, and its price. The checkout process was difficult and error-prone—the cashier would fumble at the register, handling each item individually—and also unsanitary and slow. Lines in pastry shops grew longer and longer. The restaurant chain turned to BRAIN for help. Could they automate the checkout process?…

…For the BRAIN team, progress was hard-won. They started by trying to get the cleanest picture possible. A document outlining the company’s early R. & D. efforts contains a triptych of pastries: a carbonara sandwich, a ham corn, and a “minced potato.” This trio of lookalikes was one of the system’s early nemeses: “As you see,” the text below the photograph reads, “the bread is basically brown and round.” The engineers confronted two categories of problem. The first they called “similarity among different kinds”: a bacon pain d’épi, for instance—a sort of braided baguette with bacon inside—has a complicated knotted structure that makes it easy to mistake for sweet-potato bread. The second was “difference among same kinds”: even a croissant came in many shapes and sizes, depending on how you baked it; a cream doughnut didn’t look the same once its powdered sugar had melted.

In 2008, the financial crisis dried up BRAIN’s other business. Kambe was alarmed to realize that he had bet his company, which was having to make layoffs, on the pastry project. The situation lent the team a kind of maniacal focus. The company developed ten BakeryScan prototypes in two years, with new image preprocessors and classifiers. They tried out different cameras and light bulbs. By combining and rewriting numberless algorithms, they managed to build a system with ninety-eight per cent accuracy across fifty varieties of bread. (At the office, they were nothing if not well fed.) But this was all under carefully controlled conditions. In a real bakery, the lighting changes constantly, and BRAIN’s software had to work no matter the season or the time of day. Items would often be placed on the device haphazardly: two pastries that touched looked like one big pastry. A subsystem was developed to handle this scenario. Another subsystem, called “Magnet,” was made to address the opposite problem of a pastry that had been accidentally ripped apart.

A major development was the introduction of a backlight—the forerunner of the glowing rectangle I’d noticed in the Ueno store. It helped eliminate shadows, including the ones cast by a doughnut into a doughnut hole. (One of BRAIN’s patent applications explains how a pastry’s “chromatic dispersion” can be analyzed “to permit definitive extraction of contour lines even where the pastry is of such hole-containing shape.”) At one point, when it became clear that baking times were never consistent, Kambe’s team made a study of the phenomenon. They came up with a mathematical model relating bakedness to color. In the end, they spent five years immersed in bread. By 2013, they had built a device that could take a picture of pastries sitting on a backlight, analyze their visual features, and distinguish a ham corn from a carbonara sandwich.

That year, BakeryScan launched as a real product. Today, it costs about twenty thousand dollars. Andersen Bakery, one of BRAIN’s biggest customers, has deployed the system in hundreds of bakeries, including the one in Ueno station. The company says it’s cut down on training time and has made the checkout process more hygienic. Employees are more relaxed and can talk to customers; lines have been virtually eliminated. At first, BakeryScan’s performance wasn’t perfect. But the BRAIN team included a feedback mechanism: when the system isn’t confident, it draws a yellow or red contour around a pastry instead of a green one; it then asks the operator to choose from a small set of best guesses or to specify the item manually. In this way, BakeryScan learns. By the time I encountered it, it had achieved an even higher level of accuracy…

…In early 2017, a doctor at the Louis Pasteur Center for Medical Research, in Kyoto, saw a television segment about the BakeryScan. He realized that cancer cells, under a microscope, looked kind of like bread. He contacted BRAIN, and the company agreed to begin developing a version of BakeryScan for pathologists. They had already built a framework for finding interesting features in images; they’d already built tools allowing human experts to give the program feedback. Now, instead of identifying powdered sugar or bacon, their system would take a microscope slide of a urinary cell and identify and measure its nucleus.

BRAIN began adapting BakeryScan to other domains and calling the core technology AI-Scan. AI-Scan algorithms have since been used to distinguish pills in hospitals, to count the number of people in an eighteenth-century ukiyo-e woodblock print, and to label the charms and amulets for sale in shrines. One company has used it to automatically detect incorrectly wired bolts in jet-engine parts. At the SPring-8 Angstrom Compact Free Electron Laser (sacla), in Hyogo, a seven-hundred-metre-long experimental apparatus produces high-intensity laser pulses; since reading the millions of resulting pictures by hand would be impractical, a few scientists at the sacla facility have started using algorithms from AI-Scan. Kambe said that he never imagined that BakeryScan’s technology would be applied to projects like these.

5. 99 Additional Bits of Unsolicited Advice – Kevin Kelly

• That thing that made you weird as a kid could make you great as an adult — if you don’t lose it.
• If you have any doubt at all about being able to carry a load in one trip, do yourself a huge favor and make two trips.
• What you get by achieving your goals is not as important as what you become by achieving your goals. At your funeral people will not recall what you did; they will only remember how you made them feel.
• Recipe for success: under-promise and over-deliver.
• It’s not an apology if it comes with an excuse. It is not a compliment if it comes with a request.
• Jesus, Superman, and Mother Teresa never made art. Only imperfect beings can make art because art begins in what is broken.
• If someone is trying to convince you it’s not a pyramid scheme, it’s a pyramid scheme..
  
• …Train employees well enough they could get another job, but treat them well enough so they never want to.
• Don’t aim to have others like you; aim to have them respect you.
• The foundation of maturity: Just because it’s not your fault doesn’t mean it’s not your responsibility.
• A multitude of bad ideas is necessary for one good idea.
• Being wise means having more questions than answers.
• Compliment people behind their back. It’ll come back to you.
• Most overnight successes — in fact any significant successes — take at least 5 years. Budget your life accordingly.
• You are only as young as the last time you changed your mind..
  
• …When a child asks an endless string of “why?” questions, the smartest reply is, “I don’t know, what do you think?
• To be wealthy, accumulate all those things that money can’t buy.
• Be the change you wish to see
• When brainstorming, improvising, jamming with others, you’ll go much further and deeper if you build upon each contribution with a playful “yes — and” example instead of a deflating “no — but” reply.
• Work to become, not to acquire.
• Don’t loan money to a friend unless you are ready to make it a gift.
• On the way to a grand goal, celebrate the smallest victories as if each one were the final goal. No matter where it ends you are victorious.
• Calm is contagious.
• Even a foolish person can still be right about most things. Most conventional wisdom is true.
• Always cut away from yourself.
• Show me your calendar and I will tell you your priorities. Tell me who your friends are, and I’ll tell you where you’re going.
• When hitchhiking, look like the person you want to pick you up.

6. The Golden Age of Fraud is Upon Us – Ben Carlson

If Charles Ponzi were alive today, I have no doubt that he would be able to raise capital from investors, probably in the form of a SPAC. Many investors would laud him for being a genius as he bilked investors out of millions of dollars.

When I was researching the history of financial scams for Don’t Fall For It the one thing that jumped out above all else is how similar financial frauds are across time and place. They typically involve new technologies, people with extraordinary sales skills and the insatiable human desire for get-rich quick schemes.

Despite the fact that people have been getting duped by hucksters and charlatans for centuries, there was one period that kept coming up over and over again in my research — the 1920s.

It was the golden age of financial fraud.

The Roaring 20s had everything a con-artist looking to dupe people out of their money could ask for — innovation, new financial products, a booming economy, rising markets, new and exciting technologies, loose lending standards, new communication tools and people getting rich all over the place.

This period included Dr. John Brinkley, a fake doctor, who told people he could solve their fertility problems by implanting goat testicles into the male scrotum. He quickly became wealthy by promising to cure people’s ailments with his secretive medicines and procedures.

Then there was the match king, Ivar Kreuger, who used his match factories to create obscene amounts of leverage and offer insanely high rates of return to investors who put money into his ever-growing empire of new financial products. Kreuger created one of the biggest financial scams no one has ever heard of. It all fell apart in the Great Depression.

The Roaring 20s was a time of innovation in the financial markets but there were still bucket shops where people went to gamble their money on the markets. A scam artist nicknamed “The Kid” would set up fake bucket shops promising people the ability to buy $5 stock certificates for $1.

What was the catch?

Of course, those certificates were fake. He ran this same scam in multiple cities all over the country.

There are endless stories like this from that period.

The financial markets feel wonderful right now. It would have been nearly impossible to not make money over the past year or so. The economy could legitimately be setting up for our own version of the roaring 20s.

Yet these good times could also be setting us up for a new golden age of financial fraud.

You have new and exciting innovations happening all around us. A new asset class is being established right before our eyes in cryptocurrencies. Tens of thousands of people have become multi-millionaires in a matter of years.

All of the scam artists, hucksters and charlatans have to be licking their chops right now.

During bull markets and economic boom times people witness others becoming very wealthy. So they let their guard down, take more risk than they reasonably should and trust people they shouldn’t while chasing easy riches.

And the people most susceptible to financial fraud tend to be the more highly educated investors who have already made a ton of money.

One of the studies I reference in my book discovered people who were caught up in financial scams were actually more knowledgeable about markets and investing than people who weren’t involved in scams. This makes sense when you realize the people with the most money have the biggest target on their back.

7. What Is an Entertainment Company in 2021 and Why Does the Answer Matter? – Matthew Ball

Entertainment companies today don’t make movies or TV shows. They don’t even mainly “tell stories”. They manage the proprieties of those stories in such a way to create and sustain deep affinity, i.e., build love. 

This is a very different rubric than the media industry is used to. It also suggests that many low-margin businesses, products, or titles create more value than an income statement might realize. Think about the correlation between the pajamas you wore growing up and the adaptations/films you deeply want to succeed, versus those you’re largely indifferent to. It’s doubtlessly true that the comics divisions of Warner Bros.’ DC, and Disney’s Marvel deliver minimal revenues and dilutive margins. But comics remain a low-cost channel for story and love building. Notably, almost all of the Marvel Cinematic Universe’s forthcoming series are from the last (and largely unknown) decade of comics. It doesn’t matter to maestro Kevin Feige that his films have eclipsed not just the comics by several literal orders of magnitude, nor even all of film history. These comics are where new stories are created, discovered, and refined. The now globally famous character of Miles Morales first appeared in 2011, Ms. Marvel (who has her own MCU TV series this year) comes from 2013. Riri Williams, who will take up Iron Man’s mantle in her own MCU TV series first appeared less than five years ago.

This trend also means that Hollywood needs to solve its video game problem. The category simply matters too much to audiences. It is also becoming more social, immersive, and narratively rich each day. Consider the evolution of TV/video versus games over the past fifteen years. The MCU films and series of 2021 are more interconnected, complex, and visually impressive than 2008’s Iron Man, but they’re still rather similar. Games, meanwhile, have been entirely reinvented for live services, social multiplayer, and UGC. Now, we’re only a few years from the point in which millions will come home to join a live event with a real-time motion capture hero like Tony Stark (who will likely not be performed by Robert Downey Jr., even though it will look like him) alongside their friends. Not long after, these will be integrated into the weekly release schedule a TV series, thereby enabling the audience to help the heroes as they watch them.

This also connects to Disney’s greatest love advantage: it’s theme parks. For all the success of Disney+, the strongest, most profitable, most defensible part of Disney’s business is its capex-heavy, physical theme parks. As I wrote in “Digital Theme Park Platforms: The Most Important Media Businesses of the Future”, “there is no simple way to quantify how important this business unit is to Disney… The financial role is obvious… [but] There is nothing that can compare to the impact of a child being hugged by her heroes. The ability to enjoy your favorite IP as “you” is unique and lasts a lifetime.” The problem with Disney’s parks, however, is that they can only ever reach a tiny portion of Disney’s fans (and rarely its lower income and foreign fans). And it takes tens of billions of dollars and close to a decade to reach more (which is why most of Disney’s competitors lack parks, despite their importance and profitability).

Digital theme parks, however, “are always ‘open’, ‘everywhere’, ‘full of your friends’, and impervious to COVID-19… They also boast an even larger (i.e. infinite) number of attractions and rides, none of which need be bound by the laws of physics or the need for physical safety, and all of which can be rapidly updated and personalized. These digital parks also allow for much greater self-expression (e.g. avatars, skins).” And soon, every fan will be able to receive a hug from the actual Iron Man.

This isn’t to say an IP holder needs to own a gaming studio, per se. Obviously that’s an advantage in a number of ways, but at minimum, every IP owners needs cohesive and comprehensive strategy for interactivity that goes beyond MGs, GGs, and avatar licensing.

What does all of this mean for the industry overall? Well, one of the key lessons over the past several decades in entertainment is one of “more”. We want more of the stories we love, more often, in more places, and more media, always. We might gripe about how Disney will never let Star Wars end or that endless sequels undermine the significance of any films that came before, but the truth is only we want something to “end” … until immediately after it does. Give us The Mandalorian, even as we tire of the sequel trilogy, and then second season of The Mandalorian one year later. We hated the prequels but delight at the idea of a spinoff of Ewan McGregor’s Obi-Wan. Two Star Wars games aren’t enough, nor is four. Just look at gaming over the past year and a half. Yes, the pandemic led us to play more games, but mostly we played our favorite games more.

If our biggest stories become bigger, and ultimately, we want endless amount of “more” from our favorite stories, then most of us will hit a sort of “Dunbar’s Number” for franchises. The bigger Marvel (or anyone) gets narratively, in love building, and in monetization, the harder it will be for a Power Rangers reboot or Dark Universe or Transformers Ecosystem to grow. Consider the mocap example. We’re not going to run home to mocap every hero we know of, even if we watch a diverse selection of hero movies. This means fewer stories will collect ever-more of the benefit.

There used to be a fight to be one of the winning comic books, video games, or film franchises. This meant there was room for many winners and that the reach of any winner was limited. Soon, it will be a fight for dominance between all franchises and across all mediums. The major stories will expand into all categories, from film to TV to podcasts, and be envisioned as interactive experiences. And as long as they continue to offer more “more”, there’s little reason for a fan to look (and invest) elsewhere.

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Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life. Of all the companies mentioned, we currently have a vested interest in Alphabet (parent of Google), Amazon, Apple, Facebook, and Shopify. Holdings are subject to change at any time.

We’ve constantly been sharing a list of our recent reads in our weekly emails for The Good Investors.

Do subscribe for our weekly updates through the orange box in the blog (it’s on the side if you’re using a computer, and all the way at the bottom if you’re using mobile) – it’s free!

But since our readership-audience for The Good Investors is wider than our subscriber base, we think sharing the reading list regularly on the blog itself can benefit even more people. The articles we share touch on a wide range of topics, including investing, business, and the world in general.

Here are the articles for the week ending 02 May 2021:

1. Analysis: China digital currency trials show threat to Alipay, WeChat duopoly – Reuters

In China’s commercial hub Shanghai, six big state banks are quietly promoting digital yuan ahead of a May 5 shopping festival, carrying out a political mandate to provide consumers with a payment alternative to Alipay and WeChat Pay.

The banks are persuading merchant and retail clients to download digital wallets so that transactions during the pilot programme can be made directly in digital yuan, bypassing the ubiquitous payment plumbing laid by tech giants Ant Group, an affiliate of Alibaba 9988.HK, and Tencent 0700.HK.

“People will realise that digital yuan payment is so convenient that I don’t have to rely on Alipay or WeChat Pay anymore,” said a bank official involved in the rollout of e-CNY for the Shanghai trial, under the guidance of China’s central bank. The official is not authorised to speak with media and declined to be identified.

China’s development of a sovereign digital currency, which is far ahead of similar initiatives in other major economies, looks increasingly poised to erode the dominance of Ant Group’s Alipay and Tencent’s WeChat Pay in online payments…

…In public, the People’s Bank of China (PBOC) says e-CNY won’t compete with AliPay or WeChat Pay, and serves only as a “backup” or “redundancy”.

But in private, state banks marketing the digital fiat currency for the central bank bluntly describe Beijing’s intention to undercut the duo’s dominance.

2. The Psychology of Fighting the Last Crash – Ben Carlson

The Great Financial Crisis in 2008 left an indelible mark on my psyche as an investor.

But it wasn’t the crash itself that has shaped me as an investor. It was the aftermath of the crash.

I joined the investment office of an endowment fund in July of 2007, just as cracks were beginning to show in the financial system. My first 2 years or so on the job were spent in survival mode as the financial system teetered on the edge of collapse.

It was a scary period to live through as an investor…

…I’m not saying I predicted the unbelievable returns we’ve seen since the bottom on March 20091 but it was bizarre to me how many institutional investors were creating more conservative allocations coming out of the crash than they had going into them. It was completely backwards for how you should wisely invest capital.

This is what happens though. Recency bias causes people to invest in the rearview mirror by constantly fighting the last war.

This same mentality was at work when people began calling the technology sector a bubble in the early-to-mid-2010s:..

…Everyone was still so scarred from the dot-com blow-up following the late-1990s boom that another tech bubble seemed like the obvious call. Instead the 2010s were dominated by the tech sector and anyone who got in the way of that freight train got run over.

3. Here’s a full recap of the best moments from Warren Buffett at Berkshire Hathaway’s annual meeting – Li Yun, Jesse Pound, Maggie Fitzgerald

Buffett warned newbie investors that picking great companies is more complicated than just selecting a promising industry.

“There’s a lot more to picking stocks than figuring out what’s going to be a wonderful industry in the future,” said Buffett.

Buffett put up a slide of all the auto companies from years go that started with the letter “M;” however, the list was so long it didn’t fit on one slide. The “Oracle of Omaha” had to narrow the list to automobile manufactures that started with “Ma” to fit the names on one page.

Buffett said there were about 2,000 companies that entered the auto business in the 1900′s because investors and entrepreneurs expected the industry to have an amazing future. In 2009, there were three automakers left and two went bankrupt, said Buffett…

…Warren Buffett and his long-time business partner Charlie Munger addressed the combination of high government spending and rock-bottom interest rates, with Munger saying that he didn’t think the extreme scenario was sustainable forever.

Munger said that professional economists had been too confident in their analysis and had been proven wrong about many things, but he said that Modern Monetary Theory, which calls for greater fiscal spending with less regard for budget deficits, was not necessarily the answer.

“The Modern Monetary Theorists are more confident than they ought to be, too. I don’t think any of us know what’s going to happen with this stuff,” Munger said. “I do think there’s a good chance that this extreme conduct is more feasible than everybody thought. But I do know that if you just keep doing it without any limit it will end in disaster.”…

…Warren Buffett weighed in on the white-hot SPAC market, saying that the mania won’t last forever and it makes the deal-making environment more competitive.

“It’s a killer. The SPACs generally have to spend their money in two years as I understand it. If you put a gun to my head to buy a business in two years, I’d buy one,” Buffett said with a laugh. “There’s always pressure from private equity funds.”

Special purpose acquisition companies are formed to raise capital to merge with a private company, which will be taken public in the process, usually within two years. More than 500 blank-check deals with over $138 billion funds are seeking their target companies currently, according to SPAC Research.

“That won’t go on forever, but it’s where the money is now and Wall Street goes where the money is,” Buffett said. “SPACs have been working for a while and if you secure a famous name on it you could sell almost anything.”

4. This company built one of the world’s most efficient warehouses by embracing chaos – Sarah Kessler

What makes Amazon’s warehouses work is the way they organize inventory: with complete randomness…

…At a traditionally organized warehouse, when a shipment of, say, toothpaste arrives, an employee looks up where the toothpaste shelf is located, and then moves the box to that shelf.

When a box of toothpaste arrives at an Amazon warehouse, though, the process works differently. An employee removes each individual tube and stows it wherever he finds open space. Placement is completely random. Items aren’t organized by where they’re being shipped; they aren’t—aside from very big items—organized by size; and they aren’t organized by the type of customer who is likely to order them. A shipment of 50 tubes of toothpaste may ultimately be distributed to and stored in 50 different places.

On a visit to an Amazon warehouse in New Jersey last year, I saw a box of Irish breakfast tea, next to a board game called “Quick Cups,” next to a Hamilton Beach Juicer.

This random system has been in place since early on in Amazon’s 24-year history, and to a casual observer, the result appears chaotic. The reason it makes sense to group these random products together has everything to do with technology: the speed and frequency with which customers order online, and the tools that Amazon has developed to keep track of every item in its vast warehouses.

First, random storage makes finding the toothpaste faster in an era of on-demand efficiency. If there were a dedicated “toothpaste shelf” and someone ordered toothpaste, a “picker”—how Amazon refers to employees who gather items—would need to travel there, whether he were 10 feet or 100 yards away from that location. But if the warehouse stores toothpaste in 50 different locations, there’s a much better chance that there’s a tube close to some picker. There’s also a greater chance that the second item the customer ordered is also nearby.

“With the millions of items that we ship, every opportunity to improve a process by a second is relevant,” Alperson says.

Randomness is also preferable when it comes to managing the wide range of items customers now order online—most practically by saving space. Amazon warehouses carry a huge variety of items that can be ordered at any moment, but they do not carry a huge number of each item. “They may only have one box of Cheerios,” says Tom Galluzzo, the founder of Iam Robotics, which makes warehouse robots. “If you were to have a space for every product, you would need a gigantic warehouse.” Amazon’s largest warehouse is already 1 million square feet, which is about 17 NFL football fields in size. Reserving empty space on the “toothpaste shelf” while waiting for the next shipment of toothpaste would mean its warehouses would need to be even bigger. It’s more efficient to use any free shelf space available.

5. The Delusions of Crowds: Why People Go Mad in Groups – William Bernstein

Neuroscientists believe that narratives powerfully engage our brain’s fast-moving limbic system—our evolutionarily ancient “reptile brain”—and so make an end run around our large cerebral cortex—our newer, conscious, and much slower “thinking brain.” Most of the time, we employ narratives towards useful ends: The deployment of scary stories about unhealthy diets and smoking to encourage changes in mealtime behavior and tobacco consumption, of sermons and fables about honesty and hard work that improve societal function, and so forth. On the downside, by overwhelming our reasoning system and discouraging logical thought, narratives can get us into analytical trouble.

Thus, the more we depend on narratives, and the less on hard data, the more we are distracted away from the real world. Ever lose yourself so deeply in a novel that you became oblivious to the world around you? Ever heard a radio broadcast so hypnotizing that you sat in your driveway for ten minutes so you didn’t miss the end? Psychologists call this “transportation,” and it’s fatal to reason.

It turns out that even when presented with compelling narratives clearly labeled as fiction, we become unable to segregate the worlds of fiction and fact. In other words, we cannot cleanly “toggle” between the literary and real worlds, as occurred after the 1975 release of the movie Jaws, which caused formerly bold swimmers to huddle close to the shoreline. Producers Darryl Zanuck and David Brown knew just what they were doing; they delayed the film’s release to coincide with the summer season. As they put it, “There is no way that a bather who has seen or heard of the movie won’t think of a great white shark when he puts his toe in the ocean.”

Psychologists have studied this “Jaws effect” by exposing people to compelling narratives, and have found that the more strongly their subjects are transported into the narrative, the more their opinions are influenced by it; critically, it doesn’t matter whether the narratives are clearly labeled as fact or fiction. Even more amazingly, the more the subject is transported into a narrative, the less able they are to perform simple analysis of its content. In plain English, a high degree of narrative transportation impairs not only the ability to distinguish fact from fiction, but also impairs one’s critical facilities.

Put yet another way, the deeper the reader or listener enters into the story, the more they suspend disbelief, and the less attention they pay to whether it is, in reality, true or false. This study, and many others like it, make this startling and cynical suggestion: If you want to analyze a subject, stick to the numbers and facts, and ignore the surrounding narrative. But if you want to convince others of something, forget the facts and data, and tell them the catchiest story you can.

6. Who Disrupts the Disrupters? – Packy McCormick

Web3 might represent the only threat to disrupt the world’s most powerful tech companies, the ones that make up most of my portfolio…

…Disruption is how little startups with modest resources compete against large incumbents with vaults full of cash: they find customers the incumbents ignore or overserve (and overcharge), build “good enough” products for them, and then expand into the mainstream as they improve their products.

Today’s tech giants aren’t as easy to disrupt as Xerox or the newspapers, though. The people running Facebook, Apple, Amazon, Google, Spotify, Netflix, and the like have read Christensen. They haven’t done what incumbents have traditionally done: “improved their products and services for the most demanding (and usually most profitable) customers.” (Apple is an exception on the hardware side, although it’s been upmarket for a long-time and has yet to be disrupted.) They don’t ignore less profitable consumers because the internet, with high fixed costs and near-zero marginal costs, rewards companies for serving every consumer.

The more consumers companies can spread their fixed costs over, the more profitable they become. Facebook is free, as are its subsidiaries, WhatsApp and Instagram. It monetizes through ads, with near-zero marginal cost to serve them. More eyeballs, more profit. It would cost nearly $100 million to individually purchase all of the songs that you can listen to on Spotify for $9.99 per month. Amazon famously views your margin as its opportunity…

…Thompson’s confidence in the incumbents was based on the idea that even if new input/output (I/O) devices like wearables, voice, or AR replaces the phone, the incumbents are still in the best position to capture the opportunity. Facebook doesn’t care if you scroll the feed on your phone, AR glasses, or VR goggles — it will serve you its feed, and the ads that support it, anywhere, anytime. It might even sell you the devices. The front-end is relatively meaningless; the incumbents are still best-positioned on the back-end.

But Thompson missed Web3 in his list of potential threats, and Web3 changes some important things that the incumbents are not best-positioned to handle.

To start, blockchains are not just a new I/O device. They aren’t devices at all. They represent a new paradigm.

Blockchains and crypto let you do things that previous computing paradigms couldn’t, the most important of which, according to Dixon, is that you can “write code that makes strong commitments about how it will behave in the future.” 

No one person or company can change the rules. There will only ever be 21 million bitcoin, no matter what anyone tries to do to change that. Strong commitments extend far beyond bitcoin, to Non-Fungible Tokens (NFTs), Decentralized Finance (DeFi), Decentralized Autonomous Organizations (DAOs), and new blockchain-based products no one’s yet dreamed up.

If the code can make strong commitments, you don’t need central platforms to make and enforce the rules. They just create economic drag. Instead, you can allow creators and consumers to share more of the profits that Aggregators and Platforms previously captured.

7. All Models Are Wrong But Some Are Useful – Ben Carlson

I also looked at economic growth, returns for housing, stocks, bonds and cash, earnings growth, interest rate levels and stock market valuations.

You can see the 1970s were a period with high growth in earnings, GDP and wages but inflation was out of control so that growth was a mirage. Then you had a period like the 1990s where the economy did well, wages were up, inflation was average and stocks went nuts. Wages actually outpaced inflation by a wide amount in the 2010s but those gains weren’t equally distributed.

While inflation and wages do have some sort of relationship, it’s not as clear-cut as you would think.

Once you begin looking at all of these variables you realize there are relationships here but caveats abound. There is no such thing as a “normal” market or economic environment. Each period is unique in its own way.

Markets and economies are constantly changing as are the inputs that make them up.

For example, Michael Mauboussin wrote an excellent research piece this month about the relationship between valuations and accounting methods that bears this out…

…It’s gone from under 5% in 1980 to around 40% today. This has to be alarming for investors, no? Almost half the companies in the U.S. stock market lose money each year?!

Technically yes but it’s not as bad as it appears. This says more about the composition of the stock market and accounting methodologies than anything. Mauboussin explains:

“Intangible investment has been in a steady uptrend, with a brief interruption during the financial crisis, and passed maintenance spending in 2000. To put this figure in context, investments in intangible assets were roughly $1.8 trillion in 2020, more than double the $800 billion in capital expenditures. These data put the lie to the assertion that companies are investing less than they used to. This work shows clearly that investments in intangible assets are rising relative to those in tangible assets.

As a result, the failure to measure the magnitude and return on intangible investments is a large and growing problem.”

Basically, these intangibles are showing up as an expense on the income statement when really they should show up as an asset on the balance sheet. Here’s the kicker:

“Investors generate excess returns when they buy the shares of companies prior to a revision in expectations about future cash flows. A key determinant of cash flows is a company’s ability to allocate capital to investments that create value. The current principles of accounting do a poor job of separating investments and expenses, creating a veil that obscures the magnitude and return on investment.”

If you were to simply take these numbers at face value the stock market looks like a house of cards. But if you dig a little deeper you understand how much different markets are today than they were in the past.

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Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life. Of all the companies mentioned, we currently have a vested interest in Alphabet (parent of Google), Amazon, Apple, Facebook, Netflix, and Tencent. Holdings are subject to change at any time.

We’ve constantly been sharing a list of our recent reads in our weekly emails for The Good Investors.

Do subscribe for our weekly updates through the orange box in the blog (it’s on the side if you’re using a computer, and all the way at the bottom if you’re using mobile) – it’s free!

But since our readership-audience for The Good Investors is wider than our subscriber base, we think sharing the reading list regularly on the blog itself can benefit even more people. The articles we share touch on a wide range of topics, including investing, business, and the world in general.

Here are the articles for the week ending 25 April 2021:

1. So you want to become a long-term investor – Chin Hui Leong

You do not make money from buying stocks. As an investor, finding and buying a great stock is just the first step. But simply purchasing shares of an outstanding business or company does not guarantee that you will make money out of it.If you fail to hold this stock for the long term, you are unlikely to realise its full potential.

Yet, most of the attention is focused on what stock to buy. Far fewer words are written on what 

is more important: holding the stock for the long term. So, let us correct this shortfall today.

Do not just do something, sit there.

As French philosopher Blaise Pascal says: “All of humanity’s problems stem from man’s inability to sit quietly in a room alone.”

There is nothing particularly special about holding a stock for many years. All you have to do is to, well, do nothing. But sitting around without taking any action can be harder than it looks.

Take Netflix, for example, a stock that I have owned for more than 14 years. Over this time frame, shares of the online streaming giant have gained well over 150 times, a handsome return by any measure.

However, if you think that holding Netflix for 14 years was easy, think again. Between 2007 and 2020, its shares plunged by 20 per cent or more, from peak to trough, in all but two years.

To add to that, there were seven years when the shares sank 30 per cent or more, as shown in the accompanying chart.

To top it off, they fell by nearly 80 per cent in 2011, when it made a mess of its transition from a DVD-by-mail service to online streaming. By splitting these two services into separate payment plans, the subscription price for the new DVD and streaming bundle rose by 60 per cent, angering its membership base.

Thankfully, Netflix chief executive officer (CEO) Reed Hastings owned up to his mistake a month later and rolled back the changes.

Today, a decade later, we can say his decision to pivot to online streaming has paid off in spades. At the end of 2020, Netflix had amassed over 200 million paid subscribers, a feat that was unlikely to be achieved through its original DVD-by-mail business.

But for investors, there were moments of heartburn to endure, even for those who believed in where the company was headed.

2. How a surprising discovery turned into a promising new early-detection test for cancer – Fastco Works

In 2013, the healthcare company Illumina began offering a non-invasive prenatal test (NIPT) to pregnant women. The test aimed to find tiny DNA fragments in the women’s blood that might indicate chromosomal abnormalities in the fetuses they were carrying—abnormalities that could signal the presence of genetic disorders such as Down syndrome.

Dr. Meredith Halks-Miller, pathologist and laboratory director of Illumina’s NIPT clinical lab at the time, noticed odd findings in some of the blood samples of the pregnant women. They didn’t show evidence of the chromosomal disorders the test was designed to find, but they indicated chromosomal abnormalities that raised suspicions.

“I was pretty sure that these expectant mothers had cancer and didn’t know it,” Halks-Miller recalls. “I encouraged the clinical consulting staff to do more clinical follow-up for these patients even though they appeared to be healthy.”

Halks-Miller shared the information with Illumina’s chief medical officer at the time, Rick Klausner, a former director of the National Cancer Institute, who told her, “I don’t know of anything else that changes the genome the way you’re showing me here.”

Sure enough, 10 women with these DNA abnormalities were eventually diagnosed with cancer.

That was the “Eureka!” moment that led to Galleri, a new multi-cancer early detection test from the healthcare company GRAIL, which was spun off from Illumina, with Klausner as a cofounder, in 2016 (Klausner also serves on GRAIL’s board of directors). GRAIL hopes that Galleri, which is expected to become commercially available before summer, could revolutionize cancer screening, potentially leading to major reductions in mortality and expense.

3. Transcript of Li Lu and Bruce Greenwald – Value Investing in China – Roiss Investment Insights

Bruce: Let’s talk about the evolution of the markets. In particular at a 2010 panel at Columbia Business School, you mentioned that Asia’s role in the global financial systems was becoming increasingly important. Looking back, how has Asia’s role evolved over the last ten years and what about China’s role going forward in both the world’s business economy and in the financial?

Li Lu: It has gone exactly as we predicted. Asia has indeed become more important and in particular china. In the next few decades I would say that the Chinese market and Asia in general will become even more significant. The dynamics that are already set in place will continue to play out in a robust way. The Chinese security market in general and the Asian economy will become an ever more important component of the global market.

Bruce: Let me give you some data that I don’t think is widely appreciated. The Chinese numbers are obviously difficult to interpret, at least the official numbers. Whenever you see that, the data you want to look at is where there is a reliable counter. The trade data is reliable, partly because every Chinese export has to be an import in another country and every Chinese import has to be an export from another country. Over the last eight to ten years China’s trade has grown only about two and a half percent a year, less than one percent faster than the US trade. What does that say about Chinese growth? It is clearly much slower than the trade growth prior to 2010. It has been fluctuating but if anything it has been slowing down. What does that say about China’s future?

Li Lu: It tells you that the characteristics of the Chinese economy has changed fundamentally. What propelled the Chinese growth up until 10 years ago was international trade. Back in 2010 the net trade, so export-import netted out was roughly about nine percent of GDP. That means that the Chinese economy was heavily dependent on the global market. As a result they were growing at a double-digit rate, when the rest of the world’s growth factor was a fraction of that. At a certain point once you become the world’s largest trading nation it becomes harder to grow. Another thing that is happening that after the citizens become middle-class, their demands change. As you point out roughly around ten years ago the Chinese economy has slowly evolved into a more consumer-driven one. Last year was a watershed year, in a sense that the total volume of retail sales for the first time overtook the US. China was the largest racial market in the whole world at 6 trillion $ compared to the 5.5 trillion of the US. Granted it was a special year, due to the pandemic. However, China is emerging to become the most dynamic, fastest growing consumer market in the whole world and that is likely to continue for many decades to come. Wanting to sell to the consumers, the middle class in China will make China even more attractive to the global economy. The characteristics of the economy will continue to change and provide interesting, unique opportunities for global investors.

Bruce: The thing about developed economies is that they’re overwhelmingly service economies and not good economies. On that dimension it doesn’t look like China is doing particularly well. The export data one would understand to slow down, but the fact that the import data has slowed down just as much or more, tells you something about the nature of domestic growth in China. What about the challenges in the service sector in China?

Li Lu: You’re right that at the current stage the service sector has yet to become as powerful and dominant as it is in most mature, developed economies in the west, but that’s really an amazing set of opportunities for the decades ahead of them. It isn’t that much different than all other developed economies at a comparable stage of the development state at around 10.000$ per capita GDP, which is where China is today. One can see that both consumption and services are basically the areas that are growing the fastest. Overall trade internationally is still growing at a robust rate, but not as fast as the domestic side of the economy. That is why their share of the GDP has gradually begun to shrink. It just tells you the different stage of the economy and where it is today.

Bruce: Where do you see the unique challenges and opportunities of value investing in China?

Li Lu: China remains one of the best markets if you are a value investor. The market is still underdeveloped and as a result not representative of the real economy compared to the US. The traders and investors are also not as mature and there’s still a mentality of fast trading and high turnover. That results in some of the companies going through a faster pace of the boom and bust circle, which in turn provided opportunities for those who are mature and patient investors. The service sector or the economy when it comes to financial services is still yet to be developed. China is right at that stage where the financial service industry is about to take off in a big way. It also just so happens that the Chinese government is quite keen in making macroeconomic policies quite conducive for the development of the financial service industry. They began to open up to the global firms in a way that they have never done before. All those confluences of factors make the market more attractive today, than it was before.

4. How Payment Processor Stripe Became Silicon Valley’s Hottest Startup – Peter Rudegeair

The pandemic threatened to clobber Stripe Inc. Instead, it turbocharged the company.

Stripe processes payments for e-commerce companies, keeping a tiny cut of each purchase as a fee for its services. When stay-at-home orders early in the pandemic caused spending to plunge and refund requests to skyrocket, the outlook wasn’t great.

Then everything moved online. More than 500,000 doctors’ offices, farmers markets and other businesses migrated to online payments and used Stripe to do it. As people worked out at home, redecorated or both, Stripe customers such as Peloton Interactive Inc. and Wayfair Inc. enjoyed blockbuster sales.

Stripe’s revenue last year rose nearly 70%, to about $7.4 billion, according to people with knowledge of the company’s finances. Other startups might have flashier apps or more recognized brands, but Stripe showed that it is better to be a workhorse than a show pony…

…Irish brothers Patrick and John Collison launched Stripe around 2010 after dropping out of the Massachusetts Institute of Technology and Harvard University, respectively. Frustrated with the experience of getting their earlier business ventures approved for credit-card-processing accounts, the Collisons decided to build a solution themselves.

At the time, there was a perception that online payments were a solved problem. Dot-com darling PayPal Holdings Inc. had been around for more than a decade, but after it sold itself to eBay Inc., the company primarily catered to merchants there.

Stripe started out by working with a group particularly neglected by banks: other startups. As customers such as Instacart Inc. and DoorDash Inc. broke out, Stripe broke out with them.

5. The Spectrum of Optimism and Pessimism – Morgan Housel

At one end you have the pure optimist. He thinks everything is great, will always be great, and sees all negativity as a character flaw. Part is rooted in ego: he’s so confident in himself that he can’t fathom anything going wrong…

…One rung down are the optimists who are wholly confident in themselves but equally pessimistic about others. They’re easy to mistake for pessimists, but they actually view their own futures as flawless…

…In the middle we have what I call reasonable optimists: those who acknowledge that history is a constant chain of problems and disappointments and setbacks, but who remain optimistic because they know setbacks don’t prevent eventual progress. They sound like hypocrites and flip-floppers, but often they’re just looking further ahead than other people…

…Further down come the skeptics. They don’t disagree that progress is possible, even likely. But they have such a high bar for proving it that only hindsight observations are convincing – and even then, the question whether the data is accurate, or if there’s something else we’re not looking at. They’re nice people but torture themselves in this state, because they know progress is occurring but rather than enjoy it then fight to deny it…

…And at last come the pure pessimists. He thinks everything is terrible, will always be terrible, and sees all positivity as a character flaw. Part is rooted in ego: he has so little confidence in himself that he can’t fathom anything going right. He’s the polar opposite of the pure optimist, and just as detached from reality.

6. Doris Buffett Said To Invest At Failed Firm – Caroline E. Mayer

Doris Buffett, sister of Omaha investor Warren Buffett, apparently was one of two customers of a Falls Church brokerage company whose heavy stock market losses forced the firm to close its doors last week, according to sources.

The two customers, who lost $6 million in the market’s collapse, defaulted on $2.6 million in obligations owed to the firm, First Potomac Securities Corp., said Carole L. Haynes, the company’s president. She declined to identify the customers.

One customer, who apparently was Doris Buffett, owed $1.4 million because of losses in stock and option transactions…

…Warren Buffett, chairman of Berkshire Hathaway Co. Inc., is a highly successful investor whose net worth recently was estimated at $2.1 billion by Forbes magazine.

Sources said that Doris Buffett’s losses came on investments in stocks or options purchased through a margin account, which allows investors to pay for only part of the investment. The rest is borrowed from the brokerage firm.

Investors who buy stocks on margin put up 50 percent of the cost of the purchase, while customers trading in options need only put up 15 percent of the investment’s cost.If the price of the stock or option falls, the customer may be required to deposit additional cash or collateral in the margin account immediately.

7. Doris Buffett | A life of fortunes and misfortunes – Bill Freehling

Doris Buffett has spent the better part of the last 14 years giving away her considerable fortune to people who have suffered some misfortune in their lives.

The 68 years that Buffett lived before that taught her plenty about misfortune.

Despite being the sister of one of the world’s richest men, Fredericksburg resident Doris Buffett has suffered plenty of pain and hardship during her life, a new book by Michael Zitz makes clear.

“For the first sixty-eight years of her life, whoever was to blame, not much had gone right for Doris, despite being blessed with beauty, brains and charisma,” Zitz writes in “Giving It All Away: The Doris Buffett Story.”

First there was the childhood spent with a verbally abusive mother who convinced Doris she was stupid despite IQ tests showing her intelligence rivaled that of her younger brother, Warren. She wasn’t encouraged to attend college, had four failed marriages, lost nearly all her money in a 1987 stock market crash, had a falling out with her three children and has gone through counseling for depression.

But Doris Buffett’s life took a dramatic turn for the better in 1996–and not just because the millions of dollars she inherited in Berkshire Hathaway stock when her mother died ended any personal financial needs she would ever have.

To be sure, the fortune has allowed Doris Buffett to lead a comfortable life. She beautifully restored a Caroline Street house in Fredericksburg, and she also has a waterfront home in Rockport, Maine. She often flies by private jet, drives a nice car and loves diamonds.

But the primary fulfillment that the money has brought Doris Buffett is the ability to help others.

Buffett set up The Sunshine Lady Foundation shortly after she inherited the money in 1996. Over the past 14 years, she’s donated more than $100 million in her own money, and her goal is to give away her entire fortune before she dies.

Some of the personal misfortunes that befell Buffett have shaped the causes she supports. She’s given millions to educate battered women and prisoners, to build facilities for treatment of the mentally ill and to provide a better childhood for the underprivileged.

Letters pour in seeking help from Buffett’s foundation. The people who receive assistance are those who have suffered bad luck through no fault of their own, and who will be able to use the money to improve their lives. Her brother Warren, who knows a thing or two about giving away millions (or in his case billions), puts it thusly in the foreword to “Giving It All Away”:

“If you’ve created your own problems, don’t bother to call Doris. If some undeserved blow has upended you, however, she will spend both her money and time to get you back on your feet. Her interest in you will be both personal and enduring.”

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Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life. Of all the companies mentioned, we currently have a vested interest in Illumina, Netflix, and PayPal. Holdings are subject to change at any time.